UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended: Commission File Number: 0-20707
September 30, 2002
COLONIAL REALTY LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 63-1098468
(State of organization) (IRS Employer
Identification Number)
2101 Sixth Avenue North 35203
Suite 750 (Zip Code)
Birmingham, Alabama
(Address of principal
executive offices)
(205) 250-8700
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES _X_ NO ___
COLONIAL REALTY LIMITED PARTNERSHIP
INDEX TO FORM 10-Q
Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets as of
September 30, 2002 and December 31, 2001 3
Consolidated Condensed Statements of Income for the
Three Months and Nine Months Ended
September 30, 2002 and 2001 4
Consolidated Condensed Statements of Cash Flows
for the Nine Months Ended September 30, 2002 and 2001 5
Notes to Consolidated Condensed Financial Statements 6
Report of Independent Accountants 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 22
Item 4. Controls and Procedures 23
PART II: OTHER INFORMATION
Item 2. Changes in Securities 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
EXHIBITS 26
COLONIAL REALTY LIMITED PARTNERSHIP
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
--------------------
September 30,
2002 December 31,
(Unaudited) 2001
----------- ------------
ASSETS
Land, buildings, & equipment, net $ 1,907,207 $ 1,756,255
Undeveloped land and construction in progress 135,983 152,084
Cash and equivalents 1,822 10,127
Restricted cash 1,535 2,255
Accounts receivable, net 11,664 12,309
Prepaid expenses 5,270 7,072
Notes receivable 1,140 12,253
Deferred debt and lease costs, net 21,418 18,568
Investment in unconsolidated subsidiaries 34,864 31,594
Other assets 15,135 11,866
----------- -----------
$ 2,136,038 $ 2,014,383
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Notes and mortgages payable $ 1,260,791 $ 1,191,791
Accounts payable 15,493 20,701
Accrued interest 13,249 11,485
Accrued expenses 20,309 4,520
Tenant deposits 3,368 3,607
Unearned rent 2,432 8,343
Other liabilities 4,267 1,296
----------- -----------
Total liabilities 1,319,909 1,241,743
----------- -----------
Redeemable units, at redemption value 394,447 347,604
Preferred units:
Series A Preferred Units 125,000 125,000
Series B Preferred Units 100,000 100,000
Series C Preferred Units 50,000 50,000
Partners' capital 149,802 151,439
Accumulated other comprehensive loss (3,120) (1,403)
----------- -----------
Total partners' capital 421,682 425,036
----------- -----------
$ 2,136,038 $ 2,014,383
=========== ===========
The accompanying notes are an integral part of these financial statements.
COLONIAL REALTY LIMITED PARTNERSHIP
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per unit data)
---------------------
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Revenue:
Minimum rent $ 64,780 $ 62,065 $ 189,564 $ 186,517
Percentage rent 584 837 1,725 1,480
Tenant recoveries 10,359 9,421 30,789 27,597
Other property related revenue 4,845 5,239 13,779 13,653
Other non-property related revenue 1,555 909 5,125 1,282
--------- --------- --------- ---------
Total revenue 82,123 78,471 240,982 230,529
--------- --------- --------- ---------
Operating Expenses:
Property operating expenses:
General operating expenses 5,908 5,591 16,464 15,903
Salaries and benefits 3,867 3,846 11,574 11,765
Repairs and maintenance 8,407 7,799 23,460 21,621
Taxes, licenses, and insurance 6,368 6,611 21,474 19,339
General and administrative 3,445 2,574 11,938 7,702
Depreciation 18,460 16,438 53,568 48,014
Amortization 2,186 2,018 6,298 5,621
--------- --------- --------- ---------
Total operating expenses 48,641 44,877 144,776 129,965
--------- --------- --------- ---------
Income from operations 33,482 33,594 96,206 100,564
--------- --------- --------- ---------
Other income (expense):
Interest expense (16,820) (17,438) (47,805) (55,881)
Income from investments 585 327 986 959
Ineffectiveness of hedging activities (4) 9 (12) (20)
Gains from sales of property 615 7,480 32,727 7,334
Other -- (115) -- (115)
--------- --------- --------- ---------
Total other expense (15,624) (9,737) (14,104) (47,723)
--------- --------- --------- ---------
Income from continuing operations 17,858 23,857 82,102 52,841
--------- --------- --------- ---------
Income from discontinued operations 55 118 451 429
Gain on disposal of discontinued operations 6,069 -- 6,069 --
--------- --------- --------- ---------
Income from discontinued operations 6,124 118 6,520 429
--------- --------- --------- ---------
Net income 23,982 23,975 88,622 53,270
--------- --------- --------- ---------
Dividends to preferred unitholders (6,109) (6,109) (18,329) (16,157)
--------- --------- --------- ---------
Net income available to common unitholders $ 17,873 $ 17,866 $ 70,293 $ 37,113
--------- --------- --------- ---------
Net income per common unit - Basic:
Income from continuing operations $ 0.36 $ 0.56 $ 1.93 $ 1.15
Income from discontinued operations 0.18 0.00 0.20 0.01
--------- --------- --------- ---------
Net income per common unit - Basic $ 0.54 $ 0.56 $ 2.13 $ 1.16
--------- --------- --------- ---------
Net income per common unit - Diluted:
Income from continuing operations $ 0.35 $ 0.56 $ 1.91 $ 1.14
Income from discontinued operations 0.18 0.00 0.20 0.01
--------- --------- --------- ---------
Net income per common unit - Diluted $ 0.53 $ 0.56 $ 2.11 $ 1.15
--------- --------- --------- ---------
Average units outstanding:
Basic 33,426 31,994 33,043 31,983
Diluted 33,709 32,139 33,312 32,085
The accompanying notes are an integral part of these financial statements.
COLONIAL REALTY LIMITED PARTNERSHIP
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
-------------------
Nine Months Ended
September 30,
-----------------------
2002 2001
---------- ----------
Cash flows from operating activities:
Net income $ 88,622 $ 53,270
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 60,198 54,032
Income from unconsolidated subsidiaries (986) (946)
Gains from sales of property (38,796) (7,334)
Other 1,043 1,495
Decrease (increase) in:
Restricted cash 720 (265)
Accounts receivable (358) (3,386)
Prepaid expenses 2,203 439
Other assets (8,698) (4,207)
Increase (decrease) in:
Accounts payable (5,208) 2,146
Accrued interest 1,764 (1,410)
Accrued expenses and other 7,750 13,045
--------- ---------
Net cash provided by operating activities 108,254 106,879
--------- ---------
Cash flows from investing activities:
Acquisition of properties (150,808) -0-
Development expenditures (39,908) (106,242)
Tenant improvements (17,487) (14,375)
Capital expenditures (10,158) (10,209)
Proceeds from notes receivable 11,113 9,818
Proceeds from sales of property, net of selling costs 113,628 41,852
Distributions from unconsolidated subsidiaries 2,499 2,020
Capital contributions to unconsolidated subsidiaries (4,783) (2,015)
--------- ---------
Net cash used in investing activities (95,904) (79,151)
--------- ---------
Cash flows from financing activities:
Principal reductions of debt (71,866) (71,052)
Proceeds from additional borrowings 151,285 38,988
Net change in revolving credit balances (55,773) 33,385
Cash contributions from the issuance of preferred units -0- 48,125
Cash contributions 40,103 425
Capital distributions (83,519) (76,598)
Payment of mortgage financing cost (885) (1,504)
Other, net -0- (344)
--------- ---------
Net cash provided by (used in) financing activities (20,655) (28,575)
--------- ---------
Increase (decrease) in cash and equivalents (8,305) (847)
Cash and equivalents, beginning of period 10,127 4,275
--------- ---------
Cash and equivalents, end of period $ 1,822 $ 3,428
========= =========
The accompanying notes are an integral part of these financial statements.
COLONIAL REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
September 30, 2002
(Unaudited)
Note 1 -- Basis of Presentation
Colonial Realty Limited Partnership ("CRLP") is the operating
partnership of Colonial Properties Trust (the "Company"), an Alabama real estate
investment trust whose shares are traded on the New York Stock Exchange. The
accompanying unaudited consolidated condensed financial statements of CRLP have
been prepared by management in accordance with generally accepted accounting
principles for interim financial reporting and in conjunction with the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. The results of operations for the three and nine month periods
ended September 30, 2002 are not necessarily indicative of the results that may
be expected for the full year. These financial statements should be read in
conjunction with the information included in CRLP's Annual Report as filed with
the Securities and Exchange Commission on Form 10-K for the year ended December
31, 2001, and with the information filed with the Securities and Exchange
Commission on Form 10-Q for the quarters ended March 31, 2002 and June 30, 2002.
The December 31, 2001 balance sheet data presented herein was derived from
audited financial statements but does not include all disclosures required by
generally accepted accounting principles. Certain 2001 amounts have been
reclassified to conform to the current year's financial statement presentation.
Effective January 1, 2002 CRLP adopted Statement of Financial
Accounting Standard ("SFAS") No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets. SFAS 144 provides additional guidance on the accounting
for impairments of long-lived assets and updates the accounting and reporting
requirements for discontinued operations. In accordance with the provisions of
SFAS 144, CRLP records individual property sales as discontinued operations,
unless CRLP maintains significant continuing involvement with properties that
have been sold. During the third quarter of 2002, CRLP had three property sales
that were required to be classified as discontinued operations. See Note 3 for
further discussion.
In April 2002, FASB issued SFAS 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS 145 rescinds SFAS 4, which required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. As a result, the criteria
in Accounting Principles Board Opinion 30, will now be used to classify those
gains and losses. SFAS 64 amended SFAS 4, and is no longer necessary because
SFAS 4 has been rescinded. SFAS 44 and the amended sections of SFAS 13 are not
applicable to CRLP and therefore have no effect on CRLP's financial statements.
SFAS 145 is effective for fiscal years beginning after May 15, 2002 with early
application encouraged. The adoption of SFAS 145 will likely not have a material
effect on CRLP as the gains and losses on the extinguishment of debt are
generally not material to CRLP's financial statements.
Note 2 -- Capital Structure
At September 30, 2002, the Company controlled CRLP as the sole general
partner and as the holder of 67.4% of the common units of CRLP ("Redeemable
Units") and 63.6% of the preferred units (the "Series A Preferred Units" and
"Series C Preferred Units). The limited partners of CRLP who hold units, are
those persons (including certain officers and directors) who, at the time of the
Initial Public Offering, elected to hold all or a portion of their interest in
the form of Units rather than receiving shares of common stock of the Company,
or individuals from whom the Company acquired certain properties, who elected to
receive Units in exchange for the properties. Each Unit may be redeemed by the
holder thereof for either one share of Common Stock or cash equal to the fair
market value thereof at the time of such redemption, at the option of CRLP.
Additionally, in 1999, CRLP issued $100 million of Series B Cumulative
Redeemable Perpetual Preferred Units ("Series B Units") in a private placement,
that are exchangeable for Series B Preferred Shares of the Company after ten
years at the option of the holders of the Series B Units.
The Board of Trustees of the Company manages CRLP by directing the
affairs of the Company. The Company's interests in CRLP entitle it to share in
cash distributions from, and in the profits and losses of, CRLP in proportion to
the Company's percentage interest therein and entitle the Company to vote on all
matters requiring a vote of the limited partners.
Note 3 --Acquisitions and Dispositions
Acquisitions
Effective August 1, 2002, CRLP acquired Heathrow International Business
Center, a seven-building office park totaling 804,078 rentable square feet and
102 acres of land for potential future development, located in the Lake
Mary/Heathrow submarket of Orlando, Florida. Current tenants include national
and regional companies like Veritas, Bank One, FiServ, and The United States
Government. The total purchase price of the office park was $122.0 million,
which was primarily funded through CRLP's recent sales of multifamily and retail
assets and the assumption of $44.0 million of existing debt. The remaining
balance was funded through CRLP's unsecured line of credit. Additionally, CRLP
has agreed to acquire one new office building that contains 192,000 square feet.
The closing for this acquisition will occur upon the earlier of the third
anniversary of the date of the agreement or at such time that the seller
achieves certain leasing targets for the property. The purchase price will be
determined based on the percentage of gross leasable area actually leased and
the net operating income generated by the leases at the time of acquisition.
Additionally, during July 2002, CRLP acquired three single family homes
located in Montgomery, Alabama for a total purchase price of approximately $0.5
million, which will be operated as rental property. The homes were purchased as
part of a "corporate rental program" for an automobile manufacturer that is
building a manufacturing plant near Montgomery, Alabama. Under the corporate
rental program, executives of the automobile manufacturer will rent the homes
from CRLP for an initial term of three years, with the option to extend the
lease, and have agreed to have other employees lease additional multifamily
units at Colonial Grand at Promenade located in Montgomery, Alabama. The homes
were purchased from Lowder New Homes, Inc., a related party and were funded
through CRLP's unsecured line of credit.
Dispositions
On July 11, 2002, CRLP sold University Park Plaza, an office asset, and
Colonial Promenade University Park, Phase II, a retail asset, both located in
Orlando, Florida. University Park Plaza consists of three office buildings
totaling 72,500 square feet and Colonial Promenade University Park, Phase II
contains 183,450 square feet. The total sales price for these assets was $16.7
million, resulting in a net gain of $5.7 million, which was recorded as
discontinued operations, in accordance with SFAS 144. Additionally, CRLP
recorded the operations of these properties for all periods presented as
discontinued operations, in accordance with SFAS 144. The proceeds from the
sales were used to acquire Heathrow International Business Center in Orlando,
Florida, as noted above.
On September 9, 2002, CRLP sold two office buildings totaling 32,000
square feet located in Birmingham, Alabama, within the Colonnade office complex.
The total sales price for these buildings was $3.7 million, resulting in a net
gain of $0.4 million, which was recorded as discontinued operations, in
accordance with SFAS 144. Additionally, CRLP recorded the operations of these
buildings for all periods presented as discontinued operations, in accordance
with SFAS 144. The proceeds from the sale were used to repay a portion of the
borrowings under CRLP's unsecured line of credit.
Note 4 -- Debt Financing
On July 31, 2002, CRLP completed a $100.0 million public debt offering
of unsecured senior notes. The notes, which mature in July 2012, bear a coupon
rate of 6.88%, and were priced to yield an effective rate of 6.99% over the
ten-year term. CRLP used the net proceeds of the offering to repay a $57.5
million medium-term note that matured on August 9, 2002 and the remaining amount
was used to pay down a portion of the outstanding balance on its unsecured line
of credit.
Note 5 -- Orlando Fashion Square
In October 1998, CRLP sold a 50% interest in our Orlando Fashion Square
retail property located in Orlando, Florida to a third party. Subsequently, the
Company entered into a joint venture agreement with the third party, and the
joint venture entered into an agreement with the Company relating to the
management of the property. The joint venture agreement gives the third party
the right, which became effective December 28, 2001, to convert its 50% interest
in the property to the Company's common shares if specified terms and conditions
are met. The conversion value of the interest would be determined at the time of
conversion in accordance with the procedures set forth in the joint venture
agreement, and would be net of the third party's pro rata share of any
indebtedness secured by the property. The terms and conditions also include an
"accretion threshold", as defined, which must be met. At the time of the
original transaction, CRLP considered the terms of the agreement in their
entirety (including the conversion right, the accretion threshold, and the
conversion value determination procedures) and assessed whether the third party
could compel CRLP to repurchase the 50% interest sold. CRLP concluded that the
likelihood of a compelled repurchase was remote, and accordingly accounted for
the transaction as a sale.
On May 31, 2002, the 50% joint venture partner elected to exercise its
option to convert its 50% interest in the property to the Company's common
shares. In accordance with the terms of the joint venture agreement, we
negotiated with our joint venture partner and were unable to reach an agreement.
Therefore, on September 11, 2002, the joint venture partner elected to withdraw
its conversion election.
Note 6 -- Net Income Per Unit
The following table sets forth the computation of basic and diluted
earnings per unit:
(amounts in thousands, except
per unit data)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Numerator:
Net Income $ 23,982 $ 23,975 $ 88,622 $ 53,270
Less: Preferred stock dividends (6,109) (6,109) (18,329) (16,157)
----------- ----------- ----------- -----------
Income available to common unitholders $ 17,873 $ 17,866 $ 70,293 $ 37,113
----------- ----------- ----------- -----------
Denominator:
Denominator for basic net income per unit -
weighted average common units 33,426 31,994 33,043 31,983
Effect of dilutive securities:
Trustee and employee stock options, treasury
method 283 145 269 102
----------- ----------- ----------- -----------
Denominator for diluted net income per unit -
adjusted weighted average common units 33,709 32,139 33,312 32,085
----------- ----------- ----------- -----------
Basic net income per unit $ 0.54 $ 0.56 $ 2.13 $ 1.16
Diluted net income per unit $ 0.53 $ 0.56 $ 2.11 $ 1.15
----------- ----------- ----------- -----------
Options to purchase 40,000 common shares at a weighted average exercise
price of $35.57 per share were outstanding during 2002, but were not included in
the computation of diluted net income per share because the options' exercise
price was greater than the average market price of the common shares and,
therefore, the effect would be antidilutive.
Note 7 -- Segment Information
CRLP is organized into, and manages its business based on the
performance of three separate and distinct operating divisions: Multifamily,
Retail, and Office. Each division has a separate management team that is
responsible for acquiring, developing, managing, and leasing properties within
each division. The applicable accounting policies of the segments are
substantially the same as those described in the "Summary of Significant
Accounting Policies" in CRLP's 2001 Annual Report. However, the pro rata portion
of the revenues, net operating income ("NOI"), and assets of the partially owned
entities and joint ventures that CRLP has entered into are included in the
applicable segment information. Subsequently, in the reconciliation to total
revenues, total NOI, and total assets, the amounts are eliminated, as the
investment in the partially owned entities and joint ventures are reflected in
the consolidated financial statements as investments accounted for under the
equity method.
Management evaluates the performance of its segments and allocates
resources to them based on NOI. NOI consists of revenues in excess of general
operating expenses, salaries and wages, repairs and maintenance, taxes,
licenses, and insurance. Segment information for the three and nine months ended
September 30, 2002 and 2001, and total divisional assets to total assets as of
September 30, 2002 and December 31, 2001 is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ ----------------------------
(in thousands) 2002 2001 2002 2001
---------------- ---------------- ------------- ------------
Revenues:
Divisional Revenues
Multifamily $ 24,876 $ 30,337 $ 79,685 $ 90,140
Office 21,140 14,738 52,975 42,610
Retail 37,354 36,428 112,500 107,176
---------------- ---------------- ------------- ------------
Total Divisional Revenues: 83,370 81,503 245,160 239,926
Partially-owned subsidiaries (3,539) (3,149) (9,695) (9,712)
Unallocated corporate revenues 2,470 564 6,779 1,728
Discontinued operations revenues (178) (447) (1,262) (1,413)
---------------- ---------------- ------------- ------------
Total Consolidated Revenues: $ 82,123 $ 78,471 $ 240,982 $230,529
---------------- ---------------- ------------- ------------
NOI:
Divisional NOI
Multifamily $ 16,349 $ 19,976 $ 52,287 $ 60,494
Office 15,433 10,564 37,591 30,400
Retail 25,586 25,588 77,538 75,832
---------------- ---------------- ------------- ------------
Total Divisional NOI: 57,368 56,128 167,416 166,726
Partially-owned subsidiaries (2,140) (1,886) (5,543) (5,741)
Unallocated corporate revenues 2,470 564 6,779 1,728
Discontinued operations NOI (55) (118) (451) (429)
General and administrative expenses (3,445) (2,574) (11,938) (7,702)
Depreciation (18,514) (16,561) (53,879) (48,385)
Amortization (2,189) (2,026) (6,319) (5,647)
Other (13) 67 141 14
---------------- ---------------- ------------- ------------
Income from operations 33,482 33,594 96,206 100,564
---------------- ---------------- ------------- ------------
Total other expense (15,624) (9,737) (14,104) (47,723)
---------------- ---------------- ------------- ------------
Income from continuing operations $ 17,858 $ 23,857 $ 82,102 $ 52,841
---------------- ---------------- ------------- ------------
(in thousands) September 30, December 31,
Assets: 2002 2001
---------------- ----------------
Divisional Assets
Multifamily $ 650,347 $ 723,447
Office 593,296 377,255
Retail 913,120 905,964
---------------- ----------------
Total Divisional Assets: 2,156,763 2,006,666
Partially-owned subsidiaries (118,010) (106,191)
Unallocated corporate assets (1) 97,285 113,908
---------------- ----------------
$ 2,136,038 $ 2,014,383
---------------- ----------------
(1) Includes the CRLP's investment in partially-owned entities of $34,864
as of September 30, 2002, and $31,594 as of December 31, 2001.
Note 8 -- Derivative Instruments
In the normal course of business, CRLP is exposed to the effect of
interest rate changes. CRLP limits these risks by following established risk
management policies and procedures including the use of derivatives. For
interest rate exposures, derivatives are used primarily to align rate movements
between interest rates associated with CRLP's leasing income and other financial
assets with interest rates on related debt, and manage the cost of borrowing
obligations.
CRLP does not use derivatives for trading or speculative purposes.
Further, CRLP has a policy of only entering into contracts with major financial
institutions based upon their credit ratings and other factors. When viewed in
conjunction with the underlying and offsetting exposure that the derivatives are
designed to hedge, CRLP has not sustained a material loss from those instruments
nor does it anticipate any material adverse effect on its net income or
financial position in the future from the use of derivatives.
CRLP has entered into several different hedging transactions in an
effort to manage exposure to changes in interest rates. The following table
summarizes the notional values, fair values and other characteristics of CRLP's
derivative financial instruments at September 30, 2002. The notional value at
September 30, 2002 provides an indication of the extent of CRLP's involvement in
these instruments at that time, but does not represent total exposure to credit,
interest rate, or market risk.
Interest Fair Value
Product Type Notional Value Rate Maturity (in thousands)
- ------------------------------------------ ----------------------- ------------- ------------ -------------------
1) Interest Rate SWAP, Cash Flow $30.2-$27.7 million 5.932% 1/01/06 $ (3,096)
2) Interest Rate SWAP, Cash Flow $75.0 million 2.130% 12/10/02 (71)
3) Interest Rate SWAP, Cash Flow $50.0 million 2.319% 1/01/03 (98)
4) Interest Rate SWAP, Cash Flow $25.0 million 2.430% 1/01/03 (58)
5) Interest Rate SWAP, Fair Value $50.0 million 5.015% 7/26/04 3,111
6) Interest Rate CAP, Cash Flow $21.1 million 6.850% 6/29/04 5
7) Interest Rate CAP, Cash Flow $17.9 million 6.850% 7/06/04 5
8) Interest Rate CAP, Cash Flow $30.4 million 11.200% 6/30/03 0
9) Interest Rate CAPS, Cash Flow $53.0 million 4.840% 4/01/04 20
On September 30, 2002, the derivative instruments were reported at
their fair value as Other Assets of $3.1 million and Other Liabilities of $3.3
million. For the quarter and the year-to-date, adjustments of $0.9 million and
$1.7 million were recorded, respectively, as unrealized losses in accumulated
other comprehensive income (loss), and there was an adjustment to fixed rate
debt of $0.9 million during the third quarter 2002. Additionally, CRLP recorded
a $4,000 loss in earnings due to some ineffectiveness on the caps and one of the
swaps. The ineffectiveness resulted from a timing difference regarding rate
reset dates on the swap and minor differences in the cap and hedged debt
notional amounts.
Most of CRLP's hedges are designated as cash flow hedges. Cash flow
hedges protect against the variability in future cash outflows of current or
forecasted debt. Interest rate swaps that convert variable payments to fixed
payments are cash flow hedges. The changes in the fair value of these hedges are
reported on the balance sheet with a corresponding adjustment to either
accumulated other comprehensive income (loss) or in earnings--depending on the
type of hedging relationship. Over time, the unrealized gains and losses held in
accumulated other comprehensive income (loss) will be reclassified to earnings.
This reclassification occurs in the same period or periods that the hedged cash
flows affect earnings. Within the next twelve months, CRLP expects to reclassify
to earnings approximately $1.5 million of the current balance held in
accumulated other comprehensive income (loss) to earnings as interest expense.
CRLP hedges its exposure to the variability in future cash flows for
forecasted transactions over a maximum period of 12 months. During the
forecasted period, unrealized gains and losses in the hedging instrument will be
reported in accumulated other comprehensive income (loss). Once the hedged
transaction takes place, the hedge gains and losses will be reported in earnings
during the same period in which the hedged item is recognized in earnings.
Note 9 -- Comprehensive Income (Loss)
Comprehensive income (loss) consisted of the following:
(in thousands) Three Months ended Nine Months ended
September 30, 2002 September 30, 2002
-------------------------- --------------------------
Net income $ 23,982 $ 88,622
Other comprehensive income (loss)
Unrealized income (loss) on cash flow
hedging activities (939) (1,717)
-------------------------- --------------------------
Comprehensive income $ 23,043 $ 86,905
-------------------------- --------------------------
Accumulated other comprehensive income (loss) consisted of the
following:
(in thousands) Accumulated Other
Comprehensive Income (Loss)
-------------------------------------
Balance at December 31, 2001 $ (1,403)
Current period change in fair value of
derivative instruments (1,717)
-------------------------------------
Balance at September 30, 2002 $ (3,120)
-------------------------------------
Note 10 -- Subsequent Events
Derivative Instruments
During October 2002, CRLP entered into three interest rate swap
agreements, one with Wells Fargo Bank and two with PNC Bank, in which CRLP
effectively fixed $150.0 million of its floating rate debt at an average rate of
1.79% plus the spread on the LIBOR-indexed floating rate debt. The swaps are
effective January 2, 2003 and will mature on January 2, 2004.
Distribution
On October 24, 2002, a cash distribution was declared to partners of
CRLP in the amount of $0.66 per unit, totaling $22.1 million. The distribution
was declared to partners of record as of November 4, 2002, and was paid on
November 11, 2002.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Colonial Properties Trust:
We have reviewed the accompanying consolidated condensed balance sheet
of Colonial Realty Limited Partnership (the "Partnership") as of September 30,
2002, and the related consolidated condensed statements of income for the
three-month and nine-month periods ended September 30, 2002 and 2001, and the
consolidated condensed statements of cash flows for the nine-month periods ended
September 30, 2002 and 2001. These financial statements are the responsibility
of the Partnership's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying consolidated condensed financial
statements for them to be in conformity with accounting principles generally
accepted in the United States of America.
We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the consolidated balance
sheet as of December 31, 2001, and the related consolidated statements of
operations, partners' capital, and cash flows for the year then ended (not
presented herein); and in our report dated January 18, 2002, except for Note 16,
as to which the date is February 25, 2002, we expressed an unqualified opinion
on those consolidated financial statements. In our opinion, the information set
forth in the accompanying consolidated condensed balance sheet as of December
31, 2001, is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Birmingham, Alabama
October 24, 2002
COLONIAL REALTY LIMITED PARTNERSHIP
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Colonial Realty Limited Partnership ("CRLP"), a Delaware limited
partnership, is the operating partnership of Colonial Properties Trust, an
Alabama real estate investment trust (the "Company") whose shares are listed on
the New York Stock Exchange. The Company is engaged in the ownership,
development, management, and leasing of multifamily communities, office
buildings, retail malls and shopping centers. The Company is organized as a real
estate investment trust (REIT) and owns and operates properties in nine states
in the Sunbelt region of the United States. As of September 30, 2002, CRLP's
real estate portfolio consisted of 41 multifamily communities, 21 office
properties, and 44 retail properties.
CRLP is one of the largest diversified REITs in the United States.
Consistent with its diversified strategy, Colonial manages its business with
three separate and distinct operating divisions: Multifamily, Office, and
Retail. Each division has an Executive Vice President that oversees growth and
operations and has a separate management team that is responsible for acquiring,
developing, and leasing properties within each division. This structure allows
CRLP to utilize specialized management personnel for each operating division.
Constant communication among the Executive Vice Presidents and centralized
functions of accounting, information technology, due diligence and
administrative services provide CRLP with unique synergy allowing CRLP to take
advantage of a variety of investment opportunities. Decisions for investments in
acquisitions and developments and for dispositions are also centralized.
The following discussion should be read in conjunction with
management's discussion and analysis of financial condition and results of
operations and all of the other information appearing in CRLP's 2001 Financial
Statements as filed with the Securities and Exchange Commission on Form 10-K and
with the financial statements included therein and the notes thereto.
Any statement contained in this report which is not a historical fact,
or which might be otherwise considered an opinion or projection concerning CRLP
or its business, whether express or implied, is meant as, and should be
considered, a forward-looking statement as that term is defined in the Private
Securities Litigation Reform Act of 1996. Forward-looking statements are based
upon assumptions and opinions concerning a variety of known and unknown risks,
including but not limited to changes in market conditions, the supply and demand
for leasable real estate, interest rates, increased competition, changes in
governmental regulations, and national and local economic conditions generally,
as well as other risks more completely described in CRLP's prospectuses and
annual reports filed with the Securities and Exchange Commission. If any of
these assumptions or opinions prove incorrect, any forward-looking statements
made on the basis of such assumptions or opinions may also prove materially
incorrect in one or more respects.
Results of Operations -- Three Months Ended September 30, 2002 and 2001
Revenue -- Total revenue increased by $3.7 million, or 4.7%, for the
third quarter of 2002 when compared to the third quarter of 2001. The majority
of this increase, $3.6 million represents revenues generated by properties
acquired or developed during 2002 and the second half of 2001, net of revenues
from properties disposed of in 2002 and 2001. The remaining increase primarily
relates to increases in rental rates at existing properties, other ancillary
income, and third party management fee income.
Same-property revenue decreased by $1.1 million, or 1.6%, for the third
quarter of 2002 when compared to the third quarter of 2001. This decrease is
primarily related to an increase in move-in concessions in our multifamily
properties during the third quarter of 2002 as a result of a slowdown in the
U.S. economy during the last year, and a decrease in overall occupancy
percentages within all of our divisions, offset by lease buyouts that occurred
in our office division in the third quarter of 2002.
Operating Expenses -- Total operating expenses increased by $3.8
million, or 8.4%, for the third quarter of 2002 when compared to the third
quarter of 2001. Of this increase, $1.9 million is related to the operating
expenses of properties acquired or developed during 2002 and the second half of
2001, net of expenses from properties disposed of in 2002 and 2001, and $1.1
million is related to the consolidation of CPSI effective September 1, 2001. The
remaining increase is associated with increases in general operating expenses
and repairs and maintenance expenses.
Same-property operating expenses increased by $0.5 million, or 2.4%,
for the third quarter of 2002 when compared to the third quarter of 2001. The
increase is primarily associated with increases in general operating expenses,
utilities expenses, and repairs and maintenance expenses.
Other Income and Expense -- Interest expense decreased by $0.6 million,
or 3.5%, for the third quarter of 2002 when compared to the third quarter of
2001. The decrease in interest expense is primarily attributable to the decrease
in the interest rate environment in the third quarter 2002 as compared to the
third quarter 2001. Overall, CRLP's weighted average interest rate decreased
from 6.56% at September 30, 2001 to 6.02% at September 30, 2002, and notes and
mortgages payable increased to $1.26 billion at September 30, 2002 from $1.18
billion at September 30, 2001. Additionally, gains (losses) on sales of property
decreased $6.9 million in the third quarter of 2002 when compared to the third
quarter of 2001. See Liquidity and Capital Resources for further discussion.
Results of Operations -- Nine Months Ended September 30, 2002 and 2001
Revenue -- Total revenue increased by $10.5 million, or 4.5%, for the
nine months ended September 30, 2002 when compared to the nine months ended
September 30, 2001. Of this increase, $4.0 million represents revenues generated
by properties acquired or developed during 2002 and the second half of 2001, net
of properties disposed of in 2002 and 2001, and $1.8 million relates to the
consolidation of CPSI effective September 1, 2001. The remaining increase
primarily relates to increases in rental rates at existing properties, other
ancillary income, lease buyouts within our office division, and third party
management fee income.
Same-property revenue increased by $1.9 million, or 0.9%, for the nine
months ended September 30, 2002 when compared to the nine months ended September
30, 2001. This increase is primarily related to the increase in rental rates and
specialty leasing income in our retail operating properties, offset by an
increase in move-in concessions and vacancy losses in our multifamily properties
during the nine months ended September 30, 2002 as a result of a slowdown in the
U.S. economy during the last year.
Operating Expenses -- Total operating expenses increased by $14.8
million, or 11.4%, for the nine months ended September 30, 2002 when compared to
the nine months ended September 30, 2001. Of this increase, $2.1 million is
related to increases in real estate taxes, licenses, and insurance, $3.4 million
is related to the consolidation of CPSI effective September 1, 2001, and $2.7
million is related to depreciation and amortization expense on newly developed
or acquired properties, net of properties disposed of in 2002 and 2001. The
remaining increase primarily relates to increases in general operating expenses
and repairs and maintenance at existing properties.
Same-property operating expenses increased by $4.3 million, or 7.2%,
for the nine months ended September 30, 2002 when compared to the nine months
ended September 30, 2001. Of the increase, $2.6 million is related to the
increase in real estate taxes and insurance in our current markets. The
remaining increase is associated with increases in general operating expenses,
utilities expenses, and repairs and maintenance expenses.
Other Income and Expense -- Interest expense decreased by $8.1 million,
or 14.5%, for the nine months ended September 30, 2002 when compared to the nine
months ended September 30, 2001. The decrease in interest expense is primarily
attributable to the decrease in the interest rate environment in the first nine
months of 2002 as compared to the first nine months of 2001. Overall, CRLP's
weighted average interest rate decreased from 6.56% at September 30, 2001 to
6.02% at September 30, 2002, and notes and mortgages payable increased to $1.26
billion at September 30, 2002 from $1.18 billion at September 30, 2001. Gains
(losses) on sales of property increased $25.4 million for the nine months ended
September 30, 2002 when compared to the nine months ended September 30, 2001,
which is attributable to the sales of approximately $114.9 million of assets
during the nine months ended September 30, 2002, as compared to $40.6 million
during the nine months ended September 30, 2001. See Liquidity and Capital
Resources for further discussion.
Summary of Critical Accounting Policies
Management of CRLP considers the following accounting policies to be
critical to the reported operating results of CRLP:
Real Estate Development
CRLP capitalizes all costs, including interest, real estate taxes that
are associated with the development, construction, expansion, or leasing of real
estate investments as a cost of the property. All other expenditures necessary
to maintain a property in ordinary operating condition are expensed as incurred.
CRLP evaluates its properties, at least annually or upon the occurrence
of significant changes in the operations, to assess whether any impairment
indications are present, including recurring operating losses and significant
adverse changes in legal factors or business environment that affect the
recovery of the recorded value. If any property is considered impaired, a loss
will be provided to reduce the carrying value of the property to its estimated
fair value. The valuation of real estate investments involves many subjective
assumptions dependent upon future economic events that affect the ultimate value
of the property.
Valuation of Receivables
CRLP is subject to tenant defaults and bankruptcies at our Office and
Retail properties that could affect the collection of outstanding receivables.
In order to mitigate these risks, CRLP performs credit review and analysis on
all commercial tenants and significant leases before they are executed. CRLP
evaluates the collectibility of outstanding receivables and records allowances
as appropriate.
Other Arrangements
In September 2001, CRLP entered into an agreement to provide services
to an unrelated third party in connection with the third party's development of
a $30.0 million multi-family property in North Carolina. Colonial was engaged to
serve as development consultant and leasing and management agent for this
property. In addition, for a fee, CRLP is serving as a guarantor for a $3.3
million working capital loan obtained by the three principals of the third party
entity, which loan is primarily collateralized jointly and severally by the
personal assets of the borrowers, and matures in August 2003. CRLP has a right
of first refusal to purchase the property should the third party elect to sell.
Over the term of the agreement, CRLP expects to earn market fees for its
services.
During January 2000, CRLP initiated and completed an Executive Unit
Purchase Program (Unit Purchase Program), in which the Board of Trustees and
certain members of the Company's management were able to purchase 425,925 Units.
Under the Unit Purchase Program, the Board of Trustees and the members of
management obtained full-recourse personal loans from an unrelated financial
institution, in order to purchase the Units. The Units are pledged as collateral
against the loans. In addition, CRLP has provided a guarantee to the unrelated
financial institution for the personal loans, which mature in January 2005. The
value of the Units purchased under the Unit Purchase Program was approximately
$10.0 million.
Liquidity and Capital Resources
During the third quarter of 2002, CRLP invested $140.4 million in the
acquisition and development of properties. CRLP financed this growth through
advances on its bank line of credit, cash from operations, proceeds from CRLP's
dividend reinvestment plan, disposition of assets, and financing of certain
properties. As of September 30, 2002, CRLP had an unsecured bank line of credit
providing for total borrowings of $300 million. The line, which is used by CRLP
primarily to finance property acquisitions and development, bears interest at
LIBOR plus 115 basis points, which matures in April 2003, and provides for a
two-year amortization in the case of non-renewal. The line of credit agreement
includes a competitive bid feature that will allow CRLP to convert up to $150
million under the line of credit to a fixed rate, for a fixed term not to exceed
90 days. The balance outstanding on this line at September 30, 2002, was $205.5
million.
At September 30, 2002, CRLP's total outstanding debt balance was $1.26
billion. The outstanding balance includes fixed-rate debt of $1.01 billion, or
80.6% of the total debt balance, and floating-rate debt of $244.9 million, or
19.4% of the total debt balance. CRLP's total market capitalization as of
September 30, 2002 was $2.7 billion and its ratio of debt to market
capitalization was 45.9%. Certain loan agreements of CRLP contain restrictive
covenants, which among other things require maintenance of various financial
ratios. At September 30, 2002, CRLP was in compliance with these covenants.
CRLP continued its asset recycling program, which allows CRLP to sell
mature, slower growing assets and reinvest the proceeds into opportunities with
more growth potential. During the third quarter of 2002, CRLP sold University
Park Plaza, an office asset, and Colonial Promenade University Park, Phase II, a
retail asset, both located in Orlando, Florida. University Park Plaza consists
of three office buildings totaling 72,500 square feet and Colonial Promenade
University Park, Phase II contains 183,450 square feet. The total sales price
for these assets was $16.7 million. Additionally, CRLP sold two office buildings
totaling 32,000 square feet located in Birmingham, Alabama, within the Colonnade
office complex. The total sales price for these buildings was $3.7 million.
The proceeds from the sales were used to acquire Heathrow International
Business Center in Orlando, Florida, a seven-building office park totaling
804,078 rentable square feet and 102 acres of land for potential future
development, located in the Lake Mary/Heathrow submarket of Orlando, Florida.
Current tenants include national and regional companies like Veritas, Bank One,
FiServ, and The United States Government. The total purchase price of the office
park was $122.0 million, which was primarily funded through CRLP's recent sales
of multifamily and retail assets and the assumption of $44.0 million of existing
debt. The remaining balance was funded through CRLP's unsecured line of credit.
Additionally, CRLP has agreed to acquire one new office building that contains
192,000 square feet. The closing for this acquisition will occur upon the
earlier of the third anniversary of the date of the agreement or at such time
that the seller achieves certain leasing targets for the property. The purchase
price will be determined based on the percentage of gross leasable area actually
leased and the net operating income generated by the leases at the time of
acquisition.
Through its taxable REIT subsidiary, CPSI, CRLP provides management
services for properties owned by third parties, and provides construction
management and development services for third parties, for which CRLP recognizes
management and development fees. Additionally, CRLP makes the following types of
investments through CPSI; (a) purchases undeveloped land and sells parcels of
land to third parties, (b) develops a property, and upon completion sells the
property to a third party, or (c) purchases an operating property to be sold to
a third party within a short period of time.
CRLP expects to meet its short-term liquidity requirements generally
through its net cash provided by operations, proceeds from CRLP's dividend
reinvestment plan, and borrowings under credit arrangements and expects to meet
certain of its long-term liquidity requirements, such as scheduled debt
maturities, repayment of financing of construction and development activities,
and possible property acquisitions, through long-term secured and unsecured
borrowings and the issuance of debt securities or additional equity securities
of CRLP, sales of properties, joint ventures, or, possibly in connection with
acquisitions of land or improved properties, issuance of limited partnership
units. CRLP believes that its net cash provided by operations will be adequate
and anticipates that it will continue to be adequate to meet both operating
requirements and payment of dividends by CRLP both the short and the long term.
Financial Instruments: Derivatives and Hedging
In the normal course of business, CRLP is exposed to the effect of
interest rate changes. CRLP limits these risks by following established risk
management policies and procedures including the use of derivatives. For
interest rate exposures, derivatives are used primarily to align rate movements
between interest rates associated with CRLP's leasing income and other financial
assets with interest rates on related debt, and manage the cost of borrowing
obligations.
CRLP does not use derivatives for trading or speculative purposes.
Further, CRLP has a policy of only entering into contracts with major financial
institutions based upon their credit ratings and other factors. When viewed in
conjunction with the underlying and offsetting exposure that the derivatives are
designed to hedge, CRLP has not sustained a material loss from those instruments
nor does it anticipate any material adverse effect on its net income or
financial position in the future from the use of derivatives.
CRLP has entered into several different hedging transactions in an
effort to manage exposure to changes in interest rates. The following table
summarizes the notional values, fair values and other characteristics of CRLP's
derivative financial instruments at September 30, 2002. The notional value at
September 30, 2002 provides an indication of the extent of CRLP's involvement in
these instruments at that time, but does not represent exposure to credit,
interest rate, or market risk.
Interest Fair Value
Product Type Notional Value Rate Maturity (in thousands)
- ------------------------------------------ ----------------------- ------------- ------------ -------------------
1) Interest Rate SWAP, Cash Flow $30.2-$27.7 million 5.932% 1/01/06 $ (3,096)
2) Interest Rate SWAP, Cash Flow $75.0 million 2.130% 12/10/02 (71)
3) Interest Rate SWAP, Cash Flow $50.0 million 2.319% 1/01/03 (98)
4) Interest Rate SWAP, Cash Flow $25.0 million 2.430% 1/01/03 (58)
5) Interest Rate SWAP, Fair Value $50.0 million 5.015% 7/26/04 3,111
6) Interest Rate CAP, Cash Flow $21.1 million 6.850% 6/29/04 5
7) Interest Rate CAP, Cash Flow $17.9 million 6.850% 7/06/04 5
8) Interest Rate CAP, Cash Flow $30.4 million 11.200% 6/30/03 0
9) Interest Rate CAPS, Cash Flow $53.0 million 4.840% 4/01/04 20
On September 30, 2002, the derivative instruments were reported at
their fair value as Other Assets of $3.1 million and Other Liabilities of $3.3
million. For the quarter and the year-to-date, adjustments of $0.9 million and
$1.7 million were recorded, respectively, as unrealized losses in accumulated
other comprehensive income (loss), and there was an adjustment to fixed rate
debt of $0.9 million during the third quarter 2002. Additionally, CRLP recorded
a $4,000 loss in earnings due to some ineffectiveness on the caps and one of the
swaps. The ineffectiveness resulted from a timing difference regarding rate
reset dates on the swap and minor differences in the cap and hedged debt
notional amounts.
Most of CRLP's hedges are designated as cash flow hedges. Cash flow
hedges protect against the variability in future cash outflows of current or
forecasted debt. Interest rate swaps that convert variable payments to fixed
payments are cash flow hedges. The changes in the fair value of these hedges are
reported on the balance sheet with a corresponding adjustment to either
accumulated other comprehensive income (loss) or in earnings--depending on the
type of hedging relationship. Over time, the unrealized gains and losses held in
accumulated other comprehensive income (loss) will be reclassified to earnings.
This reclassification occurs in the same period or periods that the hedged cash
flows affect earnings. Within the next twelve months, CRLP expects to reclassify
to earnings approximately $1.5 million of the current balance held in
accumulated other comprehensive income (loss) to earnings as interest expense.
CRLP hedges its exposure to the variability in future cash flows for
forecasted transactions over a maximum period of 12 months. During the
forecasted period, unrealized gains and losses in the hedging instrument will be
reported in accumulated other comprehensive income (loss). Once the hedged
transaction takes place, the hedge gains and losses will be reported in earnings
during the same period in which the hedged item is recognized in earnings.
Outlook
Management intends to maintain CRLP's strength through continued
diversification, while pursuing acquisitions and developments that meet
Colonial's criteria for property quality, market strength, and investment
return. Management will continue to use its line of credit to provide short-term
financing for acquisition, development, and expansion activities and plans to
continue to replace significant borrowings under the bank line of credit with
funds generated from the sale of additional equity securities of CRLP, sale of
assets, and permanent financing, as market conditions permit. Management
believes that these potential sources of funds, along with the possibility of
issuing limited partnership units in exchange for properties, will provide CRLP
with the means to finance additional acquisitions, developments, and expansions.
In addition to the issuance of equity and debt, management is
investigating alternate financing methods and sources to raise future capital.
Private placements, joint ventures, and non-traditional equity and debt
offerings are some of the alternatives CRLP is contemplating.
Management anticipates that its net cash provided by operations and its
existing cash balances will provide the necessary funds on a short- and long-
term basis to cover its operating expenses, interest expense on outstanding
indebtedness, recurring capital expenditures, and dividends to shareholders in
accordance with Internal Revenue Code requirements applicable to real estate
investment trusts.
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
CRLP to increase rental rates or other charges to tenants in response to rising
prices and, therefore, serve to minimize CRLP's exposure to the adverse effects
of inflation.
An increase in general price levels may immediately precede, or
accompany, an increase in interest rates. At September 30, 2002, CRLP's exposure
to rising interest rates was mitigated by the existing debt level of 45.9% of
CRLP's total market capitalization, the high percentage of fixed rate debt
(80.6%), and the use of interest rate swaps to effectively fix the interest rate
on $75.0 million through December 2002, $75.0 million through January 2003,
$100.0 million through December 2003, and approximately $30.0 million through
January 2006. As a result, for the short-term, increases in interest expense
resulting from increasing inflation is anticipated to be less than future
increases in income before interest.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
CRLP is exposed to interest rate changes primarily as a result of its
line of credit and long-term debt used to maintain liquidity and fund capital
expenditures and expansion of CRLP's real estate investment portfolio and
operations. CRLP's interest rate risk management objective is to limit the
impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. To achieve its objectives, CRLP borrows primarily at
fixed rates and may enter into derivative financial instruments such as interest
rate swaps, caps and treasury locks in order to mitigate its interest rate risk
on a related financial instrument. CRLP does not enter into derivative or
interest rate transactions for speculative purposes.
The table below presents the principal amounts, weighted average
interest rates, fair values and other terms required by year of expected
maturity to evaluate the expected cash flows and sensitivity to interest rate
changes. Also included is a summary of CRLP's swap contracts and rate caps at
September 30, 2002.
Estimated
Fair
(amounts in thousands) 2002 2003 2004 2005 2006 Thereafter Total Value
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed Rate Debt $ - 252,951 65,866 109,384 75,000 512,737 1,015,938 1,027,146
Average interest rate
at September 30, 2002 - 4.79% 7.70% 7.55% 7.97% 7.26% 6.76% -
Variable Debt $ - 55,974 50,000 - - 138,879 244,853 244,853
Average interest rate
at September 30, 2002 - 2.97% 3.82% - - 2.73% 3.01% -
Interest Rate SWAPs
Variable to fixed $ - 150,000 - - 29,447 - 179,447 (3,323)
Average pay rate - 2.24% - - 6.59% - 2.95% -
Fixed to variable $ - - 50,000 - - - 50,000 3,111
Average pay rate - - 5.02% - - - 5.02% -
Interest Rate Cap $ - 30,379 90,819 - - - 121,198 31
Interest Rate - 11.20% 5.69% - - - 7.07% -
The table incorporates only those exposures that exist as of September
30, 2002 and it does not consider those exposures or positions that could arise
after that date. Moreover, because firm commitments are not presented in the
table above, the information presented therein has limited predictive value. As
a result, CRLP's ultimate realized gain or loss with respect to interest rate
fluctuations will depend on the exposures that arise during the period, CRLP's
hedging strategies at that time, and interest rates.
Item 4. Controls and Procedures.
Within 90 days prior to the date of filing of this report, CRLP carried
out an evaluation, under the supervision and with the participation of CRLP's
management and support from the Company's external auditors, including the Chief
Executive Officer and the Chief Financial Officer, of the design and operation
of CRLP's disclosure controls and procedures. Based on this evaluation, CRLP's
Chief Executive Officer and Chief Financial Officer concluded that CRLP's
disclosure controls and procedures are effective for gathering, analyzing and
disclosing the information CRLP is required to disclose in the reports it files
under the Securities Exchange Act of 1934, within the time periods specified in
the Securities and Exchange Commission's rules and forms. There have been no
significant changes in CRLP's internal controls or in other factors that could
significantly affect internal controls subsequent to the date of this
evaluation.
COLONIAL REALTY LIMITED PARTNERSHIP
PART II -- OTHER INFORMATION
Item 2. Changes in Securities.
The Company from time to time issues common shares of beneficial
interest ("Common Shares") pursuant to its Dividend Reinvestment and Share
Purchase Plan, its Non-Employee Trustee Share Option Plan, its Non-Employee
Trustee Share Plan, and its Employee Share Option and Restricted Share Plan, in
transactions that are registered under the Securities Act of 1933, as amended
(the "Act"). Pursuant to CRLP's Third Amended and Restated Agreement of Limited
Partnership, each time the Company issues Common Shares pursuant to the
foregoing plans, CRLP issues to Colonial Properties 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. During the quarter ended September 30, 2002, CRLP
issued 144,360 Units in such transactions for an aggregate of approximately $4.8
million.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
12. Ratio of Earnings to Fixed Charges
15. Letter re: Unaudited Interim Financial Information
(b) Reports on Form 8-K
On July 31, 2002, a Form 8-K was filed, which reported a $100.0
million public debt offering of unsecured senior notes, under Item
5, "Other Events".
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
COLONIAL REALTY LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Colonial Properties Trust,
its general partner
Date: November 14, 2002 By: /s/ Howard B. Nelson, Jr.
---------------------------
Howard B. Nelson, Jr.
Chief Financial Officer
(Duly Authorized Officer
and Principal Financial Officer)
Date: November 14, 2002 /s/ Kenneth E. Howell
---------------------------
Kenneth E. Howell
Senior Vice President and
Chief Accounting Officer
(Principal Accounting Officer)