C ONSISTENT LONG-TERM PERFORMANCE

Transcription

1 COLONIAL PROPERTIES TRUST 1998 ANNUAL REPORT RETAIL MULTIFAMILY OFFICE C ONSISTENT LONG-TERM PERFORMANCE 1998 ANNUAL REPORT

2 OVERVIEW BY DIVISION COLONIAL PROPERTIES TRUST OVERVIEW BY DIVISION AUBURN, AL BIRMINGHAM, AL DECATUR, AL GADSDEN, AL HUNTSVILLE, AL MOBILE, AL MONTGOMERY, AL JACKSONVILLE, FL OCALA, FL ORLANDO, FL AUBURN, AL BIRMINGHAM, AL HUNTSVILLE, AL MOBILE, AL MONTGOMERY, AL TUSCALOOSA, AL BRADENTON, FL GAINESVILLE, FL 39% RETAIL PUNTA GORDA, FL ST. PETERSBURG, FL TAMPA, FL ATHENS, GA ATLANTA, GA BRUNSWICK, GA COLUMBUS, GA GAINESVILLE, GA MACON, GA VALDOSTA, GA Contribution to Net Operating Income Retail increased its contribution to NOI by capitalizing on attractive acquisition opportunities. JACKSONVILLE, FL ORLANDO, FL PENSACOLA, FL SARASOTA, FL TAMPA, FL ATHENS, GA AUGUSTA, GA BURLINGTON, NC GREENSBORO, NC LOCUST, NC MOUNT AIRY, NC YADKINVILLE, NC MYRTLE BEACH, SC CHATTANOOGA, TN ABINGDON, VA STAUNTON, VA MULTIFAMILY MACON, GA SAVANNAH, GA STOCKBRIDGE, GA JACKSON, MS BLUFFTON, SC GREENVILLE, SC SAN ANTONIO, TX Contribution to Net Operating Income Multifamily s contribution reflects the division s shift in focus from acquisition to development. 47% Description The Retail Division develops, acquires and operates dominant regional malls, and community and neighborhood shopping centers in strong growth markets throughout the Sunbelt region. The division operates 15 regional malls, which represent approximately 65 percent of the division s net operating income. The regional malls are generally in single-mall markets or they are the dominant retail destination for that market. The division operates shopping centers with strong anchors in well-placed submarkets to best serve the surrounding community. Description The Multifamily Division develops, acquires and operates multifamily properties throughout the Sunbelt with a particular emphasis on the selection of strong growth submarkets. Multifamily offers high-tech amenities and features in its apartments. In addition, our highly trained staff ensures improved customer service, increased productivity and higher profit margins. OFFICE BIRMINGHAM, AL GADSDEN, AL HUNTSVILLE, AL MONTGOMERY, AL TAMPA, FL ORLANDO, FL ATLANTA, GA Description The Office Division develops, acquires and operates urban and suburban office buildings in selected high-growth markets throughout the Sunbelt. The division s expansion program follows a disciplined growth strategy focusing on market knowledge and leasing experience in each of its targeted cities. Office seeks Class-A opportunities with high potential returns. Contribution to Net Operating Income Office s increased contribution underscores the division s ability to expand its core markets. 14%

3 Acquisitions 1998 Bel Air Mall in Mobile, AL 1.4 million square feet Orlando Fashion Square* in Orlando, FL 1.1 million square feet Parkway City Mall* in Huntsville, AL 414,000 square feet Shoppes at Mansell in Atlanta, GA 23,100 square feet Market Overview The Retail Division portfolio consists of 40 properties, representing approximately 13.5 million square feet in 29 cities in seven states. The division ended the year with a 91.9 percent occupancy rate. The division focuses on dominant regional malls in high-growth communities. Under Construction at Year-end Colonial Promenade Trussville in Birmingham, AL 386,000 square feet *These properties are 50 percent owned by Colonial Properties Trust through two joint ventures. Sunbelt Markets for potential expansion. Acquisitions 1998 Colonial Village at: Ashley Plantation in Bluffton, SC 200 units Haverhill in San Antonio, TX 322 units River Hills in Tampa, FL 248 units Walton Way in Augusta, GA 256 units Under Construction at Year-end Colonial Grand at: Citrus Park in Tampa, FL 176 units Cypress Crossing in Orlando, FL 250 units Edgewater II in Huntsville, AL 192 units Heather Glen in Orlando, FL 448 units Inverness Lakes II in Mobile, AL 132 units Lakewood Ranch in Sarasota, FL 288 units Liberty Park in Birmingham, AL 300 units Promenade in Montgomery, AL 384 units Ridgeland in Ridgeland, MS 170 units Wesleyan II in Macon, GA 88 units Colonial Village at: Ashley Plantation in Bluffton, SC 214 units Madison in Huntsville, AL 336 units Market Overview The Multifamily Division portfolio consists of 49 properties, representing 15,381 units in 22 cities in six states. The division ended the year with a 93.5 percent occupancy rate. The division moved the company west into San Antonio, Texas, during Sunbelt Markets for potential expansion. Acquisitions 1998 Concourse Center in Tampa, FL 290,000 square feet Independence Plaza in Birmingham, AL 106,000 square feet Mansell Overlook 200 in Atlanta, GA 160,000 square feet Perimeter Corporate Park in Huntsville, AL 233,000 square feet Shades Brook Building in Birmingham, AL 35,000 square feet Market Overview The Office Division portfolio consists of 17 properties, representing 2.7 million square feet in seven cities in three states. The division ended the year with a 92.4 percent occupancy rate. Under Construction at Year-end 1800 International Park in Birmingham, AL 150,000 square feet Colonial Center at Research Park in Huntsville, AL 130,000 square feet Sunbelt Markets for potential expansion.

4 Colonial Properties Trust is one of the largest diversified real estate investment trusts (REITs) in the United States with a total market capitalization of $2.0 billion. The Company develops, owns and operates retail, multifamily and office properties in select growth markets in the Sunbelt region of the United States. A self-administered and self-managed REIT, the Company is a fully integrated, diversified real estate company whose activities include development of new properties, acquisition of existing properties, build-to-suit development, and the provision of management, leasing and brokerage services for income-producing real estate. C O NSISTENT LONG-TERM C O N T E N T S Financial Highlights 1 Overview by Division Inside Fold-Out To Our Shareholders 2 Retail 2 Multifamily 4 Office 6 Star Strategy 8 Financials 9 Corporate and Shareholders Information 32 Trustees and Senior Officers Inside Back Cover

5 FINANCIAL HIGHLIGHTS Colonial Properties trust Dollar amounts in thousands except per share data FOR THE PERIOD Revenues $ 257,367 $ 184,126 $ 134,881 Funds from Operations 103,746 77,493 62,999 Net Income Available to Common Shareholders 36,030 30,277 27,506 PER SHARE Funds from Operations $ 2.97 $ 2.70 $ 2.45 Net Income Basic and Diluted Dividends Paid Dividend Payout Ratio 74.1% 77.0% 81.6% AT YEAR-END Total Market Capitalization $2,013,084 $1,764,810 $1,298,946 Market Value of Equity 1,103,762 1,062, ,511 Notes and Mortgages Payable 909, , ,435 Shares and Units Outstanding 36,761 31,129 26,091 Market Price of Common Shares 26 %5 /8 30 %1 /8 30 %3 /8 REAL ESTATE PORTFOLIO Number of Operating Properties Multifamily Apartment Units 15,381 13,759 13,617 Retail Leasable Area (square feet in millions) Office Leasable Area (square feet in millions) Real Estate Investment, at cost $1,864,699 $1,491,241 $1,017,039 P ERFORMANCE Total Revenues Total Market Capitalization (in millions) FFO per share Dividends per share Property Net Operating Income (includes partially owned properties) $64,031 $110,890 $134,881 $184,126 $257,367 $759 $894 $1,299 $1,765 $2,013 $1.98 $2.23 $2.45 $2.70 $2.97 $1.72 $1.90 $2.00 $2.08 $2.20 $45,010 $76,024 $93,205 $126,978 $176,

6 T O OUR SHAREHOLDERS 2 For Colonial Properties Trust, 1998 was another successful year that demonstrated the wisdom of our Star Strategy of real estate diversification throughout the Sunbelt. In adapting quickly and intelligently to changing market conditions, we were determined to stay on the path that best defines Colonial Properties Trust: Consistent Long-Term Performance. Specifically, we maintained our 10-percent-plus growth rate in Funds from Operations (FFO) per share. For the year, FFO increased 33.9 percent over the previous year to $103.7 million. FFO per share was $2.97 compared to $2.70 per share for the same period a year earlier, an increase of 10.0 percent. Net income available to common shareholders totaled $36.0 million for the year, up from $30.3 million for the prior year, an increase of 19.0 percent. THOMAS H. LOWDER Chairman of the Board, President and Chief Executive Officer Our strong performance for the year provided us the platform to continue our tradition of annual dividend increases since going public in September In our January meeting, the Board of Trustees raised the dividend to $2.32 per share, up from $2.20, an increase of 5.5 percent. Mission, Vision and Star Strategy Making Your Life Better is our mission. We intend to give this mission meaning for each of our constituencies: shareholders, customers and employees. For shareholders: to increase your return and to continue to perform consistently. For customers: to provide the highest quality environments in which 13.5 million square feet in 40 properties and continues to grow both in size and performance. RETAIL By any measure, 1998 was a year of success for the Retail Division. The division generated 10 percent same-property growth in net operating income and maintained an exceptional 71 percent operating margin. The division grew its portfolio by more than 30 percent to While generating income growth at existing properties, Retail continued to buy and develop superior properties. The division closed on four acquisitions for a total of 2.9 million square feet and began construction of a 386,000- square-foot shopping center in Trussville, a suburb of Birmingham, anchored by a Wal- Mart Supercenter, Regal Cinema and Marshalls. During 1999, Retail will continue to invest in growth opportunities in regional malls with

7 3 to work, live and shop. For employees: to offer a positive and exciting workplace. In fulfilling our mission, we will achieve our vision To Be the Star Performer in Real Estate. Our vision broadens our horizon to reflect that we compete not only against other REITs, but also against the much wider real estate industry, including privately held companies. Our goal is to be the best of the best in real estate, not simply the best REIT. The company s strategy is a result of our mission and vision. We believe that to be the Star Performer in Real Estate, we must continue to provide consistent long-term profits and returns to our shareholders. The three principles of our Star Strategy are: Holding a diversified property portfolio that takes advantage of three distinct product cycles. Investing in growing, dynamic markets in the Sunbelt. Delivering Consistent Long-Term Performance through: Operating Excellence, Development, Acquisitions, Dispositions and Joint Ventures. ORLANDO FASHION SQUARE STRATEGIC JOINT VENTURE The Retail Division acquired the 1.1-million-square-foot Orlando Fashion Square in May. By December, the division completed its plan to bring in a 50 percent joint venture partner Prudential Real Estate s Property Investment Separate Account (PRISA) Fund. The divestiture allowed Retail to reinvest the funds into the 1.4-million-square-foot By following our Star Strategy, Colonial Properties Trust will strive to maintain disciplined growth. We trade on the New York Stock Exchange under the ticker symbol CLP, Bel Air Mall in Mobile. which you can translate into Consistent Long-Term Performance. While 1998 was a difficult year for REIT stocks, we believe the market will ultimately reward a consistently good performer. dominant retailers and in anchored community centers. The division expects to boost sameproperty growth with its aggressive leasing program, along with innovative programs including specialty and temporary tenants, retail merchandising units and ATMs. In addition, Retail will sell or develop joint ventures on mature assets and reinvest those dollars in assets with greater growth opportunities. Finally, in order to leverage the strong tenant relationships, Retail will continue to imprint the Colonial Properties brand, bringing recognition for both the division and the company. Number of Properties % Total Square Feet (in millions) % Revenues $45,775 $71,179 $117, % Net Operating Income $33,455 $51,500 $83, % Includes partially owned properties

8 T O our SHAREHOLDERS continued 4 The Year in Review During 1998, Colonial Properties Trust grew to become a $2 billion REIT. The company now owns 106 properties; our properties are located in 41 markets across nine states. In 1998, Orlando became our largest market, representing 17 percent of our net operating income, followed by Birmingham, representing 15 percent. No other single market contributes in excess of 10 percent of BRANDING RAISING AWARENESS OF COLONIAL PROPERTIES TRUST The company expanded its name recognition program to all three divisions. Multifamily led the branding effort with 22 Colonial Grand properties and 23 Colonial Villages. Retail is identifying its properties with three brands: Colonial Mall, Colonial Promenade, and Colonial Shoppes. Where appropriate, Office will incorporate the Colonial Center brand in the property name or the Colonial Properties Trust logo. our net operating income. Our geographic diversification reduces our exposure to any one economy, supporting our ability to provide consistent results. We pursued our Star Strategy of investing in product cycles in which we see the most value-added opportunities. During the year, several value-added retail opportunities became available, as is reflected in the breakout of the contribution of divisional net operating income. Retail is now our largest division, at 47 percent, up from 41 percent a year earlier. Multifamily shifted to 39 percent from 49 percent, and Office grew to 14 percent from 10 percent. The Retail Division sold 50 percent of our ownership interest in the 1.1-millionsquare-foot Orlando Fashion Square and entered a joint venture with Prudential Real Estate Investors through its Property Investment Separate Account ( PRISA ) fund. We continue to manage and lease the property. With the proceeds from the joint venture, the division invested in Bel Air Mall the dominant mall in Mobile, Alabama. Additionally, we acquired a 50 percent interest in a joint venture with CBL & Associates Properties, Inc., for the 414,000-square-foot Parkway City Mall in Huntsville, Alabama. MULTIFAMILY The Multifamily Division continued its consistent performance with another year of solid operations. The division generated one of the strongest operating margins in the Multifamily property sector, ending the year at 66 percent. At the same time, the division continued its same-property growth of 3.3 percent. During the year, Multifamily increased its portfolio by 12 percent to 15,381 units in 49 properties across 22 different markets. Multifamily closed on four acquisitions for a total of 1,026 units, including the company s initial entry into the Texas market with the acquisition of Colonial Village at Haverhill in San Antonio. At the end of the year, Multifamily

9 5 The Multifamily Division introduced the Colonial s Vision apartment home, creating a living environment for the next millennium. The Colonial s Vision amenities package includes the latest technology in security systems, automated climate control, high-speed Internet access and home theater pre-wiring. Additionally, Multifamily completed its branding effort during the year by renaming its properties with the Colonial Grand and Colonial Village brands. Colonial Grands are newer and more technologically advanced properties, while Colonial Villages are more economical. The Office Division completed the second phase of the Mansell Overlook transaction in the high-growth corridor of North Fulton Atlanta, a booming suburb. With a total of 561,000 square feet, the property was 100 percent leased at the end of the year, exceeding our original projections. The division also acquired the 290,000- square-foot Concourse Center in Tampa, which became the 100th property in Colonial Properties Trust s portfolio. At the corporate level, we are deploying major new information management systems that make us a more efficient organization and that ensure Y2K compliance. Finally, in the first half of 1998, Colonial Properties Trust took several steps to ensure the financial flexibility of the company for 1998 and well into the future. The company issued in excess of $135 million in common shares through a secondary offering and three unit investment trusts. Additionally, we issued $175 million in senior unsecured debt and increased our unsecured bank line to $250 million. All of these efforts placed the company in an excellent position to continue to grow and support our development pipeline. YOUR APARTMENT HOME FOR THE NEXT MILLENIUM STATE-OF-THE-ART LIVING FOR THE NEXT MILLENNIUM The Multifamily Division exemplifies our mission of Making Your Life Better with its advanced state-of-the-art security system, climate control, plus high-speed Internet access and home theater prewiring. The division opened a 250-unit Colonial s Vision development in Orlando, began development of three more in Birmingham, Tampa, and Ridgeland, MS, and plans to build two more in Montgomery and Sarasota. Number of Properties Total Units Revenues Net Operating Income had 12 developments or expansions underway for a total of approximately 3,000 units ,617 13,759 15,381 $80,914 $95,503 $104,462 $53,011 $62,658 $68,789 Strong operating performance will continue to be the division s primary focus for Multifamily does not expect significant acquisitions during the year as the division is focused on development, where it has found higher returns and stronger growth opportunities. +8.0% +6.3% +13.6% +13.9%

10 TO our SHAREHOLDERS continued 6 New Investments In 1998, we completed a total of $350 million in acquisitions: four Retail properties, four Multifamily properties, and five Office properties. However, we also began shifting our focus to development. We invested approximately $110 million in development and expansion projects last year, and we have a strong pipeline leading into Our current development pipeline projects $175 million to be spent in ALABAMA DEVELOPMENTS PROPERTIES IN CORE MARKETS Multifamily accounts for $110 million of the development total, with approximately 3,000 units in 12 projects under construction throughout Florida, Alabama, Georgia, South Carolina and Mississippi. The majority of these units will be in service by year-end The Office Division began development of two suburban office properties in core markets the 150,000-squarefoot 1800 International Park in Birmingham and the 130,000-squarefoot Colonial Center at Research Park in Huntsville. The division also completed for Energen the development of the distinctive new 130,000-squarefoot Energen Headquarters building in downtown Birmingham ahead of construction schedule. Retail plans to spend $40 million for development, including $15 million in redevelopment. The primary construction project is the Colonial Promenade Trussville in Birmingham. The 386,000-square-foot shopping center is anchored by a Wal-Mart Supercenter. Office plans include two development properties, expected to be completed by the end of 1999, for a total of 280,000 square feet in Birmingham and Huntsville. Along with a redevelopment property, these two projects represent $25 million of the company s 1999 development budget. OFFICE The Office Division had a tremendous year of growth with five acquisitions, increasing its portfolio over 45 percent to 2.7 million square feet in 17 properties. The division represents 14 percent of the net operating income, up from 10 percent in The division maintained its strong operating performance with 5.1 percent same-property growth and an exceptional 72 percent operating margin. The division expanded into the demographically rich Westshore submarket of Tampa with the acquisition of the 290,000-squarefoot Concourse Center. Office also increased its commitment to Atlanta by closing the 160,000-square-foot final phase of the

11 7 We are planning a mixed-use development project in the Lake Mary/Heathrow submarket north of Orlando, where we will develop Office, Retail and Multifamily properties. The development is situated on 167 acres of prime real estate, where an interstate exchange will exit traffic directly into our development. The Lake Mary/Heathrow submarket continues to experience tremendous job MIXED-USE growth, population growth, and significant corporate office relocations and expansions. DEVELOPMENT LEVERAGING OUR DIVERSIFIED PROPERTY PORTFOLIO The Road Ahead In our January 1999 Board meeting we increased annual dividends for the fifth straight year. To fulfill our mission of Making Your Life Better, our goal in 1999 is to continue through our Star Strategy to be a Consistent Long-Term Performer. As a shareholder, please feel free to call us on our investor hot line at or visit our web site at Thank you for your investment. Sincerely, In taking advantage of its diversified property portfolio, Colonial Properties Trust is planning a mixeduse development that will incorporate development of all three of its property types. This development will be on 167 acres in the prime Lake Mary/Heathrow submarket, north of Orlando, and is expected to begin construction in late THOMAS H. LOWDER Chairman of the Board, President and Chief Executive Officer Number of Properties Total Square Feet (in millions) Revenues Net Operating Income Mansell Overlook 200 Class A office building and retail shops, representing an aggregate acquisition of 521,000 square feet. Office will continue its disciplined growth strategy throughout The division has two suburban development properties underway for a total of 280,000 square feet. The Office Division will continue to generate strong internal rent growth by raising belowmarket lease rates to market levels % $10,060 $17,762 $34, % +85.7% Includes partially owned properties $6,739 $12,821 $24, %

12 CONSISTENT LONG-TERM PERFORMANCE STAR STRATEGY Diversified Property Portfolio Sunbelt Focused Consistent Long-Term Performance Through: Operating Excellence, Development, Acquisitions, Dispositions and Joint Ventures