Colonial Properties Trust Reports Results for Third Quarter 2009

Colonial Properties Trust (NYSE: CLP) announced its results for the third quarter ended September 30, 2009.

For the third quarter 2009, the company reported a net loss to common shareholders of $3.5 million, or $(0.07) per diluted share, compared with net income available to common shareholders of $27.2 million, or $0.57 per diluted share, for the same period in 2008. The company reported net income available to common shareholders for the nine months ended September 30, 2009, of $8.6 million, or $0.17 per diluted share, compared with net income available to common shareholders of $50.4 million, or $1.05 per diluted share, for the same period in 2008.

Funds from Operations Available to Common Shareholders and Unitholders (FFO), a widely accepted measure of REIT performance, for the third quarter 2009 were $28.7 million, or $0.49 per diluted share, compared with $27.9 million, or $0.49 per diluted share, in the same period a year ago. FFO for the nine months ended September 30, 2009, totaled $110.4 million, or $1.91 per diluted share, compared with $92.9 million, or $1.63 per diluted share, for the same period in 2008.

Operating FFO, which the company defines as FFO before transaction income (i.e. development gains, land/outparcel gains and bond/preferred stock repurchase gains/losses), for the third quarter 2009 was $13.8 million, or $0.23 per diluted share, compared with $23.3 million, or $0.41 per diluted share, in the same period a year ago. The decrease in operating FFO from the same prior-year period is primarily due to a decline in multifamily same-property net operating income (NOI) of 6.2 percent; $3.7 million in charges for an expected partial loan repayment guarantee and impairment on our 35 percent joint venture interest with respect to an apartment community; and a reduction in capitalized interest of approximately $3.1 million as a result of no longer capitalizing interest on land held for future developments. Operating FFO for the nine months ended September 30, 2009 was $51.5 million, or $0.89 per diluted share, compared with $76.2 million, or $1.34 per diluted share, in the same period a year ago.

The EPS, FFO per share and Operating FFO per share information provided above for the three and nine months ended September 30, 2009 reflect the dilutive effect of the issuance of 4,201,571 common shares and 4,802,971 shares during the three and nine months ended September 30, 2009, respectively, under our previously announced at-the-market equity offering program.

A reconciliation of net income (loss) available to common shareholders to FFO and to Operating FFO, as well as the definitions and statements of purpose, are included at the end of this press release and in the financial tables accompanying this press release.

Highlights for the Third Quarter 2009

• Commenced an equity offering, which closed on October 6, 2009, issuing 12,109,500 common shares, including the underwriters’ overallotment option, raising net proceeds of $109.8 million
• Issued 4.2 million common shares raising net proceeds of $37.8 million through the company’s at-the-market equity offering program, bringing the proceeds of issuances under that program to $42.6 million since the program’s inception in April 2009
• Multifamily same-property NOI declined 6.2 percent compared with third quarter 2008
• Ended the quarter with multifamily same-property physical occupancy of 94.4 percent
• Completed the sale of 264 condominium units for total sales proceeds of $24.7 million, including all remaining condominium units at Murano at Delray Beach and Portofino at Jensen Beach, in two separate bulk transactions
• Recognized net gains of $14.3 million, or $0.24 per diluted share, in net income and FFO from the repurchases of $166.8 million of outstanding unsecured senior notes of the company's operating partnership, Colonial Realty Limited Partnership ("Colonial Realty")

"Since the beginning of the third quarter, we have significantly enhanced our liquidity position with $180 million in proceeds from capital market activities and dispositions,” stated Thomas H. Lowder, the company’s Chairman and Chief Executive Officer. "The new capital allowed us to continue delevering the company. We again have made steady progress on simplifying our business by reducing the number of for-sale residential units on our balance sheet and exiting another joint venture.”

Multifamily Operating Performance

Multifamily same-property NOI for the third quarter 2009 decreased 6.2 percent compared with the third quarter 2008 for the 28,285 apartment homes included in the consolidated same-property results. Multifamily same-property revenues decreased 4.1 percent and expenses decreased 1.1 percent compared with the third quarter 2008. Multifamily same-property physical occupancy as of September 30, 2009 was 94.4 percent compared with 96.0 percent at September 30, 2008.

A reconciliation of NOI to income from continuing operations, as well as definitions and the statements of purpose, is included at the end of this press release and in the financial tables accompanying this press release.

Capital Markets Activity

On October 6, 2009, the company completed an equity offering of 12,109,500 common shares, including shares issued to cover over-allotments, at $9.50 per share. Total net proceeds from this offering were approximately $109.8 million after deducting the underwriting discount and other offering expenses payable by the company. The company used the net proceeds from the offering to repay a portion of the outstanding balance under its unsecured revolving credit facility and for general corporate purposes.

During the third quarter 2009, the company issued a total of 4,201,571 common shares at a weighted average issue price of $9.20 per share under its previously announced $50 million at-the-market equity issuance program, raising net proceeds of $37.8 million. Year to date, the company has issued a total of 4,802,971 common shares at a weighted average issue price of $9.07 per share, raising net proceeds of $42.6 million under that program. Following the completion of the equity offering on October 6, 2009, as described above, the company terminated its at-the-market equity offering program.

Repurchases of Senior Unsecured Debt Securities

During the third quarter 2009, the company repurchased a total of $166.8 million in aggregate principal amount of Colonial Realty’s outstanding unsecured senior notes, $148.2 million of which was repurchased through a cash tender offer. The third quarter 2009 repurchases were made at an average 10.0 percent discount to par value, which represents a 7.9 percent yield to maturity, and resulted in the recognition of net gains of $14.3 million, or $0.24 per diluted share, in EPS and FFO for the third quarter 2009. Year-to-date, the company has repurchased $579.2 million in aggregate principal amount of Colonial Realty’s outstanding unsecured notes, with net gains reported totaling $54.8 million.

Disposition Activity

During the third quarter 2009, the company closed on the sale of the remaining 93 units at Murano at Delray Beach and 118 units at Portofino at Jensen Beach condominiums in two separate bulk transactions for total sales proceeds of $15.8 million in cash. Additionally, the company closed on the sale of 53 additional condominium units during the third quarter for total sales proceeds of $8.9 million. Subsequent to the end of the third quarter, the company completed the sale of the remaining 14 condominium units at the Grander located in Gulf Shores, Alabama, for a total sales price of $3.3 million.

After the closing of the remaining 14 units at the Grander in October 2009, the net book value of the company’s remaining for sale condominium units is $24.5 million, which are classified as held for sale on the company’s balance sheet.

Development Activity

During the third quarter, the company completed construction of Colonial Grand at Ashton Oaks, a 362-unit apartment community located in Austin, Texas, and Colonial Grand at Desert Vista, a 380-unit apartment community located in Las Vegas, Nevada. Additionally, the company completed construction of Colonial Pinnacle Turkey Creek III, a 166,000 square-foot retail center located in Knoxville, Tennessee.

The company had two active retail projects totaling 0.4 million square feet under construction at the end of the third quarter 2009, with an additional $10.4 million expected to be spent to complete the developments.

Joint Venture Transactions

During the third quarter 2009, certain of the company’s unconsolidated joint ventures exercised options to extend an aggregate of approximately $48.5 million of outstanding mortgage debt from 2009 to 2010. In addition, one of the company’s unconsolidated joint ventures disposed of its only property during the quarter, a 280-unit multifamily apartment community, of which a portion of the proceeds were used to repay an outstanding collateralized $14.0 million mortgage loan on the property (of which our pro rata share was $2.8 million).

During the third quarter 2009, the company completed the previously announced sale of its interests in four single-asset multifamily joint ventures with CMS, which collectively included 1,212 apartment units. Upon closing of the transaction, the company received a total of $2.0 million in cash. In conjunction with this transaction, the company agreed to provide an additional contribution to the CMS/Colonial Canyon Creek joint venture in connection with the refinancing of an existing $27.4 million construction loan which was secured by Colonial Grand at Canyon Creek, a 336-unit apartment community located in Austin, Texas. On September 14, 2009, the CMS/Colonial Canyon Creek joint venture refinanced its existing construction loan with a new $15.6 million, 10-year secured loan collateralized by the property with an interest rate of 5.64%. In connection with the refinancing, the company made a preferred equity contribution of $11.5 million, which was used by the joint venture to repay the balance of the then outstanding construction loan and closing costs. The preferred equity has a cumulative preferential return of 8.0%. As a result of the preferred equity contribution to the joint venture, we have consolidated the CMS/Colonial Canyon Creek joint venture in our financial statements for the quarter ending September 30, 2009.

Through Colonial Realty, the company owns a 35 percent joint venture interest in Colonial Grand at Traditions, a 324-unit apartment community located in Gulf Shores, Alabama that was completed in 2007. On September 25, 2009, the company determined it was probable that it will have to fund the $3.5 million partial loan repayment guarantee provided on the original construction loan for Colonial Grand at Traditions. Accordingly, the company recognized a charge to earnings of $3.5 million in the third quarter of 2009 for this expected payment. In addition, the company determined that its 35 percent joint venture interest is impaired and that this impairment is other than temporary. The impairment charge was calculated as the difference between the estimated fair value of our joint venture interest and the current book value of our joint venture interest. As a result, the company recognized a non-cash charge of $0.2 million in the third quarter of 2009 for this other-than-temporary impairment.

At September 30, 2009, the company’s pro-rata share of mortgage debt of unconsolidated joint ventures that matures in 2009 and 2010 is $189.5 million. Approximately $7.0 million of this debt, which represents the company’s pro-rata share, has already matured. The company intends to cooperate with its joint venture partners in connection with their efforts to refinance and/or replace outstanding joint venture indebtedness (which may also include, for example, property dispositions), which cooperation may include additional capital contributions from time to time. The failure of the company’s joint venture partners to refinance and/or restructure such debt (or decisions by our joint venture partners not to refinance and/or restructure such debt) may have a material adverse impact on the value of our joint venture interests.

Additionally, on October 27, 2009, the company closed on the sale of its joint venture interest in Colony Woods, a 414-unit apartment community located in Birmingham, Alabama for total sales proceeds of $24.8 million (of which our pro-rata share was $2.5 million).

Quarterly Dividend on Common Shares

On October 28, 2009, the Board of Trustees approved a cash dividend of $0.15 per common share, payable November 16, 2009, to shareholders of record as of November 9, 2009, representing an ex-dividend date of November 5, 2009.

2009 EPS and FFO per Share Guidance

The company’s updated guidance range for the full-year 2009 for EPS and FFO per share, with certain assumptions and timing of certain transactions, is set forth and reconciled below:

Following are current assumptions reflected in the company’s updated full-year 2009 guidance:

• Multifamily same-property NOI: decline of 6.5 to 7.25 percent.
  • Revenue: Decline of 3.0 to 3.25 percent
  • Expense: Growth of 2.75 to 3.25 percent
• Development spending of $40 million to $45 million.
• Commercial development and for-sale residential property dispositions of $80 million to $100 million.
• New secured financings totaling up to $506 million; all of which has already been obtained.
• Corporate G&A expenses of $16 million to $18 million.
• Increased number of common shares outstanding due to the sale of 12.1 million shares in the recent equity offering and 4.8 million shares issued in the at-the-market equity issuance program

The company’s guidance range reflects the existence of volatile economic conditions, and is based on a number of assumptions, many of which are outside the company’s control and all of which are subject to change. Among the assumptions included in the company’s guidance range are assumptions regarding the ability of the company and the company’s joint venture partners to refinance and/or replace existing joint venture mortgage debt, including debt that has matured or matures in the near future, and potential costs and other impacts if such debt is not refinanced or replaced. The company’s guidance may change if actual results vary from these assumptions.

For additional details regarding the company’s disposition and investment activities, see the company’s Supplemental Financial Highlights available on the company’s website at www.colonialprop.com.

Conference Call and Supplemental Materials

The company will hold its quarterly conference call today at 1:00 p.m. Central Time. The call will include a review of the company’s third quarter performance and a discussion of the company’s strategy and expectations for the future.

To participate, please dial 1-866-454-3510. As with previous calls, a replay will be available for seven days by dialing 1-800-642-1687; the conference ID is 78509582. Access to the live call and a replay will also be available through the company's website at www.colonialprop.com under "Investor Services: General Information: Presentations.”

Colonial Properties Trust produces a supplemental information package that provides detailed information regarding operating performance, investing activities and the company's overall financial position. For a copy of Colonial Properties’ detailed Supplemental Financial Highlights, please visit the company's website at www.colonialprop.com under the "Investor Services: Financial Information and Filings” tab, or contact Jerry Brewer in Investor Relations at 1-800-645-3917.

Colonial Properties Trust is a multifamily real estate investment trust (REIT) that creates additional value for its shareholders by managing commercial assets through joint venture investments and pursuing development opportunities. As of September 30, 2009, the company owned or managed 34,644 apartment units, and 21.5 million square feet of office and retail space located in key Sunbelt states from Virginia to Nevada. Headquartered in Birmingham, Alabama, Colonial Properties is listed on the New York Stock Exchange under the symbol CLP and is included in the S&P SmallCap 600 Index. For more information, please visit the company's website at www.colonialprop.com.

Non-GAAP Financial Measures

The company uses certain non-GAAP financial measures in this press release. The non-GAAP financial measures include FFO and Operating FFO. The definitions of these non-GAAP financial measures are summarized below. The company believes that these measures are helpful to investors in measuring financial performance and comparing such performance to other REITs. 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 the company’s performance. The company believes that FFO is useful to investors because it provides an additional indicator of the company’s 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 the company’s industry.

The company believes that the line on its 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, 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 its 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.

Operating FFO — The company also uses operating funds from operations ("Operating FFO”) as an operating measure. The company defines Operating FFO as FFO excluding gains on the sale of land and development properties and gains on the repurchase of bonds and preferred shares. The company believes Operating FFO is an important supplemental measure because it provides a measure of operating performance. While land and development gains or the repurchase of debt/preferred shares are components of our current business plan, the timing and amount of these transactions can vary significantly between periods. The company believes that the line on its consolidated statement of operations entitled "net income available to common shareholders” is the most directly comparable GAAP measure to Operating FFO.

Property Net Operating Income - The company uses property NOI, including same store NOI, as an operating measure. 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). The company believes that in order to facilitate a clear understanding of its operating results, NOI should be examined in conjunction with net income as presented in the company’s consolidated financial statements. The company also believes that NOI is an important supplemental measure of operating performance for a REIT’s operating real estate because it provides a measure of the core operations, rather than factoring in depreciation and amortization, financing costs and general and administrative expenses. This measure is particularly useful, in the opinion of the company, in evaluating the performance of geographic operations, same store groupings and individual properties. Additionally, the company believes that NOI is a widely accepted measure of comparative operating performance in the real estate investment community. The company believes that the line on its consolidated statement of operations entitled "net income" is the most directly comparable GAAP measure to NOI. In addition to company management evaluating the operating performance of its reportable segments based on NOI results, management uses NOI, along with other measures, to assess performance in connection with evaluating and granting incentive compensation to key employees.

The company's method of calculating FFO, Operating FFO and NOI may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. Neither FFO, Operating FFO nor NOI should 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 the company’s ability to make distributions.

Safe Harbor Statement

"Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Estimates of future earnings are, by definition, and certain other statements in this press release, including statements regarding, the ability of the company’s joint venture partners to refinance and/or replace outstanding joint venture indebtedness, the company’s ability to complete developments in line with cost estimates, the company’s ability to successfully complete unit sales at its condominium conversion projects may constitute, "forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and involve known and unknown risks, uncertainties and other factors that may cause the company’s actual results, performance, achievements or transactions to be materially different from the results, performance, achievements or transactions expressed or implied by the forward looking statements. Factors that impact such forward looking statements include, among others, real estate conditions and markets, including recent deterioration in the multifamily market and the strength or duration of the current recession or recovery; increased exposure, as a multifamily focused REIT, to risks inherent in investments in a single industry; ability to obtain financing on reasonable rates, if at all; performance of affiliates or companies in which we have made investments; changes in operating costs; higher than expected construction costs; uncertainties associated with the timing and amount of real estate dispositions, including our existing inventory of condominium and for-sale residential assets; legislative or regulatory decisions; our ability to continue to maintain our status as a REIT for federal income tax purposes; price volatility, dislocations and liquidity disruptions in the financial markets and the resulting impact on availability of financing; the effect of any rating agency action on the cost and availability of new debt financings; level and volatility of interest rates or capital market conditions; effect of any terrorist activity or other heightened geopolitical crisis; or other factors affecting the real estate industry generally.

Except as otherwise required by the federal securities laws, the company assumes no responsibility to update the information in this press release.

The company refers you to the documents filed by the company from time to time with the Securities and Exchange Commission, specifically the section titled "Risk Factors” in the company’s Annual Report on Form 10-K for the year ended December 31, 2008, as may be updated or supplemented in the company’s Form 10-Q filings, which discuss these and other factors that could adversely affect the company’s results.