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Colonial Properties Trust (CLP) |
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WIKI ANALYSIS
Colonial Properties Trust (NYSE: CLP) is a real estate investment trust that purchases and develops properties throughout the Sunbelt states, primarily North Carolina, Texas, Alabama, Georgia, and Florida. CLP manages 111 multifamily apartment communities for a total of 33,520 apartment units and 45 commercial properties with 12.8 million sq.ft. of office space.
The company invests in three types of real estate - office, retail, and multifamily residential housing. CLP is betting on continued economic and demographic growth in the Southern United States as more Americans migrate south. While this area is quickly growing, it is also a fiercely competitive real estate market, as cheaper real estate costs mean low barriers to entry for competitors to CLP. Another risk in CLP's new strategy is that while its residential real estate profit margins are higher than those of its competitors, they have been the lowest of the firm's three divisions in the last two years. Concentrating more heavily on this low-margin sector means the firm will have to cut costs in other areas.
The firm's decision to focus on multifamily residential apartments has come at the right time, due to the depressed state of the U.S. Housing Market. The Subprime lending crisis has made it harder for many individuals to receive the loans necessary to purchase a homes, making the rental properties that CLP develops more attractive options for both families and investors. Since CLP also earns revenue through joint-ventures where it continues to manage properties after selling them to another party, the firm profits from additional rent revenues as well as property sales.
Company Overview
Colonial Properties Trust is a multifamily-focused self-administered equity REIT that owns, operates and develops multifamily communities primarily located in the Sunbelt region of the United States. The Company is a fully-integrated real estate company, engaged in the acquisition, development, ownership, management and leasing of multifamily communities and other commercial real estate properties.[1]
Colonial Properties owns and operates 156 properties as of December 31, 2009, located in Alabama, Arizona, Florida, Georgia, Nevada, North Carolina, South Carolina, Tennessee, Texas, and Virginia. The trust also develops new properties, acquires existing properties, and provides management, leasing and brokerage services for commercial real estate.
In November 2009, Colonial Properties disposed of its 15% ownership interest in the DRA/CRT office joint and acquired 100% ownership of one of the joint venture’s properties, Three Ravinia.[1] In December 2009, the Company announced it has exited the Colonial Center Mansell office joint venture.[1]
As of December 31, 2009, the Company owned or maintained a partial ownership in 111 multifamily apartment communities containing a total of 33,520 apartment units, 45 commercial properties containing a total of approximately 12.8 million square feet and certain parcels of land adjacent to or near certain of these properties.[1]
As a lessor, the majority of the trust's revenue is derived from residents under existing leases at its properties.
Business and Financial Metrics
Second Quarter 2010 Results (ended June 30, 2010)[2]
For the second quarter 2010, CLP reported a net loss available to common shareholders of $11.8 million, or $0.17 per diluted share, compared with a net loss available to common shareholders of $1.9 million, or $0.04 per diluted share, for the same period in 2009.
Funds from Operations Available to Common Shareholders and Unitholders (FFO), a widely accepted measure of REIT performance, for the second quarter 2010 was $20.7 million, or $0.27 per diluted share, compared with $31.9 million, or $0.56 per diluted share, for the same period in 2009. Operating FFO, which the company defines as FFO before transaction income (i.e. development gains, land/outparcel gains/losses and bond/preferred stock repurchase gains/losses), for the second quarter 2010 was $20.6 million, or $0.27 per diluted share, compared with $15.8 million, or $0.28 per diluted share, for the same period in 2009.
Property Acquisition and Development
CLP focuses on development as it believes this is more profitable than simply buying and reselling properties. CLP seeks to distinguish the reputation of its brand name properties. This has resulted in 27 building awards for CLP in the past decade.[3] The following charts indicate the future of CLP's development and acquisition.
Trends and Forces
The liquidity crunch resulting from the subprime lending crisis could inhibit CLP's ability to finance expansion
Lending is especially important to Real Estate Investment Trusts since federal tax law requires that it return at least 90% of earnings to shareholders. As a result, the trust cannot simply finance expansion by retaining a larger portion of earnings. CLP has responded to the liquidity crunch in traditional means by reducing overhead costs, expanding more cautiously, and organizing an extended line of credit with a number of financial institutions. However, CLP has also sought to reduce its debt load by selling off portions of its developments to joint ventures organized with other investors, while still maintaining its position as managers of these properties. This has proved an effective strategy for CLP as it has allowed them to expand their brand name properties aggressively within a reasonable debt-load while retaining the profits from property management. CLP's two largest joint venture partners are UBS AG (UBS) Wealth Management and DRA Advisors, which together own 60% of the space managed by CLP. Furthermore, CLP claims that it can fund its current planned development pipeline without accessing capital markets.[4]
The subprime crisis could also help CLP, boosting demand for its multi-family rental units
A glut of homes on the market might reduce prices sufficiently to attract many renters to purchase homes. This phenomenon has only affected the company's operations in Phoenix and Orlando, where over-construction was severe. In other locations, only the largest apartments with three bedrooms directly compete with houses, and this is only a small portion of CLP's apartment holdings.[5]
Demographic and Economic Trends favor CLP's properties in the Sunbelt
CLP's management believes that population and job growth in the Sunbelt states will continue to out-pace the national average. The company claims that recently 60% of the new jobs created in the United States were located in the Sunbelt. Furthermore, baby boomer retirees from northern states are expected to continue their southern migration, feeding demand for residential housing. CLP's current development pipeline shows that much of CLP's planned expansion is in top quartile growth cities such as Charlotte, Austin, and Phoenix.[6]
CLP's joint-venture strategy requires ongoing demand from investors
To access capital for building, CLP routinely sells off its developments after completion while continuing to manage and operate the property. If investors believe residential real estate to be a poor investment, a likely scenario considering current market conditions, then CLP will be unable to free up sufficient capital to continue its most profitable activity: development.
Competition
Of the four multi-family REITs with a national presence, CLP is the smallest and least diversified geographically. However, due to its use of joint ventures, it has maintained a lower debt load than many of its competitors. Furthermore, most CLP properties include amenities such as swimming pools, 24-hour exercise facilities, jacuzzis, clubhouses, and tennis courts.[7] Unlike its competitors, CLP places a unique emphasis on building mixed-use developments (which include residential, retail, and office space within the same property) and has developed strong relationships with retailers such as Target (TGT), AnnTaylor Stores (ANN), Regal Entertainment Group (RGC), and Williams-Sonoma (WSM).[8] This is important as it serves to distinguish CLP's Colonial Village and Colonial Grand brands from the properties of its competitors.
| Company | Total Debt | Total Cash | Dividend Yield | Number of Multifamily Units | % Revenue from Multifamily | Markets |
|---|---|---|---|---|---|---|
| Colonial Properties Trust (CLP) | $1.64 B | $93.03 m | 8.60% | 39,104 | 75% | Alabama, Arizona, Florida, Georgia, North Carolina, South Carolina, Tennessee, Texas, and Virginia |
| EQUITY RESIDENTIAL (EQR) | $9.51 B | $50.83 m | 5.10% | 165,000 | 100% | Oregon, Washington, California, Arizona, New Mexico, Colorado, Texas, Oklahoma, Illinois, Mississippi, Florida, Georgia, Tennessee, North Carolina, Virginia, New York, Maine, New Jersey, and New England. |
| United Dominion Realty Trust (UDR) | $3.50 B | $3.22 m | 5.90% | 70,000 | 100% | Oregon, Washington, California, Arizona, Texas, Arkansas, Florida, Tennessee, Ohio, South Carolina, North Carolina, and Virginia |
| Apartment Investment and Management Company (AIV) | $7.53 B | $210.46 m | 6.60% | 216,000 | 100% | 46 states and Washington D.C. |
References
- ↑ 1.0 1.1 1.2 1.3 Reuters: Colonial Properties Trust Company Profile
- ↑ TradingMarkets: "Colonial Properties Trust Reports Results for Second Quarter 2010"
- ↑ CLP 2007 10-K, pg. 4
- ↑ CLP's 2007 Q4 Earnings Call
- ↑ CLP's 2007 Q4 Earnings Call
- ↑ CLP 2007 10-K, pg. 4
- ↑ CLP 2007 10-K, pg. 34
- ↑ CLP 2007 10-K, pg. 7
- ↑ Financial data from yahoofinance.
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