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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 8-K/A
CURRENT REPORT
Date of Report(Date of earliest event reported): October 25, 2004
COLONIAL PROPERTIES TRUST
Alabama | 1-12358 | 59-7007599 | ||
(State or other jurisdiction | (Commission File Number) | (IRS Employer | ||
of incorporation) | Identification Number) |
2101 Sixth Avenue North, Suite 750, Birmingham, Alabama 35202
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code:(205) 250-8700
Not applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K/A filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[X] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
[ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
[ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
[ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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EX-23.1 CONSENT OF ERNST AND YOUNG LLP | ||||||||
EX-99.1 CONSOLIDATED FINANCIAL STATEMENTS OF CORNERSTONE | ||||||||
EX-99.2 UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CORNERSTONE |
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Item 8.01 Other Events
On October 25, 2004, Colonial Properties Trust (“Colonial”) and CLNL Acquisition Sub LLC, a wholly-owned subsidiary of Colonial, entered into an agreement and plan of merger with Cornerstone Realty Income Trust, Inc. (“Cornerstone”). Historical financial statements of Cornerstone and pro forma financial information of Colonial are included in this report in response to Item 9.01 below. This Form 8-K/A is an amendment to the Form 8-K filed by Colonial with the Securities and Exchange Commission on October 28, 2004.
Item 9.01 Financial Statements and Exhibits
Listed below are the financial statements, pro forma financial information and exhibits filed as part of this report:
(a) Financial Statements of Business Acquired.
1.) | Audited Consolidated Financial Statements of Cornerstone as of December 31, 2003 and 2002 and for the years ended December 31, 2003, 2002 and 2001 (incorporated by reference to pages 35 to 53 of Cornerstone’s 2003 Annual Report on Form 10-K, File No. 001-12875, as filed with the Securities and Exchange Commission on March 12, 2004 and attached as Exhibit 99.1 to this report). | |||
2.) | Unaudited Condensed Consolidated Financial Statements of Cornerstone as of September 30, 2004 and for the three and nine months ended September 30, 2004 and 2003 (incorporated by reference to pages 3 to 11 of Cornerstone’s Form 10-Q for the quarter ended September 30, 2004, File No. 001-12875, as filed with the Securities and Exchange Commission on November 9, 2004 and attached as Exhibit 99.2 to this report). |
(b) Pro Forma Financial Information.
The pro forma financial information of Colonial listed in the accompanying Index is filed as part of this Current Report on Form 8-K/A.
(c) Exhibits.
See the attached Exhibit Index, which is incorporated into this Item 9.01(c) by reference.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
COLONIAL PROPERTIES TRUST | ||||
Date: December 27, 2004 | By: | /s/ Weston M. Andress | ||
Name: | Weston M. Andress | |||
Title: | Chief Financial / Investment Officer | |||
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INDEX
COLONIAL PROPERTIES TRUST:
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2004 | F-2 | |||
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 2004 | F-3 | |||
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2003 | F-5 | |||
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements | F-8 |
F-1
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COLONIAL PROPERTIES TRUST
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2004
(in thousands, except share data)
HISTORICAL | HISTORICAL | |||||||||||||||||||
COLONIAL PROPERTIES | CORNERSTONE REALTY | SUBSEQUENT | PRO FORMA | CONSOLIDATED | ||||||||||||||||
TRUST (A) | INCOME TRUST, INC (B) | ACQUISITIONS (C) | ADJUSTMENTS (D) | PRO FORMA | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Land, buildings, & equipment | $ | 2,622,539 | 1,305,588 | 152,847 | 146,577 | D-1 | $ | 4,227,551 | ||||||||||||
Undeveloped land and construction in progress | 141,179 | 11,345 | — | 1,274 | D-1 | 153,798 | ||||||||||||||
Less: Accumulated depreciation | (420,425 | ) | (259,075 | ) | — | 259,075 | D-2 | (420,425 | ) | |||||||||||
Real estate assets held for sale, net | 146,294 | — | — | — | 146,294 | |||||||||||||||
Net real estate assets | 2,489,587 | 1,057,858 | 152,847 | 406,926 | 4,107,218 | |||||||||||||||
Cash and equivalents | 7,450 | 2,173 | — | — | 9,623 | |||||||||||||||
Restricted cash | 2,261 | — | — | — | 2,261 | |||||||||||||||
Accounts receivable, net | 16,639 | 3,026 | — | — | 19,665 | |||||||||||||||
Notes receivable | 645 | 289 | — | — | 934 | |||||||||||||||
Prepaid expenses | 6,654 | 3,423 | — | (1,275 | ) D-3 | 8,802 | ||||||||||||||
Deferred debt and lease costs | 35,513 | 5,769 | — | (5,769 | ) D-4 | 35,513 | ||||||||||||||
Investment in partially owned entities | 63,085 | 4,168 | 19,329 | 383 | D-5 | 86,965 | ||||||||||||||
Other assets | 55,323 | 28,797 | 11,002 | 31,646 | D-6 | 126,768 | ||||||||||||||
2,677,157 | 1,105,503 | 183,178 | 431,911 | 4,397,749 | ||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
Notes and mortgages payable | 1,499,531 | 811,449 | — | 28,301 | D-7 | 2,339,281 | ||||||||||||||
Unsecured credit facility and bridge loan | 228,021 | — | 183,178 | 52,714 | D-8 | 463,913 | ||||||||||||||
Mortgages payable related to real estate held for sale | 3,400 | — | — | — | 3,400 | |||||||||||||||
Total long-term liabilities | 1,730,952 | 811,449 | 183,178 | 81,015 | 2,806,594 | |||||||||||||||
Accounts payable | 32,582 | 19,757 | — | — | 52,339 | |||||||||||||||
Accrued interest | 20,113 | — | — | — | 20,113 | |||||||||||||||
Accrued expenses | 25,803 | — | — | — | 25,803 | |||||||||||||||
Tenant deposits | 4,356 | 2,124 | — | — | 6,480 | |||||||||||||||
Unearned rent | 2,534 | 554 | — | — | 3,088 | |||||||||||||||
Other liabilities | 2,417 | 76 | — | — | 2,493 | |||||||||||||||
Total liabilities | 1,818,757 | 833,960 | 183,178 | 81,015 | 2,916,910 | |||||||||||||||
Minority interest: | ||||||||||||||||||||
Preferred units | 100,000 | — | — | — | 100,000 | |||||||||||||||
Operating partnership units of Cornerstone | — | 17,856 | — | (17,856 | ) D-9 | — | ||||||||||||||
Common units | 162,033 | — | — | 23,788 | D-10 | 185,821 | ||||||||||||||
Limited partners’ interest in consolidated partnership | 1,184 | — | — | — | 1,184 | |||||||||||||||
Total minority interest | 263,217 | 17,856 | — | 5,932 | 287,005 | |||||||||||||||
Series E preferred shares | — | — | — | 149,663 | D-11 | 149,663 | ||||||||||||||
Stockholders’ equity | 595,183 | 253,687 | — | 195,301 | D-12 | 1,044,171 | ||||||||||||||
Total shareholders’ equity | 595,183 | 253,687 | — | 195,301 | 1,044,171 | |||||||||||||||
$ | 2,677,157 | 1,105,503 | 183,178 | 431,911 | $ | 4,397,749 | ||||||||||||||
The accompanying notes are an integral part of these statements.
(A) | Amounts are derived from the unaudited Condensed Consolidated Balance Sheet included in Colonial’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004. | |||
(B) | Amounts are derived from detail supporting Cornerstone’s unaudited Condensed Consolidated Balance Sheet included in Cornerstone’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 as attached in Exhibit 99.2. Certain amounts have been reclassified to conform to Colonial’s presentation. | |||
(C) | Represents the acquisition of Colonial Village at Patterson Place (formerly North Creek Apartments), Colonial Village at Beverly Crest (formerly Montclair Parc Apartments), our 20% interest in the DRA partnership consisting of 16 multifamily properties, Harrington Farms, the Research Park Office Park Center, the proposed acquisition of the Portofino retail shopping center and the allocation of the purchase price of these properties to the assets and liabilities. The acquisition of the other properties acquired during the nine months ended September 30, 2004 and the allocation of the related purchase price to the assets acquired and liabilities assumed is reflected in the Colonial historical condensed consolidated balance sheet since those acquisitions were complete prior to September 30, 2004. (See Colonial’s 8-K filed on December 20, 2004 for further discussion of the acquisitions) | |||
(D) | For column (D) references, refer to Note 2 – Pro Forma Adjustments. |
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COLONIAL PROPERTIES TRUST
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
(in thousands, except per share data)
OTHER ACQUISITIONS (F) | ||||||||||||||||
HISTORICAL | HISTORICAL | |||||||||||||||
COLONIAL PROPERTIES | OTHER | PRO FORMA | ||||||||||||||
TRUST (E) | ACQUISITIONS | ADJUSTMENTS | PRO FORMA | |||||||||||||
Revenue: | ||||||||||||||||
Minimum rent | $ | 198,398 | $ | 26,390 | $ | 906 | F-1 | $ | 225,694 | |||||||
Percentage rent | 1,375 | 273 | — | 1,648 | ||||||||||||
Tenant recoveries | 21,489 | 3,776 | — | 25,265 | ||||||||||||
Other property related revenue | 14,334 | 1,500 | — | 15,834 | ||||||||||||
Other non-property related revenue | 4,634 | 9,747 | 853 | F-2 | 15,234 | |||||||||||
Total revenue | 240,230 | 41,686 | 1,759 | 283,675 | ||||||||||||
Operating Expenses: | ||||||||||||||||
Property operating expenses: | ||||||||||||||||
General operating expenses | 18,230 | 3,534 | — | 21,764 | ||||||||||||
Salaries and benefits | 12,284 | 1,800 | — | 14,084 | ||||||||||||
Repairs and maintenance | 22,210 | 2,172 | — | 24,382 | ||||||||||||
Taxes, licenses, and insurance | 23,237 | 4,490 | — | 27,727 | ||||||||||||
General and administrative | 18,209 | 8,536 | — | 26,745 | ||||||||||||
Depreciation | 60,441 | — | 6,764 | F-3 | 67,205 | |||||||||||
Amortization | 8,562 | — | 1,943 | F-3 | 10,505 | |||||||||||
Total operating expenses | 163,173 | 20,532 | 8,707 | 192,412 | ||||||||||||
Income from operations | 77,057 | 21,154 | (6,948 | ) | 91,263 | |||||||||||
Other income (expense): | ||||||||||||||||
Interest expense | (56,063 | ) | — | (9,674 | ) F-4 | (65,737 | ) | |||||||||
Income from investments | 288 | 1,393 | — | 1,681 | ||||||||||||
Gains (losses) on hedging activities | 142 | — | — | 142 | ||||||||||||
Gains from sales of property | 3,020 | — | — | 3,020 | ||||||||||||
Other | (276 | ) | — | — | (276 | ) | ||||||||||
Total other income (expense) | (52,889 | ) | 1,393 | (9,674 | ) | (61,170 | ) | |||||||||
Income (loss) before minority interest | 24,168 | 22,547 | (16,622 | ) | 30,093 | |||||||||||
Minority interest in CRLP — common unitholders | (2,071 | ) | — | (1,641 | ) F-5 | (3,712 | ) | |||||||||
Minority interest in CRLP — preferred unitholders | (5,680 | ) | — | — | (5,680 | ) | ||||||||||
Minority interest of limited partners | (36 | ) | (703 | ) | — | (739 | ) | |||||||||
Income (loss) from continuing operations | 16,381 | 21,844 | (18,263 | ) | 19,961 | |||||||||||
Dividends to preferred shareholders | (11,086 | ) | — | — | (11,086 | ) | ||||||||||
Preferred share issuance costs | — | — | — | — | ||||||||||||
Income (loss) from continuing operations available to common shareholders | $ | 5,295 | $ | 21,844 | (18,263 | ) | $ | 8,875 | ||||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 27,005 | |||||||||||||||
Diluted | 27,350 | |||||||||||||||
Income (loss) from continuing operations per share: | ||||||||||||||||
Basic | $ | 0.20 | ||||||||||||||
Diluted | 0.19 |
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COLONIAL PROPERTIES TRUST
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 — CONTINUED
(in thousands, except per share data)
CORNERSTONE ACQUISITION | ||||||||||||
TOTAL | ||||||||||||
HISTORICAL | PRO FORMA | PRO FORMA | ||||||||||
CORNERSTONE (G) | ADJUSTMENTS (H) | CONSOLIDATED | ||||||||||
Revenue: | ||||||||||||
Minimum rent | $ | 128,263 | — | $ | 353,957 | |||||||
Percentage rent | — | — | 1,648 | |||||||||
Tenant recoveries | — | — | 25,265 | |||||||||
Other property related revenue | 6,480 | — | 22,314 | |||||||||
Other non-property related revenue | 498 | — | 15,732 | |||||||||
Total revenue | 135,241 | — | 418,916 | |||||||||
Operating Expenses: | ||||||||||||
Property operating expenses: | ||||||||||||
General operating expenses | 16,129 | — | 37,893 | |||||||||
Salaries and benefits | 17,985 | — | 32,069 | |||||||||
Repairs and maintenance | 9,767 | — | 34,149 | |||||||||
Taxes, licenses, and insurance | 18,937 | — | 46,664 | |||||||||
General and administrative | 4,223 | — | 30,968 | |||||||||
Depreciation | 41,391 | 3,013 | H-1 | 111,609 | ||||||||
Amortization | — | 665 | H-2 | 11,170 | ||||||||
Total operating expenses | 108,432 | 3,678 | 304,522 | |||||||||
Income from operations | 26,809 | (3,678 | ) | 114,394 | ||||||||
Other income (expense): | ||||||||||||
Interest expense | (34,509 | ) | 3,441 | H-3 | (96,805 | ) | ||||||
Income from investments | — | 1,681 | ||||||||||
Gains (losses) on hedging activities | — | — | 142 | |||||||||
Gains from sales of property | 3,454 | — | 6,474 | |||||||||
Other | — | — | (276 | ) | ||||||||
Total other income (expense) | (31,055 | ) | 3,441 | (88,784 | ) | |||||||
Income (loss) before minority interest | (4,246 | ) | (237 | ) | 25,610 | |||||||
Minority interest in CRLP — common unitholders | 126 | 3,658 | H-4 | 72 | ||||||||
Minority interest in CRLP — preferred unitholders | — | — | (5,680 | ) | ||||||||
Minority interest of limited partners | — | — | (739 | ) | ||||||||
Income (loss) from continuing operations | (4,120 | ) | 3,421 | 19,263 | ||||||||
Dividends to preferred shareholders | (227 | ) | (8,553 | ) H-5 | (19,866 | ) | ||||||
Preferred share issuance costs | — | — | — | |||||||||
Income (loss) from continuing operations available to common shareholders | $ | (4,347 | ) | $ | (5,132 | ) | $ | (603 | ) | |||
Weighted average common shares outstanding: | ||||||||||||
Basic | 10,916 | H-6 | 37,921 | |||||||||
Diluted | 10,916 | H-6 | 37,921 | |||||||||
Income (loss) from continuing operations per share: | ||||||||||||
Basic | $ | (0.02 | ) | |||||||||
Diluted | (0.02 | ) |
The accompanying notes are an integral part of these statements.
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COLONIAL PROPERTIES TRUST
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
(in thousands, except per share data)
OTHER ACQUISITIONS (F) | ||||||||||||||||
HISTORICAL | HISTORICAL | |||||||||||||||
COLONIAL PROPERTIES | OTHER | PRO FORMA | ||||||||||||||
TRUST (I) | ACQUISITIONS | ADJUSTMENTS | PRO FORMA | |||||||||||||
Revenue: | ||||||||||||||||
Base Rent | $ | 235,109 | $ | 54,086 | $ | 1,208 | F-1 | $ | 290,403 | |||||||
Percentage rent | 2,494 | 213 | — | 2,707 | ||||||||||||
Tenant recoveries | 28,694 | 6,732 | — | 35,426 | ||||||||||||
Other property related revenue | 18,201 | 2,393 | — | 20,594 | ||||||||||||
Other non-property related revenue | 4,728 | 12,996 | 1,137 | F-2 | 18,861 | |||||||||||
Total revenue | 289,226 | 76,420 | 2,345 | 367,991 | ||||||||||||
Operating Expenses: | ||||||||||||||||
Property operating expenses: | ||||||||||||||||
General operating expenses | 21,808 | 7,159 | — | 28,967 | ||||||||||||
Salaries and benefits | 14,232 | 3,783 | — | 18,015 | ||||||||||||
Repairs and maintenance | 26,737 | 4,173 | — | 30,910 | ||||||||||||
Taxes, licenses, and insurance | 27,003 | 9,751 | — | 36,754 | ||||||||||||
General and administrative | 19,481 | 11,381 | — | 30,862 | ||||||||||||
Depreciation | 71,959 | — | 15,054 | F-3 | 87,013 | |||||||||||
Amortization | 7,760 | — | 9,112 | F-3 | 16,872 | |||||||||||
Total operating expenses | 188,980 | 36,247 | 24,166 | 249,393 | ||||||||||||
Income from operations | 100,246 | 40,173 | (21,821 | ) | 118,599 | |||||||||||
Other income (expense): | ||||||||||||||||
Interest expense | (66,613 | ) | — | (20,737 | ) F-4 | (87,350 | ) | |||||||||
Income from investments | 129 | 1,547 | — | 1,676 | ||||||||||||
Gains (losses) on hedging activities | (361 | ) | — | — | (361 | ) | ||||||||||
Gains from sales of property | 7,921 | — | — | 7,921 | ||||||||||||
Other | (121 | ) | — | — | (121 | ) | ||||||||||
Total other income (expense) | (59,045 | ) | 1,547 | (20,737 | ) | (78,235 | ) | |||||||||
Income (loss) before minority interest | 41,201 | 41,720 | (42,558 | ) | 40,364 | |||||||||||
Minority interest in CRLP — common unitholders | (3,855 | ) | — | 248 | F-5 | (3,607 | ) | |||||||||
Minority interest in CRLP — preferred unitholders | (8,873 | ) | — | — | (8,873 | ) | ||||||||||
Minority interest of limited partners | — | (891 | ) | — | (891 | ) | ||||||||||
Income (loss) from continuing operations | 28,473 | 40,829 | (42,310 | ) | 26,993 | |||||||||||
Dividends to preferred shareholders | (15,284 | ) | — | — | (15,284 | ) | ||||||||||
Preferred share issuance costs | (4,451 | ) | — | — | (4,451 | ) | ||||||||||
Income (loss) from continuing operations available to common shareholders | $ | 8,738 | $ | 40,829 | $ | (42,310 | ) | $ | 7,258 | |||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 24,965 | |||||||||||||||
Diluted | 25,232 | |||||||||||||||
Income (loss) from continuing operations per share: | ||||||||||||||||
Basic | $ | 0.35 | ||||||||||||||
Diluted | $ | 0.35 |
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COLONIAL PROPERTIES TRUST
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003 — CONTINUED
(in thousands, except per share data)
CORNERSTONE ACQUISITION | ||||||||||||
TOTAL | ||||||||||||
HISTORICAL | PRO FORMA | PRO FORMA | ||||||||||
CORNERSTONE (J) | ADJUSTMENTS (H) | CONSOLIDATED | ||||||||||
Revenue: | ||||||||||||
Base Rent | $ | 163,059 | $ | — | $ | 453,462 | ||||||
Percentage rent | — | — | 2,707 | |||||||||
Tenant recoveries | — | — | 35,426 | |||||||||
Other property related revenue | 8,316 | — | 28,910 | |||||||||
Other non-property related revenue | 277 | — | 19,138 | |||||||||
Total revenue | 171,652 | — | 539,643 | |||||||||
Operating Expenses: | ||||||||||||
Property operating expenses: | ||||||||||||
General operating expenses | 22,256 | — | 51,223 | |||||||||
Salaries and benefits | 13,724 | — | 31,739 | |||||||||
Repairs and maintenance | 19,052 | — | 49,962 | |||||||||
Taxes, licenses, and insurance | 23,550 | — | 60,304 | |||||||||
General and administrative | 4,063 | — | 34,925 | |||||||||
Depreciation | 52,817 | 4,018 | H-1 | 143,848 | ||||||||
Amortization | — | 30,284 | H-2 | 47,156 | ||||||||
Total operating expenses | 135,462 | 34,302 | 419,158 | |||||||||
Income from operations | 36,190 | (34,302 | ) | 120,486 | ||||||||
Other income (expense): | ||||||||||||
Interest expense | (45,622 | ) | 4,557 | H-3 | (128,415 | ) | ||||||
Income from investments | — | — | 1,676 | |||||||||
Gains (losses) on hedging activities | — | — | (361 | ) | ||||||||
Gains from sales of property | — | — | 7,921 | |||||||||
Other | — | — | (121 | ) | ||||||||
Total other income (expense) | (45,622 | ) | 4,557 | (119,300 | ) | |||||||
Income (loss) before minority interest | (9,432 | ) | (29,745 | ) | 1,186 | |||||||
Minority interest in CRLP — common unitholders | 262 | 15,171 | H-4 | 11,826 | ||||||||
Minority interest in CRLP — preferred unitholders | — | — | (8,873 | ) | ||||||||
Minority interest of limited partners | — | — | (891 | ) | ||||||||
Income (loss) from continuing operations | (9,170 | ) | (14,574 | ) | 3,247 | |||||||
Dividends to preferred shareholders | (303 | ) | (11,404 | ) H-5 | (26,991 | ) | ||||||
Preferred share issuance costs | — | — | (4,451 | ) | ||||||||
Income (loss) from continuing operations available to common shareholders | $ | (9,473 | ) | $ | (25,978 | ) | $ | (28,195 | ) | |||
Weighted average common shares outstanding: | ||||||||||||
Basic | 10,916 | H-6 | 35,881 | |||||||||
Diluted | 10,916 | H-6 | 35,881 | |||||||||
Income (loss) from continuing operations per share: | ||||||||||||
Basic | $ | (0.79 | ) | |||||||||
Diluted | (0.79 | ) |
The accompanying notes are an integral part of these statements.
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(E) | Amounts are derived from the unaudited Condensed Consolidated Statement of Operations included in Colonial’s Quarterly Report in Form 10-Q for the quarter ended September 30, 2004. | |||
(F) | Amounts represent Colonial’s acquisitions that occurred or are probable to occur, since January 1, 2003 through the date of this filing. Amounts herein represent actual results of the properties acquired, except for the probable acquisition in 2005. (See Colonial’s 8-K filed on December 20, 2004 for further discussion of the acquisitions). For column (F) references, refer to Note 2 – Pro Forma Adjustments. | |||
(G) | Amounts are derived from Cornerstone’s unaudited Condensed Consolidated Statement of Operations included in Cornerstone’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 as attached in Exhibit 99.2. Certain amounts have been reclassified to conform to Colonial’s presentation. | |||
(H) | For column (H) references, refer to Note 2 – Pro Forma Adjustments. | |||
(I) | Amounts are derived from the Consolidated Statement of Operations for the year ended December 31, 2003 included in Colonial’s Form 8-K filed with the Securities and Exchange Commission on December 9, 2004. | |||
(J) | Amounts are derived from Cornerstone’s Consolidated Statement of Operations included in Cornerstone’s Annual Report on Form 10-K for the year ended December 31, 2003 as attached in Exhibit 99.1. Certain amounts have been reclassified to conform to Colonial’s presentation. |
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COLONIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. PRO FORMA BASIS OF PRESENTATION
The unaudited pro forma condensed consolidated financial statements are based upon the historical financial information of Colonial, excluding discontinued operations, and the historical financial information of each of the acquisitions listed below as if the acquisitions had occurred on the first day of the earliest period presented for the unaudited pro forma condensed consolidated statements of operations and as of the date of the unaudited pro forma condensed consolidated balance sheet. In management’s opinion, all adjustments necessary to reflect these transactions have been included.
The unaudited pro forma condensed consolidated financial statements should be read in conjunction with Colonial’s Current Report on Form 8-K filed on December 20, 2004, Form 8-K filed on December 9, 2004, the Annual Reports on Form 10-K for the year ended December 31, 2003 of Colonial and Cornerstone and the Quarterly Reports on Form 10-Q for the quarter ended September 30, 2004 of Colonial and Cornerstone.
Colonial understands that in the course of preparing for the merger, Cornerstone discovered tax matters relating to whether it satisfied certain tax law requirements applicable to REITs. Cornerstone has filed a request with the Internal Revenue Service to enter into a closing agreement that would treat Cornerstone as having satisfied these requirements, but there can be no assurance that the Internal Revenue Service will consent to this request. A closing agreement with the IRS or other mutually satisfactory resolution of these matters is one of the conditions to closing the merger.
The merger, as further described below, will be accounted for as a purchase business combination. The fair market value of the consideration paid by Colonial will be used as the valuation basis for the merger. The consolidated assets and liabilities of Cornerstone will be revalued to their respective fair market values at the effective date of the merger. The unaudited pro forma adjustments, including the preliminary purchase accounting adjustments, are based on currently available information and upon preliminary assumptions and estimates that Colonial believes are reasonable. The preliminary purchase accounting allocations and assignment of depreciable lives are subject to adjustment as additional information, including third-party market valuations, become available and when the final purchase accounting takes place after the completion of the merger.
The costs of the assets acquired and liabilities assumed in conjunction with the other acquisitions, as further described below, have also been allocated based on an estimate of their respective fair values. The purchase allocation adjustments made in connection with the preparation of the unaudited pro forma condensed consolidated financial statements are based on the information available at this time.
The pro forma financial information contained in these pro forma condensed consolidated financial statements may not necessarily be indicative of what actual results of Colonial would have been if such transactions had been completed as of the dates indicated nor does it purport to represent the results of operations for future periods. Colonial management believes that the merger will create potential cost savings and operating efficiencies, such as elimination of redundant administrative and property management costs. Additionally, Colonial expects to refinance a portion of Cornerstone’s secured debt with a new issuance of Colonial unsecured debt, which is expected to bear interest at rates lower than the interest rates assumed in determining the pro forma interest expense adjustments in the accompanying condensed consolidated statements of operations and may require certain prepayment penalties. These potential costs and interest savings have not been reflected in the accompanying unaudited pro forma condensed consolidated statements of operations as Colonial is currently unable to quantify them and there is no assurance that any anticipated savings will be realized.
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Colonial and Cornerstone have elected to be treated as real estate investment trusts (“REITs”) pursuant to the Internal Revenue Code of 1986, as amended. As a REIT, Colonial will generally not be subject to federal income tax on taxable income distributed currently to its stockholders. However, certain affiliates of Colonial and Cornerstone are taxable REIT subsidiaries (“TRS”). A TRS is permitted to engage in non-qualifying REIT activities and the taxable income of a TRS is subject to federal, state and local income taxes. Deferred income taxes relate primarily to the TRS and are accounted for using the asset and liability method.
Cornerstone Acquisition
On October 25, 2004, Colonial entered into an agreement and plan of merger with Cornerstone. Under the terms of the merger agreement, which has been approved by the Colonial board of trustees and the Cornerstone board of directors, the transaction will be structured as a common share and preferred depositary share election merger, with Cornerstone shareholders having the right to elect to receive the merger consideration in Colonial common shares or Colonial Series E preferred depositary shares, subject to the restriction that the Colonial Series E preferred depositary shares issued shall not exceed approximately 25% of the total merger consideration.
The total purchase price for the acquisition is estimated as follows (in thousands):
Issuance of 10,916,312 Colonial common shares to Cornerstone shareholders | $ | 448,988 | ||
Issuance of Colonial Series E preferred depository shares to Cornerstone shareholders (assumes 25% election of Cornerstone common shareholders) | 149,663 | |||
Issuance of 578,358 Colonial Partnership common units | 23,788 | |||
Total merger consideration | 622,439 | |||
Assumption of Cornerstone’s notes and mortgages payable at book value | 811,449 | |||
Adjustment to record Cornerstone’s notes and mortgages at fair value | 28,301 | |||
Assumption of Cornerstone’s accounts payable and other liabilities at book value | 22,511 | |||
Estimated fees and other expenses related to the merger | 52,714 | |||
Total purchase price | $ | 1,537,414 | ||
The following is a calculation of the estimated fees and other expenses related to the merger (in thousands):
Advisory fees | $ | 14,000 | ||
Legal and accounting fees | 8,483 | |||
Termination and servance payments | 15,000 | |||
Debt assumption and other fees | 15,231 | |||
$ | 52,714 | |||
The Cornerstone acquisition has been presented in accordance with Rule 3-05 and Article 11 of Regulation S-X of the United States Securities and Exchange Commission.
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Other Acquisitions
Other acquisitions include all acquisitions of Colonial since January 1, 2003, including one acquisition that is probable to occur in the first quarter of 2005, other than the Cornerstone acquisition. These other acquisitions are summarized below. Pro forma financial results of the other acquisitions have been presented in accordance with Article 11 of Regulation S-X of the United States Securities and Exchange Commission. As the properties will be directly or indirectly owned by entities that will elect or have elected to be treated as REITs (as specified under sections 856-860 of the Internal Revenue Code of 1986) for Federal income tax purposes, a presentation of estimated taxable operating results is not applicable.
Other acquisitions include the following:
New or Assumed Debt (2) | ||||||||||||||||||||||
Acquisition | Asset | Percentage | Purchase | Pro Forma | ||||||||||||||||||
(in thousands) | Date | Type | Location | Ownership | Price | Amount | Interest Rate | |||||||||||||||
2003 (1) | ||||||||||||||||||||||
Research Place | December 15 | Office | AL | 100 | % | 18,912 | — | — | ||||||||||||||
Metrowest | December 28 | Multifamily | FL | 100 | % | 26,000 | — | — | ||||||||||||||
Quarry Oaks | December 29 | Multifamily | TX | 100 | % | 33,350 | — | — | ||||||||||||||
2004 | ||||||||||||||||||||||
DRS Building | February 12 | Office | AL | 100 | % | $ | 13,100 | $ | — | — | ||||||||||||
Arringdon | April 2 | Multifamily | NC | 100 | % | 26,773 | — | — | ||||||||||||||
Kingwood Commons | April 8 | Retail | TX | 100 | % | 34,500 | — | — | ||||||||||||||
Roberts Realty Properties | June 1 | Multifamily - 5 | GA | 100 | % | 109,150 | 58,802 | 5.60 | % (3) | |||||||||||||
Cunningham | June 5 | Multifamily | TX | 20 | % | 3,860 | 2,898 | 5.18 | % | |||||||||||||
Bayshore & Palma Sola | June 15 | Multifamily | FL | 25 | % | 11,874 | 8,676 | 6.94 | % | |||||||||||||
Village on the Parkway | June 18 | Retail | TX | 90 | % | 60,360 | 47,000 | 5.77 | % | |||||||||||||
Deerfield Mall | August 2 | Retail | FL | 100 | % | 51,272 | 32,066 | 5.90 | % | |||||||||||||
Pines Plaza | August 2 | Retail | FL | 100 | % | 15,250 | 9,331 | 5.42 | % | |||||||||||||
College Parkway | August 2 | Retail | FL | 100 | % | 15,143 | 7,504 | 6.00 | % | |||||||||||||
CMS - Nashville | August 19 | Multifamily - 2 | TN | 25 | % | 10,250 | 7,407 | 7.22 | % | |||||||||||||
Boulevard Square | September 10 | Retail | FL | 100 | % | 43,400 | 27,206 | 6.00 | % | |||||||||||||
Villas on the South Creek | September 10 | Multifamily | TX | 100 | % | 14,000 | — | — | ||||||||||||||
Colonnade Management Group | September 22 | Office | FL | 50 | % | 9,000 | — | — | ||||||||||||||
Seven Oaks | September 30 | Multifamily | FL | 100 | % | 23,598 | — | — | ||||||||||||||
Research Park Office Center | October 22 | Office | AL | 100 | % | 16,774 | — | — | ||||||||||||||
DRA Properties | October 25 | Multifamily - 16 | AZ, NM, NV | 20 | % | 64,494 | 45,354 | 4.18 | % | |||||||||||||
Northcreek | October 29 | Multifamily | NC | 100 | % | 21,500 | — | — | ||||||||||||||
Montclair Parc | October 29 | Multifamily | NC | 100 | % | 23,225 | — | — | ||||||||||||||
Harrington Farms | December 7 | Multifamily | GA | 100 | % | 40,350 | — | — | ||||||||||||||
2005 Probable acquisition | ||||||||||||||||||||||
Portofino | February 1 | Retail | TX | 100 | % | 62,000 | — | — |
(1) | See Colonial’s Form 8-K filed with the Securities and Exchange Commission on December 20, 2004 for further discussion of the acquisitions listed above. |
(2) | Additional funding, including for those acquisitions for which a specific and separate loan was not obtained or assumed, was assumed to have drawn on the Company’s line of credit at an interest rate of 1.84% for the nine months ended September 30, 2004 and 2.27% for the year ended December 31, 2003. |
(3) | Weighted Average interest rate on the debt assumed for the five multifamily properties acquired. |
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NOTE 2. PRO FORMA ADJUSTMENTS
D-1 | Fair market value adjustments to Cornerstone’s real estate assets held for investment based on Colonial’s purchase price allocation. See Note 1 for further discussion of the purchase price allocation. |
D-2 | Adjustment to eliminate Cornerstone’s historical accumulated depreciation. |
D-3 | Adjustment to eliminate certain inventory and prepaid items, in order to conform to Colonial’s basis of presentation. |
D-4 | Adjustment to write off Cornerstone’s deferred debt and lease costs. |
D-5 | Adjustment to record, at fair value, Cornerstone’s joint venture investments. |
D-6 | Adjustments to Cornerstone’s historical balances for other assets as follows: |
(a) | Elimination of Cornerstone’s historical book value for: $2.2 million in receivables related to straight-line rent adjustments. | |||
(b) | Increase in other assets of $29.4 million which represents the portion of the purchase price allocated to intangible lease costs related to in-place leases. Colonial estimates the value of in place leases by determining the savings in leasing downtime. Colonial also estimates the value of current resident relations based on renewals. | |||
(c) | Increase in other assets of $4.4 million, which represents the allocation of the purchase price to Cornerstone’s third-party management contracts. |
D-7 | Net adjustment to reflect the fixed interest rates on notes payable that Colonial will assume upon completion of the merger with Cornerstone that are above/below market rates. Colonial will record a fair value adjustment of $28.3 million to account for the difference between the fixed rates and market rates for those borrowings. Estimates of fair value are based upon interest rates available for the issuance of debt with similar terms and remaining maturities. |
D-8 | Represents the amount of borrowings needed to fund the merger transactional costs. |
D-9 | To eliminate outstanding operating partnership units of Cornerstone. |
D-10 | To reflect the new Colonial Partnership units issued to Cornerstone operating partnership unitholders. |
D-11 | Represents the issuance of $149.7 million of Colonial Series E preferred depositary shares. |
D-12 | Represents adjustments to historical shareholders’ equity to reflect the issuance of 10,916,312 Colonial common shares, at an estimated value of $41.13 per share, in exchange for 56,327,721 Cornerstone common shares. At the time of the merger, all previously granted shares of restricted stock will vest and all previously issued options will be converted into Colonial options. |
F-1 | Reflects the amortization of acquired above and below-market leases. |
F-2 | Reflects the third party management fees on the acquired joint venture properties. |
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F-3 | Represents depreciation and amortization expense related to buildings, furniture and fixtures and in-place leases of the acquired properties. |
F-4 | Reflects interest expense through the date of Colonial’s acquisition on the $599.1 million of debt assumed or borrowed which had effective rates from 2.27% to 7.38% in connection with the operating properties acquired during 2003 and 2004. |
F-5 | Reflects the allocation of earnings to the minority interest in Colonial Partnership as a result of the acquired properties. |
H-1 | Represents the net increase in depreciation of real estate held for investment as a result of recording Cornerstone’s assets at fair value. Colonial allocates the purchase price between net tangible and intangible assets. Depreciation is computed on a straight-line basis over the remaining useful lives of the related assets. Buildings have an estimated useful life of 40 years and furniture and fixtures have an estimated useful life of five years. |
The calculation of the fair value of depreciable real estate assets is as follow (in thousands): |
Buildings | $ | 1,227,116 | ||
Furniture and fixtures | 45,638 | |||
In-place lease value | 29,397 | |||
3rd party management contracts | 4,435 | |||
Fair value of depreciable real estate assets | 1,306,586 | |||
Land | 181,647 | |||
Undeveloped land and construction in progress | 12,619 | |||
Other assets, including cash (excluding in-place lease values and management contracts) | 32,011 | |||
Investments in partially owned entities | 4,551 | |||
Total purchase price | $ | 1,537,414 | ||
H-2 | Represents the amortization of the estimated intangible value of in-place leases and third-party management contracts. The value of in-place leases is being amortized over the estimated average remaining life of in-place leases at the time of the merger. Apartment lease terms generally range from six to fifteen months, with an estimated average lease term of eleven months. The value of the third-party management contracts is being amortized over a five year period. |
H-3 | Represents the net adjustment to interest expense to reflect additional borrowings of $52.7 million to fund the transactional costs related to the merger. Interest expense has been calculated based on current market rates available to Colonial under Colonial’s unsecured line of credit. The increase in interest expense from additional borrowings is offset by $3.3 million and $4.4 million for the nine months ended September 30, 2004 and the twelve months ended December 31, 2003, respectively, in pro forma adjustments for the amortization of the fair value adjustment to Cornerstone’s historical debt balances. The fair value adjustments, which totaled $28.3 million, are being amortized over the weighted average remaining life, of 4.5 years, of the underlying debt. Included in the adjustment is the elimination of Cornerstone’s historical amortization of deferred financing costs, $1.0 million for the nine months ended September 30, 2004 and $1.3 million for the twelve months ended December 31, 2003. |
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H-4 | Reflects the allocation of earnings to minority interest in the operating partnership as a result of the pro forma adjustments based on the weighted average minority interest ownership percentage for the periods presented and the elimination of minority interest of unit holders in Cornerstone’s operating partnership. |
H-5 | Reflects the dividends related to the Series E preferred depositary shares. |
H-6 | The pro forma weighted average shares outstanding are the historical weighted average number of Colonial common shares outstanding for the periods presented, adjusted for the issuance of 10,916,312 Colonial common shares in connection with the merger. As the pro forma combined income from continuing operations is a loss for the periods presented, certain items that were historically included in the weighted average shares for diluted earnings per share calculation have been eliminated for pro forma purposes. |
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EXHIBIT INDEX
Exhibit | ||
Number | Description | |
23.1 | Consent of Ernst & Young LLP | |
99.1 | Consolidated financial statements of Cornerstone as of December 31, 2003 and 2002 and for the years ended December 31, 2003, 2002 and 2001 | |
99.2 | Unaudited condensed consolidated financial statements of Cornerstone as of September 30, 2004 and for the three and nine months ended September 30, 2004 and 2003 |