Colonial Properties Trust is one of the largest diversified real estate investment trusts (REITs) in the United States. Founded in 1970, the Birmingham, Alabama-based firm has a current portfolio of 108 properties in nine states throughout the Sunbelt region.

The company' philosophy is to put itself in the way of growth. Colonial concentrates on markets in the Southeast and Texas because population and household income growths are high in these regions, while unemployment is low. Traditionally, the Southeast has outperformed national employment and income averages, and the region is projected to do more of the same.

When Colonial Properties Trust became public in September 1993 it had $425 million in assets. Today, the company boasts $2.5 billion in assets. Last year, the company was one of the few REITs to be added to the S&P Small Cap Index, what President and CEO Thomas Lowder describes as a seal of approval. "The S&P doesn1t take listing companies lightly. They are looking for companies that represent the entire industry," he says.

Star Strategy

Every decision Colonial makes is tested against the company' vision, mission and strategic plan. To be the star performer in real estate is Colonial' vision. The firm' mission is to provide the highest economic value to its shareholders by investment in and operation of highly profitable real estate products.

The fundamentals of the Colonial Star Strategy are a diversified portfolio, geographic focus on the Sunbelt region and consistent long-term performance. "While most REITs specialize in one product type, we have approached this business from a diversified property portfolio point-of-view," says Lowder. "We want to have consistent, good returns, and we produce those by having this mix of property types."

Three in One

As one of the few REITs that develops multifamily, office and retail properties, Colonial provides a unique set of skills when developing a mixed-use project. "There are very few companies that can actually do all three product types in one company," Lowder notes. "It gets very complicated for three different companies to develop three different product types in one development because of all of the other parties that are involved, such as lenders and lawyers for each developer."

This mixed-use focus has given Colonial the opportunity to develop a number of creative communities like Colonial TownPark in Orlando, Florida. Colonial TownPark was the company' first endeavor to create a development with all three property types. Upon completion, the 175-acre development will feature 1.1 million square feet of office space, 240,000 square feet of retail, 456 apartment homes and a hotel. With Colonial developing all three components in the mixed-use developments, the property types complement each other, which is something one may not get when multiple developers are involved.

Where you Live
Consistency and discipline are two words that best describe the multifamily division of Colonial. Operating from a strategic plan, the division' goal is to be the star performer in multifamily real estate.

"This means that we want to be consistent, long-term performers and achieve performance at the top 25 percent of our multifamily peers every year," says Paul Earle, executive vice president, multifamily division. "This is easy to achieve at any one point in time, but to do it every year requires tremendous discipline and a very thorough, strategic plan."

The company stopped acquiring properties in July 1998 and has concentrated on expanding its portfolio through new development. Colonial typically develops inside planned unit developments and tries to make its communities stand out from surrounding environments.

The multifamily division represents 36 percent of the company' net operating income (NOI). Colonial has 48 multifamily properties totaling 15,916 units that are branded in two groups: Colonial Grand, which is higher-end product, and Colonial Village, Class B product. The two multifamily brands were founded on four guiding principles under which Colonial operates -- quality, value, service and integrity.

Primary markets for the multifamily division are Central Florida, North Carolina (Charlotte and Raleigh), Atlanta and Texas. "Going forward, we' looking aggressively at the primary markets in those four areas, and we will continue to pursue a development strategy," says Earle. "We will also continue to pursue disposing of some of our assets."

The multifamily division remains disciplined with regard to entering and exiting markets. Colonial also tries to maintain a fairly new portfolio.

Work
For Colonial, employment growth drives office development. "We look at things from a demographic standpoint and figure out in which cities jobs are going to be created. Then we take another step and look at where in those cities the jobs going to be -- where the quality of life is," explains Bo Jackson, executive vice president, office division.

Colonial works diligently to give its buildings unique amenities and features that will create a better quality of life for tenants. Many of the company' office developments contain park settings, water features, trails and other amenities to enhance the setting. "You can literally sit at the benches in our parks and use the Internet," says Jackson. "Our theory is, if you can be productive, you' be more profitable and recruit and retain employees -- a competitive advantage. We look at our real estate as a complement to our tenants."

And the company has attracted a number of tenants because of the high quality of life standards to which it adheres. In Colonial TownPark, one tenant left its location in an established park and took an entire building in Colonial TownPark. The reason? The quality of life issue. For this company' employees to be able to live, work and shop within a relatively short area was extremely appealing.

Two major tenants in Colonial TownPark are Bank of New York and Mitsubishi. "They could have gone to any building in the area, and they picked us -- and we' the new guys on the block," Jackson boasts. "I think it' proof that our design, concept and product are outperforming the marketplace."

The office division currently has 18 properties totaling 3.6 million square feet in Orlando and Tampa, Florida; Birmingham, Huntsville and Montgomery, Alabama; and Atlanta. The company' immediate next market will be Raleigh, and long-term plans include Charlotte and Texas.

Shop
Colonial' retail portfolio encompasses 14.9 million square feet in 42 properties. The company' retail developments can be found in eight of the nine states in which Colonial operates today. Retail is an essential part of the company, accounting for nearly half of Colonial' portfolio.

Colonial owns 17 malls, the largest of which is Colonial Mall Macon in Macon, Georgia. A recent acquisition is Orlando Fashion Square, a joint venture with Prudential. Colonial also owns neighborhood and power centers, as well as a few lifestyle centers.

The company is currently working on two major redevelopment projects in Alabama. With Chattanooga, Tennessee-based CBL & Associates, Colonial is redeveloping Parkway Plaza in Huntsville. When complete, Parkway Plaza will encompass 650,000 square feet and will be anchored by Parisian and Dillard'. Parkway Plaza is scheduled to open in the fourth quarter.

The other major redevelopment project is Colonial Brookwood Village in Birmingham. "Brookwood Village is a good example of adjusting old retail, enhancing value and adjusting it to the demands of the customers," says Daryl Mangan, executive vice president, retail division. Anchored by Rich' and McRae', the center' imposing fa´ade pushed customers away. Colonial redeveloped Brookwood Village by opening up the front to make it more inviting. The new look and upgraded mix of retailers, including Ann Taylor Loft, Banana Republic, Books & Company and Cache, has brought customers back. The McRae' store will close in July and will be renovated and reopened as a Parisian store in August.

"Our retail strategy boils down to this -- you either have a dominant center or you have a defensible retail niche. And I think that if we guide our investment and development strategies by that, it will prove itself," says Mangan. He adds that as the company refines its retail strategic plan, geographic diversification and diversification by type of retail format will continue to be primary goals.

Bringing it all Together

Geographic diversification is not only a goal of the retail division; it is also part of the company' overall plan. No one market represents more than 16 percent of the company' NOI concentration. "We spend a great deal of time evaluating the opportunities between our three property types and deciding which is the best combination for the company," says Reynolds Thompson, chief operating officer.

Colonial' goal is to have 75 percent of its income coming from the top 26 metropolitan statistical areas in the Southeast. Diversification also allows the company to sell assets of one type of property and purchase another property type, depending on what kind of property is hot at the moment.

Colonial concentrates on return for its shareholders, and it manages the diversification of its portfolio to create that. "Long-term consistency of return on investment is what we are after," adds Lowder. "That means that we are going to operate for our shareholders in the top 25 percentile of all REITs. We want to be at the top consistently."


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