Five Key Points from Colonial Properties REIT's Q408 Conference Call

Five key points from Colonial Properties Trust's Q408 conference call: (CLP)

Becoming an apartment REIT:

We have elected to accelerate our exit from the for sale residential business and halt all new development activity.

We made the right move to sell commercial assets in 2007 and move in to primarily multifamily assets. In 2008 our multifamily portfolio contributed 75% of our net operating income. We’ll continue to move in that direction to simplify the management structure by looking for opportunities in the apartment business.

Q: In 24 months, you will be out of the for sale business entirely and you will just be an owner of multifamily REITs and a joint venture partner in office and retail properties?

A: Yes.

Financing (for more on this, click here):

Our multifamily portfolio is currently 90% unencumbered that unencumbered basis giving us the opportunity to success a new credit facility with Fannie Mae. Last week we locked the interest rate on $259 million of loan proceeds at a fixed rate of 6.07% for a 10 year term that will be secured by $15 multifamily properties.

We’re also in negotiations with Fannie Mae and Freddie Mac to provide additional financing of up to $150 million which should close in the first quarter. Combined the financings will total up to $500 million

The REIT stock-instead-of-cash dividend trend:

If the board feels like we’re going to do the stock dividend side of course, the cash portion will be well covered by operations then… It’s our intention to pay at least 50% of the dividend out in stock, [though] it was a very controversial discussion in the board meeting.

Who’s buying:

The purchaser for the shopping centers is a private REIT and the purchasers on the for sale product condos we’re seeing two type of purchasers, we’re seeing end users which is still taking place. Those come sparingly and after long negotiations and are usually people transferring in and out of communities and towns where we have the product. The majority of the contracts that are in the pipeline now are going to small investors that are buying units, as many as two at a time to 10 at a time and that’s where the heavier discounts are taking place.

Quite the cap rate:

Q: As far as that 8.5% cap rate goes, would you say that’s a good proxy to where properties are trading these days or do you think that reflects some sort of premium because of the financing provided?

A: I can’t say that’s a premium. We’ve been working on this deal since last summer, it’s been a very difficult market to price assets in and the buyer pool is not very deep today. It is just what it took to get this deal done. But, I do think it’s from 8% to 9% in that range.

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