Incorporated: 1970 as Colonial Properties Inc.
NAIC: 525930 Real Estate Investment Trust
Colonial Properties Trust is a Birmingham, Alabama-based real estate investment trust (REIT) that takes a balanced approach in a field that has become highly focused on the accumulation of a single type of property. To provide a hedge against the cyclical nature of the real estate industry, Colonial invests in three different sectors: multifamily, office, and retail properties. The REIT targets midsized Sun Belt cities located in Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, Texas, and Virginia. At the close of 2003, Colonial's portfolio consisted of 42 multifamily apartment communities containing 15,224 apartment units, 25 office properties offering 5.5 million square feet of space, and 45 retail properties with 15.3 million square feet of retail space. Colonial also owns land close to some of these properties for future development. Management services are provided by subsidiary Colonial Properties Services Limited Partnership, while Colonial Properties Services, Inc. offers development, construction, and management services for properties owned by third parties. With a total market capitalization of $2.8 billion, Colonial is listed on the New York Stock Exchange.
Colonial grew out of the real estate business founded in 1956 by Edward L. Lowder, the father of the REIT's president, chief executive officer, and chairman, Thomas H. Lowder. Ed Lowder was a legendary Alabama businessman who grew up on a small farm. He went on to college, earning a degree in agriculture in 1934 from Auburn University, which was then known as Alabama Polytechnic Institute. Upon graduation he became a county agent for the Alabama Cooperative Extension Service, a post he held until 1942 when he went into the military. After serving in Italy as an artillery officer, Lowder resumed his work with the Extension Service, but in 1946 he was presented with an opportunity to tap into some latent entrepreneurial talent. He was asked by the Alabama Farm Bureau to launch an insurance company to provide affordable fire insurance to rural Alabama residents.
The first county farm bureau had been established in 1911 by the Binghamton, New York, Chamber of Commerce to sponsor an extension agent from the U.S. Department of Agriculture. The tag "bureau" was soon applied to other state farming organizations. By 1919, 500 members representing state farm bureaus (or representing states that were in the process of organizing) gathered in Chicago to form a national organization that would become the American Farm Bureau Federation (AFBF). More commonly the organization became known as the Farm Bureau. Alabama formed a chapter in 1921. One of the earliest commercial ventures pursued by individual state farm bureaus was auto insurance, as a "service to member" operation. The pioneer in this field was the founder of State Farm Insurance, George Mecherle of Bloomington, Illinois. He created a mutual insurance company for rural and small town drivers who in the early 1920s were paying higher premiums even though they had fewer accidents than drivers in urban areas. By linking insurance rates to risk levels, Mecherle was able to offer significantly lower premiums than his competitors. He also signed agreements with state farm bureaus, which received a fee for each of their members who purchased policies. Some state farm bureaus took Mecherle's lead and formed their own mutual insurance companies.
Lowder launched Alabama Farm Bureau Insurance Company because Alabama farmers and rural residents were having extreme difficulty in securing fire insurance. With just $10,000 and a secretary, he established a company that would become known as ALFA Insurance and add property, life, and automobile insurance products. With a foundation as an insurance executive, Lowder was able to branch out into a number of areas, including mortgage banking, broadcasting, and real estate, all of which would be folded into a holding company called Lowder Companies. The collection ultimately took on the name of The Colonial Companies.
Lowder's start in the real estate business came in 1956 when he launched Lowder Construction Company to build single-family homes in Montgomery, Alabama. From this venture emerged a full-service real estate company. In 1970 Lowder formed Colonial Properties Inc. for his real estate holdings. By now his three sons were starting to take over some of his enterprises. In 1966, the eldest, Robert E. Lowder, became the head of the Colonial Mortgage Company. James K. Lowder became president of Lowder Construction Company in 1974. James's twin brother, Thomas H. Lowder, took charge of Colonial Properties in 1976.
Thomas Lowder learned about business from his father, who sometimes compared it with football. According to a Birmingham Business Journal profile, Lowder said of his father, "He'd tell me that touchdowns are your long-term goal, but then, you have first downs to work toward in between, which are your short-term goals." This advice would lead Lowder to become very much focused on strategic planning, completing both short-term and long-term plans. His father also took him along on visits to Birmingham banks: "He told me not to make the mistake of only going to see your banker when you need something." Maintaining strong relationships with his lenders also would become a hallmark of Lowder's running of Colonial Properties. While growing up he also learned about salesmanship. Lowder told the Wall Street Journal about "tagging along summers with an apartment agent who always carried two things in his pocket when showing units to a prospective tenant: a piece of chalk, to cover up any scratches in the paint, and a can of aerosol spray to freshen the air."
Edward Lowder died in 1987. In 1993 his wife, three sons, and shareholders decided to package the real estate holdings they owned through Colonial Properties into a REIT. The primary purpose was to give the owners and shareholders a greater degree of liquidity, as well as to pay down some debt and provide increased possibilities for growth.
REITs had been created by Congress in 1960 as a way for small investors to become involved in real estate in a manner similar to mutual funds. They could be taken public and their shares traded just like stock, and were subject to regulation by the Securities and Exchange Commission. Unlike other stocks, however, REITs were required by law to pay out at least 95 percent of their taxable income to shareholders each year, a provision that severely limited the ability of REITs to retain internally generated funds. During the first 25 years of existence, REITs were allowed only to own real estate, a situation that hindered their growth. Third parties had to be contracted to manage the properties. Not until the Tax Reform Act of 1986 changed the nature of real estate investment did REITs begin to be truly viable. Limited partnership tax shelter schemes that had competed for potential investments were shut down by the Act: Interest and depreciation deductions were greatly reduced so that taxpayers could not generate paper losses in order to lower their tax liabilities. Separately, the Act also permitted REITs to provide customary services for property, in effect allowing the trusts to operate and manage the properties they owned. Despite these major changes in law, the REIT was still not a fully utilized structure. In the latter half of the 1980s the banks, insurance companies, pension funds, and foreign investors (in particular, the Japanese) provided the lion's share of real estate investment funds. The resulting glutted marketplace led to a shakeout that hampered many real estate firms. With real estate available at distressed prices in the early 1990s, REITs finally became an attractive mainstream investment option and many real estate firms went public starting in 1993.
Because Alabama did not have a REIT law and Alabama case law on business trusts was not settled, leaving uncertainty about a trust's liability, Colonial Properties Trusts was organized in Maryland in July 1993 with its corporate headquarters located in Orlando, Florida, where Colonial already had a strong office. (Two years later, Alabama would enact a REIT law, allowing Colonial to reorganize in the state and move its headquarters back to Birmingham.) The REIT's initial public offering (IPO) of shares was held in September 1993, underwritten by a group of underwriters headed by Lehman Brothers and that included Bear, Stearns & Co., Inc., Merrill Lynch & Co., and The Robinson-Humphrey Co., Inc. Colonial's portfolio was concentrated in Alabama, Florida, and Georgia, starting out with 16 multifamily properties containing more than 3,500 garden-style apartments, ten office properties with one million square feet, and ten retail properties with 2.8 million square feet.
Colonial wasted little time in launching a steady acquisition program, which continued a strategy of diversification. One benefit of this approach was that Colonial could buy when one of its three sectors was in a down cycle and prices were less expensive. As Thomas Lowder explained to the Wall Street Journal, "We try to buy our straw hats in winter time." The REIT's initial emphasis was on building up its multifamily holdings. In November 1993 management announced plans to expand on two current apartment complexes located in Orlando and Montgomery. In early 1994 Colonial acquired apartment properties in Tampa, Florida; Huntsville, Alabama; and Sarasota, Florida. In August it acquired four more multifamily properties, located in Gainesville, Jacksonville, and Orlando, Florida. At the close of 1994 Colonial completed a major deal, paying $190.8 million to acquire ten multifamily properties located in Birmingham, Alabama, and Stockbridge, Georgia. Also during 1994, Colonial added to its slate of retail properties by acquiring the 110,000-square-foot Britt David Shopping Center in Columbus, Georgia. For the year, Colonial increased revenues to more than $64 million and net income to $11.3 million.
Colonial's focus in 1995 was on the retail sector. The company acquired three shopping centers in the Orlando market, a regional mall in Decatur, Alabama, and a shopping center in Ocala, Florida. In addition, Colonial began work on the major expansion of a mall in Macon, Georgia, which would grow into a "super regional mall" and become the company's flagship retail property. As a result of its expansion efforts, revenues more than doubled in 1995, and net income now approached $15 million. Colonial continued to add to its retail and multifamily holdings in 1996, acquiring three retail shopping centers in central Florida and a South Carolina regional mall, and five multifamily properties in Alabama and two multifamily properties in Georgia. Colonial also pursued internal growth, beginning work on an expansion to a Montgomery, Alabama, community shopping center and building 873 new apartment units. For the year 1996, revenues totaled $134.9 million while net income showed significant improvement, topping $27.5 million.
Surprisingly, Colonial had not added to its office property portfolio since the 1993 offering. That neglect would come to an end early in 1997 with the $20.8 million purchase of Birmingham's Riverchase Center, an eight-building office park. During the course of 1997, Colonial added two more office properties in Alabama and another in Georgia. But the REIT was active on other fronts as well, completing a number of deals that expanded its presence to new Sunbelt states. It acquired nine shopping centers: one each in Alabama, Florida, Virginia, and Tennessee, two in Georgia, and three in North Carolina. Colonial acquired multifamily properties in Alabama, Florida, Georgia, Mississippi, and South Carolina, and also constructed nearly 1,200 new apartment units in seven of its properties.
In 1998 Colonial entered into a pair of joint ventures to acquire a community shopping center and an enclosed mall. It also added five more office properties containing 827,000 square feet of space, three of the properties located in Alabama, plus one in Georgia and one in Florida. Furthermore, Colonial acquired four multifamily properties--located in Florida, Georgia, Texas, and South Carolina--and constructed another 596 apartment units. The REIT took a step back in 1999 to adjust its asset mix. It added just one office property and one enclosed mall, while disposing of seven multifamily properties. Colonial disposed of five more multifamily properties in 2000, representing 1,132 apartment units. But at the same time, it built nearly 1,000 apartment units in six of its multifamily communities. Colonial also added to three of its community shopping centers and completed the development of two office properties. In addition, it picked up another 575,000 square feet of retail space through the acquisition of an enclosed mall in Temple, Texas. Moreover, Colonial became involved in its first mixed-use development, the building of Colonial Town Park in Orlando, Florida, a project that would combine office, retail, and residential space and allow the REIT to take advantage of the expertise it possessed in all three areas. By now, annual revenues reached $294 million, with net income in 2000 totaling $38.7 million.
Colonial concentrated on internal growth in 2001, adding 440 apartment units, more than 318,000 square feet of office space, and completing the redevelopment of two retail properties. Colonial made a handful of acquisitions in 2002, buying three office properties and a Birmingham village-style retail center. In 2003 the REIT acquired two multifamily properties in Florida and Austin, Texas, and an office property located in Huntsville. Colonial also disposed of a multifamily property containing 176 units, an office property with 29,000 square feet, and a retail property with 152,667 square feet. For 2003 revenues grew to $334.24 million and net income totaled $32.5 million, a significant drop from the $57.8 million Colonial posted in 2002 and the $42.2 million in 2001. Nevertheless, Colonial remained a healthy, diversified regional REIT with every expectation of continuing to enjoy sure and steady growth.
Principal Subsidiaries
Colonial Realty Limited Partnership; Colonial Properties Services Limited Partnership; Colonial Properties Services, Inc.
Principal Competitors
Highwoods Properties, Inc.; Sizeler Property Investors, Inc.
Further Reading
Carrns, Ann, "Colonial Sets a Full Table," Wall Street Journal, February 7, 1997, p. B12.
Finkelstein, Alex, "Colonial Goes Public for REIT Reasons," Orlando Business Journal, February 4, 1994, p. 22.
Lowder, Thomas H., "Colonial Properties: Where You Live, Work & Shop," Exton, Pa.: Newcomen Society, 2003.
Milazzo, Don, "Colonial's Lowder Heeds His Late Father's Advice on Goals," Birmingham Business Journal, June 8, 2001, p. 6.
— Ed Dinger
