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Wiki Wiki Summary
Preferred stock Preferred stock (also called preferred shares, preference shares, or simply preferreds) is a component of share capital that may have any combination of features not possessed by common stock, including properties of both an equity and a debt instrument, and is generally considered a hybrid instrument. Preferred stocks are senior (i.e., higher ranking) to common stock but subordinate to bonds in terms of claim (or rights to their share of the assets of the company, given that such assets are payable to the returnee stock bond) and may have priority over common stock (ordinary shares) in the payment of dividends and upon liquidation.
Common stock Common stock is a form of corporate equity ownership, a type of security. The terms voting share and ordinary share are also used frequently outside of the United States.
Financial statement Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity.\nRelevant financial information is presented in a structured manner and in a form which is easy to understand.
Adverse Adverse or adverse interest, in law, is anything that functions contrary to a party's interest. This word should not be confused with averse.
Adverse possession Adverse possession, sometimes colloquially described as "squatter's rights", is a legal principle in the Anglo-American common law under which a person who does not have legal title to a piece of property—usually land (real property)—may acquire legal ownership based on continuous possession or occupation of the property without the permission (licence) of its legal owner. The possession by a person is not adverse if they are in possession as a tenant or licensee of the legal owner.
Adverse food reaction An adverse food reaction is an adverse response by the body to food or a specific type of food.The most common adverse reaction is a food allergy, which is an adverse immune response to either a specific type or a range of food proteins.\nHowever, other adverse responses to food are not allergies.
Adverse (film) Adverse is a 2020 American crime thriller film written and directed by Brian Metcalf and starring Thomas Nicholas, Lou Diamond Phillips, Sean Astin, Kelly Arjen, Penelope Ann Miller, and Mickey Rourke. It premiered at the Fantasporto Film Festival, Portugal's largest film festival, on February 28, 2020.
Adverse party An adverse party is an opposing party in a lawsuit under an adversary system of law. In general, an adverse party is a party against whom judgment is sought or "a party interested in sustaining a judgment or decree." For example, the adverse party for a defendant is the plaintiff.
Material adverse change In the fields of mergers and acquisitions and corporate finance, a material adverse change (abbreviated MAC), material adverse event (MAE), or material adverse effect (also MAE) is a change in circumstances that significantly reduces the value of a company. A contract to acquire, invest in, or lend money to a company often contains a term that allows the acquirer, investor, or lender to cancel the transaction if a material adverse change occurs.
Hostile witness A hostile witness, also known as an adverse witness or an unfavorable witness, is a witness at trial whose testimony on direct examination is either openly antagonistic or appears to be contrary to the legal position of the party who called the witness. This concept is used in the legal proceedings in the United States, and analogues of it exist in other legal systems in Western countries.
Arithmetic Arithmetic (from Ancient Greek ἀριθμός (arithmós) 'number', and τική [τέχνη] (tikḗ [tékhnē]) 'art, craft') is an elementary part of mathematics that consists of the study of the properties of the traditional operations on numbers—addition, subtraction, multiplication, division, exponentiation, and extraction of roots. In the 19th century, Italian mathematician Giuseppe Peano formalized arithmetic with his Peano axioms, which are highly important to the field of mathematical logic today.
Operation Mincemeat Operation Mincemeat was a successful British deception operation of the Second World War to disguise the 1943 Allied invasion of Sicily. Two members of British intelligence obtained the body of Glyndwr Michael, a tramp who died from eating rat poison, dressed him as an officer of the Royal Marines and placed personal items on him identifying him as the fictitious Captain (Acting Major) William Martin.
Special Activities Center The Special Activities Center (SAC) is a division of the Central Intelligence Agency responsible for covert operations and paramilitary operations. The unit was named Special Activities Division (SAD) prior to 2015.
Operations management Operations management is an area of management concerned with designing and controlling the process of production and redesigning business operations in the production of goods or services. It involves the responsibility of ensuring that business operations are efficient in terms of using as few resources as needed and effective in meeting customer requirements.
Emergency operations center An emergency operations center (EOC) is a central command and control facility responsible for carrying out the principles of emergency preparedness and emergency management, or disaster management functions at a strategic level during an emergency, and ensuring the continuity of operation of a company, political subdivision or other organization.\nAn EOC is responsible for strategic direction and operational decisions and does not normally directly control field assets, instead leaving tactical decisions to lower commands.
Operations research Operations research (British English: operational research), often shortened to the initialism OR, is a discipline that deals with the development and application of advanced analytical methods to improve decision-making. It is sometimes considered to be a subfield of mathematical sciences.
Surgery Surgery is a medical or dental specialty that uses operative manual and instrumental techniques on a person to investigate or treat a pathological condition such as a disease or injury, to help improve bodily function, appearance, or to repair unwanted ruptured areas.\nThe act of performing surgery may be called a surgical procedure, operation, or simply "surgery".
Bitwise operation In computer programming, a bitwise operation operates on a bit string, a bit array or a binary numeral (considered as a bit string) at the level of its individual bits. It is a fast and simple action, basic to the higher-level arithmetic operations and directly supported by the processor.
Financial condition report In accounting, a financial condition report (FCR) is a report on the solvency condition of an insurance company that takes into account both the current financial status, as reflected in the balance sheet, and an assessment of the ability of the company to survive future risk scenarios. Risk assessment in an FCR involves dynamic solvency testing, a type of dynamic financial analysis that simulates management response to risk scenarios, to test whether a company could remain solvent in the face of deteriorating economic conditions or major disasters.
Balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business partnership, a corporation, private limited company or other organization such as government or not-for-profit entity. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year.
Financial law Financial law is the law and regulation of the insurance, derivatives, commercial banking, capital markets and investment management sectors. Understanding Financial law is crucial to appreciating the creation and formation of banking and financial regulation, as well as the legal framework for finance generally.
Public company A public company, publicly traded company, publicly held company, publicly listed company, or public limited company is a company whose ownership is organized via shares of stock which are intended to be freely traded on a stock exchange or in over-the-counter markets. A public (publicly traded) company can be listed on a stock exchange (listed company), which facilitates the trade of shares, or not (unlisted public company).
Equity (finance) In finance, equity is ownership of assets that may have debts or other liabilities attached to them. Equity is measured for accounting purposes by subtracting liabilities from the value of the assets.
Class B share In finance, a Class B share or Class C share is a designation for a share class of a common or preferred stock that typically has strengthened voting rights or other benefits compared to a Class A share that may have been created. The equity structure, or how many types of shares are offered, is determined by the corporate charter.B share can also refer to various terms relating to stock classes:\n\nB share (mainland China), a class of stock on the Shanghai and Shenzhen stock exchanges\nB share (NYSE), a class of stock on the New York Stock ExchangeMost of the time, Class B shares may have lower repayment priorities in the event a company declares bankruptcy.
Penny stock Penny stocks are common shares of small public companies that trade for less than one dollar per share.The U.S. Securities and Exchange Commission (SEC) uses the term "Penny stock" to refer to a security, a financial instrument which represents a given financial value, issued by small public companies that trade at less than $5 per share. Penny stocks are priced over-the-counter, rather than on the trading floor.
Common equity Common equity is the amount that all common shareholders have invested in a company. Most importantly, this includes the value of the common shares themselves.
Secondary shares In an IPO, secondary shares (in contrast to primary shares) refer to existing shares of common stock that are sold to investors in an offering (see Secondary Market Offering).\nThe selling of these secondary shares may be from existing shareholders.
2022–23 UEFA Europa League The 2022–23 UEFA Europa League will be the 52nd season of Europe's secondary club football tournament organised by UEFA, and the 14th season since it was renamed from the UEFA Cup to the UEFA Europa League.\nThe final will be played at the Puskás Aréna in Budapest, Hungary.
2022–23 UEFA Europa Conference League The 2022–23 UEFA Europa Conference League will be the second season of the UEFA Europa Conference League, Europe's tertiary club football tournament organised by UEFA.\nThe final will be played at Sinobo Stadium in Prague, Czech Republic. The winners of the 2022–23 UEFA Europa Conference League will automatically qualify for the 2023–24 UEFA Europa League group stage, unless they manage to qualify for the 2023–24 UEFA Champions League group stage.As the title holders of the Europa Conference League, Roma qualified for the 2022–23 UEFA Europa League.
UEFA Europa Conference League The UEFA Europa Conference League (abbreviated as UECL), colloquially referred to as the UEFA Conference League, is an annual football club competition organised by the Union of European Football Associations (UEFA) for eligible European football clubs. Clubs qualify for the competition based on their performance in their national leagues and cup competitions.
Berkshire Hathaway Berkshire Hathaway Inc. () is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States.
Shareholders' agreement A shareholders' agreement (sometimes referred to in the U.S. as a stockholders' agreement) (SHA) is an agreement amongst the shareholders or members of a company. In practical effect, it is analogous to a partnership agreement.
Shareholder A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal owner of shares of the share capital of a public or private corporation. Shareholders may be referred to as members of a corporation.
Activist shareholder An activist shareholder is a shareholder who uses an equity stake in a corporation to put pressure on its management. A fairly small stake (less than 10% of outstanding shares) may be enough to launch a successful campaign.
Risk Factors
COLONIAL PROPERTIES TRUST Item 1A Risk Factors Set forth below are the risks that we believe are material to investors who purchase or own our common, preferred or debt securities
You should consider carefully the following risks, together with the other information contained in and incorporated by reference in this Annual Report on Form 10-K, and the descriptions included in our consolidated financial statements and accompanying notes
Risks Associated with Real Estate We face numerous risks associated with the real estate industry that could adversely affect our results of operations through decreased revenues or increased costs
As a real estate company, we are subject to various changes in real estate conditions, any negative trends of which may adversely affect our results of operations through decreased revenues or increased costs
These conditions include: • worsening of national and regional economic conditions, as well as the local economic conditions in our principal market areas; • the existence and quality of the competition, such as the attractiveness of our property as compared to our competitors’ properties based on considerations such as convenience of location, rental rates, amenities and safety record; • increased operating costs, including increased real property taxes, maintenance, insurance and utilities costs; • weather conditions that may increase or decrease energy costs and other weather-related expenses; • oversupply of multifamily, office or retail space or a reduction in demand for real estate in the markets in which our properties are located; 21 _________________________________________________________________ • a favorable interest rate environment that may result in a significant number of potential tenants of our multifamily properties deciding to purchase homes instead of renting; and • changing trends in the demand by consumers for merchandise offered by retailers conducting business at our retail properties
Moreover, other factors may affect our results of operations adversely, including changes in government regulations and other laws, rules and regulations governing real estate, zoning or taxes, changes in interest rate levels, the availability of financing and potential liability under environmental and other laws and other unforeseen events, most of which are discussed elsewhere in the following risk factors
Any or all of these factors could materially adversely affect our results of operations through decreased revenues or increased costs
Real estate investments are illiquid, and therefore we may not be able to sell our properties in response to economic changes which could adversely affect our results of operations or financial condition
Real estate investments generally are relatively illiquid and as a result cannot be sold quickly or on favorable terms in response to changes in the economy or other conditions when it may be prudent to do so
This inability to respond quickly to changes in the performance of our properties could adversely affect our results of operations if we cannot sell an unprofitable property
Our financial condition could also be adversely affected if we were, for example, unable to sell one or more of our properties in order to meet our debt obligations upon maturity
In addition, the tax laws applicable to REITs require that we hold our properties for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forego or defer sales or properties that otherwise would be in our best interest
Therefore, we may be unable to vary our portfolio promptly in response to market conditions, which may adversely affect our financial position
We are subject to significant regulation that inhibits our activities, which could adversely affect our results of operations through increased costs or inability to pursue business opportunities
Local zoning and use laws, environmental statutes and other governmental requirements may restrict our development, expansion, rehabilitation and reconstruction activities
These regulations may prevent or delay us from taking advantage of economic opportunities
If we fail to comply with these requirements, governmental authorities may impose fines on us or private litigants may be awarded damages against us
In addition, we cannot predict what requirements may be enacted in the future and there can be no assurance that such enactment will not increase our costs of regulatory compliance or prohibit us from pursuing business opportunities that could be profitable to us
Risks Associated with Our Operations Our properties may not generate sufficient income to pay our expenses if we are unable to lease our new properties or renew leases or re-lease space at our existing properties as leases expire, which may adversely affect our operating results
We derive the majority of our income from tenants who lease space from us at our properties
A number of factors may adversely affect our ability to attract tenants at favorable rental rates and generate sufficient income, including: • local conditions such as an oversupply of, or reduction in demand for, multifamily, office or retail properties; • the attractiveness of our properties to residents, shoppers and tenants; • decreases in market rental rates; and • our ability to collect rent from our tenants
If we cannot generate sufficient income to pay our expenses, maintain our properties and service our debt as a result of any of these factors, our operating results may be adversely affected
The tenants at our office properties generally enter into leases with an initial term ranging from three to ten years, tenants at our retail properties generally enter into leases with an initial term ranging from one to ten 22 _________________________________________________________________ years and tenants at our multifamily properties generally enter into leases with an initial term ranging from six months to one year
As leases expire at our existing properties, tenants may elect not to renew them
Even if the tenants do renew or we can re-lease the space, the terms of renewal or re-leasing, including the cost of required renovations, may be less favorable than current lease terms
In addition, for new properties, we may be unable to attract enough tenants and the occupancy rates and rents may not be sufficient to make the property profitable
If we are unable to renew the leases or re-lease the space at our existing properties promptly or lease the space at our new properties, or if the rental rates upon renewal or re-leasing at existing properties are significantly lower than expected rates, our operating results will be negatively affected
We may not be able to control our operating costs or our expenses may remain constant, even if our revenues decrease, causing our results of operations to be adversely affected
Factors that may adversely affect our ability to control operating costs include: • the need to pay for insurance and other operating costs, including real estate taxes, which could increase over time; • the need periodically to repair, renovate and re-lease space; • the cost of compliance with governmental regulation, including zoning and tax laws; • the potential for liability under applicable laws; • interest rate levels; and • the availability of financing
If our operating costs increase as a result of any of the foregoing factors, our results of operations may be adversely affected
The expense of owning and operating a property is not necessarily reduced when circumstances such as market factors and competition cause a reduction in income from the property
As a result, if revenues drop, we may not be able to reduce our expenses accordingly
Costs associated with real estate investments, such as real estate taxes, loan payments and maintenance generally will not be reduced even if a property is not fully occupied or other circumstances cause our revenues to decrease
An economic downturn or natural disaster in an area in which our properties are concentrated could adversely affect our results of operations or financial condition
Substantially all of our properties are located in the Sunbelt region of the United States
In particular, we derived an aggregate of approximately 69dtta9prca of our net operating income in 2005 from top quartile cities located in the Sunbelt region
If the Sunbelt region of the United States, and in particular the areas of or near Birmingham, Charlotte, Orlando, Atlanta, Dallas or Fort Worth experiences a slowdown in the economy or a natural disaster, our results of operations and financial condition may be negatively affected as a result of decreased revenues, increased costs or damage or loss of assets
Tenant bankruptcies and downturns in tenants’ businesses may adversely affect our operating results by decreasing our revenues
As a result, our tenants may delay lease commencement, cease or defer making rental payments or declare bankruptcy
A bankruptcy filing by or relating to one of our tenants would bar all efforts by us to collect pre-bankruptcy debts from that tenant, or their property, unless we receive an order permitting us to do so from the bankruptcy court
A tenant bankruptcy could delay our efforts to collect past due balances under the relevant leases, and could ultimately preclude collection of these sums
If a lease is assumed by the tenant in bankruptcy, all pre-bankruptcy balances due under the lease must be paid to us in full
However, if a lease is rejected by a tenant in bankruptcy, we would have only a general unsecured claim for damages
Any unsecured claim we hold may be paid only to the extent that funds are available and only in the same percentage as is paid to all other 23 _________________________________________________________________ holders of unsecured claims, and there are restrictions under bankruptcy laws that limit the amount of the claim we can make if a lease is rejected
As a result, it is likely that we will recover substantially less than the full value of any unsecured claims we hold from a bankrupt tenant
Any bankruptcy or financial difficulties of our tenants may negatively affect our operating results by decreasing our revenues
Risks associated with the property management, leasing and brokerage businesses could adversely affect our results of operations by decreasing our revenues
In addition to the risks we face as a result of our ownership of real estate, we face risks relating to the property management, leasing and brokerage businesses of CPSI, including risks that: • management contracts or service agreements with third-party owners will be lost to competitors; • contracts will not be renewed upon expiration or will not be renewed on terms consistent with current terms; and • leasing and brokerage activity generally may decline
Each of these developments could adversely affect our results of operations by decreasing our revenues
We could incur significant costs related to environmental issues which could adversely affect our results of operations through increased compliance costs or our financial condition if we become subject to a significant liability
Under federal, state and local laws and regulations relating to the protection of the environment, a current or previous owner or operator of real property, and parties that generate or transport hazardous substances that are disposed of on real property, may be liable for the costs of investigating and remediating hazardous substances on or under or released from the property and for damages to natural resources
The federal Comprehensive Environmental Response, Compensation & Liability Act, and similar state laws, generally impose liability on a joint and several basis, regardless of whether the owner, operator or other responsible party knew of or was at fault for the release or presence of hazardous substances
In connection with the ownership or operation of our properties, we could be liable in the future for costs associated with investigation and remediation of hazardous substances released at such properties
The costs of any required remediation and related liability as to any property could be substantial under these laws and could exceed the value of the property and/or our aggregate assets
The presence of hazardous substances, or the failure to properly remediate those substances may result in our being liable for damages suffered by a third party and may adversely affect our ability to sell or rent a property or to borrow funds using the property as collateral
In addition, environmental laws may impose restrictions on the manner in which we use our properties or operate our business, and these restrictions may require expenditures for compliance
The restrictions themselves may change from time to time, and these changes may result in additional expenditures in order to achieve compliance
We cannot assure you that a material environmental claim or compliance obligation will not arise in the future
The costs of defending against any claims of liability, of remediating a contaminated property, or of complying with future environmental requirements could be substantial and affect our operating results
In addition, if a judgment is obtained against us or we otherwise become subject to a significant environmental liability, our financial condition may be adversely affected
On December 29, 1998, we acquired Bel Air Mall in Mobile, Alabama
During the course of our environmental due diligence, we identified several different areas of the property in which contamination is present
One of those areas involves drycleaner solvent; the others involve petroleum contamination
The Alabama Department of Environmental Management (ADEM) is overseeing the investigation and cleanup of the drycleaner contamination
Under the terms of the purchase and sale agreement, the former owner of the property purchased a dlra10 million environmental insurance policy (including paying the dlra275cmam000 up front deductible) and established an escrow account totaling dlra1cmam000cmam000 to cover any costs associated with investigation and remediation of the contaminated areas not covered by the insurance policy
Under the agreement the seller is currently performing all required remediation of the drycleaner contamination until a “no further action” status is obtained from ADEM In addition, an out parcel at the Bel Air Mall, previously occupied by an Amoco Gas station, currently has ongoing remediation activity on the now vacant site
Although 24 _________________________________________________________________ we sold the Bel Air Mall to the GPT Joint Venture, in which we retained a 10prca interest (see Item 1 — “Business — Joint Ventures — Equity Method of Investments — GPT Transaction”), we remain exposed to the related environmental liability (in addition to our exposure as a current 10prca owner) as a previous owner
Uninsured or underinsured losses could adversely affect our financial condition
As of December 31, 2005, we are self insured up to dlra1dtta1 million, dlra1dtta8 million and dlra1dtta8 million for general liability, workers’ compensation and property insurance, respectively
We are also self insured for health insurance and responsible for claims up to dlra125cmam000 per claim and up to dlra1dtta0 million per person
If the actual costs incurred to cover such uninsured claims are significantly greater than our budgeted costs, our financial condition will be adversely affected
We carry comprehensive liability, fire, extended coverage and rental loss insurance on all of our properties
There are, however, certain types of losses, such as lease and other contract claims, acts of war or terrorism, act of God, and in some cases, flooding that generally are not insured because such coverage is not available or it is not available at commercially reasonable rates
Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in the damaged property, as well as the anticipated future revenue from the property
The costs associated with property and casualty renewals may be higher than anticipated
We cannot predict at this time if in the future we will be able to obtain full coverage at a reasonable cost
Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it impractical or undesirable to use insurance proceeds to replace a property after it has been damaged or destroyed
In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged
Competition for acquisitions could reduce the number of acquisition opportunities available to us and result in increased prices for properties, which could adversely affect our return on properties we purchase
We compete with other major real estate investors with significant capital for attractive investment opportunities in multifamily, office or retail properties
These competitors include publicly traded REITs, private REITs, investment banking firms, private institutional investment funds and national, regional and local real estate investors
The current market for acquisitions continues to be extremely competitive
This competition could increase the demand for multifamily, office or retail properties, and therefore reduce the number of suitable acquisition opportunities available to us and increase the prices paid for such acquisition properties
As a result, our expected return from investment in these properties will deteriorate
We may be unable to successfully integrate and effectively manage the properties we acquire, which could adversely affect our results of operations
So long as we are able to obtain capital on commercially reasonable terms, we intend to continue to selectively acquire multifamily, office and retail properties that meet our criteria for investment opportunities, are consistent with our business strategies and we believe will be profitable or will enhance the value of our portfolio
The success of these acquisitions will depend, in part, on our ability to efficiently integrate the acquired properties into our organization, and apply our business, operating, administrative, financial and accounting strategies and controls to these acquired properties
As a result of the rapid growth of our portfolio, we cannot assure you that we will be able to adapt our management, administrative, accounting and operational systems or hire and retain sufficient operational staff to integrate these properties into our portfolio and manage any future acquisitions of additional properties without operating disruptions or unanticipated costs
As we develop or acquire additional properties, we will be subject to risks associated with managing new properties, including tenant retention and mortgage default
In addition, acquisitions or developments may cause disruptions in our operations and divert management’s attention away from day-to-day operations, which could impair our relationships with our current tenants and employees
In addition, our profitability may suffer because of acquisition-related costs or amortization costs for acquired goodwill and other intangible assets
If we are unable to successfully integrate the acquired properties into our operations, our results of operations may be adversely affected
25 _________________________________________________________________ We may not be able to achieve the anticipated financial and operating results from our acquisitions, which would adversely affect our operating results
We will continue to acquire multifamily, office or retail properties only if they meet our criteria and we believe that that they will enhance our future financial performance and the value of our portfolio
Our belief, however, is based on and is subject to risks, uncertainties and other factors, many of which are forward-looking and are uncertain in nature or are beyond our control
In addition, some of these properties may have unknown characteristics or deficiencies or may not complement our portfolio of existing properties
As a result, some properties may be worth less or may generate less revenue than, or simply not perform as well as, we believed at the time of the acquisition, thereby negatively affecting our operating results
We may be unable to develop new properties or redevelop existing properties successfully, which could adversely affect our results of operations due to unexpected costs, delays and other contingencies
To complement our acquisition strategy, we will continue to develop new properties or expand or redevelop existing properties as opportunities arise
However, there are significant risks associated with our development activities in addition to those generally associated with the ownership and operation of developed properties
These risks include the following: • significant expenditure of money and time on projects that may be delayed or never be completed, • higher than projected construction costs, • lack of availability of debt or equity financing on acceptable terms, • failure to meet anticipated occupancy or rent levels, • failure to obtain zoning, occupancy or other governmental approvals, • changes in applicable zoning and land use laws may require us to abandon projects prior to their completion, resulting in the loss of development costs incurred up to the time of abandonment, and • late completion because of construction delays, delays in the receipt of zoning, occupancy and other approvals or other factors outside of our control
In addition, if a project is delayed, certain tenants may have the right to terminate their leases
Any one or more of these risks may cause us to incur unexpected costs in connection with our development strategy, which would negatively affect our results of operations
Our joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on our joint venture partners’ financial condition, any disputes that may arise between us and our joint venture partners and our exposure to potential losses from the actions of our joint venture partners
Our investments in joint ventures involve risks not customarily associated with our wholly owned properties, including the following: • we share decision-making authority with some of our joint venture partners regarding major decisions affecting the ownership or operation of the joint venture and the joint venture properties, such as the sale of the properties or the making of additional capital contributions for the benefit of the properties, which may prevent us from taking actions that are opposed by those joint venture partners; • prior consent of our joint venture partners is required for a sale or transfer to a third party of our interests in the joint venture, which restricts our ability to dispose of our interest in the joint venture; • our joint venture partners might become bankrupt or fail to fund their share of required capital contributions, which may delay construction or development of a joint venture property or increase our financial commitment to the joint venture; • our joint venture partners may have business interests or goals with respect to the joint venture properties that conflict with our business interests and goals, which could increase the likelihood of disputes regarding the ownership, management or disposition of such properties; 26 _________________________________________________________________ • disputes may develop with our joint venture partners over decisions affecting the joint venture properties or the joint venture, which may result in litigation or arbitration that would increase our expenses and distract our officers and/or trustees from focusing their time and effort on our business, and possibly disrupt the day-to-day operations of the property such as by delaying the implementation of important decisions until the conflict or dispute is resolved; and • we may suffer losses as a result of the actions of our joint venture partners with respect to our joint venture investments
Risks Associated with Our Indebtedness and Financing We have substantial indebtedness and our cash flow may not be sufficient to make required payments on our indebtedness or repay our indebtedness as it matures
We rely on debt financing for our business
As of December 31, 2005, the amount of our total debt was approximately dlra2dtta9 billion, consisting of dlra2dtta5 billion of consolidated debt and dlra0dtta4 billion of our pro rata share of joint venture debt
Due to our high level of debt, we may be required to dedicate a substantial portion of our funds from operations to servicing our debt, and our cash flow may be insufficient to meet required payments of principal and interest
If a property were mortgaged to secure payment of indebtedness and we were unable to meet mortgage payments, the mortgagee could foreclose upon that property, appoint a receiver and receive an assignment of rents and leases or pursue other remedies
In addition, if principal payments due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, such as new equity capital, our cash flow will not be sufficient in all years to repay all maturing debt
Most of our indebtedness does not require significant principal payments prior to maturity
However, we will need to raise additional equity capital, obtain secured or unsecured debt financing, issue private or public debt, or sell some of our assets to either refinance or repay our indebtedness as it matures
We cannot assure you that these sources of financing or refinancing will be available to us at reasonable terms or at all
Our inability to obtain financing or refinancing to repay our maturing indebtedness, and our inability to refinance existing indebtedness on reasonable terms, may require us to make higher interest and principal payments, issue additional equity securities, or sell some of our assets on disadvantageous terms, all or any of which may result in foreclosure of properties, partial or complete loss on our investment and otherwise adversely affect our financial conditions and results of operation
Our degree of leverage could limit our ability to obtain additional financing which would negatively impact our results of operation and financial condition
As of December 31, 2005, our consolidated borrowings and pro rata share of unconsolidated borrowings totaled approximately dlra2dtta9 billion, which represented approximately 50dtta97prca of our total market capitalization
Total market capitalization represents the sum of the outstanding indebtedness (including our share of joint venture indebtedness), the total liquidation preference of all our preferred shares and the total market value of our common shares and units of partnership interest of our operating partnership, based on the closing price of our common shares as of December 31, 2005
Our organizational documents do not contain any limitation on the incurrence of debt
Our leverage and any future increases in our leverage could adversely affect our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, development or other general corporate purposes which would negatively impact our results of operation and financial condition
Due to the amount of our variable rate debt, rising interest rates would adversely affect our results of operation
As of December 31, 2005, we had approximately dlra424dtta4 million of variable rate debt outstanding, consisting of dlra266dtta8 million of our consolidated debt and dlra157dtta6 million of our pro rata share of variable rate unconsolidated joint venture debt
While we have sought to refinance our variable rate debt with fixed rate debt or cap our exposure to interest rate fluctuations by using interest rate swap agreements where appropriate, failure to hedge effectively against interest rate changes may adversely affect our results of operations
In 27 _________________________________________________________________ addition, as opportunities arise, we may borrow additional money with variable interest rates in the future
As a result, a significant increase in interest rates would adversely affect our results of operations
We have entered into debt agreements with covenants that restrict our operating activities, which could adversely affect our results of operations, and violation of these restrictive covenants could adversely affect our financial condition through debt defaults or acceleration
Our credit facility contains numerous customary restrictions, requirements and other limitations on our ability to incur debt, including restrictions related to: • secured debt to total asset value ratio; • interest coverage ratio; • fixed charge coverage ratio; • debt to total asset value ratio; • unencumbered interest coverage ratio; • unencumbered leverage ratio; and • adjusted total asset value
In addition, the indenture under which our senior unsecured debt is issued contains financial and operating covenants including coverage ratios
Our indenture also limits our ability to: • incur secured and unsecured indebtedness; • sell all or substantially all or our assets; and • engage in mergers, consolidations and acquisitions
These restrictions will continue to hinder our operational flexibility through limitations on our ability to incur additional indebtedness, pursue certain business initiatives or make other changes to our business
These limitations could adversely affect our results of operations
In addition, violations of these covenants could cause the declaration of defaults and any related acceleration of indebtedness, which would result in adverse consequences to our financial condition
Our inability to obtain sufficient third party financing could adversely affect our results of operations and financial condition because we depend on third party financing for our development, expansion or acquisition activities
To qualify as a REIT, we must distribute to our shareholders each year at least 90prca of our REIT taxable income, excluding any net capital gain
Because of these distribution requirements, it is not likely that we will be able to fund all future capital needs from income from operations
As a result, as we continue to develop or acquire new properties or expand existing properties, we will continue to rely on third-party sources of capital, including lines of credit, secured or unsecured debt (both construction financing and permanent debt), and equity issuances
These sources, however, may not be available on favorable terms or at all
Our access to third-party sources of capital depends on a number of factors, including the market’s perception of our growth potential and our current and potential future earnings
Moreover, additional equity offerings may result in substantial dilution of our shareholders’ interests, and additional debt financing may substantially increase our leverage
There can be no assurance that we will be able to obtain the financing necessary to fund new development or project expansions or our acquisition activities on terms favorable to us or at all
If we are unable to obtain sufficient level of third party financing to fund our growth, our results of operations and financial condition may be adversely affected
Our senior notes do not have an established trading market, therefore, holders of our notes may not be able to sell their notes
Each series of our senior notes is a new issue of securities with no established trading market
We do not intend to apply for listing of any series of notes on any national securities exchange
The underwriters in an 28 _________________________________________________________________ offering of senior notes may advise us that they intend to make a market in the notes, but they are not obligated to do so and may discontinue market making at any time without notice
We can give no assurance as to the liquidity of or any trading market for any series of our notes
Risks Associated with Our Organization Some of our trustees and officers have conflicts of interest and could exercise influence in a manner inconsistent with the interests of our shareholders
Thomas Lowder, our Chairman of the Board, Chief Executive Officer and President, and James Lowder and Harold Ripps, each of whom is our trustee, could seek to exert influence over our decisions as to sales or re-financings of particular properties we own
Any such exercise of influence could produce decisions that are not in the best interest of all of the holders of interests in us
The Lowder family and their affiliates hold interests in a company that has performed insurance brokerage services with respect to our properties
This company may perform similar services for us in the future
As a result, the Lowder family may realize benefits from transactions between this company and us that are not realized by other holders of interests in us
In addition, Thomas and James Lowder, as our trustees, may be in a position to influence us to do business with companies in which the Lowder family has a financial interest
Our policies may not be successful in eliminating the influence of conflicts
Moreover, transactions with companies controlled by the Lowder family, if any, may not be on terms as favorable to us as we could obtain in an arms-length transaction with a third party
Restrictions on the acquisition and change in control of the Company may have adverse effects on the value of our common shares
Various provisions of our Declaration of Trust restrict the possibility for acquisition or change in control of us, even if the acquisition or change in control were in the shareholders’ interest
As a result, the value of our common shares may be less than they would otherwise be in the absence of such restrictions
Our Declaration of Trust contains ownership limits and restrictions on transferability
Our Declaration of Trust contains certain restrictions on the number of common shares and preferred shares that individual shareholders may own intended to ensure that we maintain our qualification as a REIT In order for us to qualify as a REIT, no more than 50prca of the value of our outstanding shares may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year and the shares must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year
To help avoid violating these requirements, our Declaration of Trust contains provisions restricting the ownership and transfer of shares in certain circumstances
These ownership limitations provide that no person may beneficially own, or be deemed to own by virtue of the attribution provisions of the Code, more than: • 9dtta8prca, in either number of shares or value (whichever is more restrictive), of any class of outstanding shares of Colonial; • 5prca in number or value (whichever is more restrictive), of the outstanding common shares and any outstanding excess shares of Colonial; and • in the case of certain excluded holders related to the Lowder family: 29prca by one individual; 34prca by two individuals; 39prca by three individuals; or 44prca by four individuals
These ownership limitations may be waived by our Board of Trustees if it receives representations and undertakings of certain facts for the protection of our REIT status, and if requested, an IRS ruling or opinion of counsel
Our Declaration of Trust permits our Board of Trustees to issue preferred shares with terms that may discourage a third party from acquiring us
Our Declaration of Trust permits the Board of Trustees to issue up to 20cmam000cmam000 preferred shares, having those preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications, or terms or conditions of redemption as determined by the Board of 29 _________________________________________________________________ Trustees
Thus, the Board of Trustees could authorize the issuance of preferred shares with terms and conditions that could have the effect of discouraging a takeover or other transaction in which some or a majority of shares might receive a premium for their shares over the then-prevailing market price of shares
Our Declaration of Trust and Bylaws contain other possible anti-takeover provisions
Our Declaration of Trust and Bylaws contain other provisions that may have the effect of delaying, deferring or preventing an acquisition or change in control of the Company, and, as a result could prevent our shareholders from being paid a premium for their common shares over the then-prevailing market prices
These provisions include: • a prohibition on shareholder action by written consent; • the ability to remove trustees only at a meeting of shareholders called for that purpose, by the affirmative vote of the holders of not less than two-thirds of the shares then outstanding and entitled to vote in the election of trustees; • the limitation that a special meetings of shareholders can be called only by the president or chairman of the board or upon the written request of shareholders holding outstanding shares representing at least 25prca of all votes entitled to be cast at the special meeting; • the advance written notice requirement for shareholders to nominate a trustee before a meeting of shareholders; and • the requirement that the amendment of certain provisions of the Declaration of Trust relating to the removal of trustees, the termination of the Company and any provision that would have the effect of amending these provisions, require the affirmative vote of the holders of two-thirds of the shares then outstanding
Our board of directors has adopted a shareholder rights plan that could discourage a third party from making a proposal to acquire us
In 1998, our Board of Trustees adopted a shareholder rights plan, which may discourge a third party from making a proposal to acquire us
Under the plan, preferred purchase rights, which are attached to our common shares, generally will be triggered upon the acquisition of 20prca or more of our outstanding common shares, unless the rights are redeemed or exchanged
If triggered, these rights would entitle our shareholders other than the acquirer to purchase 1/10cmam000th of a Colonial Series 1998 preferred share at a price of dlra92dtta00, subject to adjustment
We may change our business policies in the future, which could adversely affect our financial condition or results of operations
Our major policies, including our policies with respect to development, acquisitions, financing, growth, operations, debt capitalization and distributions, are determined by our Board of Trustees
Although it has no present intention to do so, our Board of Trustees may amend or revise these and other policies from time to time
A change in these policies could adversely affect our financial condition or results of operations, including our ability to service debt
Risks Related to Our Shares Market interest rates and low trading volume may have an adverse effect on the market value of our common shares
The market price of shares of a REIT may be affected by the distribution rate on those shares, as a percentage of the price of the shares, relative to market interest rates
If market interest rates increase, prospective purchasers of our shares may expect a higher annual distribution rate
Higher interest rates would not, however, result in more funds for us to distribute and, in fact, would likely increase our borrowing costs and potentially decrease funds available for distribution
This could cause the market price of our common shares to go down
In addition, although our common shares are listed on the New York Stock Exchange, the daily trading volume of our shares may be lower than the trading volume for other industries
As a result, our 30 _________________________________________________________________ investors who desire to liquidate substantial holdings may find that they are unable to dispose of their shares in the market without causing a substantial decline in the market value of the shares
A large number of shares available for future sale could adversely affect the market price of our common shares
The sales of a substantial number of common shares, or the perception that such sales could occur, could adversely affect prevailing market prices for shares
In addition to the possibility that we may sell our shares in a public offering at any time, or pursuant to share option and share purchase plans, we may currently issue up to 10cmam872cmam568 common shares upon redemption of currently outstanding units
No prediction can be made about the effect that future sales of common shares will have on the market price of our common shares
Changes in market conditions or a failure to meet the market’s expectations with regard to our earnings and cash distributions could adversely affect the market price of our common shares
We believe that the market value of a REIT’s equity securities is based primarily upon the market’s perception of the REIT’s growth potential and its current and potential future cash distributions, and is secondarily based upon the real estate market value of the underlying assets
For that reason, our shares may trade at prices that are higher or lower than the net asset value per share
To the extent we retain operating cash flow for investment purposes, working capital reserves or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our common shares
In addition, we are subject to the risk that our cash flow will be insufficient to meet the required payments on our preferred shares and the Operating Partnership’s preferred units
Our failure to meet the market’s expectations with regard to future earnings and cash distributions would likely adversely affect the market price of our shares
The stock markets, including The New York Stock Exchange (NYSE), on which we list our common shares, have experienced significant price and volume fluctuations
As a result, the market price of our common shares could be similarly volatile, and investors in our common shares may experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects
Among the market conditions that may affect the market price of our publicly traded securities are the following: • our financial condition and operating performance and the performance of other similar companies; • actual or anticipated differences in our quarterly operating results; • changes in our revenues or earnings estimates or recommendations by securities analysts; • publication of research reports about us or our industry by securities analysts; • additions and departures of key personnel; • strategic decisions by us or our competitors, such as acquisitions, divestments, spin-offs, joint ventures, strategic investments or changes in business strategy; • the reputation of REITs generally and the reputation of REITs with portfolios similar to ours; • the attractiveness of the securities of REITs in comparison to securities issued by other entities (including securities issued by other real estate companies); • an increase in market interest rates, which may lead prospective investors to demand a higher distribution rate in relation to the price paid for our shares; • the passage of legislation or other regulatory developments that adversely affect us or our industry; • speculation in the press or investment community; • actions by institutional shareholders or hedge funds; • changes in accounting principles; • terrorist acts; and 31 _________________________________________________________________ • general market conditions, including factors unrelated to our performance
In the past, securities class action litigation has often been instituted against companies following periods of volatility in their stock price
This type of litigation could result in substantial costs and divert our management’s attention and resources
Risks Associated with Income Tax Laws Our failure to qualify as a REIT would decrease the funds available for distribution to our shareholders and adversely affect the market price of our common shares
We believe that we have qualified for taxation as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 1993
We intend to continue to meet the requirements for taxation as a REIT, but we cannot assure shareholders that we will qualify as a REIT We have not requested and do not plan to request a ruling from the IRS that we qualify as a REIT, and the statements in this Form 10-K are not binding on the IRS or any court
As a REIT, we generally will not be subject to federal income tax on our income that we distribute currently to our shareholders
Many of the REIT requirements are highly technical and complex
The determination that we are a REIT requires an analysis of various factual matters and circumstances that may not be totally within our control
For example, to qualify as a REIT, at least 95prca of our gross income must come from sources that are itemized in the REIT tax laws
We generally are prohibited from owning more than 10prca of the voting securities or more than 10prca of the value of the outstanding securities of any one issuer, subject to certain exceptions, including an exception with respect to certain debt instruments and corporations electing to be “taxable REIT subsidiaries
” We are also required to distribute to shareholders at least 90prca of our REIT taxable income (excluding capital gains)
The fact that we hold most of our assets through the Operating Partnership further complicates the application of the REIT requirements
Even a technical or inadvertent mistake could jeopardize our REIT status
Furthermore, Congress or the Internal Revenue Service might make changes to the tax laws and regulations, or the courts might issue new rulings that make it more difficult, or impossible, for us to remain qualified as a REIT If we fail to qualify as a REIT for federal income tax purposes, and are unable to avail ourselves of certain savings provisions set forth in the Internal Revenue Code, we would be subject to federal income tax at regular corporate rates
As a taxable corporation, we would not be allowed to take a deduction for distributions to shareholders in computing our taxable income or pass through long term capital gains to individual shareholders at favorable rates
We also could be subject to the federal alternative minimum tax and possibly increased state and local taxes
We would not be able to elect to be taxed as a REIT for four years following the year we first failed to qualify unless the IRS were to grant us relief under certain statutory provisions
If we failed to qualify as a REIT, we would have to pay significant income taxes, which would reduce our net earnings available for investment or distribution to our shareholders
This likely would have a significant adverse effect on our earnings and the value of our common shares
In addition, we would no longer be required to pay any distributions to shareholders
If we fail to qualify as a REIT for federal income tax purposes and are able to avail ourselves of one or more of the statutory savings provisions in order to maintain our REIT status, we would nevertheless be required to pay penalty taxes of dlra50cmam000 or more for each such failure
Even if we qualify as a REIT, we will be required to pay some taxes
Even if we qualify as a REIT for federal income tax purposes, we will be required to pay certain federal, state and local taxes on our income and property
For example, we will be subject to income tax to the extent we distribute less than 100prca of our REIT taxable income (including capital gains)
Moreover, if we have net income from “prohibited transactions,” that income will be subject to a 100prca tax
In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business
The determination as to whether a particular sale is a prohibited transaction depends on the facts and circumstances related to that sale
However, we will not be treated as a dealer in real property with respect to a property that we sell for the purposes of the 100prca tax if (i) we have held the property for at least four years for the production of rental income prior to the sale, (ii) capitalized expenditures on the property in the four years preceding the sale are less than 30prca of the net selling price of the property, and (iii) we either (a) have seven or fewer sales of property (excluding certain property obtained through foreclosure) for the year 32 _________________________________________________________________ of sale or (b) the aggregate tax basis of property sold during the year of sale is 10prca or less of the aggregate tax basis of all of our assets as of the beginning of the taxable year and substantially all of the marketing and development expenditures with respect to the property sold are made through an independent contractor from whom we derive no income
The sale of more than one property to one buyer as part of one transaction constitutes one sale for purposes of this “safe harbor
” We intend to hold our properties, and CRLP intends to hold its properties, for investment with a view to long-term appreciation, to engage in the business of acquiring, developing, owning and operating properties, and to make occasional sales of properties as are consistent with our investment objectives
However, not all of our sales will satisfy the “safe harborrequirements described above
Furthermore, there are certain interpretive issues related to the application of the “safe harbor” that are not free from doubt under the federal income tax law
While we acquire and hold our properties with an investment objective and do not believe they constitute dealer property, we cannot provide any assurance that the IRS might not contend that one or more of these sales are subject to the 100prca penalty tax or that the IRS would not challenge our interpretation of, or any reliance on, the “safe harbor” provisions
In addition, any net taxable income earned directly by our taxable REIT subsidiaries, or through entities that are disregarded for federal income tax purposes as entities separate from our taxable REIT subsidiaries, will be subject to federal and possibly state corporate income tax
We have elected to treat Colonial Properties Services, Inc
as a taxable REIT subsidiary, and we may elect to treat other subsidiaries as taxable REIT subsidiaries in the future
In this regard, several provisions of the laws applicable to REITs and their subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of federal income taxation
For example, a taxable REIT subsidiary is limited in its ability to deduct interest payments made to an affiliated REIT In addition, the REIT has to pay a 100prca penalty tax on some payments that it receives or on some deductions taken by the taxable REIT subsidiaries if the economic arrangements between the REIT, the REIT’s tenants, and the taxable REIT subsidiary are not comparable to similar arrangements between unrelated parties
Finally, some state and local jurisdictions may tax some of our income even though as a REIT we are not subject to federal income tax on that income because not all states and localities treat REITs the same as they are treated for federal income tax purposes
To the extent that we and our affiliates are required to pay federal, state and local taxes, we will have less cash available for distributions to our shareholders