Expected to close by the end of September, the transaction well more than doubles Colonial's office management portfolio, adding 11.7 million sf to an existing stock of 8.3 million square feet for a total of 20 million sf. The joint venture has identified approximately 10 properties worth $363 million that it expects to sell in the first 12 months of the venture. The assets will be marketed for sale beginning in the fourth quarter of 2005.
At the end of June, the CRT portfolio was 84% leased and approximately two-thirds of the leases extend beyond 2007. The majority of the properties are class A office buildings located in suburbs of high-growth cities. Major tenants include the US Government, the State of Florida, Blue Cross Blue Shield, Six Continents Hotels and Bechtel Corp.
"The timing is right to make this investment," says Colonial Properties Office Division EVP Bo Jackson. "Our office portfolio is currently 92 percent leased and continues to show leasing momentum. We expect to see occupancy in (the CRT) portfolio in the low 90s within one year."
Colonial says about half of the square footage overlaps Colonial Properties current office markets. About 3.1 million sf of the CRT portfolio is concentrated in Atlanta; 1.4 million sf in Houston; 1.3 million sf in Orlando, and 700,000 sf in Charlotte.
The acquisition includes the assumption of $369 million of mortgage debt. In addition to funds provided by the partners' equity contributions, the joint venture expects to place additional secured debt of approximately $1.1 billion on the assets to fund the acquisition.
Including management, leasing and other fees, Colonial Properties expects to generate a 14% return on equity and a 7.6% return on invested capital, both on a cash basis, in the first year of ownership. This investment is expected to contribute $0.05 - $0.06 per fully diluted share to funds from operations in 2006 and $0.08 to $0.09 in 2007. Included in the estimate is $0.02 attributable to straight-line rents in 2006.
Colonial's participation in the transaction was announced after the close of markets on Thursday. On Friday, shares of Colonial were trading at $42.50, down $0.53 from Thursday's close.
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