Revenue Management in a Declining Market

Revenue Management in a Declining Market

Ray Thornton, Vice President of IT Applications and Support

Colonial Properties Trust

May 1, 2009

Ray Thornton, Vice President of IT Applications and Support

Colonial Properties Trust

May 1, 2009

AgendaAgenda

Company Background History of Revenue Management at CLP Observations from the Field Internal Control of Revenue Management Process KPI Performance History

Company Background History of Revenue Management at CLP Observations from the Field Internal Control of Revenue Management Process KPI Performance History

Company BackgroundCompany Background Colonial Properties Trust (NYSE:CLP)

Headquartered in Birmingham, Alabama

Commercial (Office and Retail) Capabilities 57 Properties Sunbelt Markets (Atlanta, Orlando, Dallas are largest)

MRI CM for Property Management

Colonial Properties Trust (NYSE:CLP) Headquartered in Birmingham, Alabama

Commercial (Office and Retail) Capabilities 57 Properties Sunbelt Markets (Atlanta, Orlando, Dallas are largest)

MRI CM for Property Management

www.colonialprop.comwww.colonialprop.com

Company BackgroundCompany Background Multifamily Capabilities

119 properties with 32,000 units Average Rent of $803 20 Sun Belt Markets (Atlanta, Charlotte, Orlando, Dallas are largest) Average Age is 15 Years 80% of Company NOI

MRI RM for Property Management LRO for Revenue Management

Multifamily Capabilities 119 properties with 32,000 units Average Rent of $803 20 Sun Belt Markets (Atlanta, Charlotte, Orlando, Dallas are largest) Average Age is 15 Years 80% of Company NOI

MRI RM for Property Management LRO for Revenue Management

www.colonialprop.comwww.colonialprop.com

History of Revenue Management *History of Revenue Management *ROLLOUT PROGRESSION

IMPLEMENTATION MSA Units

April 2007

Pilot properties from Mobile, Richmond, Savannah, Raleigh, DFW, Atlanta, Greensboro, Orlando, Charleston 2300

October 2007 Phoenix 950November 2007 Orlando 1300November 2007 Bradenton, Sarasota, Tampa 700December 2007 Dallas\Fort Worth 3500January 2008 Raleigh 1900January 2008 Richmond 1200January 2008 Virginia Beach 500December 2007 Atlanta 3424August 2008 Charlotte 4100August 2008 Savannah 600

21,100

* CLP is currently rolling out remainder of portfolio* CLP is currently rolling out remainder of portfolio

PILOT1

PILOT 2

+3.2%

+2.2%

Observations from the FieldObservations from the Field• PROS

•The daily price changes created a sense of urgency to close the deal on the prospect.

• Multi-term pricing allowed the leasing associate to have more options and focus more on the prospect’s needs.

• Consolidates all supply-related data (traffic, expirations, leasing velocity) into a 16 week pricing forecast.

• Pricing follows a disciplined and “non-emotional” approach that would be more defensible for fair housing.

• The pricing model allowed for a smooth lease expiration matrix.

• LRO has made management transition on the properties easier.

• Pricing process is automated to where all pricing sources (Website\ILS) are in synch and much of STARS pricing approach is automated.

• Pricing process automates renewal generation process and requires that renewals are not less then the expiring lease (unless overridden).

•CONS•System is expensive at first glance. Make sure you do a business case with a hurdle rate.

• System could “dumb down” some of the pricing decisions at the property level (i.e. “The computer told me to do that.”)

• System is somewhat unproven in a down market.

Internal Controls – Best PracticesInternal Controls – Best Practices Change Management

Senior Management Buy-in? Regional Management is the Key!

Traffic Entered Promptly Marketing Sources Correct

Market Comps Shopped Weekly Shopped Accurately

Pricing Awareness of Previous Rents Minimal Overrides Calls are Attended

Change Management Senior Management Buy-in? Regional Management is the Key!

Traffic Entered Promptly Marketing Sources Correct

Market Comps Shopped Weekly Shopped Accurately

Pricing Awareness of Previous Rents Minimal Overrides Calls are Attended

Market Comps – Shopped WeeklyMarket Comps – Shopped Weekly

SAMPLE

Market Comps – Shopped AccuratelyMarket Comps – Shopped Accurately

SAMPLE

Pricing – Awareness of Previous RentsPricing – Awareness of Previous Rents

SAMPLE

Pricing – Minimal OverridesPricing – Minimal Overrides

SAMPLE

Pricing – Calls are AttendedPricing – Calls are Attended

SAMPLE

KPI Performance HistoryKPI Performance History

KPIs Tracked Revenue Per Occupied Unit (RPU) (Internal) Net Effective Rent (External) Physical Occupancy (External) Lease Expirations (Internal)

KPIs Tracked Revenue Per Occupied Unit (RPU) (Internal) Net Effective Rent (External) Physical Occupancy (External) Lease Expirations (Internal)

Revenue Per Unit Indexed (Pilot 1)Revenue Per Unit Indexed (Pilot 1)

Source: CLP DataSource: CLP Data

Revenue Per Unit Indexed (Pilot 2)Revenue Per Unit Indexed (Pilot 2)

Source: CLP DataSource: CLP Data

Rent\Occupancy Gap (RevMan vs NonRevMan)Rent\Occupancy Gap (RevMan vs NonRevMan)AtlantaAtlanta

CharlotteCharlotte

Source: AxioMetricsSource: AxioMetrics

Rent\Occupancy Gap (NonRevMan vs RevMan)Rent\Occupancy Gap (NonRevMan vs RevMan)DallasDallas

OverallOverall

Source: AxioMetricsSource: AxioMetrics

Effective Rent\Occupancy (CLP to NonRevMan Peers)Effective Rent\Occupancy (CLP to NonRevMan Peers)

Effective Rental Rate GapEffective Rental Rate Gap

Occupancy GapOccupancy Gap

Source: CLP Data, AxioMetricsSource: CLP Data, AxioMetrics

Lease ExpirationsLease Expirations

Source: CLP DataSource: CLP Data

So Does It Work?So Does It Work?

Improving\Stabilized Markets RM reacts quicker and drives rents up faster than manual

process while maintaining occupancy. Many studies and pilots prove this.

Declining Markets RM reacts quicker and drives rents down faster than

manual process in order to preserve occupancy. But does it react too quickly and discount too aggressively?

Per Rainmaker, ASN and Simpson have proven it works in a declining market.

Improving\Stabilized Markets RM reacts quicker and drives rents up faster than manual

process while maintaining occupancy. Many studies and pilots prove this.

Declining Markets RM reacts quicker and drives rents down faster than

manual process in order to preserve occupancy. But does it react too quickly and discount too aggressively?

Per Rainmaker, ASN and Simpson have proven it works in a declining market.

THANK YOU!THANK YOU!

Ansley and Reagan say THANKS!!Ansley and Reagan say THANKS!!