Colonial Properties Trust – Gaining value from its Revenue Management System

Can a systemic approach to revenue management improve performance in a declining apartment rental market?  Colonial Properties Trust’s experience says yes – with some caveats.

Colonial Properties Trust has 119 multifamily properties with about 32,000 units.  The average rent across their portfolio is $803, and the properties average 15 years old. Colonial Properties Trust uses the MRI property management system and Rainmaker Group’s LRO revenue management system.

At the 2009 AIM Conference, Colonial’s Ray Thornton, Vice President of Information Technology (pictured below left) stated that the company’s revenue management program has increased their total yield (defined as revenue per occupied unit) versus control properties by about 500 basis points through the first quarter of 2009. Mr. Thornton’s presentation is embedded at the bottom of this post below.

Colonial’s Ray Thornton, Vice President of Information Technology (l)

In the second half of 2008, Colonial had to react swiftly after learning from its revenue management system about some declining fundamentals to lower prices, to boost occupancy and hence improve total yield relative to the overall market.  According to Axiometrics data for their markets, Colonial gained 3.4% in occupancy relative to their peers while sacrificing .5% of their rental rate, a net gain of 2.9% of total yield relative to the market.

Colonial piloted revenue management in two phases.  In its first phase pilot in April 2007, it recognized a 3.2% lift in revenue versus internal control properties.  In the second phase pilot, Colonial gained a 2.2% lift from October 2007 through January 2008.  The declining market of late 2008 gave Colonial a different kind of testing opportunity. They used this period to benchmark their pricing and occupancy versus their competitors and found some compelling data points:

• With third-party data from Axiometrics, Colonial was able to chart the trade-off that its revenue management system charged between rental rates and occupancy.  As its markets declined in the second half of 2008, the revenue management system reacted swiftly to cut rents to gain a disproportionate occupancy – which created a net income gain in yield relative to the market.

• Lowering prices boosted occupancy and improved total yield.  Overall, Colonial gained 3.4% in occupancy relative to their peers while sacrificing .5% of their rental rate, a net gain of 2.9% of total yield relative to the market.

• Revenue-managed properties outperformed peer properties as measured by revenue per unit in two pilot groups by about 5% through the first quarter of 2009.

Colonial Properties Trust’s actions throughout the last 12 months shows that its approach to revenue management performance can benefit companies that stay on course with its overall operations. Maybe your firm can benefit likewise.