UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________.
COMMISSION FILE NO. 33-98136
CHELSEA GCA REALTY PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3258100
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
103 EISENHOWER PARKWAY, ROSELAND, NEW JERSEY 07068
(Address of principal executive offices - zip code)
(201) 228-6111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes X No .
There are no outstanding shares of Common Stock or voting securities.
<PAGE>
CHELSEA GCA REALTY PARTNERSHIP, L.P.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
Condensed Consolidated Balance Sheets
as of June 30, 1997 and December 31, 1996............. 3
Condensed Consolidated Statements of Income
for the three and six months ended June 30,
1997 and 1996......................................... 4
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1997 and 1996....... 5
Notes to Condensed Consolidated Financial Statements.... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 10
Signatures...................................................... 15
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ITEM 1. FINANCIAL STATEMENTS
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CHELSEA GCA REALTY PARTNERSHIP, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
June 30, December 31,
1997 1996
--------------- ---------------
(Unaudited)
Assets:
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Rental properties:
Land $ 106,751 $ 80,312
Depreciable property 524,708 432,042
--------------- ---------------
Total rental property 631,459 512,354
Accumulated depreciation (68,712) (58,054)
--------------- ---------------
Rental properties, net 562,747 454,300
Cash and equivalents 6,377 13,886
Notes receivable-related parties 4,700 8,023
Deferred costs, net 11,130 10,321
Other assets 10,387 15,682
--------------- ---------------
TOTAL ASSETS $ 595,341 $ 502,212
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Unsecured bank debt $ 55,035 $ -
7.75% Unsecured Notes due 2001 99,709 99,668
Remarketed Floating Rate Reset Notes due 2001 100,000 100,000
Construction payables 7,945 14,473
Accounts payable and accrued expenses 10,944 12,257
Obligation under capital lease 9,767 9,805
Distribution payable to unitholders 11,775 3,038
Rent payable 1,648 1,637
--------------- ---------------
TOTAL LIABILITIES 296,823 240,878
Commitments and contingencies
Minority interest - 5,698
Partners' capital:
General partner units outstanding, 15,253 in 249,363 185,340
1997 and 12,402 in 1996
Limited partners units outstanding, 3,436 in 49,155 70,296
1997 and 4,808 in 1996
--------------- ---------------
Total partners' capital 298,518 255,636
--------------- ---------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $595,341 $502,212
=============== ===============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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CHELSEA GCA REALTY PARTNERSHIP, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(In thousands, except per unit data)
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
------------ ------------ ------------- -------------
REVENUES:
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Base rent.............................................. $17,286 $13,746 $32,849 $26,423
Percentage rent........................................ 1,784 881 3,082 1,679
Expense reimbursements................................. 7,062 5,709 12,426 10,854
Other income........................................... 505 593 929 1,028
------------ ------------ ------------- -------------
Total revenues............................................ 26,637 20,929 49,286 39,984
------------ ------------ ------------- -------------
EXPENSES:
Interest 4,401 1,848 7,558 3,426
Operating and maintenance 7,637 6,073 13,527 11,596
Depreciation and amortization 6,190 3,529 11,968 7,168
General and administrative 763 800 1,470 1,441
Other 584 565 1,214 1,103
------------ ------------ ------------- -------------
Total expenses 19,575 12,815 35,737 24,734
------------ ------------ ------------- -------------
Income before minority interest and extraordinary item 7,062 8,114 13,549 15,250
Minority interest (77) (74) (127) (139)
------------ ------------ ------------- ------------
Net income before extraordinary item 6,985 8,040 13,422 15,111
Extraordinary item-loss on early extinguishment of debt - - - (902)
------------ ------------ ------------ -----------
Net income $6,985 $ 8,040 $13,422 $14,209
=========== ============ ============ ===========
Net income:
General partner $5,613 $ 5,456 $ 10,753 $ 9,610
Limited partners 1,372 2,584 2,669 4,599
------------ ------------ ------------- -------------
Total $ 6,985 $ 8,040 $ 13,422 $14,209
============ ============ ============= =============
Net income per unit:
General partner (including $0.05 net loss per unit
from extraordinary item in
the six months ended
June 30, 1996) $ 0.40 $ 0.47 $ 0.77 $0.83
Limited partners (including
$0.05 net loss per unit
from extraordinary item in
the six months ended
June 30, 1996) $ 0.40 $ 0.47 $ 0.77 $0.83
WEIGHTED AVERAGE UNITS OUTSTANDING:
General partner 14,055 11,610 13,902 11,540
Limited partners 3,436 5,498 3,452 5,508
------------ ------------ ------------- -------------
Total 17,491 17,108 17,354 17,048
============ ============ ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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CHELSEA GCA REALTY PARTNERSHIP, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(In thousands)
1997 1996
--------------- ---------------
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Cash flows from operating activities
Net income $13,422 $14,209
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,968 7,168
Minority interest in net income 127 139
Loss on early extinguishment of debt - 902
Additions to deferred lease costs (744) (1,052)
Other operating activities 37 59
Changes in assets and liabilities:
Straight line rent receivable (757) (887)
Other assets 6,052 1,322
Accounts payable and accrued expenses (1,340) 1,830
--------------- ---------------
Net cash provided by operating activities 28,765 23,690
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to rental properties (127,314) (45,612)
Additions to deferred development cost (602) (6,145)
Advances to related parties - (67)
Payments from related parties - 173
--------------- ---------------
Net cash used in investing activities (127,916) (51,651)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of common stock 51,586 1,091
Distributions (14,686) (19,625)
Debt proceeds 105,035 141,592
Repayments of debt (50,000) (89,000)
Additions to deferred financing costs (293) (3,135)
--------------- ---------------
Net cash provided by financing activities 91,642 30,923
--------------- ---------------
Net (decrease) increase in cash and equivalents (7,509) 2,962
Cash and equivalents, beginning of period 13,886 3,987
--------------- ---------------
Cash and equivalents, end of period $6,377 $6,949
=============== ===============
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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the six months ended June 30, 1997 and 1996, 1.4 million and 0.3 million
Operating Partnership units with a book value of approximately $20.0 million and
$3.8 million, respectively, were converted to common shares. In June 1997, the
Operating Partnership forgave a $3.3 million related party note receivable as
partial consideration to acquire the remaining 50% interest in Solvang. On March
31, 1997, the Operating Partnership issued units having a market value of $0.5
million as partial consideration to acquire Waikele Factory Outlets.
Additionally, during 1996, the Operating Partnership issued units to acquire
property valued at $1.6 million.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
CHELSEA GCA REALTY PARTNERSHIP, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Chelsea GCA Realty Partnership, L.P. (the "Operating Partnership"), which
commenced operations on November 2, 1993, is engaged in the development,
ownership, acquisition, leasing and operation of manufacturers' outlet centers.
As of June 30, 1997, the Operating Partnership operated 19 centers in 11 states
(the "Properties") containing approximately 4.0 million square feet of gross
leasable area ("GLA"). The Properties are located near large metropolitan areas
including New York, Los Angeles, San Francisco, Sacramento, Atlanta, Portland
(Oregon), Kansas City and Cleveland, or at or near tourist destinations
including Honolulu, the Napa Valley, Palm Springs and the Monterey Peninsula.
The Operating Partnership also has a number of properties under development and
expansion. The sole general partner in the Operating Partnership, Chelsea GCA
Realty, Inc. (the "Company"), is a self-administered and self-managed Real
Estate Investment Trust.
Ownership of the Operating Partnership as of June 30, 1997 was as follows:
General Partner 81.6% 15,253,000 units
Limited Partners 18.4% 3,436,000 units
---------------- -------------------
TOTAL 100.0% 18,689,000
The condensed consolidated financial statements of the Operating Partnership
include the accounts of Solvang Designer Outlets ("Solvang"), a limited
partnership. The Operating Partnership previously had a 50% interest and was the
sole general partner. On June 30, 1997, the Operating Partnership acquired the
remaining 50% interest in Solvang. Solvang is not material to the operations or
financial position of the Operating Partnership.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1997 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997. These financial statements should be read in
conjunction with the consolidated financial statements and accompanying notes
included in the Operating Partnership's Annual Report on Form 10-K for the year
ended December 31, 1996.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted for the quarter
ending March 31, 1998. At that time the Operating Partnership will be required
to change the method currently used to compute earnings per parnership unit and
to restate all prior periods. Management does not believe the adoption of
Statement No. 128 will have a material impact on earnings per partnership unit.
Certain prior period balances have been reclassified to conform with current
period presentation.
2. JOINT VENTURE AGREEMENT
In May 1997, the Operating Partnership announced the formation of a strategic
alliance with Simon DeBartolo Group, Inc. ("Simon") to develop and acquire
high-end outlet centers with GLA of 500,000 square feet or more in the United
States. The Operating Partnership and Simon will be co-managing general
partners, each with 50% ownership of the joint venture and any entities formed
with respect to specific projects; the Operating Partnership will have primary
responsibility for the day-to-day activities of each project. In conjunction
with the alliance, the Company completed the sale to Simon of 1.4 million shares
of new common stock, for an aggregate sales price of $50 million. Net proceeds
from the sale were used to repay borrowings under the Operating Partnership's
Unsecured Facility.
3. PROPERTY ACQUISITION
On March 31, 1997, the Operating Partnership acquired Waikele Factory Outlets, a
manufacturers' outlet shopping center located near Honolulu, Hawaii. The
consideration paid by the Operating Partnership consisted of the assumption of
$70.7 million of indebtedness outstanding with respect to the property (which
indebtedness was repaid in full immediately after the closing) and the issuance
of special partnership units having a fair market value of $0.5 million.
Immediately after the closing, the Operating Partnership paid a special cash
distribution of $5.0 million to special unit holders. The cash used by the
Operating Partnership in the acquisition was obtained through borrowings under
the Unsecured Facility.
4. DEBT
In March 1996, the Operating Partnership replaced its secured revolving credit
facility (the "Secured Facility") with a new unsecured $100 million revolving
credit facility (the "Unsecured Facility") which expires March 29, 1998. In
connection with the termination of the Secured Facility, the Operating
Partnership expensed as an extraordinary item the unamortized deferred financing
costs of $0.6 million (net of minority interest of $0.3 million) which had been
incurred. In March 1997, the Operating Partnership entered into a $50 million
unsecured revolving credit facility in addition to the $100 million Unsecured
Facility with the same terms and conditions except the additional facility
expires on September 30, 1997 unless extended for six months. Interest on the
outstanding balance of the unsecured facilities is payable monthly at a rate
equal to the London Interbank Offered Rate ("LIBOR") plus 1.45%, or the prime
rate, at the Operating Partnership's option. Fees on the unused portion of the
unsecured facilities are payable quarterly at a rate of 0.25% per annum. The
outstanding balance at June 30, 1997 was $55.0 million, which approximates fair
value, leaving $95.0 million of borrowing availability.
The unsecured facilities require compliance with certain loan covenants relating
to debt service coverage, tangible net worth, cash flow, earnings, occupancy
rate, new development and dividends. The Operating Partnership has remained in
compliance with these covenants since inception of the facilities.
In June 1997, $50 million in proceeds from the sale of stock in the Company were
used to repay borrowings under the Operating Partnership's Unsecured Facility.
In January 1996, the Operating Partnership completed a $100 million public debt
offering of 7.75% unsecured term notes due January 2001 (the "Term Notes"),
which are guaranteed by the Company. The five-year non-callable
Term Notes were priced at a discount of 99.952 to yield 7.85% to investors. Net
proceeds from the offering were used to pay down substantially all of the
borrowings under the Secured Facility.
In October 1996, the Operating Partnership completed a $100 million offering of
Remarketed Floating Rate Reset Notes (the "Reset Notes"), which are guaranteed
by the Company. The interest rate will reset quarterly and will
equal LIBOR plus 75 basis points during the first year. The spread and the
spread period for subsequent periods will be adjusted in whole or part at the
end of the first year, pursuant to an agreement with the underwriters. Unless
previously redeemed, the Reset Notes will have a final maturity of October 23,
2001. Net proceeds from the offering were used to repay all of the borrowings
under the Unsecured Facility and for working capital. The carrying amount of the
Reset Notes approximates their fair value.
Interest and loan costs of approximately $1.9 million and $2.5 million were
capitalized as development costs during the three months ended March 31, 1997
and 1996, respectively.
5. DISTRIBUTIONS
On June 10, 1997, the Board of Directors of the Company declared a $0.63 per
unit cash distribution to unitholders of record on June 30, 1997. The
distribution, totaling $11.8 million, was paid on July 21, 1997.
6. INCOME TAXES
No provision has been made for income taxes in the accompanying consolidated
financial statements since such taxes, if any, are the responsibility of the
individual partners.
7. NET INCOME PER PARTNERSHIP UNIT
Net income per partnership unit is determined by allocating net income to the
general partner and the limited partners based on their weighted average
partnership units outstanding during the respective periods presented.
8. COMMITMENTS AND CONTINGENCIES
The Operating Partnership is not presently involved in any material litigation
nor, to its knowledge, is any material litigation threatened against the
Operating Partnership or its properties, other than routine litigation arising
in the ordinary course of business. Management believes the costs, if any,
incurred by the Operating Partnership related to this litigation will not
materially affect the financial position, operating results or liquidity of the
Operating Partnership.
9. RELATED PARTY INFORMATION
On June 30, 1997, the Operating Partnership forgave a $3.3 million related
party note and paid $2.4 million in cash to acquire the remaining 50% interest
in Solvang Designer Outlets. The Operating Partnership also collected $0.8
million in accrued interest on the note.
The Operating Partnership recognized lease settlement income of approximately
$99,000 from a related party during the six months ended June 30, 1996. This
amount is included in other income in the accompanying condensed consolidated
financial statements.
10. EXTRAORDINARY ITEM
Deferred financing costs of $0.6 million (net of minority interest of $0.3
million) related to the Secured Facility replaced in March 1996 were expensed
and are reflected in the accompanying financial statements as an extraordinary
item.
<PAGE>
CHELSEA GCA REALTY PARTNERSHIP, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the accompanying
unaudited condensed consolidated financial statements and notes thereto. These
financial statements include all adjustments which, in the opinion of
management, are necessary to reflect a fair statement of results for the interim
periods presented, and all such adjustments are of a normal recurring nature.
GENERAL OVERVIEW
The Operating Partnership has grown by increasing rent at its existing centers,
expanding its existing centers, developing new centers and acquiring and
redeveloping centers. The Operating Partnership operated 19 manufacturers'
outlet centers at June 30, 1997 compared to 17 at the end of the same quarter in
the prior year. The Operating Partnership's operating gross leasable area (GLA)
at June 30, 1997, increased 21.5% to 4.0 million square feet from 3.3 million
square feet at June 30, 1996. GLA added since July 1, 1996 is detailed as
follows:
12 mos 6 mos 6 mos
ended ended ended
June 30, June 30, December 31,
1997 1997 1996
------------- ---------------- ---------------
GLA added (in 000's):
NEW CENTERS OPENED:
Clinton Crossing........ 272 - 272
----------- ------------ ------------
TOTAL NEW CENTERS.......... 272 - 272
CENTERS EXPANDED:
North Georgia........... 111 111 -
Desert Hills............ 11 11 -
Woodbury Common......... 2 - 2
Camarillo............... 54 - 54
Folsom.................. 38 16 22
Liberty Village......... 2 (1) 3
Other................... (5) (4) (1)
------------ ------------ ------------
TOTAL CENTERS EXPANDED...... 213 133 80
CENTER ACQUIRED:
Waikele................. 214 214 -
------------ ------------ ------------
Net GLA added during the
period..................... 699 347 352
GLA at end of period....... 3,957 3,957 3,610
<PAGE>
RESULTS OF OPERATIONS
Comparison of the three months ended June 30, 1997 to the three months ended
June 30, 1996.
Net income before minority interest and extraordinary item decreased $1.0
million to $7.1 million for the three months ended June 30, 1997 from $8.1
million for the three months ended June 30, 1996. Increases in revenues were
more than offset by higher interest expense and depreciation and amortization.
Base rentals increased $3.6 million, or 25.8%, to $17.3 million for the three
months ended June 30, 1997 from $13.7 million for the three months ended June
30, 1996 due to expansions, new center openings, an acquisition and higher
average rents.
Percentage rents increased $0.9 million to $1.8 million for the three months
ended June 30, 1997, from $0.9 million for the three months ended June 30, 1996.
The increase was primarily due to increases in tenant sales at the Operating
Partnership's larger centers and an increase in tenants contributing percentage
rents.
Expense reimbursements, representing contractual recoveries from tenants of
certain common area maintenance, operating, real estate tax, promotional and
management expenses, increased $1.4 million, or 23.7%, to $7.1 million for the
three months ended June 30, 1997 from $5.7 million for the three months ended
June 30, 1996, due to the recovery of operating and maintenance costs from
increased GLA. The average recovery of reimbursable expenses was 92.5% in the
second quarter of 1997, compared to 94.0% in the second quarter of 1996.
Other income decreased $0.1 million to $0.5 million for the three months ended
June 30, 1997 from $0.6 million for the three months ended June 30, 1996 due to
lease termination income in 1996.
Interest in excess of amounts capitalized increased $2.6 million to $4.4 million
for the three months ended June 30, 1997 from $1.8 million for the three months
ended June 30, 1996 primarily due to higher debt balances from new centers and
expansion openings and a center acquisition financed with borrowings.
Operating and maintenance expenses increased $1.5 million, or 25.8%, to $7.6
million for the three months ended June 30, 1997 from $6.1 million for the three
months ended June 30, 1996. The increase was primarily due to costs related to
increased GLA.
Depreciation and amortization expense increased $2.7 million, or 75.4%, to $6.2
million for the three months ended June 30, 1997 from $3.5 million for the three
months ended June 30, 1996. The increase was primarily related to increased GLA.
General and administrative expenses remained flat at $0.8 million for the three
months ended June 30, 1997 and 1996.
Other expenses remained flat at $0.6 million for the three months ended June 30,
1997 and 1996.
Comparison of the six months ended June 30, 1997 to the six months ended June
30, 1996.
Net income before minority interest and extraordinary item decreased $1.8
million to $13.5 million for the six months ended June 30, 1997, from $15.3
million for the six months ended June 30, 1996. Increases in revenues were more
than offset by higher interest expense and increases in depreciation and
amortization.
Base rentals increased $6.4 million, or 24.3%, to $32.8 million for the six
months ended June 30, 1997, from $26.4 million for the six months ended June 30,
1996, due to expansions, new center openings, an acquisition and higher average
rents.
Percentage rents increased $1.4 million to $3.1 million for the six months ended
June 30, 1997 from $1.7 million for the six months ended June 30, 1996. The
increase was primarily due to increases in tenant sales, expansions at the
Operating Partnership's larger centers and increases in tenants contributing
percentage rents.
Expense reimbursements, representing contractual recoveries from tenants of
certain common area maintenance, operating, real estate tax, promotional and
management expenses, increased $1.5 million, or 14.5%, to $12.4 million for the
six months ended June 30, 1997 from $10.9 million for the six months ended June
30, 1996, due to the recovery of operating and maintenance costs from increased
GLA. The average recovery of reimbursable expenses was 91.9% in 1997 compared to
93.6% in 1996.
Other income decreased $0.1 million to $0.9 million for the six months ended
June 30, 1997 from $1.0 million for the six months ended June 30, 1996 due to
higher lease termination settlements in 1996.
Interest in excess of amounts capitalized increased $4.2 million to $7.6 million
for the six months ended June 30, 1997 from $3.4 million for the six months
ended June 30, 1996 primarily due to higher debt balances from new centers and
expansion openings and a center acquisition financed with borrowings.
Operating and maintenance expenses increased $1.9 million, or 16.7%, to $13.5
million for the six months ended June 30, 1997 from $11.6 million for the six
months ended June 30, 1996. The increase was primarily due to costs related to
increased GLA.
Depreciation and amortization expense increased $4.8 million, or 67.0%, to $12.0
million for the six months ended June 30, 1997 from $7.2 million for the six
months ended June 30, 1996. The increase was primarily due to costs related to
increased GLA.
General and administrative expenses increased $0.1 million to $1.5 million for
the six months ended June 30, 1997 from $1.4 million for the six months ended
June 30, 1996. The increase was primarily due to increased personnel and
overhead costs.
Other expenses increased $0.1 million to $1.2 million for the six months ended
June 30, 1997 from $1.1 million for the six months ended June 30, 1996. The
increase included additional reserves for bad debts.
In March 1996, the Operating Partnership replaced its Secured Facility. Deferred
financing costs of $0.6 million, net of minority interest of $0.3 million, were
expensed in connection with the early retirement of the Secured Facility.
LIQUIDITY AND CAPITAL RESOURCES
The Operating Partnership believes it has adequate financial resources to fund
operating expenses, distributions, and planned development and construction
activities. Operating cash flow during 1997 is expected to increase with a full
year of operations of the 676,000 square feet of GLA added during 1996, the
acquisition of Waikele Factory Outlets and scheduled openings of one new center
and expansions in 1997. In addition, at June 30, 1997 the Operating Partnership
had $95.0 million available under its unsecured facilities, access to the public
markets through the Operating Partnership's $200 million equity shelf
registration, and cash equivalents of $6.4 million.
Operating cash flow is expected to provide sufficient funds for distributions.
In addition, the Operating Partnership anticipates retaining sufficient
operating cash to fund re-tenanting and lease renewal tenant improvement costs,
as well as capital expenditures to maintain the quality of its centers.
Distributions declared and recorded during the six months ended June 30, 1997
were $22.6 million, or $1.26 per unit. The Operating Partnership's distribution
payout ratio as a percentage of net income before depreciation and amortization,
exclusive of amortization of deferred financing costs, minority interest and
extraordinary item ("FFO") was 92.2% during the six months ended June 30, 1997.
The Unsecured Facility limits aggregate distributions to the lesser of (i) 90%
of FFO on an annual basis or (ii) 100% of FFO for any two consecutive quarters.
In March 1997, the Operating Partnership entered into a $50 million unsecured
revolving credit facility in addition to the $100 million Unsecured Facility
with the same terms and conditions except the additional facility expires on
September 30, 1997 unless extended for six months. Interest on the outstanding
balance is payable monthly at a rate equal to LIBOR plus 1.45%, or the prime
rate, at the Operating Partnership's option. Fees on the unused portion of the
unsecured facilities are payable quarterly at a rate of 0.25% per annum.
The Operating Partnership is in the process of planning development for 1997 and
beyond, including a new project in Wrentham, Massachusetts (near the junction of
Interstates 95 and 495 between Boston, MA and Providence, RI) with an expected
initial phase of 230,000 square feet of GLA, and expansions at Woodbury Common
(270,000 square feet), Desert Hills (35,000 square feet), Liberty Village
(13,000 square feet), Folsom (20,000 square feet) and Camarillo (85,000 square
feet). These projects are in various stages of development and there can be no
assurance that any of them will be completed or opened, or that there will not
be delays in the opening or completion of any of them. The Operating Partnership
anticipates development and construction costs of approximately $75 million to
$115 million annually.
To achieve planned growth and favorable returns in both the short and long term,
the Operating Partnership's financing strategy is to maintain a strong, flexible
financial position by: (i) maintaining a conservative level of leverage; (ii)
extending and sequencing debt maturity dates; (iii) managing exposure to
floating interest rates; (iv) maintaining a significant level of unencumbered
assets; and (v) maintaining liquidity. Management believes these strategies will
enable the Operating Partnership to access a broad array of capital sources,
including bank or institutional borrowings and secured and unsecured debt and
equity offerings, subject to market conditions.
It is the Operating Partnership's policy to limit its borrowings to less than
40% of total market capitalization (defined as the value of outstanding shares
of common stock on a fully diluted basis including conversion of partnership
units to common stock, plus total debt). Using a June 30, 1997 closing price of
$38.00 per common share, the Operating Partnership's ratio of debt to total
market capitalization was approximately 26%.
Net cash provided by operating activities was $28.8 million and $23.7 million
for the six months ended June 30, 1997 and 1996, respectively. The increase was
primarily due to the growth of the Operating Partnership's GLA to 4.0 million
square feet in 1997 from 3.3 million square feet in 1996 and decreases in
accounts receivable, offset by decreases in accrued expenses. Net cash used in
investing activities increased $76.3 million for the six months ended June 30,
1997 compared to the corresponding 1996 period, primarily as a result of the
acquisition of Waikele Factory Outlets. Net cash provided by financing
activities increased $60.7 million primarily due to the purchase of stock by
Simon.
FUNDS FROM OPERATIONS
Management believes that funds from operations ("FFO") should be considered in
conjunction with net income, as presented in the statements of operations
included elsewhere herein, to facilitate a clear understanding of the operating
results of the Operating Partnership. Management considers FFO an appropriate
measure of performance for an equity real estate investment trust. FFO, as
defined by the National Association of Real Estate Investment Trusts ("NAREIT"),
is net income (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales of
property, exclusive of outparcel sales, plus real estate related depreciation
and amortization and after adjustments for unconsolidated partnerships and joint
ventures. Adjustments for unconsolidated partnerships and joint ventures are
calculated to reflect FFO on the same basis. FFO does not represent net income
or cash flow from operations as defined by generally accepted accounting
principles and should not be considered an alternative to net income as an
indicator of operating performance or to cash from operations, and is not
necessarily indicative of cash flow available to fund cash needs.
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
--------- --------- ---------- --------
Net income before extraordinary item $6,985 $8,040 $13,422 $15,111
Add back:
Depreciation and amortization (1) 6,136 3,478 11,856 7,065
Amortization of deferred
financing costs and (401) (269) (736) (656)
depreciation of non-real
estate assets
----------- --------- --------- --------
FFO $12,720 $11,249 $24,542 $21,520
=========== ======== ======== ========
---------------------------------------
(1) Excludes depreciation and minority interest attributed to a third-party
limited partner's interest in a partnership.
<PAGE>
CHELSEA GCA REALTY PARTNERSHIP, L.P.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHELSEA GCA REALTY PARTNERSHIP, L.P.
By: CHELSEA GCA REALTY, INC.
Its General Partner
By: /S/ LESLIE T. CHAO
Leslie T. Chao
President and Chief Financial Officer
Date: August 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,377
<SECURITIES> 0
<RECEIVABLES> 4,700
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 631,459
<DEPRECIATION> (68,712)
<TOTAL-ASSETS> 595,341
<CURRENT-LIABILITIES> 0
<BONDS> 254,744
0
0
<COMMON> 0
<OTHER-SE> 298,518
<TOTAL-LIABILITY-AND-EQUITY> 595,341
<SALES> 26,637
<TOTAL-REVENUES> 26,637
<CGS> 0
<TOTAL-COSTS> 19,575
<OTHER-EXPENSES> 584
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,401
<INCOME-PRETAX> 6,985
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,985
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,985
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
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