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 MARCH 31, 1998
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)
(973) 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 March
31, 1998 and December 31, 1997.......................... 3
Condensed Consolidated Statements of Income for the
three months ended March 31, 1998 and 1997.............. 4
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1998 and 1997.......... 5
Notes to Condensed Consolidated Financial Statements...... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 9
Signatures........................................................ 13
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
CHELSEA GCA REALTY PARTNERSHIP, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
(UNAUDITED)
----------- ------------
Assets
Rental properties:
<S> <C> <C>
Land ......................................... $ 112,727 $ 112,470
Depreciable property ......................... 620,696 596,463
--------- ---------
Total rental property ........................... 733,423 708,933
Accumulated depreciation ........................ (86,584) (80,244)
--------- ---------
Rental properties, net .......................... 646,839 628,689
Cash and equivalents ............................ 9,225 14,538
Notes receivable-related parties ................ 4,781 4,781
Deferred costs, net ............................. 16,655 17,276
Other assets .................................... 18,037 22,745
--------- ---------
TOTAL ASSETS .................................... $ 695,537 $ 688,029
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Unsecured bank debt ......................... $ 13,035 $ 5,035
7.75% Unsecured Notes due 2001 .............. 99,763 99,743
Remarketed Floating Rate Reset Notes
due 2001 ................................... 60,000 60,000
7.25% Unsecured Notes due 2007 .............. 124,689 124,681
Construction payables ....................... 12,497 17,810
Accounts payable and accrued
expenses ................................... 14,013 14,442
Obligation under capital lease .............. 9,700 9,729
Accrued distribution payable ................ 13,869 3,276
Other liabilities ........................... 8,088 7,390
----- -----
TOTAL LIABILITIES ............................... 355,654 342,106
Commitments and contingencies
Partners' capital:
General partner units outstanding, 15,354
in 1998 and 15,353 in 1997 ................. 292,763 297,670
Limited partners units outstanding, 3,431
in 1998 and 3,432 in 1997 .................. 47,120 48,253
------ ------
Total partners' capital ......................... 339,883 345,923
------- -------
TOTAL LIABILITIES AND PARTNERS' CAPITAL ......... $ 695,537 $ 688,029
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
CHELSEA GCA REALTY PARTNERSHIP, L.P.
CONDENSED CONSOLIDATED STATEMENTS
OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT DATA)
1998 1997
---- ----
REVENUES:
Base rental ................................... $ 19,266 $ 15,563
Percentage rental ............................. 1,786 1,298
Expense reimbursements ........................ 6,800 5,364
Other income .................................. 654 424
--- ---
TOTAL REVENUES .................................. 28,506 22,649
------ ------
EXPENSES:
Interest ...................................... 4,125 3,157
Operating and maintenance ..................... 7,590 5,890
Depreciation and amortization ................. 7,278 5,778
General and administrative .................... 886 707
Other ......................................... 628 630
--- ---
TOTAL EXPENSES .................................. 20,507 16,162
------ ------
Net income before minority interest ............. 7,999 6,487
MINORITY INTEREST ............................... -- (50)
------ ------
NET INCOME ...................................... $ 7,999 $ 6,437
Preferred Unit Requirement ...................... (1,047) --
------ ------
NET INCOME TO COMMON UNITHOLDERS ................ $ 6,952 $ 6,437
======== ========
NET INCOME TO COMMON UNITHOLDERS:
General partner ............................... $ 5,682 $ 5,140
Limited partners .............................. 1,270 1,297
TOTAL ........................................... $ 6,952 $ 6,437
NET INCOME PER COMMON UNIT:
General partner ................................ $ 0.37 $ 0.37
Limited partners ............................... $ 0.37 $ 0.37
WEIGHTED AVERAGE UNITS OUTSTANDING:
General partner ................................ 15,353 13,749
Limited partners ............................... 3,431 3,469
----- -----
Total ........................................... 18,784 17,218
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
CHELSEA GCA REALTY PARTNERSHIP, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
(IN THOUSANDS)
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ........................................... $ 7,999 $ 6,437
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization ..................... 7,278 5,778
Minority interest in net income ................... -- 50
Additions to deferred lease costs ................. (978) (314)
Other operating activities ........................ 97 20
Changes in assets and liabilities:
Straight line rent receivable ................... (329) (322)
Other assets .................................... 5,762 3,902
Accounts payable and accrued expenses ........... (200) (2,195)
---- ------
Net cash provided by operating activities ............ 19,629 13,356
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to rental properties ....................... (27,238) (99,392)
Additions to deferred development costs .............. (890) (146)
Other investing activities ........................... (285) --
-------- --------
Net cash used in investing activities ................ (28,413) (99,538)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of common units ............... 25 327
Distributions ........................................ (3,414) (3,039)
Debt proceeds ........................................ 12,000 85,035
Repayments of debt ................................... (4,000) --
Additions to deferred financing costs ................ (1,083) (225)
Other financing activities ........................... (57) --
---
Net cash provided by financing activities ............ 3,471 82,098
----- ------
Net decrease in cash and equivalents ................. (5,313) (4,084)
Cash and equivalents, beginning of period ............ 14,538 13,886
------ ------
Cash and equivalents, end of period .................. $ 9,225 $ 9,802
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 1997, 1.4 million Operating Partnership units with a book value of
approximately $20.0 million were converted to common shares. 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.
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 March 31, 1998, the Operating Partnership operated 20 centers in 12 states
(the "Properties") containing approximately 4.4 million square feet of gross
leasable area ("GLA"). The Properties are located near large metropolitan areas
including New York City, Los Angeles, San Francisco, Sacramento, Boston,
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 March 31, 1998 was as follows:
General Partner 81.7% 15,354,000 units
Limited Partners 18.3% 3,431,000 units
---- ---------
TOTAL 100.0% 18,785,000
Through June 30, 1997, the Operating Partnership was the sole general partner
and had a 50% interest in Solvang Designer Outlets ("Solvang"), a limited
Partnership. Accordingly, the accounts of Solvang were included in the
consolidated financial statements of the Operating Partnership. On June 30,
1997, the Operating Partnership acquired the remaining 50% interest in Solvang.
Solvang is not material to the operations or financial position.
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 month period ended March 31, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. 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, 1997.
Financial Accounting Standards Board Statement No. 131 ("FAS No. 131")
"Disclosure about Segments of an Enterprise and Related Information" is
effective for financial statements issued for periods beginning after December
15, 1997. FAS No. 131 requires disclosures about segments of an enterprise and
related information regarding the different types of business activities in
which an enterprise engages and the different economic environments in which it
operates. FAS No. 131 does not have an impact on the Operating Partnership's
financial statements.
2. WAIKELE ACQUISITION
Pursuant to a Subscription Agreement dated as of March 31, 1997, the Operating
Partnership acquired Waikele Factory Outlets, a manufacturers' outlet shopping
center located in 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 by the Operating
Partnership immediately after the closing) and the issuance of special
partnership units in the Operating Partnership, 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 on the special units. The cash used by
the Operating Partnership in the transaction was obtained through borrowings
under the Operating Partnership's Credit Facilities. Waikele was not included in
the Operating Partnership's operating results for the first quarter of 1997.
3. DEBT
On March 30, 1998, the Operating Partnership replaced its two unsecured bank
revolving lines of credit, totaling $150 million (the "Credit Facilities"), with
a new $160 million senior unsecured bank line of credit (the "Senior Credit
Facility"). The Senior Credit Facility expires on March 30, 2001 and bears
interest on the outstanding balance, payable monthly, at a rate equal to the
London Interbank Offered Rate ("LIBOR") plus 1.05% (6.74% at March 31, 1998) or
the prime rate, at the Operating Partnership's option. A fee on the unused
portion of the Senior Credit Facility is payable quarterly at rates ranging from
0.15% to 0.25% depending on the balance outstanding. The lenders have an option
to extend the facility annually on a rolling three year basis.
Also on March 30, 1998, the Operating Partnership entered into a $5 million term
loan (the "Term Loan") which carries the same interest rate and maturity as the
Senior Credit Facility.
In January 1996, the Operating Partnership completed a $100 million public
offering of 7.75% unsecured term notes due January 2001 (the "7.75% Notes"),
which are guaranteed by the Company. The five-year non-callable 7.75% Notes were
priced at a discount of 99.592 to yield 7.85% to investors. Net proceeds from
the offering were used to pay down substantially all of the borrowings under the
Operating Partnership's secured line of credit. The carrying amount of the 7.75%
Notes approximates their fair value.
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 resets quarterly and was equal to LIBOR plus
75 basis points during the first year. In October 1997, the interest rate spread
was reduced to LIBOR plus 48 basis points (6.11% at March 31, 1998). The spread
and the spread period for subsequent periods will be adjusted in whole or part
at the end of each 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 then
borrowings under the Credit Facilities and for working capital. In October 1997,
the Operating Partnership redeemed $40 million of Reset Notes. The carrying
amount of the Reset Notes approximates their fair value.
In October 1997, the Operating Partnership completed a $125 million public
offering of 7.25% unsecured term notes due October 2007 (the "7.25% Notes"). The
7.25% Notes were priced to yield 7.29% to investors, 120 basis points over the
10-year U.S. Treasury rate. Net proceeds from the offering were used to repay
substantially all borrowings under the Operating Partnership's Credit
Facilities, redeem $40 million of Reset Notes and for general corporate
purposes. The carrying amount of the 7.25% Notes approximates their fair value.
Interest and loan costs of approximately $1.6 million and $0.8 million were
capitalized as development costs during the three months ended March 31, 1998
and 1997, respectively.
4. PREFERRED STOCK
In October 1997, the Company issued 1.0 million shares of 8.375% Series A
Cumulative Redeemable Preferred Stock (the "Preferred Stock"), par value $0.01
per share, having a liquidation preference of $50.00 per share. The Preferred
Stock has no stated maturity and is not convertible into any other securities of
the Company. The Preferred Stock is redeemable on or after October 15, 2027 at
the Company's option. Net proceeds from the offering were used to repay
borrowings under the Operating Partnership's Credit Facilities.
5. DISTRIBUTIONS
On March 12, 1998, the Board of Directors of the Company declared a $0.69 per
unit cash distribution to unitholders of record on March 31, 1998. The
distribution, totaling $13.0 million, was paid on April 20, 1998.
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 PARTNERSHP UNIT
Net income per partnership unit is determined by allocating net income to the
general partner (including the general partner's preferred unit allocation) 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
In September 1995, the Operating Partnership transferred property with a book
value of $4.8 million to the Company's former President (a current unitholder)
in exchange for a $4.0 million note secured by units in the Operating
Partnership (the "Secured Note") and an $0.8 million unsecured note receivable
(the "Unsecured Note"). The Secured Note bears interest at a rate of LIBOR plus
250 basis points per annum, payable monthly, and is due upon the earlier of the
maker obtaining permanent financing on the property, the Operating Partnership
repurchasing the property under an option agreement, the maker selling the
property to an unaffiliated third party, or January 1999. The Unsecured Note
bears interest at a rate of 8.0% per annum and is due upon the earlier of the
Operating Partnership repurchasing the property under an option agreement, the
maker selling the property to an unaffiliated third party, or September 2000.
<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 20 manufacturers'
outlet centers at March 31, 1998 compared to 19 at the end of the same quarter
in the prior year. The Operating Partnership's operating gross leasable area
(GLA) at March 31, 1998, increased 15.8% to 4.4 million square feet from 3.8
million square feet at March 31, 1997. GLA added since April 1, 1997 is detailed
as follows:
<TABLE>
<CAPTION>
12 MOS ENDED 3 MOS ENDED 9 MOS ENDED
MARCH 31, MARCH 31, DECEMBER 31,
1998 1998 1997
------------ ---------- -------------
GLA ADDED (IN 000'S):
NEW CENTERS OPENED:
<S> <C> <C>
Wrentham Village ....................... 227 -- 227
--- --- ---
TOTAL NEW CENTERS ...................... 227 -- 227
CENTERS EXPANDED:
Woodbury Common ........................ 122 122 --
Desert Hills ........................... 31 6 25
North Georgia .......................... 111 -- 111
Camarillo Premium Outlets .............. 85 -- 85
Folsom Premium Outlets ................. 16 -- 16
Liberty Village ........................ 14 -- 14
Other (net) ............................ (2) (1) (1)
-- -- --
TOTAL CENTERS EXPANDED .................. 377 127 250
Net GLA added during the period ......... 604 127 477
GLA at end of period .................... 4,435 4,435 4,308
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 1998 to the three months ended
March 31, 1997.
Net income before minority interest increased $1.5 million to $8.0 million for
the three months ended March 31, 1998 from $6.5 million for the three months
ended March 31, 1997. Increases in revenues, primarily the result of the
Operating Partnership's expansions, a new center and a center acquired, were
offset by higher interest on borrowings and depreciation and amortization.
Base rentals increased $3.7 million, or 23.8%, to $19.3 million for the three
months ended March 31, 1998 from $15.6 million for the three months ended March
31, 1997 due to expansions, a new center opened, one acquired center and higher
average rents.
Percentage rents increased $0.5 million to $1.8 million for the three months
ended March 31, 1998, from $1.3 million for the three months ended March 31,
1997. The increase was primarily due to one new center, a center acquired and
expansions of existing centers.
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 26.8%, to $6.8 million for the
three months ended March 31, 1998 from $5.4 million for the three months ended
March 31, 1997, due to the recovery of operating and maintenance costs at new
and expanded centers. The average recovery of reimbursable expenses was 89.6% in
the first quarter of 1998, compared to 91.1% in the first quarter of 1997.
Interest in excess of amounts capitalized increased $1.0 million to $4.1 million
for the three months ended March 31, 1998 from $3.1 million for the three months
ended March 31, 1997 due to higher debt balances related to the unsecured public
debt offering in October 1997, offset by increased construction in progress.
Operating and maintenance expenses increased $1.7 million, or 28.9%, to $7.6
million for the three months ended March 31, 1998 from $5.9 million for the
three months ended March 31, 1997. The increase was primarily due to costs
related to expansions, a new center and a center acquired.
Depreciation and amortization expense increased $1.5 million, or 26.0%, to $7.3
million for the three months ended March 31, 1998 from $5.8 million for the
three months ended March 31, 1997. The increase was primarily related to
expansions and new centers.
General and administrative expenses increased $0.2 million to $0.9 million for
the three months ended March 31, 1998 from $0.7 million for the three months
ended March 31, 1997. The increase in personnel and overhead costs was offset by
additions to operating GLA.
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 1998 is expected to increase with a full
year of operations of the 698,000 square feet of GLA added during 1997,
including the opening of Wrentham Village Premium Outlets in October 1997, and
expansions and one scheduled new center opening in 1998, subject to market
demand. In addition, at March 31, 1998 the Operating Partnership had $152.0
million available under its Senior Credit Facility, access to the public markets
through shelf registrations covering $200 million of equity and $175 million of
debt, and cash equivalents of $9.2 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 three months ended March 31, 1998
were $13.0 million, or $0.69 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 93.7% during the three months ended March 31,
1998. The Senior Credit Facility limits aggregate dividends and distributions to
the lesser of (i) 90% of FFO on an annual basis or (ii) 100% of FFO for any two
consecutive quarters.
On March 30, 1998, the Operating Partnership replaced its two unsecured bank
revolving lines of credit, totaling $150 million (the "Credit Facilities"), with
a new $160 million senior unsecured bank line of credit (the "Senior Credit
Facility"). The Senior Credit Facility expires on March 30, 2001 and bears
interest on the outstanding balance, payable monthly, at a rate equal to the
London Interbank Offered Rate ("LIBOR") plus 1.05% (6.74% at March 31, 1998) or
the prime rate, at the Operating Partnership's option. A fee on the unused
portion of the Senior Credit Facility is payable quarterly at rates ranging from
0.15% to 0.25% depending on the balance outstanding. The lenders have an option
to extend the facility annually on a rolling three year basis.
The Operating Partnership is in the process of planning development for 1998 and
beyond, including the 270,000 square foot first phase of Leesburg Corner Premium
Outlets (Leesburg, Virginia), a new center serving the greater Washington, D.C.
market; the 145,000 square foot balance of a 270,000 square foot expansion at
Woodbury Common Premium Outlets (Central Valley, New York); and expansions of
125,000 square feet at Wrentham Village Premium Outlets, 45,000 square feet at
Camarillo Premium Outlets (Camarillo, California), 30,000 square feet at North
Georgia Premium Outlets (Dawsonville, Georgia) and 35,000 square feet at four
other properties. These projects are in various stages of development and there
can be no assurance that any of these projects 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 $120
million to $145 million annually.
The Operating Partnership is expected to begin construction in mid-1998 on
the 430,000 square foot first phase of Houston Premium Outlets (Houston, Texas),
with completion scheduled for the second half of 1999. Additionally, the
Operating Partnership announced the development of Orlando Premium Outlets, a
new 440,000 square foot center to be located on Interstate 4 in Orlando, Florida
(midway between Walt Disney World/EPCOT and Sea World), preliminarily scheduled
to open in early 2000. The Houston and Orlando centers are expected to be the
first two joint venture projects to be part of the Operating Partnership's
strategic alliance with Simon DeBartolo Group, Inc.
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 the Company's common stock including conversion of Partnership units to
common stock, plus the liquidation preference value of the Company's preferred
stock plus total debt). Applying a March 31, 1998 closing price of $37.00 per
common share plus a liquidation preference of $50.00 per preferred share, the
Operating Partnership's ratio of debt to total market capitalization was
approximately 29%.
Net cash provided by operating activities was $19.6 million and $13.4 million
for the three months ended March 31, 1998 and 1997, respectively. The increase
was primarily due to the growth of the Operating Partnership's GLA to 4.4
million square feet in 1998 from 3.8 million square feet in 1997, increased
collections on accounts receivable and increases in accrued interest on debt
borrowings. Net cash used in investing activities decreased $71.1 million for
the three months ended March 31, 1998 compared to the corresponding 1997 period,
primarily as a result of the Waikele Factory Outlets acquisition in March 1997.
At March 31, 1998, net cash provided by financing activities decreased $78.6
million primarily due to borrowings for the Waikele Factory Outlets acquisition
in the first quarter 1997.
YEAR 2000 COMPLIANCE
The Operating Partnership has determined that is will need to modify or replace
significant portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and beyond. The Operating
Partnership's comprehensive Year 2000 initiative is being managed by a team of
internal staff and outside consultants. The team's activities are designed to
ensure that there are no adverse effects on the Operating Partnership's core
business operations and that transactions with customers, suppliers, and
financial institutions are fully supported. The Operating Partnership is well
under way with these efforts, which are scheduled to be completed by the end of
1998. While the Operating Partnership believes its planning efforts are adequate
to address its Year 2000 concerns, there can be no guarantee that the systems of
other companies on which the Operating Partnership's systems and operations rely
will be converted on a timely basis and will not have a material effect on the
Operating Partnership. The cost of the Year 2000 initiatives is not expected to
be material to the Operating Partnership's results of operations or financial
position.
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 applicable to common unitholders (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 ENDED MARCH 31,
1998 1997
----------- ------------
Net income to common unitholders.......... $6,952 $ 6,437
Add back:
Depreciation and amortization (1)......... 7,278 5,720
Amortization of deferred financing costs
and depreciation of non-real estate
assets................................. (400) (335)
---- ----
FFO...................................... $13,830 $11,822
======= =======
- ---------------------------------------
(1) Excludes depreciation and minority interest attributed to a third-party
limited partner's interest in a Partnership for 1997.
<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: May 12, 1998
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9225
<SECURITIES> 0
<RECEIVABLES> 4781
<ALLOWANCES> 0
<INVENTORY> 0
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<PP&E> 733423
<DEPRECIATION> (86584)
<TOTAL-ASSETS> 695537
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0
0
<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 695537
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