<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to __________
Commission file number: 000-21470
N'TANDEM TRUST
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(Name of small business issuer in its charter)
California 33-6109499
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6160 South Syracuse Way, Greenwood Village, Colorado 80111
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(Address of principal executive offices, including zip code)
Issuer's telephone number, including area code: (303) 741-3707
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Shares of
Beneficial Interest, par value $0.01 per share, and Preferred Shares of
Beneficial Interest, par value $0.01 per share.
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [_]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $ 4,760,700
Documents Incorporated by Reference: Portions of the issuer's proxy statement
for the 2000 Annual Meeting of Shareholders are incorporated by reference into
Part III of this Annual Report on Form 10-KSB.
Transitional small business disclosure format (check one): Yes [ ] No [X]
At December 31, 1999, the issuer had 109,308 and 98,073 Common and Preferred
Shares, respectively, of Beneficial Interest outstanding.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
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<S> <C> <C>
Page
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Item 1 and 2. Description of Business and Properties 3
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
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Item 5. Market for the Trusts' Common Equity and Related Shareholder Matters 9
Item 6. Management's Discussion and Analysis 10
Item 7. Financial Statements 13
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 26
PART III
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Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 26
Item 10. Executive Compensation 27
Item 11. Security Ownership of Certain Beneficial Owners and Management 27
Item 12. Certain Relationships and Related Transactions 27
Item 13. Exhibits and Reports on Form 8-K 27
SIGNATURES 29
</TABLE>
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PART I
------
Certain matters discussed under the captions "Description of Business and
Properties," "Management's Discussion and Analysis" and elsewhere in this Annual
Report on Form 10-KSB and the information incorporated by reference herein may
constitute forward-looking statements for purposes of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and as such involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the N'Tandem Trust to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements.
Items 1 and 2. DESCRIPTION OF BUSINESS AND PROPERTIES
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General
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N'Tandem Trust, an unincorporated business trust (the "Trust"), was formed in
November 1991 under the laws of the State of California. The Trust was
organized to invest in existing, substantially developed and occupied
manufactured home communities. The Trust was funded through a public offering
of common shares of beneficial interest, par value $0.01 per share (the "Common
Shares"), and preferred shares of beneficial interest, par value $0.01 per share
(the "Preferred Shares"), which commenced in April 1992 and terminated in April
1993. In the offering, 98,169 Common Shares and 98,323 Preferred Shares were
sold for gross proceeds aggregating $2,454,225 and $2,458,075, respectively. In
May 1998, Chateau Communities, Inc., a publicly-traded Maryland real estate
investment trust which is one of the largest owner/operators of manufactured
home communities in the United States ("Chateau"), invested $5.5 million in the
Trust in exchange for the issuance of 19,139 Common Shares and two promissory
notes with an aggregate principal amount of $5,001,500. At December 31, 1999,
the Trust's portfolio was comprised of twelve wholly-owned and seven partially-
owned manufactured home communities located in seven states.
The sponsor and advisor of the Trust is The Windsor Corporation, a California
corporation (the "Advisor"). In September 1997, Chateau purchased all of the
outstanding capital stock of the Advisor. Following Chateau's purchase of the
Advisor, at the request of Chateau, (i) the Trustees of the Trust voluntarily
resigned and (ii) in connection with such resignation, appointed three new
Trustees proposed by Chateau. Such Trustees were re-elected as the Trust's
Trustees at the 1999 Annual Meeting of Shareholders of the Trust held on June
30, 1999.
The Trust operates so as to qualify as a real estate investment trust (a "REIT")
under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended
(the "Code"). As a REIT, the Trust is required to distribute at least 95% of
its real estate investment trust taxable income.
Business Development
- --------------------
On October 23, 1998, at the 1998 Annual Meeting of Shareholders, the Trust's
shareholders approved, among other things, (i) the conversion of the Trust from
a finite-life entity to an infinite-life entity; and (ii) the amendment and
restatement of the Trust's Declaration of Trust (the "Amended Declaration") and
the adoption of By-laws for the Trust (collectively, the "Organizational
Amendments"). The principal purposes of the Organizational Amendments were to
convert the Trust from a finite-life entity to an infinite-life entity and to
remove various restrictions, limitations and other requirements contained in the
Trust's previous Declaration of Trust which are not typically found in the more
modern organizational documents of leading REITs. The Amended Declaration also
provided for changing the name of the Trust from "Windsor Real Estate Investment
Trust 8" to "N'Tandem Trust."
As a result of the approval of the Organizational Amendments, the Trust now
intends to move forward with certain transactions and to effect certain changes
including the following: (i) the Trust will complete its restructuring as an
"umbrella partnership" REIT in order to facilitate tax-free and/or tax-deferred
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acquisitions of additional properties, (ii) the Trust will begin implementing a
growth-oriented business plan (the "Business Plan") intended to cause the Trust
to attain greater size and asset diversity; and (iii) if successful in the
implementation of the Business Plan, the Trust anticipates that it will seek to
list the Common Shares on a national securities exchange or NASDAQ and, if
deemed appropriate, raise additional capital through an underwritten public
offering or a private placement of Common Shares or other securities of the
Trust.
Additionally, Chateau has announced that the Trust will be a primary vehicle
through which Chateau will make investments in manufactured home communities
that do not fit the core asset type typical of the existing Chateau portfolio,
which is characterized by large, stable, institutional-quality, full amenitized
communities. The Trust will employ higher levels of leverage than Chateau and
will focus primarily on "lower profile assets," meaning communities that (i) are
typically not part of a portfolio of manufactured housing community properties;
(ii) are located in tertiary demographic and geographic markets; (iii) are not
managed by a nationally known manufactured home community operator; (iv) may be
smaller and are likely to have fewer amenities; and (v) have a greater
proportion of single-section homes than the typical Chateau community. The
Trust believes that its affiliation with Chateau will benefit the Trust by
providing it with access to Chateau's national organization, management team and
investment and management philosophies. Through its affiliation with Chateau,
the Trust believes that it will be exposed to a wider range of acquisition
opportunities as a result of Chateau's national organization and knowledge of
the manufactured housing community industry and will benefit from Chateau's
expertise in effectively and efficiently managing properties.
The Trust believes that significant opportunities exist to acquire additional
properties that fit the investment objectives and guidelines set forth in its
Business Plan. On June 30, 1999, the Trust, through its limited partnership
subsidiary, N'Tandem Properties, L.P., acquired one wholly-owned manufactured
home community and partial ownership interests in six other manufactured home
communities (together, the "Acquired Properties") from Windsor Park Properties
4, A California Limited Partnership ("Windsor 4"). In addition, the Trust has
negotiated to acquire, in separate transactions, the manufactured home
communities and joint venture interests of Windsor Park Properties 3, A
California Limited Partnership ("Windsor 3"), and Windsor Park Properties 6, A
California Limited Partnership ("Windsor 6"). On March 22, 2000, separate
consent solicitation statements describing the respective terms of each of the
proposed acquisitions (the "Proposed Transactions") were sent to the limited
partners of Windsor 3 and Windsor 6. The consummation of each of the proposed
acquisitions is subject to the satisfaction of several conditions, including the
separate approval of a majority-in-interest of the respective limited partners
of Windsor 3 and Windsor 6. The consummation of each proposed acquisition,
however, is not contingent upon the consummation of the other proposed
acquisition. The purchase price for the assets of each of Windsor 3 and Windsor
6 will be paid by the Trust in cash. Substantially all of the funds required by
the Trust to complete the proposed acquisitions will be supplied by Chateau in
exchange for the issuance by the Trust of an unsecured promissory note.
Pursuant to the terms of the proposed acquisitions, this promissory note will be
in a principal amount of $16,926,700 and will bear interest at an annual rate of
1% per annum above the prime rate established by Bank One, N.A.
The Trust anticipates that it will focus on acquisitions where the Trust
believes there is substantial opportunity to improve operational and financial
results or where for some reason, because of poor management or otherwise, a
property is operating substantially below its potential. The Trust anticipates
that the funds required to implement its Business Plan are likely to come from
(i) additional investments from Chateau or unaffiliated third parties and (ii)
traditional mortgage financing or refinancing or sales of equity and debt
securities. In addition, the Trust will seek to engage in consolidation and
acquisition transactions with other owners of manufactured home communities,
which meet the Trust's property and acquisition criteria, using its equity
securities or limited partner units of N'Tandem Properties, L.P., a Delaware
limited partnership subsidiary of the Trust, to facilitate such transactions.
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1999 Acquisitions
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In May 1999, the Trust acquired South Pointe Village, a 282-site manufactured
home community, located in Albuquerque, New Mexico. The purchase price paid for
South Pointe was $6,200,000. In order to purchase South Pointe, N'Tandem
borrowed $6,044,800 from Chateau at an annual interest rate equal to 1% per
annum above the prime rate established by Bank One, N.A.
In June 1999, the Trust acquired one manufactured home community and partial
ownership interests in six other manufactured home communities (together, the
"Acquired Properties") from Windsor Park Properties 4, A California Limited
Partnership ("Windsor 4"), an affiliate of the Trust. The Acquired Properties
consisted of:
. Sunset Vista, a 207-site manufactured home community, located in Magna, Utah;
. A 60% ownership interest in Big Country Estates, a 255-site manufactured home
community, located in Cheyenne, Wyoming;
. A 75% ownership interest in Harmony Ranch, a 193-site manufactured home
community, located in Thonotosassa, Florida;
. A 33% ownership interest in Rancho Margate, a 245-site manufactured home
community, located in Margate, Florida;
. A 33% ownership interest in Winter Haven, a 238-site manufactured home
community, located in Winter Haven, Florida;
. A 25% ownership interest in Apache East, a 123-site manufactured home
community, located in Apache Junction, Arizona; and
. A 25% ownership interest in Denali Park Estates, a 162-site manufactured home
community, located in Apache Junction; Arizona.
In July 1999, the Trust acquired Longview, a 93-site manufactured home
community, located in Albuquerque, New Mexico, for $1.8 million. In connection
with the purchase of Longview, the Trust borrowed $1,767,300 from Chateau at an
annual interest rate equal to 1% per annum above the prime rate established by
Bank One, N.A.
In September 1999, the Trust purchased Aztec Village, a 163-site manufactured
home community, located in Albuquerque, New Mexico, and The Village Park, a 180-
site manufactured home community, also located in Albuquerque, New Mexico, for
an aggregate of $11.3 million. The Trust borrowed $4,314,400 from Chateau at an
annual interest rate equal to 1% per annum above the prime rate established by
Bank One, N.A. Additionally, in connection with the acquisition of these
communities, the Trust assumed two promissory notes in the amounts of $3,199,300
and $3,590,100, respectively, payable to Anchor National Life Insurance Company.
The notes bear interest at 8.69% per annum and are due October 1, 2003. The
notes are cross-collateralized by the real property.
Additionally, in September 1999, the Trust acquired Sea Pines, a 415-site
manufactured home community, located in Mobile, Alabama, for $4 million. In
connection with the purchase of Sea Pines, the Trust borrowed $3,017,000 from
Chateau at an annual interest rate equal to 1% per annum above the prime rate
established by Bank One, N.A. Additionally, the Trust issued a promissory note
in the amount of $1,100,000 payable to Compass Bank. The note is payable in six
consecutive annual installments as follows: the first five payments shall be in
the amount of $200,000 and the sixth payment shall be in the amount of $100,000.
The first installment on the note is payable on September 30, 2000, and each
successive installment is payable on the same day of each consecutive year
thereafter until paid in full.
Business of Issuer
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The Trust is in the business of acquiring, managing and holding for investment
manufactured home communities. Competitors of the Trust include public and
private REITs, corporations, limited partnerships,
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individuals and other entities engaged in real estate investment activities.
Competition for such properties varies with (i) changes in the supply or demand
for similar or competing properties in a given area, (ii) changes in interest
rates and the availability of mortgage funds, and (iii) changes in tax, real
estate, environmental and zoning laws.
The Trust's profitability depends in part on maximizing occupancy and rental
rates at its manufactured home communities. Rents and occupancy rates are
affected by both changes in general economic conditions and changes in local
conditions, such as levels of employment, supply of other comparable units or
competitive housing alternatives, zoning laws and the availability and cost of
energy and transportation.
All of the Trust's properties are located in or near large urban areas.
Accordingly, they compete for rentals not only with other manufactured home
communities but with apartments and other forms of low-cost housing that might
exist in their respective market areas.
The Trust's profitability also depends on the minimization of both property and
Trust administration expenses. Expenses are affected by changes in general
economic trends and changes in local conditions, such as prevailing wages,
utility rates, insurance costs and real estate taxation practices.
The Trust has no employees. The administrative services for the Trust are
provided by the Advisor, which is reimbursed for costs incurred on behalf of the
Trust. The Trust's manufactured home communities are managed by Chateau, which
employs all of the on-site personnel for such communities and is reimbursed by
the Trust for all such costs.
6
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The following table sets forth certain information as of December 31, 1999
relating to the Trust's owned interests in the following manufactured home
communities:
<TABLE>
<CAPTION>
Weighted
Average
Monthly
Date Percent Number of Rent Per Real Estate Federal Tax
Property Name Location Acquired Ownership Sites Site(1) Occupancy Taxes Basis(2)
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sea Pines Mobile, AL 9/99 100% 415 $164 73% $ 4,500 $4,020,500
Woodland Hills Montgomery, AL 3/98 100% 627 $167 89% $ 41,200 $5,754,500
El Frontier Tucson, AZ 2/94 100% 179 $310 99% $ 22,600 $2,777,600
West Star Tucson, AZ 1/93 100% 89 $261 98% $ 10,700 $1,101,700
Apache East Apache Junction, AZ 2/97 36% 123 $107 96% $ 18,100 $2,238,700
Denali Park
Estates Apache Junction, AZ 2/97 36% 162 $228 94% $ 25,300 $2,729,804
Harmony Ranch Thonotosassa, FL 6/99 75% 193 $243 85% $ 52,500 $2,035,800
Long Lake West Palm Beach, FL 6/95 40% 134 $382 94% $ 58,300 $2,968,900
Rancho Margate Margate, FL 6/99 33% 245 $407 94% $ 154,800 $6,416,500
Winterhaven Winterhaven, FL 6/99 33% 238 $232 98% $ 41,800 $2,631,000
St. Clement's
Crossing Lexington, MD 11/98 100% 201 $283 59% $ 27,300 $2,489,000
Suburban Lexington, MD 12/98 100% 180 $318 68% $ 15,500 $ -
Lexington Lexington, MD 12/98 100% 76 $327 82% $ 8,600 $1,556,900
South Pointe
Village Albuquerque, NM 5/99 100% 282 $177 99% $ 37,900 $6,300,500
The Village
Park Albuquerque, NM 9/99 100% 180 $368 92% $ 8,000 $5,962,600
Longview Albuquerque, NM 7/99 100% 93 $279 87% $ 2,700 $1,856,700
Aztec Village Albuquerque, NM 9/99 100% 163 $249 96% $ 10,800 $5,522,900
Sunset Vista Magna, UT 6/99 100% 207 $281 100% $ 30,000 $3,802,800
Big Country
Estates Cheyenne, WY 6/99 60% 255 $447 94% $ 11,100 $2,348,000
______________________________________
</TABLE>
(1) Average rental rates in effect on December 31, 1999.
(2) For income tax purposes, the property and its components are depreciated
using both straight-line and accelerated methods over useful lives ranging
from 5 to 40 years.
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The overall occupancy of the 19 communities owned by the Trust at December 31,
1999 was approximately 89%. The Advisor continues to maintain the communities in
good condition and promote them to improve occupancy.
The Trust operates the properties as manufactured home communities, renting
sites to manufactured home residents on a month-to-month basis. The properties
compete for rentals with other manufactured home communities and apartments in
their local markets. It is the Advisor's opinion that the properties are in good
condition and are adequately insured.
The following table sets forth certain information relating to the secured and
unsecured indebtedness of the Trust outstanding as of December 31, 1999.
<TABLE>
<CAPTION>
Location Ownership Amount of Interest Amoritization Maturity Amount Due
Percentage Indebtedness Rate Period Date at Maturity
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<S> <C> <C> <C> <C> <C> <C>
Mortgage Debt:
West Star
and El Frontier 100% $2,050,000 9.07% - 6/02 $2,050,000
Aztec Village 100% $3,191,900 8.69% 30 years 10/03 $3,059,000
Village Park 100% $3,581,700 8.69% 30 years 10/03 $3,432,600
Harmony Ranch 75% $1,200,000 8.87% - 9/02 $1,200,000
Long Lake 40% $1,600,000 9.07% - 6/02 $1,600,000
Apache East
and Denali Park 36% $2,965,400 8.38% 24 years 3/06 $2,583,200
Rancho Margate 33% $3,582,900 9.32% 30 years 6/23 -
Winterhaven 33% $1,574,900 9.32% 30 years 6/23 -
Unsecured Debt:
Chateau $23,512,600 9.25% 12/01 $23,512,500
US Bank Line
of Credit $15,000,000 6.80% 11/01 $15,000,000
</TABLE>
The Trust and Chateau have discussed the possibility of converting all or a
portion of the aggregate principal amount of the unsecured debt between the
Trust and Chateau into Common Shares or Preferred Shares; however, there is no
agreement or understanding between the Trust and Chateau relating to any such
conversion.
Item 3. LEGAL PROCEEDINGS
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In connection with the Trust's acquisition of the Acquired Properties from
Windsor 4, a purported class action and derivative complaint (the "Complaint")
entitled Ira Gaines, on behalf of himself and others similarly situated, as
plaintiff, vs. The Windsor Corporation, John A. Coseo Jr., C.G. Kellogg, Gary P.
McDaniel and Steven G. Waite, as defendants, and Windsor 4, as nominal defendant
(collectively, the "Defendants"), was filed on May 10, 1999 in the Superior
Court of the State of California, County of San Diego. The Complaint asserts
causes of action alleging the following: (i) wrongful failure to liquidate
timely Windsor 4 in that Windsor 4's term expired on December 31, 1997 and the
Defendants failed to engage in sustained efforts to liquidate the remaining
assets, thus unnecessarily tying up the limited partners' money for longer than
was contemplated or allowed under the partnership agreement, (ii) breach of
fiduciary duty owed by the Defendants to the limited partners and Windsor 4 in
that Defendants failed to take steps to ensure the entire fairness of the
transaction and that the selling prices for Windsor 4's assets do not fairly and
adequately represent their present value; (iii) breach of the Defendants'
contractual duties owed to the limited partners and Windsor 4 in that the
partnership agreement prohibits sales of the property to a sponsor of Windsor 4.
In
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the Complaint, the plaintiff is seeking relief in the form of monetary damages
and an award of expenses, and a dissolution of Windsor 4 and the appointment of
an independent liquidating trustee to liquidate Windsor 4's assets.
On December 3, 1999, the plaintiff, also a limited partner of Windsor 3 and
Windsor 6, amended the Complaint, in response to the Proposed Transactions, by
filing an amended purported class action and derivative complaint (the "Amended
Complaint"), on behalf of himself and other similarly situated limited partners,
against the Defendants in the Superior Court of the State of California, County
of San Diego. In addition to the original allegations set forth in the
Complaint, the Amended Complaint also alleges generally breach of fiduciary duty
and contractual duties owed by the Defendants to Windsor 3 and Windsor 6 and
their limited partners in that the Defendants allegedly failed to take steps to
ensure the entire fairness of the Proposed Transactions by proposing to sell the
partnerships' assets at prices that were improperly discounted from the
appraisal values and without taking steps to seek out alternative purchases or
otherwise maximize value to the limited partners.
In the Amended Complaint, the plaintiff asserts causes of action for breach of
contract, breach of fiduciary duty and a derivative claim for breach of
fiduciary duty and seeks relief in the form of monetary damages and an award of
expenses and a dissolution of Windsor 4 and the appointment of an independent
liquidating trustee to liquidate Windsor 4's assets. Although the Defendants
dispute each claim set forth in the Amended Complaint, they have concluded that
the further defense of this action would be protracted, expensive and
distracting to their operations. To that end, the Defendants have reached an
agreement in principle that would settle all claims in the action, subject to
court approval of a definitive signed agreement. The proposed settlement, if
approved, provides for the total payment of more than $1 million by the
Defendants, plus the costs of administering the settlement fund (including the
mailing of notice to class members), in return for releases from all actual and
potential claims concerning the management or operation of Windsor 3, Windsor 4
and Windsor 6 against all of the Defendants and any affiliated persons or
entities. As a result of indemnification obligations of the Company, and
subject to potential D&O insurance reimbursements, the settlement amount will be
funded by the Company. The Company believes that the resolution of the lawsuit
will facilitate the consummation of the Proposed Transactions with Windsor 3 and
Windsor 6. Pursuant to the terms of the proposed settlement agreement, the
Defendants have the right, but not the obligation, to terminate the proposed
settlement if the limited partners in either Windsor 3 or Windsor 6 fail to
approve their respective Proposed Transactions.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
There were no matters submitted to security holders for a vote during the fourth
quarter of the fiscal year covered by this Annual Report.
PART II
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Item 5. MARKET FOR THE TRUST'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
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As of December 31, 1999, there was no public market for the Trust's Common
Shares. As of December 31, 1999, there were 181 shareholders of record holding
an aggregate of 109,308 Common Shares.
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Cash distributions paid to holders of Common Shares since December 31, 1997 are
as follows:
Aggregate Per
Date Paid Amount Share
--------- --------- ------
November 1999 $41,000 $0.375
August 1999 $41,000 $0.375
May 1999 $41,000 $0.375
February 1999 $41,000 $0.375
November 1998 $41,000 $0.375
August 1998 $37,700 $0.375
May 1998 $33,800 $0.375
February 1998 $33,700 $0.375
Common Shares and Preferred Shares receive distributions of cash from operations
when and as declared by the Trustees. The Trustees are required to declare a
Preferred Share dividend on the Preferred Shares annually, equal to between 6%
and 7% of the per share original offering price of the Preferred Shares, as
adjusted for prior distributions. Once the annual Preferred Share Dividend
Preference is declared and paid, the Trustees may declare annually, in their
discretion, a Common Share dividend which may not exceed the amount of the
Preferred Share dividend for such year. Any distributions in excess of the
above amounts are required to be distributed pro rata among the Preferred Shares
and the Common Shares as a single class.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
Overview
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The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this Annual Report.
The Trust was formed in November 1991 under the laws of the State of California.
At December 31, 1999, the Trust's portfolio was comprised of 12 wholly-owned and
seven partially-owned manufactured home communities containing 4,096 homesites
located in seven states.
Since its organization, the Trust has elected to qualify as a REIT under the
Code and thus does not generally pay federal corporate income taxes on its
earnings to the extent such earnings are distributed to shareholders.
Results of Operations
- ---------------------
The results of operations for the years ended December 31, 1999 and 1998 are not
directly comparable due to the purchase of the St. Clement's Crossing (f/k/a
Southern), Lexington, and Suburban communities in December 1998, the purchase of
the South Pointe Village community in May 1999, the purchase of the Acquired
Properties in June 1999, the purchase of the Longview community in July 1999,
and the purchase of the Aztec Village, Village Park and Sea Pines communities in
September 1999. The Trust incurred net losses of $1,807,300 and $364,000 for
the years ended December 31, 1999 and 1998, respectively. The increase in the
loss is mainly attributable to the increase in interest and depreciation
expenses as a result of the acquisitions in 1999. The net loss per Common Share
was $17.88 in 1999 and $4.88 in 1998.
As a result of the 1998 and 1999 acquisitions, all major revenue and expense
categories increased in 1999, specifically rent and utilities revenue, property
operating costs, advisory fee expense and depreciation.
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Equity in earnings of joint ventures and limited partnerships, which represents
the Trust's share of the net income (loss) of seven joint venture properties,
increased from a loss of $27,800 in 1998 to a loss of $52,200 in 1999 due to the
acquisition of four joint venture interests.
Interest expense increased to $2,534,700 in 1999 from $652,000 in 1998 due to
the debt incurred as a result of the acquisitions in 1999.
Advisory fee expense represents a fee payable to the Advisor for management of
the Trust's business. The fee is computed based on invested and uninvested
asset levels and is subject to certain subordination provisions. Advisory fee
expense increased from $147,100 in 1998 to $346,700 in 1999 due to the 1998 and
1999 acquisitions.
General and administrative expenses increased from $92,800 in 1998 to $246,900
in 1999 due mainly to an increase in professional fees and costs associated with
the Amended Declaration and Organizational Amendments.
Liquidity and Capital Resources
- -------------------------------
The Trust's principal sources of liquidity during the years ended December 31,
1999 and 1998 were its cash flow generated from the operation of its communities
and distributions from investments in joint ventures and limited partnerships.
Net cash provided by operating activities was $52,900 for the year ended
December 31, 1999 and net cash provided by operating activities was $645,500 for
the year ended December 31, 1998. At December 31, 1999, the Trust's cash
amounted to approximately $612,700.
The Trust's primary uses of its capital resources during the same periods were
for cash distributions to shareholders, property acquisitions, payment of
advisory and management fees, and debt service. To maintain its qualification
as a REIT under the Code, the Trust is required to distribute to its
shareholders at least 95% of its "Real Estate Investment Trust Taxable Income"
as defined in the Code. The Trust declared quarterly distributions on its
Common Shares of $0.375 per share, or an aggregate of $1.50 per annum, in both
1998 and 1999. In addition, the Trust paid quarterly distributions on its
Preferred Shares of $0.375 per share, or an aggregate of $1.50 per annum in both
1998 and 1999. Future distributions on the Common Shares will be determined
based on actual results of operations and cash available for distribution.
Net cash used in investing activities was $34,419,400 and $11,538,600 for the
years ended December 31, 1999 and 1998, respectively, which was used primarily
for acquisitions.
In May 1999, the Trust acquired South Pointe Village, a 282-site manufactured
home community located in Albuquerque, New Mexico, for $6,200,000. In order to
purchase South Pointe, N'Tandem borrowed $6,044,800 from Chateau at an annual
interest rate equal to 1% per annum above the prime rate established by Bank
One, N.A.
In June 1999, the Trust acquired Sunset Vista and ownership interests in Rancho
Margate, Winterhaven, Apache East, Denali Park Estates, Big Country, and Harmony
Ranch from Windsor 4. The aggregate purchase price for these assets was
$8,509,900. In order to purchase these assets, the Trust borrowed $8,433,800
from Chateau in exchange for the issuance by the Trust of an unsecured
promissory note. The promissory note bears interest at an annual rate equal to
1% per annum above the prime rate established by Bank One, N.A. In connection
with the acquisition of the Acquired Properties, N'Tandem also assumed debt
attributable to the six partial ownership interests.
In July 1999, the Trust acquired Longview. The purchase price paid for Longview
was $1.8 million. In order to purchase Longview, N'Tandem borrowed $1,767,300
from Chateau at an annual interest rate equal to 1% per annum above the prime
rate established by Bank One, N.A.
11
<PAGE>
In September 1999, the Trust purchased Aztec Village and Village Park. Both
Aztec Village and Village Park are located in Albuquerque, New Mexico. The
aggregate purchase price for Aztec Village and Village Park was $11.3 million.
To purchase Aztec Village and Village Park, the Trust borrowed $4,314,400 from
Chateau at an annual interest rate equal to 1% per annum above the prime rate
established by Bank One, N.A. Additionally, in connection with the acquisition
of these communities the Trust assumed two promissory notes in the amounts of
$3,199,300 for Aztec Village and $3,590,100 for Village Park, payable to Anchor
National Life Insurance Company. The notes bear interest at 8.69% per annum and
are due October 1, 2003. The notes are cross-collateralized by due real
property.
Additionally, in September 1999, the Trust acquired Sea Pines, a manufactured
home community containing 415 homesites located in Mobile, Alabama for $4
million. To purchase Sea Pines, the Trust borrowed $3,017,000 from Chateau at
an annual interest rate equal to 1% per annum above the prime rate established
by Bank One, N.A. Additionally, the Trust issued a promissory note in the
amount of $1,100,000, payable to Compass Bank.
The Trust's principal long-term liquidity requirements will be the repayment of
principal on its outstanding mortgage and unsecured debt and the acquisition of
additional properties in connection with the Trust's Business Plan. At December
31, 1999, the Trust's total mortgage debt, including its proportionate share of
joint venture debt, was approximately $13,987,400, consisting of $8,527,800 of
fixed rate debt and $5,459,600 of variable rate debt. The average rate of
interest on the fixed rate debt and variable rate debt was 8.72% and 9.01%,
respectively, at December 31, 1999. The Trust and affiliated entities are
jointly and severally liable for the full amounts of the loans obtained jointly.
The Trust's total unsecured debt was $38,512,600, with an average variable rate
of interest of 8.30%, at December 31, 1999.
On November 16, 1999, the Trust obtained a $20 million unsecured line of credit
from US Bank. The line of credit has a term of two years and bears interest at
LIBOR plus 100 bp. The line of credit is guaranteed by Chateau. At December 31,
1999 the Trust had $5 million available on the line of credit.
The Trust has obtained a commitment from a bank to provide $20 million of
mortgage financing secured by 7 of the Trust's properties. The closing of the
financing is dependent upon final approval from the lender.
The future sources of liquidity for the Trust will be provided from property
operations, cash reserves and distributions from investments in joint ventures
and limited partnerships. The Trust expects to meet its short-term liquidity
requirements, including capital expenditures, administration expenses advisory
fees, debt service, and distributions to shareholders, from cash flow provided
from property operations and distributions from investments in joint ventures
and limited partnerships. The Trust intends to fund the repayment of its
mortgage debt with equity or other debt financings, including public financings.
In addition, future acquisitions of properties will be funded through
investments by Chateau or by other third parties in the Trust or with equity or
other debt financings, including public financings. The availability of such
investments or such financings will influence the Trust's decision to proceed
with, and the pace of, future acquisition activities.
Inflation
- ---------
All of the leases or terms of residents' occupancies at the properties allow for
at least annual rental adjustments. In addition, all of the leases are month-to-
month and enable the Trust to seek market rentals upon reletting the sites.
Such leases generally minimize the risk to the Trust of any adverse effect of
inflation.
Year 2000 Compliance
- --------------------
The Trust had all systems appropriately modified to be compliant for the year
2000 and, following the date change to the year 2000, has not experienced any
material impact on its financial condition or operations.
12
<PAGE>
Item 7. FINANCIAL STATEMENTS
The following financial statements are filed as a part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants 14
Balance Sheet as of December 31, 1999 15
Statements of Operations for the Years Ended
December 31, 1999 and 1998 16
Statements of Shareholders' Equity for
the Years Ended December 31, 1999 and 1998 17
Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998 18
Notes to Financial Statements 19
</TABLE>
13
<PAGE>
Report of Independent Accountants
To the Shareholders and Trustees of N'Tandem Trust:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of N'Tandem
Trust (the "Trust"), at December 31, 1999, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1999,
in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
March 23, 2000
14
<PAGE>
N'TANDEM TRUST
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS December 31, 1999
- ------ -----------------
<S> <C>
Property held for investment, net $ 43,608,900
Investments in joint ventures and limited partnerships 5,409,800
Cash and cash equivalents 612,700
Deferred financing costs, net 247,400
Other assets 851,900
-----------------
Total Assets $ 50,730,700
=================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Mortgage notes payable $ 8,823,600
Line of credit 15,000,000
Note payable to affiliate 23,512,600
Accounts payable 11,400
Accrued expenses 728,000
Other liabilities 1,930,500
Due to general partners and affiliates 229,900
-----------------
Total Liabilities 50,236,000
-----------------
Commitments and Contingencies (Note 9)
Shareholders' Equity:
Preferred shares of beneficial interest, $0.01 par value; unlimited
shares authorized; 98,073 shares issued and outstanding 2,121,700
Common shares of beneficial interest, $0.01 par value; unlimited
shares authorized; 109,308 shares issued and outstanding 2,401,400
Dividends in excess of accumulated earnings (4,028,400)
-----------------
Total Shareholders' Equity 494,700
-----------------
Total Liabilities and Shareholders' Equity $ 50,730,700
=================
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
N'TANDEM TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------
1999 1998
------------ ------------
REVENUES
- --------
<S> <C> <C>
Rent and Utilities $ 4,615,100 $ 1,703,300
Equity in earnings (losses) of joint ventures and limited
partnerships (52,200) (27,800)
Other 197,800 24,400
------------ ------------
4,760,700 1,699,900
------------ ------------
COSTS AND EXPENSES
- ------------------
Property operating expenses 2,209,300 822,700
Interest 2,534,700 652,000
Depreciation 1,230,400 349,300
Advisory fee 346,700 147,100
General and administrative:
Related parties 14,100 28,800
Other 232,800 64,000
----------- ------------
6,568,000 2,063,900
----------- ------------
Net loss $(1,807,300) $ (364,000)
----------- ------------
Preferred dividends Paid $ (147,100) $ (147,100)
----------- ------------
Net loss attributable to common shares $(1,954,400) $ (511,100)
============ ============
Basic and diluted loss per common share $ (17.88) $ (4.88)
============ ============
Dividends per common share $ 1.50 $ 1.50
============ ============
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
N'TANDEM TRUST
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Dividends in
Excess of
Preferred Common Accumulated
Shares Shares Earnings Total
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Balance at
December 31, 1997 $ 2,121,700 $ 1,922,900 $ (1,252,600) $ 2,792,000
Shares issued in
connection with acquisitions 478,500 478,500
Net Loss (364,000) (364,000)
Dividends preferred (147,100) (147,100)
Dividends common (146,300) (146,300)
----------- ----------- ------------- -----------
Balance at
December 31, 1998 $ 2,121,700 $ 2,401,400 $ (1,910,000) $ 2,613,100
Net Loss (1,807,300) (1,807,300)
Dividends preferred (147,100) (147,100)
Dividends common (164,000) (164,000)
----------- ----------- ------------- -----------
Balance at
December 31, 1999 $ 2,121,700 $ 2,401,400 $ (4,028,400) $ 494,700
=========== =========== ============= ===========
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
N'TANDEM TRUST
CONSOLIDATED STATEMENTS OF STATEMENTS OF CASH FLOWS
---------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------
1999 1998
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ (1,807,300) $ (364,000)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 1,230,400 349,300
Equity in (earnings) losses of joint ventures
and limited partnerships 52,200 27,800
Joint ventures' cash distributions (52,200) (27,800)
Amortization of deferred financing costs 24,800 11,100
Changes in operating assets and liabilities:
Increase in other assets (105,100) (367,200)
Increase in accounts payable 4,400 1,200
Increase in accrued expenses 101,600 593,200
Increase in other liabilities 54,600 171,600
Increase in due to advisor and affiliates 549,500 250,300
------------ -----------
Net cash (used in) provided by operating activities 52,900 645,500
Cash flows from investing activities:
Increase in property held for investment (29,533,200) (11,591,300)
Costs associated with potential acquisitions (283,000)
Increase in investment in joint ventures' and limited partnerships' (4,749,500) -
Joint Ventures' and limited partnerships' cash distributions 146,300 52,700
------------ -----------
Net cash used in investing activities (34,419,400) (11,538,600)
------------ -----------
Cash flows from financing activities:
Issuance of common shares - 478,500
Dividends paid (311,100) (293,400)
Proceeds from note due to Chateau 23,597,700 10,651,500
Proceeds from note payable 7,632,900 -
Proceeds from Line of Credit 15,000,000 -
Loan origination fees (230,000) -
Repayment of note due to Chateau (10,736,600) -
------------ -----------
Net cash provided by financing activities 34,952,900 10,836,600
------------ -----------
Net increase (decrease) in cash and cash equivalents 586,400 (56,500)
------------ -----------
Cash and cash equivalents at beginning of year 26,300 82,800
------------ -----------
Cash and cash equivalents at end of year $ 612,700 $ 26,300
============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for Interest (non capitalized) $ 2,534,700 $ 219,350
============ ==========
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
N'TANDEM TRUST
--------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1. THE TRUST AND A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------------------
The Trust
- ---------
N'Tandem Trust, an unincorporated California business trust (the "Trust"), was
formed in November 1991 for the purpose of acquiring, managing and selling
existing manufactured home communities. The Advisor of the Trust is The Windsor
Corporation, a California corporation (the "Advisor"). In September 1999,
Chateau Communities, Inc., a publicly traded real estate investment trust
("Chateau"), purchased 100% of the outstanding shares of capital stock of the
Advisor.
The Trust was funded through a public offering of common and preferred shares
which commenced in April 1992 and terminated in April 1993.
On October 23, 1998, at the 1998 Annual Meeting of Shareholders, the Trust's
shareholders approved, among other things, (i) the conversion of the Trust from
a finite-life entity to an infinite-life entity; and (ii) the amendment and
restatement of the Trust's Declaration of Trust (the "Amended Declaration") and
the adoption of By-laws for the Trust (collectively, the "Organizational
Amendments"). The principal purposes of the Organizational Amendments were to
convert the Trust from a finite-life entity to an infinite-life entity and to
remove various restrictions, limitations and other requirements contained in the
Trust's previous Declaration of Trust which are not typically found in the more
modern organizational documents of leading REITs. The Amended Declaration also
provided for changing the name of the Trust from "Windsor Real Estate Investment
Trust 8" to "N'Tandem Trust."
As a result of the approval of the Organizational Amendments, the Trust now
intends to move forward with certain transactions and to effect certain changes
including the following: (i) the Trust will complete its restructuring as an
"umbrella partnership" REIT in order to facilitate tax-free and/or tax-deferred
acquisitions of additional properties, (ii) the Trust will begin implementing a
growth-oriented business plan (the "Business Plan") intended to cause the Trust
to attain greater size and asset diversity; and (iii) if successful in the
implementation of the Business Plan, the Trust anticipates that it will seek to
list the Common Shares on a national securities exchange or NASDAQ and, if
deemed appropriate, raise additional capital through an underwritten public
offering or a private placement of Common Shares or other securities of the
Trust.
The Trust's current portfolio of properties is comprised of a 100 percent
ownership interest in 12 manufactured home community properties and percentage
ownership in seven other manufactured home community properties. The Trust
believes that significant opportunities exist to acquire additional properties
that fit the investment objectives and guidelines set forth in its Business
Plan. The Trust anticipates that it will focus on acquisitions where the Trust
believes there is substantial opportunity to improve operational and financial
results or where for some reason, because of poor management or otherwise, a
property is operating substantially below its potential.
Additionally, Chateau has announced that the Trust will be a primary vehicle
through which Chateau will make investments in manufactured home communities
that do not fit the core asset type typical of the existing Chateau portfolio,
which is characterized by large, stable, institutional-quality, full amenitized
properties. The Trust employs higher levels of leverage than Chateau and
focuses primarily on "lower profile assets," meaning properties that (i) are
typically not part of a portfolio of manufactured housing community properties;
(ii) are located in tertiary demographic and geographic markets; (iii) are not
managed by a nationally known manufactured home community operator; (iv) may be
managed by an on-site owner who lives at the property; and (v) may be smaller
and are likely to have fewer amenities and a greater proportion
19
<PAGE>
of single-wide homes than the typical Chateau community. The Trust believes that
its affiliation with Chateau will benefit the Trust by providing it with access
to Chateau's national organization, management team and investment and
management philosophies. Through its affiliation with Chateau, the Trust
believes that it will be exposed to a wider range of acquisition opportunities
as a result of Chateau's national organization and knowledge of the manufactured
housing community industry and will benefit from Chateau's expertise in
effectively and efficiently managing properties.
Principles of Consolidation
- ---------------------------
The accompanying financials statements include the accounts of the Trust and its
wholly owned subsidiaries.
Property Held for Investment
- ----------------------------
Property held for investment is carried at cost unless facts and circumstances
indicate that the carrying value of the property may be impaired. Impairment is
determined by comparing the estimated future cash flows (undiscounted and
without interest charges) from an individual property to its carrying value. If
such cash flows are less than the property's carrying value, the carrying value
of the project is written down to its estimated fair value. No such writedowns
were recorded for the years ended December 31, 1999 or 1998.
Property held for investment is depreciated over various estimated useful lives
(building and improvements - 5 to 20 years; fixtures and equipment - 3 to 5
years) using the straight-line method. When assets are sold or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts, and any gain or loss is included in net income. Repairs and
maintenance are charged to operations as incurred.
In May of 1999, the Trust acquired South Pointe Village, a 282-site manufactured
home community located in Albuquerque, New Mexico, for $6,200,000.
In June of 1999, the Trust acquired one manufactured home community and
ownership interests in six other manufactured home communities from Windsor Park
Properties 4, A California Limited Partnership, for $8,509,900.
In July 1999, the Trust purchased Longview, a manufactured home community
containing 90 sites located in Albuquerque, New Mexico. The purchase price was
$1.8 million. In order to purchase the community, the Trust borrowed $1,767,300
from Chateau at a rate of prime plus one percent per annum.
In September 1999, the Trust purchased two manufactured home communities, Aztec
Village, containing 163 homesites, and Village Park, containing 180 homesites,
both located in Albuquerque, New Mexico. The aggregate purchase price for Aztec
Village and Village Park was $11.3 million.
Additionally, in September 1999, the Trust purchased Sea Pines, a manufactured
home community containing 415 homesites, located in Mobile, Alabama, for $4
million.
20
<PAGE>
The following unaudited pro forma income statement information has been prepared
as if the significant acquisitions made in 1999 had occurred on January 1, 1998.
The pro forma income statement is not indicative of the results which actually
would have occurred if these acquisitions had been consummated on January 1,
1998.
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
<S> <C> <C>
Revenues $ 7,101,300 $ 5,673,400
==================== ====================
Total Expenses $ 10,164,400 $ 8,132,200
==================== ====================
Net loss attributable to common shares $ (3,210,100) $(2,605,900)
==================== ====================
Basic and diluted loss per common share $ (29.37) $ (24.90)
==================== ====================
</TABLE>
Investment in Joint Ventures and Limited Partnerships
- -----------------------------------------------------
The investment in joint ventures are accounted for by utilizing the equity
method of accounting as the properties are subject to joint control requiring
approval or mutual agreement of the investees. The investment in limited
partnerships are also accounted for utilizing the equity method as the limited
partners have significant rights.
Financing Costs
- ---------------
Financing costs are amortized to interest expense over the life of the note
utilizing a method, which approximates the effective interest method.
Income Taxes
- ------------
The Trust operates in a manner intended to enable it to qualify as a real estate
investment trust ("REIT") under Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended. Under those sections, a REIT which distributes at
least 95% of its investment trust taxable income to its shareholders each year
and which meets certain other conditions will not be taxed on that portion of
its taxable income which is distributed to its shareholders. The Trust intends
to continue to qualify and to distribute substantially all of its taxable income
to its shareholders. Therefore, no provision for Federal income taxes is
required.
Basic and Diluted Loss per Common Share
- ---------------------------------------
Basic and diluted loss per common share calculated is based on the weighted
average number of common shares outstanding during the year and income available
to the common shareholders. Basic and diluted earnings per common share are the
same, as the Trust has no dilutive securities. The weighted average number of
common shares outstanding during the years ended December 31, 1999 and 1998 was
109,308 and 104,641, respectively.
Statements of Cash Flows
- ------------------------
For purposes of the statements of cash flows, the Trust considers all highly-
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
21
<PAGE>
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
- -------------------
Rental income is recognized when earned and due from residents. The leases
entered into by residents for the rental of a site are generally for terms not
longer than one year and renewable upon the consent of both parties or, in some
instances, as provided by statute.
Reclassifications
- -----------------
Certain reclassifications of prior year information have been made to conform
with current year presentation.
NOTE 2. AMENDED AND RESTATED DECLARATION OF TRUST
-----------------------------------------
In accordance with the Amended and Restated Declaration of Trust, no shareholder
shall be personally liable for any liabilities, debts or obligations of, or
claims against the Trust. The number of common and preferred shares outstanding
at December 31, 1999 was 109,308 and 98,073, which represented capital
contributions of $2,732,725 and $2,451,825, respectively.
The Advisor is entitled to receive from the Trust various fees and compensation
which are summarized as follows:
Operational Stage
- -----------------
For management of the Trust's business, the Advisor earns an advisory fee of 1%
of invested assets and .5% of uninvested assets. The fee is subject to
limitation if the Trust's total operating expenses (as defined) exceed the
greater of 2% of the Trust's average invested assets or 25% of the Trust's net
income. The fee is also subordinated to preferred shareholders receiving a
minimum of 6% and maximum of 7% annual cumulative dividend, and to common
shareholders receiving a 6% annual noncumulative dividend. Advisory fees of
$346,700 and $147,100 were accrued during the years ended December 31, 1999 and
1998, respectively. In 1999, the Trust paid $558,200 of accrued advisory fees.
The Trust reimburses the Advisor for certain direct expenses and employee,
executive and administrative time which are incurred on the Trust's behalf. The
Trust was charged $14,100 and $28,800 for such costs during the years ended
December 31, 1999 and 1998, respectively. As of December 31, 1999, the Trust
owed the Advisor $229,900 for advisory fees and other operating expenses and
$187,300 to Chateau for interest on the secured and unsecured notes.
Liquidation Stage
- -----------------
During the Trust's liquidation stage, the total compensation paid to all persons
for the sale of Trust properties is limited to competitive real estate brokerage
fees, not to exceed 6% of the contract price for the sale of the property. The
Advisor may receive up to one-half of the competitive real estate brokerage
fees, not to exceed 3%, if it provides a substantial amount of the services in
the sales effort.
The Advisor also receives 15% of cash distributions from the sale or financing
of Trust properties. The participation is subordinated to preferred
shareholders receiving a return of capital plus an 8% per annum cumulative, non-
compounded return; and to common stockholders receiving a return of capital plus
a 10% per annum cumulative, non-compounded return. Returns are computed on a
property-by-property basis.
22
<PAGE>
NOTE 3. PROPERTY HELD FOR INVESTMENT
----------------------------
Property held for investment consists of 12 manufactured home communities
summarized as follows:
<TABLE>
<CAPTION>
Name of Property Date Acquired Location
- ---------------- ------------- --------
<S> <C> <C>
West Star January 15, 1993 Tucson, Arizona
El Frontier February 18, 1994 Tucson, Arizona
Woodland Hills March 30, 1998 Montgomery, Alabama
St. Clement's Crossing November 30, 1998 Lexington, Maryland
Suburban December 2, 1998 Lexington, Maryland
Lexington December 2, 1998 Lexington, Maryland
South Pointe Village May 11, 1999 Albuquerque, New Mexico
Sunset Vista June 30, 1999 Magna, Utah
Longview July 1, 1999 Albuquerque, New Mexico
Aztec Village September 15, 1999 Albuquerque, New Mexico
Village Park September 15, 1999 Albuquerque, New Mexico
Sea Pines September 30, 1999 Mobile, Alabama
December 31, 1999
--------------------------------
Land $ 8,948,600
Buildings and improvements 36,495,700
Construction in progress 102,900
Fixtures and equipment 306,100
--------------------------------
45,853,300
Less accumulated depreciation (2,244,400)
--------------------------------
$ 43,608,900
================================
</TABLE>
23
<PAGE>
NOTE 4. INVESTMENT IN JOINT VENTURES AND LIMITED PARTNERSHIPS
-----------------------------------------------------
The Trust's investments in joint ventures and limited partnerships consist of
interests in seven manufactured home communities at December 31, 1999.
The combined condensed financial position and results of operations of the joint
ventures and limited partnerships are as follows:
<TABLE>
<CAPTION>
Financial Position: December 31, 1999
- ------------------ -----------------
<S> <C>
Property held for investment, net $ 19,908,400
Cash 275,000
Other assets 393,800
-----------------
Total assets $ 20,577,200
==================
Mortgage notes payable $ 10,923,400
Other liabilities 376,600
-----------------
Total liabilities 11,300,000
Partners' equity 9,277,200
-----------------
Total Liabilities and Partners' Equity $ 20,577,200
=================
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------
Results of Operations 1999 1998
----------- -----------
<S> <C> <C>
Property revenues $ 4,138,300 $ 1,211,000
----------- -----------
Expenses:
Property operating 2,029,000 690,000
Interest 980,900 436,000
Depreciation 835,000 280,400
General and Administrative 27,600 -
----------- -----------
3,782,500 1,406,400
----------- -----------
Net income $ 265,800 $ (195,400)
=========== ===========
</TABLE>
24
<PAGE>
NOTE 5. NOTES PAYABLE AND OTHER LIABILITIES
-----------------------------------
Mortgage notes payable consists of the following at December 31, 1999:
<TABLE>
<CAPTION>
Principal Interest Rate at
Property Outstanding December 31, 1999 Maturity
<S> <C> <C> <C>
Weststar/El Frontier $2,050,000 9.07% 2002
Aztec Village 3,191,900 8.69% 2003
Village Park 3,581,700 8.68% 2003
-------------------
$8,823,600
===================
Unsecured debt consists of the following at December 31, 1999:
Principal Interest Rate at
Outstanding December 31, 1999 Maturity
Unsecured notes to Chateau $23,512,600 9.25% 2001
Line of Credit 15,000,000 6.80% 2001
-------------------
$38,512,600
===================
</TABLE>
Included in other liabilities are the deferred payments incurred during the 1998
and 1999 acquisitions. In 1998, $350,000 was incurred in the acquisition of St.
Clement's Crossing (f/k/a Southern), to be paid over the next four years and
$500,000 was incurred in the Lexington acquisition to be paid upon completion of
certain obligations relating to the management of the Lexington properties. In
1999, the Trust paid $50,000 of the St. Clement's Crossing obligation. In 1999,
$854,200 was incurred in the Sea Pines acquisition, to be paid in six
consecutive annual installments as follows: the first five payments shall be in
the amount of $200,000 and the sixth payment shall be in the amount of $100,000.
The first installment is payable on September 30, 2000, and each successive
installment shall be payable on the same day of each consecutive year thereafter
until paid in full. For the year ended December 31, 1999, interest expense of
$10,700 was recorded on this note utilizing a 9% interest rate.
On November 16, 1999, the Trust obtained a $20 million unsecured line of credit
from US Bank. The loan is for two years and bears interest at LIBOR plus 100
bp. The loan is guaranteed by Chateau. The proceeds from the line of credit
were used to repay Chateau.
NOTE 6. COMMON AND PREFERRED SHARES
---------------------------
Common Shares and Preferred Shares receive distributions of cash from operations
when and as declared by the Trustees. The Trustees are required to declare a
Preferred Share dividend on the Preferred Shares annually, equal to between 6%
and 7% of the per share original offering price of the Preferred Shares, as
adjusted for prior distributions. Once the annual Preferred Share Dividend
Preference is declared and paid, the Trustees may declare annually, in their
discretion, a Common Share dividend which may not exceed the amount of the
Preferred Share dividend for such year. Any distributions in excess of the
above amounts are required to be distributed pro rata among the Preferred Shares
and the Common Shares as a single class. The preferred dividend rate, as
established by the Board of Trustees, was 6% for both of the years ended
December 31, 1999 and 1998.
For federal income tax purposes, earnings and profits of the Trust will be
allocated to preferred and common shareholders in accordance with their dividend
priorities. Accordingly, taxable income is first allocated to preferred
shareholders to the extent of their dividend priority.
25
<PAGE>
NOTE 7. STOCK OPTION PLAN
-----------------
During 1998, the Trust adopted an Equity Compensation Plan, which allows for the
grant of incentive stock options, non-qualified stock options, restricted shares
and dividend equivalent rights. For the years ended December 31, 1999 and 1998,
18,738 and 2,000, respectively, options were granted, none were exercised, and
none were forfeited. The options vest after one year and have an exercise price
of $25, which approximated fair market value at the grant date. The pro forma
effects of the grants, under SFAS 123 "Accounting for Stock Based Compensation"
("SFAS 123") are immaterial to net income. As permitted by SFAS 123, the Trust
elected to use Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations, in accounting for its stock
option plan. No compensation expense was recognized for the years ended
December 31, 1999 and 1998.
NOTE 8. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The carrying amounts of cash equivalents, receivables, accounts payable, accrued
expenses and other liabilities approximate fair value because of the short
maturity of these financial instruments. The mortgage notes payable bear
interest at a variable rate indexed to either Treasury Bills, LIBOR; or Prime;
therefore, the Advisor believes the carrying values of the notes approximate
fair value.
NOTE 9. CONTINGENCIES
-------------
The Trust, as an owner of real estate, is subject to various environmental laws.
Compliance by the Company with existing laws has not had a material effect on
the results of operations, financial condition or cash flows of the Company, nor
does management believe it will have a material impact in the future.
NOTE 10. RELATED PARTY TRANSACTIONS
------------------------
Chateau and/or its predecessor have been providing property management services
to the Trust since 1992. For this service, Chateau is paid a property management
fee, which is based on a percentage of actual gross receipts of the properties.
The total management fees paid to Chateau were $193,900 and $80,000 for the
years ended December 31, 1999 and 1998, respectively. In addition certain direct
expenses are paid by Chateau on behalf of the Trust and then reimbursed by the
Trust. These amounts were $461,400 and $203,300 for the years ended December 31,
1999 and 1999, respectively.
Chateau guarantees the Trust's $20 million unsecured line of credit with US
Bank. Chateau received an origination fee of $150,000 and receives a monthly
guarantee fee equal to 25 basis points of the outstanding loan balance.
Interest expense of $3,100 was recorded in 1999, related to the guarantee fee.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
There have been no disagreements over accounting or financial disclosure with
the independent accountants for the Trust during the two most recent years.
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
-------------------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
-------------------------------------------------
Information regarding the Trustees of the Trust appears in the Trust's proxy
statement for its 2000 Annual Meeting of Shareholders and is incorporated herein
by reference. As of March 30, 2000, the Trust did not have any employees.
Information regarding compliance with Section 16(a) of the Securities Exchange
Act of 1934, as amended,
26
<PAGE>
appears in the Trust's proxy statement for its 2000 Annual Meeting of
Shareholders and is incorporated herein by reference.
Item 10. EXECUTIVE COMPENSATION
----------------------
Information regarding compensation the Trustees of the Trust appears in the
Trust's proxy statement for its 2000 Annual Meeting of Shareholders and is
incorporated herein by reference.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The table of beneficial ownership of the Trust appears in the Trust's proxy
statement for its 2000 Annual Meeting of Shareholders and is incorporated herein
by reference.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information regarding certain relationships and related transactions appears in
the Trust's proxy statement for its 2000 Annual Meeting of Shareholders and is
incorporated herein by reference.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits and Index of Exhibits
<TABLE>
<CAPTION>
Exhibit
- ------- Page
Number Description Number
- ------ ----------- ------
<C> <S> <C>
3.1 Amended and Restated Declaration of Trust*
3.2 By-laws of the Trust**
10.1 1998 Equity Compensation Plan***
10.2 Investment Agreement by and between Windsor Real Estate Investment Trust 8 and
Chateau Communities, Inc.****
21. List of Subsidiaries 31
27. Financial Data Schedule 32
</TABLE>
* Filed as Appendix A to the Trust's Proxy Statement for its 1998 Annual
Meeting of Shareholders filed with the Commission on September 17, 1998.
** Filed as Appendix B to the Trust's Proxy Statement for its 1998 Annual
Meeting of Shareholders filed with the Commission on September 17, 1998.
*** Filed as an attachment the Trust's Proxy Statement for its 1998 Annual
Meeting of Shareholders filed with the Commission on September 17, 1998.
**** Filed as Exhibit 7.1 to Schedule 13D (Amendment No. 2) of Chateau
Communities, Inc. filed with the Commission on December 18, 1998.
(b) Reports on Form 8-K
The Trust filed on September 27,1999 a Current Report on Form 8-K, dated
September 15, 1999, reporting the acquisition of Aztec Village and Village
Park manufactured home communities, located in Albuquerque, New Mexico. On
October 28, 1999, the Trust filed on Form 8-K/A the financial statements
relating to the acquisitions reported on the Form 8-K, dated September 15,
1998.
27
<PAGE>
The financial statements filed were as follows:
Historical Summary of Revenues and Direct Operating Expenses for Aztec
Village Manufactured Home Community for the year ended December 31, 1998
(Audited) and for the six months ended June 30, 1999 (Unaudited).
Historical Summary of Revenues and Direct Operating Expenses for Village
Park Manufactured Home Community for the year ended December 31, 1998
(Audited) and for the six months ended June 30, 1999 (Unaudited).
The pro forma financial statements filed were as follows:
Pro Forma Condensed Statements of Operations of the Trust for the six
months ended June 30, 1999 and for the year ended December 31, 1998
(Unaudited).
Pro Forma Condensed Balance Sheet of the Trust as of June 30, 1998
(Unaudited).
The Trust filed on October 13, 1999 a Current Report on form 8-K, dated
September 30, 1999, reporting the acquisition of Sea Pines manufactured
home community, located in Mobile, Alabama. On November 10, 1999, the
Trust filed on Form 8-K/A the financial statements relating to the
acquisitions reported on the Form 8-K, dated September 30, 1999.
The financial statements filed were as follows:
Historical Summary of Revenues and Direct Operating Expenses for Sea Pines
Manufactured Home Community for the year ended December 31, 1998 (Audited)
and for the six months ended June 30, 1999 (Unaudited).
The pro forma financial statements were as follows:
Pro Forma Condensed Statements of Operations of the Trust for the six
months ended June 30, 1999 and for the year ended December 31, 1999
(Unaudited).
Pro Forma Condensed Balance Sheet of the Trust as of June 30, 1999
(Unaudited).
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on this 30th day of March,
2000.
N'TANDEM TRUST
By: /s/ Gary P. McDaniel
---------------------------------------------
GARY P. MCDANIEL
Trustee
Date: March 30, 2000
29
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Page
- ------- Description Number
Number ------------ ------
- ------
<C> <S> <C>
3.1 Amended and Restated Declaration of Trust*
3.2 By-laws of the Trust**
10.1 1998 Equity Compensation Plan***
10.2 Investment Agreement by and between Windsor Real Estate Investment Trust 8 and
Chateau Communities, Inc.****
21. List of Subsidiaries 31
27. Financial Data Schedule 32
</TABLE>
_____________________
* Filed as Appendix A to the Trust's Proxy Statement for its 1998 Annual
Meeting of Shareholders filed with the Commission on September 17, 1998.
** Filed as Appendix B to the Trust's Proxy Statement for its 1998 Annual
Meeting of Shareholders filed with the Commission on September 17, 1998.
*** Filed as an attachment the Trust's Proxy Statement for its 1998 Annual
Meeting of Shareholders filed with the Commission on September 17, 1998.
**** Filed as Exhibit 7.1 to Schedule 13D (Amendment No. 2) of Chateau
Communities, Inc. filed with the Commission on December 18, 1998.
30
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
--------------------
1.) N'Tandem Properties, L. P.
2.) N'Tandem at Lexington, L.L.C.
31
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JAN-01-1999
<CASH> 612,700
<SECURITIES> 0
<RECEIVABLES> 851,900
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 43,608,900
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,730,700
<CURRENT-LIABILITIES> 0
<BONDS> 8,823,600
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 50,730,700
<SALES> 0
<TOTAL-REVENUES> 4,760,700
<CGS> 0
<TOTAL-COSTS> 2,209,300
<OTHER-EXPENSES> 1,824,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,534,700
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,807,300)
<EPS-BASIC> (17.88)
<EPS-DILUTED> (17.88)
</TABLE>
