<PAGE>
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, 1996
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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 number 001-12258
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ROC COMMUNITIES, INC.
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(Exact name of registrant as specified in its charter)
MARYLAND 84-1226771
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(State of incorporation) (IRS Employer ID No.)
6430 So. Quebec St., Englewood, CO 80111
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(Address of principal executive offices, including zip code)
(303) 741-3707
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(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
----- -----
Number of shares of common stock, $.01 par value, outstanding as of May 10,
1996: 12,423,500
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ROC COMMUNITIES, INC.
FORM 10-Q
INDEX
Page Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of March 31, 1996 and
December 31, 1995 2
Consolidated Statements of Income for the Three
Months Ended March 31, 1996 and 1995 3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5 - 6
Supplemental Financial Information 7 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 11
PART II. OTHER INFORMATION 12
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROC COMMUNITIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS MARCH 31, DECEMBER 31,
1996 1995
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(UNAUDITED)
<S> <C> <C>
Rental property, net $ 279,061 $ 271,550
Mortgages receivable 4,895 4,913
Cash and cash equivalents 1,072 652
Deferred financing costs, net 2,235 2,450
Prepaid expenses and other assets, net 5,620 5,637
--------- ---------
Total $ 292,883 $ 285,202
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--------- ---------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Liabilities:
Mortgage debt $ 60,390 $ 60,390
Line of credit 33,504 24,253
Accounts payable and accrued expenses 2,938 2,616
Interest payable 605 553
Other liabilities 961 911
Distributions payable 5,032 4.845
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Total Liabilities 103,430 93,568
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Commitments and Contingencies
Stockholders' Equity:
Preferred stock ($.01 par value; 10,000,000 shares
authorized, no shares issued)
Common stock ($.01 par value; 90,000,000 shares
authorized; 12,423,500 shares issued and outstanding) 124 124
Additional paid-in capital 208,868 208,868
Cumulative net income 23,427 20,577
Cumulative distributions (42,966) (37,935)
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Total Stockholders' Equity 189,453 191,634
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Total $ 292,883 $ 285,202
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</TABLE>
See accompanying notes.
2
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ROC COMMUNITIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1996 1995
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<S> <C> <C>
Revenues:
Rental income $ 13,754 $ 11,847
Management income 343 281
Other income 142 213
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Total Revenue 14,239 12,341
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Expenses:
Property operations and maintenance 4,534 3,825
Real estate taxes 1,074 974
General and administrative 914 817
Interest 1,687 1,061
Amortization of debt costs 216 264
Depreciation and amortization 2,964 2,587
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Total Expenses 11,389 9,528
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Net Income $ 2,850 $ 2,813
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-------- --------
Net Income Per Share $ .23 $ .23
-------- --------
-------- --------
Weighted Average Shares of
Common Stock Outstanding 12,424 12,424
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-------- --------
</TABLE>
See accompanying notes.
3
<PAGE>
ROC COMMUNITIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 2,850 $ 2,813
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,964 2,587
Amortization of debt costs 216 264
Changes in operating assets and liabilities:
Prepaid expenses and other assets (106) 177
Accounts payable, accrued expenses, and other
liabilities 424 270
-------- --------
Net cash provided by operating activities 6,348 6,111
-------- --------
Cash Flows From Investing Activities:
Acquisition of rental properties (9,900) (2,578)
Capital expenditures (452) (1,155)
Disposition of rental properties 17
Collection of mortgages receivable 18 16
-------- --------
Net cash used in investing activities (10,334) (3,700)
-------- --------
Cash Flows From Financing Activities:
Proceeds from line of credit 13,776
Principal payments on line of credit (4,525)
Principal payments on mortgages (67)
Distributions paid (4,845) (4,721)
-------- --------
Net cash provided by (used in) financing activities 4,406 (4,788)
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Net Change In Cash and Cash Equivalents 420 (2,377)
Cash and Cash Equivalents at Beginning of Period 652 6,720
-------- --------
Cash and Cash Equivalents at End of Period $ 1,072 $ 4,343
-------- --------
-------- --------
Supplemental Cash Flow Information -
Interest paid $ 1,635 $ 1,080
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-------- --------
</TABLE>
See accompanying notes.
4
<PAGE>
ROC COMMUNITIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL
ROC Communities, Inc. and ROCF, Inc. ("Subsidiary") (collectively, the
"Company") were organized on March 31, 1993 in Maryland. The Company
operates as a real estate investment trust. The Company and its
predecessors have been engaged in the ownership, management, acquisition,
operation and expansion of manufactured home communities since 1979. The
Company owned 67 communities (18,432 sites) located in 24 states and fee
managed an additional 41 communities (9,609 sites) as of March 31, 1996.
The Company provides management services for third party owners and
affiliated entities.
On December 20, 1995, the Company organized RCIP, L.P., a Delaware limited
partnership (the "Operating Partnership"). The Operating Partnership,
which is currently a totally-owned subsidiary of the Company, holds nominal
assets, is free of liabilities and has not yet commenced operations. If
the Company proceeds with an offering of unsecured non-convertible debt
securities or seeks to effect a purchase of properties on a tax-deferred
basis from the sellers of such properties, the Company will contribute
substantially all of its assets or beneficial interest therein, subject to
liabilities, to the Operating Partnership and will effect such debt
offering or purchase through the Operating Partnership. Thereafter, the
Company will conduct substantially all of its business through, and
maintain control over, the Operating Partnership, and the Operating
Partnership will not conduct any operations that are independent from those
of the Company.
The accompanying financial statements and related notes have been prepared
in accordance with generally accepted accounting principles for interim
financial reporting and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
In the opinion of management, all adjustments (consisting of only normal
recurring accruals) considered necessary for fair presentation of the
Company's financial position, results of operations and cash flows have
been included. These financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended
December 31, 1995. The results of operations for the periods presented are
not necessarily indicative of the results for a full year.
2. ACQUISITION OF RENTAL PROPERTIES
The Company acquired one manufactured home community in January 1996 for
cash of $9.425 million. The community is located in Cincinnati, Ohio and
is comprised of 354 sites. The acquisition was funded from the Company's
line of credit.
5
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ROC COMMUNITIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONCLUDED)
3. RENTAL PROPERTY
The following summarizes rental property (in thousands):
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31,
1996 1995
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<S> <C> <C>
Land $ 64,904 $ 62,769
Land improvements and buildings 233,821 225,719
Furniture, fixtures and equipment 3,272 3,173
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301,997 291,661
Accumulated depreciation (22,936) (20,111)
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Rental property, net $ 279,061 $271,550
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--------- --------
</TABLE>
Land improvements and buildings consist primarily of infrastructure, roads,
landscaping and clubhouses, storage buildings and common amenities.
4. DISTRIBUTIONS
The Company declared a distribution of $.405 per share on March 5, 1996
payable to shareholders of record on March 29, 1996. The distribution was
paid on April 12, 1996.
5. SUBSEQUENT EVENTS
On May 2, 1996, the Company replaced its $45 million line of credit with a
$50 million line of credit and $20 million term loan with the First
National Bank of Chicago. The new loans are unsecured, and bear interest
at LIBOR + 1.50%. The line of credit matures in April, 1999 and the term
loan matures in April, 1997.
On May 3, 1996, the Company's and the Operating Partnership's Registration
Statement on Form S-3 (the "Registration Statement") was declared effective
by the Securities and Exchange Commission. The Registration Statement
registers the offer and sale by the Company and the Operating Partnership
from time to time, of certain specified securities with an aggregate public
offering price not to exceed $300 million.
* * * * *
6
<PAGE>
ROC COMMUNITIES, INC. AND SUBSIDIARY
SUPPLEMENTAL FINANCIAL INFORMATION
FUNDS FROM OPERATIONS
The Company believes that funds from operations ("FFO") is an appropriate
measure of performance of an equity REIT. Funds from operations is defined by
the National Association of Real Estate Investment Trusts ("NAREIT") as "net
income (computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures". While the Company believes that FFO is the
most relevant and widely used measure of its operating performance, it does not
represent cash generated from operating activities in accordance with generally
accepted accounting principles and is not indicative of cash available to fund
cash needs. FFO should not be considered as an alternative to net income as an
indication of the Company's operating performance or as an alternative to cash
flow as a measure of liquidity.
In March 1995, NAREIT issued a White Paper which discusses NAREIT's views on
certain interpretative issues under the definition of FFO and also encourages
certain expanded disclosures relating to FFO in the periodic reports issued by
REITs. The White Paper suggests that amortization of deferred financing costs
and depreciation of non-rental real estate assets should no longer be added back
to net income in calculating FFO. The Company reports FFO in accordance with
the interpretative positions set forth in the White Paper. In addition, the
Company provides the expanded disclosures encouraged by the White Paper.
Accordingly, Item A presents FFO for the three months ended March 31, 1996 and
1995 in accordance with the NAREIT definition, giving effect to the interpretive
positions of the White Paper. The Company's presentation of FFO, however, may
not be comparable to other similarly titled measures used by other equity REITs.
Item B sets forth the expanded disclosures encouraged by the White Paper.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
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(IN THOUSANDS)
<S> <C> <C>
A. FUNDS FROM OPERATIONS
Net Income $ 2,850 $ 2,813
Add:
Depreciation (1) 2,811 2,450
Amortization of other intangibles (2) 123 116
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Funds from operations $ 5,784 $ 5,379
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</TABLE>
(1) Excludes depreciation of non-rental real estate assets of $31,000 and
$21,000 for 1996 and 1995, respectively.
(2) Excludes amortization of debt costs of $216,000 and $264,000 for 1996 and
1995, respectively.
7
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ROC COMMUNITIES, INC. AND SUBSIDIARY
SUPPLEMENTAL FINANCIAL INFORMATION
(CONCLUDED)
B. CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
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(IN THOUSANDS)
<S> <C> <C>
Normal recurring $ 314 $ 465
Revenue producing 214 340
Construction in progress 41 410
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$ 569 $ 1,215
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------- --------
</TABLE>
8
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company owned 67 (18,432 homesites) and 63 (16,461 homesites) communities as
of March 31, 1996 and 1995, respectively. In addition, the Company fee managed
41 (9,609 homesites) and 38 (9,293 homesites) communities as of March 31, 1996
and 1995, respectively.
At March 31, 1996, the Company had total assets of $292,883,000, consisting
primarily of its manufactured housing communities, and total liabilities of
$103,430,000, consisting primarily of mortgage debt of $60,390,000, line of
credit borrowings of $33,504,000 and distributions payable of $5,032,000.
The Company derives its revenues principally from the rental of home sites at
its manufactured home communities and, to a lesser extent, fee income from its
property management business.
RESULTS OF OPERATIONS
During the first quarter of 1995, the Company acquired one 241 site community
for $2,275,000 and during the first quarter of 1996, the Company acquired a 354
site community for $9,425,000. During the third quarter of 1995, the Company
acquired three communities for $23,060,000 aggregating 1,589 sites.
The Company had revenues of $14,239,000 and $12,341,000 for the three months
ended March 31, 1996 and 1995, respectively. Rental income increased $1,907,000
(16.10%). The increase included $614,000 (5.18%) related to the communities
owned during both periods primarily as a result of rental increases at the
communities. Management income increased $62,000 (22.06%) due to the addition
of three fee-managed communities and rental increases at the communities. Other
income decreased $71,000 (33.33%) primarily as a result of a reduction in
interest income.
Property operations and maintenance increased $709,000 (18.54%). These expenses
increased $205,000 (5.75%) for the communities owned during both periods
primarily due to utility and repairs and maintenance expense increases of
$139,000 at the communities resulting from rate and usage increases of
utilities and increases of repairs and maintenance expenses caused by severe
weather. Real estate taxes increased $100,000 (10.27%), and the communities
owned during both periods accounted for $16,000 (1.63%) of the increase.
General and administrative expenses increased $97,000 (11.87%) as a result of
adding additional office space at the corporate office and two regional offices
and increased payroll expenses. Interest expense increased $626,000 (59%) as a
result of the 1995 third quarter acquisitions that were funded from the
Company's $45 million line of credit. Depreciation and amortization expenses
increased $329,000 as a result of the 1995 and 1996 acquisitions.
The Company had net income of $2,850,000 and $2,813,000 for the three months
ended March 31, 1996 and 1995, respectively. The increase in net income of
$37,000 (1.32%) was primarily a result of the
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
operations noted above and the 1995 third quarter acquisition of three
communities and the 1996 first quarter acquisition of one community.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had cash of $1,072,000, cash reserves,
established pursuant to the terms of the Company's mortgage debt for capital
replacements and real property taxes, expected to be incurred during the year of
$833,000, and other current assets of $1,347,000. At March 31, 1996, the
Company had accounts payable and accrued expenses of $2,938,000 including
property taxes payable of $1,403,000, distributions payable of $5,032,000, and
other current liabilities of $604,000. At March 31, 1996, the Company had
$3,000,000 available under its $3 million working capital line of credit and
$11,496,000 available under its $45 million line of credit. The Company has
$60,390,000 of mortgage debt (the "Mortgage Debt") which bears interest at a
fixed rate of 7.16%. The mortgage debt is due and payable on August 1, 2000.
On March 31, 1996, the Company had $33,504,000 outstanding on its $45 million
line of credit.
LIQUIDITY SOURCES AND REQUIREMENTS
On May 2, 1996, the Company replaced its $45 million line of credit with a new
facility through the First National Bank of Chicago, that includes a $50 million
line of credit (the "Line of Credit") and the availability of an additional $20
million that may be borrowed as a term loan (the "Term Loan"). The new loans
are unsecured, and bear interest at LIBOR + 1.50%. The Line of Credit matures
in April, 1999 and the Term Loan, if utilized, matures in April, 1997.
The Company declared a distribution of $5,032,000, or $.405 per share, on March
5, 1996 for stockholders of record on March 29, 1996. The distribution was paid
on April 12, 1996.
The Company expects to meet its short-term liquidity requirements, principally
distributions to stockholders and capital improvements to its communities,
through funds generated from operations and working capital, including cash
reserves established pursuant to the terms of the Mortgage Debt.
Expansion of existing manufactured home communities, acquisition of additional
communities and the repayment of principal on the Mortgage Debt or any other
debt incurred by the Company, represent the Company's principal long-term
capital requirements. The Company does not expect to generate sufficient cash
flow from operating activities to meet its long-term liquidity needs described
above and intends to finance them primarily through additional equity offerings,
borrowings under the Line of Credit, utilization of the Term Loan or alternative
forms of financing or refinancing. The Company intends to incur additional
borrowings for such purposes in a manner consistent with its policy of
maintaining a ratio of debt-to-total market capitalization of less than 50%.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONCLUDED)
INFLATION
Substantially all of the leases at the communities allow for monthly or annual
rent increases which provide the Company with the opportunity to achieve
increases in rental income as each lease matures. Such types of leases
generally minimize the risk of inflation to the Company.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedules
(b) Reports on Form 8-K
None
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.
ROC COMMUNITIES, INC.
(Registrant)
By Steven G. Davis
----------------------------
Steven G. Davis
Executive Vice President,
Chief Financial Officer,
Principal Accounting Officer and Director
Date: May 10, 1996
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income found on pages
2 and 3 of the Company's Form 10-Q for the year-to-date, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1072
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 301997
<DEPRECIATION> (22936)
<TOTAL-ASSETS> 292883
<CURRENT-LIABILITIES> 0
<BONDS> 93894
0
0
<COMMON> 124
<OTHER-SE> 189329
<TOTAL-LIABILITY-AND-EQUITY> 292883
<SALES> 0
<TOTAL-REVENUES> 14239
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9702
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1687
<INCOME-PRETAX> 2850
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2850
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
