UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _______.
COMMISSION FILE NO. 1-12328
CHELSEA GCA REALTY, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 22-3251332
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
103 EISENHOWER PARKWAY, ROSELAND, NEW JERSEY 07068
(Address of principal executive offices - zip code)
(201) 228-6111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes X No
----- ----
The number of shares outstanding of the registrant's common stock, $0.01 par
value was 11,783,904 at August 7, 1996.
<PAGE>
CHELSEA GCA REALTY, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
Condensed Consolidated Balance Sheets
as of June 30, 1996 and December 31, 1995. 2
Condensed Consolidated Statements of Income
for the three and six months ended June 30, 1996 and 1995 3
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1996 and 1995 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
CHELSEA GCA REALTY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
JUNE 30, December 31,
1996 1995
----------- --------------
(Unaudited)
ASSETS
Rental properties:
<S> <C> <C>
Land........................................................ $80,332 $75,224
Depreciable property........................................ 383,207 340,759
------- --------
Total rental property............................................ 463,539 415,983
Accumulated depreciation......................................... (47,615) (41,373)
-------- --------
Rental properties, net........................................... 415,924 374,610
Cash and equivalents............................................. 6,949 3,987
Notes receivable-related parties................................. 8,023 8,129
Deferred costs, net.............................................. 15,457 7,255
Other assets..................................................... 13,637 14,072
-------- --------
Total assets..................................................... $459,990 $408,053
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unsecured bank line of credit............................... $49,000 -
Secured bank line of credit................................. - $96,000
Notes payable............................................... 99,627 -
Construction payables....................................... 18,660 18,617
Accounts payable and accrued expenses....................... 7,519 5,730
Obligation under capital lease.............................. 9,865 9,845
Dividend payable............................................ 6,774 6,604
Distribution payable to unitholders......................... 3,075 3,186
Rent payable................................................ 1,616 1,595
------- -------
Total liabilities................................................ 196,136 141,577
Commitments and contingencies....................................
Minority interest................................................ 85,987 89,718
Stockholders' equity:
Preferred stock, $0.01 par value,
authorized 5,000 shares, none issued......................
Excess shares, $0.01 par value,
authorized 15,000 shares, none issued.....................
Common stock, $0.01 par value, authorized 50,000 shares,
issued and outstanding 11,781 in 1996 and 11,485 in 1995.. 118 115
Paid-in-capital............................................. 196,956 192,069
Distributions in excess of net income....................... (19,207) (15,426)
-------- ----------
Total stockholders' equity....................................... 177,867 176,758
-------- ----------
Total liabilities and stockholders' equity....................... $459,990 $408,053
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CHELSEA GCA REALTY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
(In thousands, except per share data)
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
REVENUES:
<S> <C> <C> <C> <C>
Base rent............................................. $13,746 $11,426 $26,423 $21,763
Percentage rent....................................... 881 763 1,679 1,097
Expense reimbursements................................ 5,709 5,161 10,854 9,220
Other income.......................................... 593 325 1,028 670
-------- ------ ------- -------
Total revenues.......................................... 20,929 17,675 39,984 32,750
Expenses:
Interest.............................................. 1,848 551 3,426 803
Operating and maintenance............................. 6,073 5,490 11,596 9,698
Depreciation and amortization......................... 3,529 2,966 7,168 5,550
General and administrative............................ 800 724 1,441 1,361
Other................................................. 565 589 1,103 850
-------- ------- ------ -------
Total Expenses.......................................... 12,815 10,320 24,734 18,262
Income before minority interest and extraordinary item.. 8,114 7,355 15,250 14,488
Minority interest....................................... (2,658) (2,519) (5,033) (4,959)
Net income before extraordinary item.................... 5,456 4,836 10,217 9,529
Extraordinary item-loss on early extinguishment of debt
net of minority interest in the amount of $295......... - - (607) -
-------- ------ ------- -------
Net income............................................... $5,456 $4,836 $9,610 $9,529
======= ======= ======== ========
Per share data:
Income per share before extraordinary item............... $0.46 $0.43 $0.87 $0.85
Extraordinary loss per share............................. - - ($0.05) -
------- ------ ------- --------
Net income per share..................................... $0.46 $0.43 $0.82 $0.85
======= ====== ======= ========
Weighted average common shares outstanding............... 11,814 11,171 11,720 11,146
======= ====== ======= ========
Dividends declared per common share...................... $0.575 $0.52 $1.15 $1.04
======= ====== ======= ========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Chelsea GCA Realty Inc.
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1996 and 1995
(Unaudited)
(In thousands)
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income............................................ $9,610 $9,529
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 7,168 5,550
Minority interest in net income................... 4,738 4,959
Loss on early extinguishment of debt.............. 902 -
Amortization of debt discount..................... 35 -
Other operating activities........................ 24 153
Additions to deferred lease costs................. (1,052) (967)
Changes in assets and liabilities:
Straight line rent receivable................... (887) (685)
Other assets.................................... 1,322 (1,111)
Accounts payable and accrued expenses........... 1,830 (835)
--------- --------
Net cash provided by operating activities............. 23,690 16,593
Cash flows from investing activities
Additions to rental properties........................ (45,612) (46,446)
Additions to deferred development costs............... (6,145) -
Advances to related parties........................... (67) -
Payments from related parties......................... 173 105
-------- --------
Net cash used in investing activities................. (51,651) (46,341)
Cash flows from financing activities
Proceeds from bank line of credit..................... 42,000 43,000
Proceeds from issuance of notes payable............... 99,592 -
Repayments of debt.................................... (89,000) -
Additions to deferred financing costs................. (3,135) (80)
Dividends and distributions........................... (19,625) (17,306)
Net proceeds from sale of common stock................ 1,076 -
Other financing activities............................ 15 770
--------- --------
Net cash provided by financing activities............. 30,923 26,384
--------- --------
Net increase (decrease) in cash and equivalents....... 2,962 (3,364)
Cash and equivalents, beginning of period............. 3,987 9,109
--------- --------
Cash and equivalents, end of period................... $6,949 $5,745
========= ========
Supplemental schedule of Non-Cash Investing and Financing Activities:
During 1996, the Company acquired property valued at $1.6 million through
the issuance of units in the Operating Partnership. Also during 1996, 250,000
Operating partnership units with a book value of approximately $3.8 million were
converted to common shares.
The accompanying notes are an integral part of the financial statements.
</TABLE>
CHELSEA GCA REALTY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Chelsea GCA Realty, Inc. (the "Company") is a self-administered and
self-managed real estate investment trust ("REIT"). The Company made its
initial public offering of common stock on November 2, 1993 (the "IPO")
and simultaneously became the managing general partner of Chelsea GCA
Realty Partnership, L.P. (the "Operating Partnership"), an operating
partnership which at June 30, 1996 owned and provided development,
leasing, marketing and management services for 17 upscale and
fashion-oriented manufacturers' outlet centers (the "Properties")
containing approximately 3.3 million square feet of gross leasable area
("GLA"). The Properties are located near large metropolitan areas
including New York, Los Angeles, San Francisco, Sacramento, Atlanta,
Portland (Oregon), Kansas City, and Cleveland, or at or near tourist
destinations including the Napa Valley, Palm Springs and the Monterey
Peninsula. The Company also has a number of properties under development.
All of the Company's assets are held by, and all of its operations
conducted through, the Operating Partnership. Due to the Company's
ability, as the sole general partner, to exercise both financial and
operational control over the Operating Partnership, it is consolidated in
the accompanying financial statements. All intercompany transactions have
been eliminated in consolidation.
Ownership of the Operating Partnership as of June 30, 1996 was as
follows:
Company 68.8% 11,780,700 units
Unitholders 31.2% 5,347,300 units
------- ------------
TOTAL 100.0% 17,128,000
The condensed consolidated financial statements of the Company include
the accounts of Solvang Designer Outlets ("Solvang"), a limited
partnership in which the Company has a 50% interest and is the sole
general partner. As the sole general partner, the Company has the ability
to exercise both financial and operational control over the partnership.
Solvang is not material to the operations or financial position of the
Company.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for fair presentation have been included. Operating
results for the three and six month periods ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1996. These financial statements should be read in
conjunction with the consolidated financial statements and accompanying
notes included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
Certain prior period balances have been reclassified to conform with
current period presentation.
2. BANK LINE OF CREDIT
On March 29, 1996, the Company replaced its secured revolving credit
facility (the "Secured Facility") with a new, unsecured $100 million line
of credit (the "Unsecured Facility"). The Unsecured Facility expires
March 29, 1998. Interest on the outstanding balance is payable monthly at
the London Interbank Offered Rate plus 1.75%, or the prime rate, at the
Company's option. A fee on the unused portion of the Unsecured Facility
is payable quarterly at a rate of 0.25% per annum. The outstanding
balance at June 30, 1996 was $49.0 million, which approximates fair
value. An additional $1.0 million of the Unsecured Facility was reserved
for letters of credit issued to secure commitments to fund a traffic
mitigation plan at a new center.
The Unsecured Facility requires compliance with certain loan covenants
relating to debt service coverage, tangible net worth, cash flow,
earnings, occupancy rate, new development and dividends. The Company has
remained in compliance with these covenants since inception of the
facility.
Interest and loan costs of approximately $1.3 million and $2.5 million
were capitalized as development costs during the three and six months
ended June 30, 1996.
3. NOTES PAYABLE
In January 1996, the Company's Operating Partnership completed a $100
million public debt offering of 7.75% unsecured notes due January 2001
(the "Notes"), which are guaranteed by the Company. The five-year
non-callable Notes were priced at a discount of 99.952 to yield 7.85% to
investors. Net proceeds from the offering were used to repay
substantially all of the borrowings under the Secured Facility.
4. DIVIDENDS
On June 13, 1996, the Board of Directors of the Company declared a $0.575
per share dividend to shareholders of record on June 28, 1996. The
dividend, totaling $6.8 million, was paid on July 22, 1996. The Operating
Partnership simultaneously paid a $0.575 per unit cash distribution,
totaling $3.1 million, to its unitholders.
5. INCOME TAXES
The Company is taxed as a REIT under Section 856(c) of the Internal
Revenue Code of 1986, as amended, and generally will not be subject to
federal income tax to the extent it distributes at least 95% of its REIT
taxable income to its stockholders and meets certain other requirements.
If the Company fails to qualify as a REIT in any taxable year, the
Company will be subject to federal income tax on its taxable income at
regular corporate rates. The Company may also be subject to certain state
and local taxes on its income and property and federal income and excise
taxes on its undistributed taxable income. At June 30, 1996 and 1995, the
Company was in compliance with all REIT requirements and was not subject
to federal income taxes.
6. NET INCOME PER COMMON SHARE
Net income per common share is computed in accordance with the treasury
stock method and is based on net income and the weighted average number
of common shares and common stock equivalent shares outstanding during
the periods. The common stock equivalent shares represent options issued.
7. COMMITMENTS AND CONTINGENCIES
Management has determined that the foundation slab at one of its outlet
centers was installed improperly and will require corrective action, the
cost of which management estimates will be in excess of $1 million.
Management believes such costs may be recoverable from the original
contractor and/or engineers, and that any costs incurred by the Company
will not materially affect the financial position, operating results or
liquidity of the Company.
The Company is not presently involved in any material litigation nor, to
its knowledge, is any material litigation threatened against the Company
or its properties, other than routine litigation arising in the ordinary
course of business. Management believes the costs, if any, incurred by
the Company related to this litigation will not materially affect the
financial position, operating results or liquidity of the Company.
8. RELATED PARTY INFORMATION
The Company recognized lease settlement income of approximately $99,000
from a related party during the six months ended June 30, 1996. This
amount is included in other income in the accompanying condensed
consolidated financial statements.
9. EXTRAORDINARY ITEM
Deferred financing costs of $0.6 million (net of minority interest of
$0.3 million) related to the Secured Facility replaced in March 1996 have
been written off and reflected in the accompanying financial statements
as an extraordinary item.
<PAGE>
CHELSEA GCA REALTY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the accompanying
unaudited condensed consolidated financial statements and notes thereto. These
financial statements include all adjustments which, in the opinion of
management, are necessary to reflect a fair statement of results for the interim
periods presented, and all such adjustments are of a normal recurring nature.
GENERAL OVERVIEW
The Company has grown by increasing rent at its existing centers, expanding its
existing centers, developing new centers and acquiring and redeveloping centers.
The Company operated 17 manufacturers' outlet centers at June 30, 1996 and 1995;
the Company sold its smallest center, Page Factory Stores, in December 1995,
and opened a new center, North Georgia Premium Outlets in May 1996. The
Company's operating gross leasable area (GLA) at June 30, 1996, increased 16.4%
to 3.3 million square feet from 2.8 million square feet at June 30, 1995. The
GLA added since July 1, 1995 is detailed in the schedule that follows:
<TABLE>
<CAPTION>
12 Mos Ended 6 Mos Ended 6 Mos Ended
June 30, June 30, December 31,
1996 1996 1995
---------------- --------------- ----------------
GLA ADDED (IN 000'S):
NEW CENTERS OPENED:
<S> <C> <C> <C>
North Georgia................................ 292 292 -
------------ ------------ ------------
TOTAL NEW CENTERS 292 292 -
CENTERS EXPANDED:
Aurora Farms................................. 27 - 27
Woodbury Common.............................. 18 1 17
Napa Factory Stores.......................... 17 - 17
Camarillo Factory Stores..................... 77 - 77
Petaluma..................................... 45 30 15
Other........................................ (3) 1 (4)
------------ ------------ ------------
TOTAL CENTERS EXPANDED 181 32 149
CENTER SOLD:
Page Factory Stores.......................... (14) - (14)
------------ ------------ ------------
Net GLA added during the period.................. 459 324 135
GLA at end of period............................. 3,258 3,258 2,934
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
Comparison of the three months ended June 30, 1996 to the three months ended
June 30, 1995.
Net income before minority interest and extraordinary item increased $0.7
million to $8.1 million for the three months ended June 30, 1996 from $7.4
million for the three months ended June 30, 1995. The increase was primarily due
to increases in revenues offset by interest on borrowings and increases in
depreciation and amortization.
Base rentals increased $2.3 million, or 20.3%, to $13.7 million for the three
months ended June 30, 1996 from $11.4 million for the three months ended June
30, 1995 due to expansions, new center openings and higher average rents.
Percentage rents increased $0.1 million to $0.9 million for the three months
ended June 30, 1996, from $0.8 million for the three months ended June 30, 1995.
The increase was primarily due to increases in tenant sales at the Company's
larger centers and an increase in tenants contributing percentage rents.
Expense reimbursements, representing contractual recoveries from tenants of
certain common area maintenance, operating, real estate tax, promotional and
management expenses, increased $0.5 million, or 10.6%, to $5.7 million for the
three months ended June 30, 1996 from $5.2 million for the three months ended
June 30, 1995, due to the recovery of operating and maintenance costs at new and
expanded centers. The average recovery of reimbursable expenses was 94.0% in
1996 and 1995.
Other income increased $0.3 million to $0.6 million for the three months ended
June 30, 1996, from $0.3 million for the three months ended June 30, 1995,
primarily as a result of increased interest and a lease termination settlement
in the 1996 period.
Interest in excess of amounts capitalized increased $1.2 million to $1.8 million
for the three months ended June 30, 1996 from $0.6 million for the three months
ended June 30, 1995 due to the opening of centers and expansions financed during
1995 and 1996.
Operating and maintenance expenses increased $0.6 million, or 10.6%, to $6.1
million for the three months ended June 30, 1996 from $5.5 million for the three
months ended June 30, 1995. The increase was primarily due to costs related to
expansions and new centers.
Depreciation and amortization expense increased $0.5 million, or 19.0%, to $3.5
million for the three months ended June 30, 1996 from $3.0 million for the three
months ended June 30, 1995. The increase was primarily due to costs related to
expansions and new centers.
General and administrative expenses increased $0.1 million, or 10.5%, to $0.8
million for the three months ended June 30, 1996 from $0.7 million for the three
months ended June 30, 1995. The increase was primarily due to increased
personnel and overhead costs.
Other expenses remained flat at $0.6 million for the three months ended June 30,
1996 and 1995.
<PAGE>
Comparison of the six months ended June 30, 1996 to the six months ended June
30, 1995.
Net income before minority interest and extraordinary item increased $0.8
million to $15.3 million for the six months ended June 30, 1996, from $14.5
million for the six months ended June 30, 1995. The increase was primarily due
to increases in revenues offset by interest on borrowings and increases in
depreciation and amortization.
Base rentals increased $4.6 million, or 21.4%, to $26.4 million for the six
months ended June 30, 1996, from $21.8 million for the six months ended June 30,
1995, due to expansions, new center openings and higher average rents.
Percentage rents increased $0.6 million to $1.7 million for the six months ended
June 30, 1996 from $1.1 million for the six months ended June 30, 1995. The
increase was primarily due to increases in tenant sales, expansions at the
Company's larger centers and increases in tenants contributing percentage rents.
Expense reimbursements, representing contractual recoveries from tenants of
certain common area maintenance, operating, real estate tax, promotional and
management expenses, increased $1.7 million, or 17.7%, to $10.9 million for the
six months ended June 30, 1996 from $9.2 million for the six months ended June
30, 1995, due to the recovery of operating and maintenance costs at new and
expanded centers. The average recovery of reimbursable expenses was 93.6% in
1996 compared to 95.1% in 1995.
Other income increased $0.3 million to $1.0 million for the six months ended
June 30, 1996 from $0.7 million for the six months ended June 30, 1995. The
increase was primarily a result of increased interest and lease termination
settlements in the 1996 period.
Interest in excess of amounts capitalized increased $2.6 million to $3.4 million
for the six months ended June 30, 1996 from $0.8 million for the six months
ended June 30, 1995 due to the opening of centers and expansions financed during
1995 and 1996.
Operating and maintenance expenses increased $1.9 million, or 19.6%, to $11.6
million for the six months ended June 30, 1996 from $9.7 million for the six
months ended June 30, 1995. The increase was primarily due to costs related to
expansions and new centers.
Depreciation and amortization expense increased $1.6 million, or 29.2%, to $7.2
million for the six months ended June 30, 1996 from $5.6 million for the six
months ended June 30, 1995. The increase was primarily due to costs related to
expansions and new centers.
General and administrative expenses remained flat at $1.4 million for the six
months ended June 30, 1996 and 1995.
Other expenses increased $0.2 million to $1.1 million for the six months ended
June 30, 1996 from $0.9 million for the six months ended June 30, 1995. The
increase included additional reserves for bad debts, legal fees and tenant
improvement write-offs.
In March 1996, the Company replaced its Secured Facility. Deferred financing
costs of $0.6 million, net of minority interest of $0.3 million, were expensed
in connection with the early retirement of the Secured Facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes it has adequate financial resources to fund operating
expenses, dividends and distributions, and planned development and construction
activities. Operating cash flow during 1996 is expected to increase with a full
year of operations of the 606,000 square feet of GLA added during 1995 and
scheduled openings of approximately 675,000 square feet including two new
centers and expansions in 1996. In addition, at June 30, 1996 the Company had
$50.0 million available under its Unsecured Facility, access to the public
markets through its debt ($100 million) and equity ($200 million) shelf
registrations, and cash equivalents of $6.9 million.
Operating cash flow is expected to provide sufficient funds for dividends and
distributions in accordance with REIT federal income tax requirements. In
addition, the Company anticipates retaining sufficient operating cash to fund
re-tenanting and lease renewal tenant improvement costs, as well as capital
expenditures to maintain the quality of its centers.
Dividends and distributions declared and recorded during the six months ended
June 30, 1996 were $19.7 million, or $0.575 per share or unit. The Company's
dividend payout ratio as a percentage of net income before depreciation and
amortization, minority interest and extraordinary item ("FFO") was 92.0% during
the six months ended June 30, 1996. The Unsecured Facility limits aggregate
dividends and distributions to the lesser of (i) 90% of FFO on an annual basis
or (ii) 100% of FFO for any two consecutive quarters.
In January 1996, the Company's Operating Partnership completed a $100 million
public offering of 7.75% unsecured notes due January 2001 (the "Notes"), which
are guaranteed by the Company. The five-year non-callable Notes were priced at a
discount of 99.592 to yield 7.85% to investors. Net proceeds from the offering
were used to repay substantially all borrowings under the Secured Facility.
In March 1996, the Company replaced its Secured Facility with the new $100
million Unsecured Facility. The Company had $50.0 million available for growth
and liquidity at June 30, 1996. Interest on the outstanding balance is payable
monthly at a rate equal to the London Interbank Offered Rate ("LIBOR") plus
1.75%, or the prime rate, at the Company's option. A fee on the unused portion
of the Unsecured Facility is payable quarterly at a rate of 0.25% per annum. The
Unsecured Facility can be increased at any time up to $200 million with the
approval of the bank group.
The Company is in the process of planning development for 1996, 1997 and beyond.
North Georgia Premium Outlets Phase I, a new project containing 292,000 square
feet of GLA, opened in May 1996. Another new center, Clinton Crossing Premium
Outlets, containing 271,000 square feet of GLA, is scheduled to open in late
August 1996, and approximately 85,000 square feet of expansions are under
construction and expected to open during the second half of 1996. The Company
anticipates development and construction costs of $80 million to $100 million
annually. Funding is currently expected from Unsecured Facility borrowings and
other available capital sources.
To achieve planned growth and favorable returns in both the short and long-term,
the Company's financing strategy is to maintain a strong, flexible financial
position by: (i) maintaining a conservative level of leverage; (ii) extending
and sequencing debt maturity dates; (iii) managing exposure to floating interest
rates; and (iv) maintaining liquidity. Management believes these strategies will
enable the Company to access a broad array of capital sources, including bank or
institutional borrowings and secured and unsecured debt and equity offerings.
It is the Company's policy to limit its borrowings to less than 40% of total
market capitalization (defined as the value of outstanding shares of common
stock on a fully diluted basis including conversion of partnership units to
common stock, plus total debt). Using a June 30, 1996 closing price of $31.75
per common share, the Company's ratio of debt to total market capitalization was
approximately 21%.
Net cash provided by operating activities was $23.7 million and $16.6
million for the six months ended June 30, 1996 and 1995, respectively. The
increase was primarily due to increased operations, decreases in accounts
receivable and increases in accrued interest on the Notes. Net cash used in
investing activities increased $5.3 million for the six months ended June 30,
1996 compared to 1995, primarily as a result of increased development activity.
Net cash provided by financing activities increased $4.5 million primarily due
to the issuance of the Notes, offset by repayment of the Secured Facility.
FUNDS FROM OPERATIONS
Management believes that, to facilitate a clear understanding of the operating
results of the Company, FFO should be considered in conjunction with net income
as presented in the condensed consolidated financial statements. Analysts
generally consider FFO an appropriate measure of performance of an equity real
estate investment trust. FFO is generally defined by the National Association of
Real Estate Investment Trusts ("NAREIT") as net income or loss plus certain
non-cash items, primarily depreciation and amortization. FFO should not be
considered an alternative to net income as an indicator of operating performance
or to cash from operations under generally accepted accounting principles, and
is not necessarily indicative of cash available to fund cash needs.
In March 1995, NAREIT issued a clarification of its definition of FFO. For
illustrative purposes, the following table presents the Company's FFO under both
methods of calculation for the three and six months ended June 30, 1996 and
1995:
<TABLE>
<CAPTION>
New Method Old Method
--------------------------------------------------- ---------------------------------------------------
Three Months Six Months Three Months Six Months
Ended June 30, Ended June 30, Ended June 30, Ended June 30,
1996 1995 1996 1995 1996 1995 1996 1995
--------- ---------- --------- --------- --------- ------------ ---------- ----------
Net income before
<S> <C> <C> <C> <C> <C> <C> <C> <C>
extraordinary item..... $5,456 $4,836 $10,217 $9,529 $5,456 $4,836 $10,217 $9,529
Add back:
Depreciation and
amortization(1)....... 3,478 2,934 7,065 5,487 3,478 2,934 7,065 5,487
Amortization of
deferred financing
costs and depreciation
of non-real estate
assets.................. (269) (198) (656) (275) - - - -
Minority interest in the
Operating
Partnership(1)........... 2,584 2,441 4,894 4,813 2,584 2,441 4,894 4,813
--------- ------- -------- ------ ------- ------- ------- ---------
FFO $11,249 $10,013 $21,520 $19,554 $11,518 $10,211 $22,176 $19,829
======== ======== ========= ======== ======= ======== ======= =======
Weighted average
shares/units
outstanding.............. 17,312 16,763 17,228 16,763 17,312 16,763 17,228 16,763
---------------------------------------
1) Excludes depreciation and minority interest attributed to a third-party limited partner's interest in a partnership.
</TABLE>
CHELSEA GCA REALTY, INC.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held an annual meeting of stockholders on June 13, 1996, at which
the following matters were voted upon:
1. Election of four directors.
2. Amendments to the Company's Articles of Incorporation relating to
excess shares and transfers in violation of the Company's ownership
restrictions.
3. Approval of appointment of Ernst & Young LLP as independent auditors
for the fiscal year ending December 31, 1996.
The results of the meeting were as follows:
Broker
Directors For Withheld Non-Votes
- --------- --- -------- ---------
David C. Bloom 8,865,496 81,185 0
William D. Bloom 8,865,272 81,409 0
Barry M. Ginsburg 8,865,496 81,185 0
Philip D. Kaltenbacher 8,865,496 81,185 0
Broker
For Against Abstain Non-Votes
--- --------- ------- ---------
Proposal 2 8,865,261 21,089 60,331 0
Proposal 3 8,926,879 8,436 11,366 0
Messrs. Brendan T. Byrne, Robert Frommer, Reuben S. Leibowitz and John D.
Santoleri continued as directors after the meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3.1 Restated Articles of Incorporation, as amended.
<PAGE>
CHELSEA GCA REALTY, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHELSEA GCA REALTY, INC.
By: /s/ Leslie T. Chao
Leslie T. Chao
Executive Vice President and
Chief Financial Officer
Date: August 9, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,949
<SECURITIES> 0
<RECEIVABLES> 8,023
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 463,539
<DEPRECIATION> 47,615
<TOTAL-ASSETS> 459,990
<CURRENT-LIABILITIES> 0
<BONDS> 148,627
0
0
<COMMON> 118
<OTHER-SE> 177,867
<TOTAL-LIABILITY-AND-EQUITY> 459,990
<SALES> 39,984
<TOTAL-REVENUES> 39,984
<CGS> 0
<TOTAL-COSTS> 24,734
<OTHER-EXPENSES> 1,103
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,426
<INCOME-PRETAX> 10,217
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,217
<DISCONTINUED> 0
<EXTRAORDINARY> (607)
<CHANGES> 0
<NET-INCOME> 9,610
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.82
</TABLE>
