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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 SEPTEMBER 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 12,229,546 at November 7, 1996.
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<PAGE>
CHELSEA GCA REALTY, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
Condensed Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995 .........................2
Condensed Consolidated Statements of Income
for the three and nine months ended September 30, 1996 and 1995 ..3
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 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
Signatures..................................................... 14
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
CHELSEA GCA REALTY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
SEPTEMBER DECEMBER 31,
30,
1996 1995
-------- --------
(UNAUDITED)
ASSETS
Rental properties:
Land............................... $80,289 $75,224
Depreciable property............... 417,271 340,759
------- --------
Total rental property................. 497,560 415,983
Accumulated depreciation.............. (51,536) (41,373)
------- --------
Rental properties, net................ 446,024 374,610
Cash and equivalents.................. 7,656 3,987
Notes receivable-related parties...... 8,023 8,129
Deferred costs, net................... 11,036 7,255
Other assets.......................... 14,867 14,072
======= ========
Total assets.......................... $487,606 $408,053
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unsecured bank line of credit...... $78,000 -
Secured bank line of credit........ - $96,000
Notes payable...................... 99,648 -
Construction payables.............. 17,123 18,617
Accounts payable and accrued expenses 9,223 5,730
Obligation under capital lease..... 9,815 9,845
Dividend payable................... 6,935 6,604
Distribution payable to unitholders 2,919 3,186
Rent payable....................... 1,626 1,595
-------- -------
Total liabilities..................... 225,289 141,577
Commitments and contingencies
Minority interest..................... 81,534 89,718
Stockholders' equity:
Preferred stock, $0.01 par value,
authorized 5,000 shares, none issued
Common stock, $0.01 par value,
authorized 50,000 shares,
issued and outstanding 12,061 in
1996 and 11,485 in 1995............... 121 115
Paid-in-capital.................... 201,209 192,069
Distributions in excess of net income (20,547) (15,426)
------- --------
Total stockholders' equity............ 180,783 176,758
======= ========
Total liabilities and stockholders' equity $487,606 $408,053
======= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.
<PAGE>
CHELSEA GCA REALTY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
(In thousands, except per share data)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
----------------- ------------------
1996 1995 1996 1995
-------- -------- --------- --------
REVENUES:
Base rent................... $14,737 $11,902 $41,160 $33,665
Percentage rent............ 2,028 1,359 3,707 2,456
Expense reimbursements..... 5,958 5,223 16,812 14,443
Other income............... 600 302 1,628 972
Total revenues................ 23,323 18,786 63,307 51,536
EXPENSES:
Interest................... 2,484 1,182 5,910 1,985
Operating and maintenance.. 6,718 5,622 18,314 15,321
Depreciation and 4,597 3,480 11,765 9,030
amortization..................
General and administrative. 829 714 2,270 2,074
Other...................... 554 477 1,657 1,327
Total expenses................ 15,182 11,475 39,916 29,737
Income before minority
interest and extraordinary 8,141 7,311 23,391 21,799
item..........................
Minority interest............. (2,548) (2,518) (7,581) (7,477)
Net income before 5,593 4,793 15,810 14,322
extraordinary item............
Extraordinary item-loss on
early extinguishment of
debt,net of minority
interest in the amount of $295 - - (607) -
Net income..................... $5,593 $4,793 $15,203 $14,322
PER SHARE DATA:
Income per share before
extraordinary item............ $0.47 $0.42 $1.35 $1.28
Extraordinary loss per share.. ($0.05)
Net income per share.......... $0.47 $0.42 $1.30 $1.28
Weighted average common shares
outstanding................. 12,007 11,356 11,717 11,207
Dividends declared per common $0.575 $0.52 $1.725 $1.56
share.........................
======== ======== ========= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.
<PAGE>
CHELSEA GCA REALTY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
(In thousands)
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................. $15,203 $14,322
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 11,765 9,030
Minority interest in net income........ 7,286 7,477
Loss on early extinguishment of debt 902 -
Amortization of debt discount.......... 56 -
Other operating activities............ (164) 146
Additions to deferred lease costs (1,274) (1,167)
Changes in assets and liabilities:
Straight line rent receivable. (1,184) (999)
Other assets........................ 389 (1,652)
Accounts payable and accrued expenses 3,494 (909)
-------- --------
Net cash provided by operating activities 36,473 26,248
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to rental properties.... (81,052) (61,192)
Additions to development costs.... (1,894) -
Advances to related parties....... (67) -
Payments from related parties..... 173 105
-------- --------
Net cash used in investing activities (82,840) (61,087)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank line of credit. 89,000 53,000
Proceeds from issuance of notes payable 99,592 -
Repayments of debt................ (107,000) -
Additions to deferred financing costs (3,349) (258)
Dividends and distributions....... (29,472) (25,976)
Net proceeds from sale of common stock 1,290 3,826
Other financing activities........ (25) 170
-------- --------
Net cash provided by financing activities 50,036 30,762
-------- --------
Net increase (decrease) in cash and
equivalents........................ 3,669 (4,077)
Cash and equivalents, beginning of period 3,987 9,109
======== ========
Cash and equivalents, end of period $7,656 $5,032
======== ========
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. Additionally, approximately 520,000
Operating Partnership units with a book value of approximately $7.9 million were
converted to common shares.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.
<PAGE>
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 September 30, 1996 owned and provided development,
leasing, marketing and management services for 18 upscale and
fashion-oriented manufacturers' outlet centers (the "Properties")
containing approximately 3.5 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 September 30, 1996 was as
follows:
Company 70.4% 12,060,800 units
Unitholders 29.6% 5,076,900 units
------ ---------
TOTAL 100.0% 17,137,700
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 nine month periods ended September 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.
<PAGE>
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 ("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
outstanding balance at September 30, 1996 was $78.0 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 $1.1 million and $3.6 million
were capitalized as development costs during the three and nine months
ended September 30, 1996, respectively.
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 September 19, 1996, the Board of Directors of the Company declared a
$0.575 per share dividend to shareholders of record on September 30, 1996.
The dividend, totaling $6.9 million, was paid on October 21, 1996. The
Operating Partnership simultaneously paid a $0.575 per unit cash
distribution, totaling $2.9 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 September 30, 1996 and 1995, the
Company was in compliance with all REIT requirements and was not subject
to federal income taxes.
<PAGE>
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 nine months ended September 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.
10. SUBSEQUENT EVENT
In October 1996, the Company's Operating Partnership completed a $100
million offering of Remarketed Floating Rate Reset Notes due October 2001
(the "Reset Notes"), which are guaranteed by the Company. The interest
rate will reset quarterly and will equal LIBOR plus 75 basis points during
the first year. Net proceeds from the offering were used to repay all of
the borrowings under the Unsecured Facility and for working capital.
<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 18 manufacturers' outlet centers at September 30, 1996
compared to 17 at the end of the same quarter in the prior year; the Company
sold its smallest center, Page Factory Stores, in December 1995 and opened North
Georgia Premium Outlets in May 1996 and Clinton Crossing Premium Outlets in
September 1996. The Company's operating gross leasable area (GLA) at September
30, 1996, increased 25.0% to 3.5 million square feet from 2.8 million square
feet at September 30, 1995. GLA added since October 1, 1995 is detailed as
follows:
12 MOS 9 MOS 3 MOS
ENDED ENDED ENDED
SEPTEMBER SEPTEMBER DECEMBER
30, 1996 30, 1996 31,
1995
---------- ---------- ----------
GLA ADDED (IN 000'S):
NEW CENTERS OPENED:
North Georgia.............. 292 292 -
Clinton Crossing........... 272 272 -
--------- -------- --------
TOTAL NEW CENTERS........... 564 564 -
CENTERS EXPANDED:
Aurora Farms............... 27 - 27
Woodbury Common............ 14 1 13
Camarillo Factory Stores... 77 - 77
Petaluma................... 45 30 15
Other...................... (6) 1 (7)
--------- -------- --------
TOTAL CENTERS EXPANDED....... 157 32 125
CENTER SOLD:
Page Factory Stores........ (14) - (14)
--------- -------- --------
Net GLA added during the period 707 596 111
GLA at end of period......... 3,530 3,530 2,934
<PAGE>
RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 1996 to the three months
ended September 30, 1995.
Net income before minority interest and extraordinary item increased $0.8
million to $8.1 million for the three months ended September 30, 1996 from $7.3
million for the three months ended September 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 $2.8 million, or 23.8%, to $14.7 million for the three
months ended September 30, 1996 from $11.9 million for the three months ended
September 30, 1995 due to expansions, new center openings and higher average
rents.
Percentage rents increased $0.6 million to $2.0 million for the three months
ended September 30, 1996, from $1.4 million for the three months ended September
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 $0.8 million, or 14.1%, to $6.0 million for the
three months ended September 30, 1996 from $5.2 million for the three months
ended September 30, 1995, due to the recovery of operating and maintenance costs
at new and expanded centers. The average recovery of reimbursable expenses was
92.2% in the third quarter of 1996, without adjustments of $0.2 million as a
result of the final computation of expense reimbursement billings in the third
quarter 1996, compared to 92.9% in the third quarter of 1995.
Other income increased $0.3 million to $0.6 million for the three months ended
September 30, 1996, from $0.3 million for the three months ended September 30,
1995, primarily as a result of increased interest and lease termination
settlements in the 1996 period.
Interest in excess of amounts capitalized increased $1.3 million to $2.5 million
for the three months ended September 30, 1996 from $1.2 million for the three
months ended September 30, 1995 due to higher debt balances and the opening of
centers and expansions financed during 1995 and 1996.
Operating and maintenance expenses increased $1.1 million, or 19.5%, to $6.7
million for the three months ended September 30, 1996 from $5.6 million for the
three months ended September 30, 1995. The increase was primarily due to costs
related to expansions and new centers.
Depreciation and amortization expense increased $1.1 million, or 32.1%, to $4.6
million for the three months ended September 30, 1996 from $3.5 million for the
three months ended September 30, 1995. The increase was primarily related to
expansions and new centers.
General and administrative expenses increased $0.1 million to $0.8 million for
the three months ended September 30, 1996 from $0.7 million for the three months
ended September 30, 1995. The increase was primarily due to increased personnel
and overhead costs.
<PAGE>
Other expenses increased $0.1 million to $0.6 million for the three months ended
September 30, 1996 from $0.5 million for the three months ended September 30,
1995. The increase included additional reserves for bad debts and legal fees.
Comparison of the nine months ended September 30, 1996 to the nine months ended
September 30, 1995.
Net income before minority interest and extraordinary item increased $1.6
million to $23.4 million for the nine months ended September 30, 1996, from
$21.8 million for the nine months ended September 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 $7.5 million, or 22.3%, to $41.2 million for the nine
months ended September 30, 1996, from $33.7 million for the nine months ended
September 30, 1995, due to expansions, new center openings and higher average
rents.
Percentage rents increased $1.2 million to $3.7 million for the nine months
ended September 30, 1996 from $2.5 million for the nine months ended September
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 $2.4 million, or 16.4%, to $16.8 million for the
nine months ended September 30, 1996 from $14.4 million for the nine months
ended September 30, 1995, due to the recovery of operating and maintenance costs
at new and expanded centers. The average recovery of reimbursable expenses was
93.1% in 1996, without adjustments of $0.2 million as a result of the final
computation of expense reimbursement billings in the third quarter of 1996,
compared to 94.3% in 1995.
Other income increased $0.6 million to $1.6 million for the nine months ended
September 30, 1996 from $1.0 million for the nine months ended September 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 $3.9 million to $5.9 million
for the nine months ended September 30, 1996 from $2.0 million for the nine
months ended September 30, 1995 due to higher debt balances and the opening of
centers and expansions financed during 1995 and 1996.
Operating and maintenance expenses increased $3.0 million, or 19.5%, to $18.3
million for the nine months ended September 30, 1996 from $15.3 million for the
nine months ended September 30, 1995. The increase was primarily due to costs
related to expansions and new centers.
Depreciation and amortization expense increased $2.8 million, or 30.3%, to $11.8
million for the nine months ended September 30, 1996 from $9.0 million for the
nine months ended September 30, 1995. The increase was primarily related to
expansions and new centers.
General and administrative expenses increased $0.2 million to $2.3 million for
the nine months ended September 30, 1996 from $2.1 million for the nine months
ended September 30, 1995. The increase was primarily due to increased personnel
and overhead costs in connection with increased GLA.
Other expenses increased $0.3 million to $1.6 million for the nine months ended
September 30, 1996 from $1.3 million for the nine months ended September 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 671,000 square feet (including two new
centers and expansions) in 1996. In addition, at September 30, 1996 the Company
had $21.0 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 $7.7 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 nine months ended
September 30, 1996 were $29.5 million, or $1.725 per share or unit. The
Company's dividend payout ratio as a percentage of net income before
depreciation and amortization, exclusive of amortization of deferred financing
costs, minority interest and extraordinary item ("FFO") was 87.2% during the
nine months ended September 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 $100 million
Unsecured Facility. The Company had $21.0 million available for growth and
liquidity at September 30, 1996. Interest on the outstanding balance is payable
monthly at a rate equal to 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.
In October 1996, the Company's Operating Partnership completed a $100 million
offering of Reset Notes, which are guaranteed by the Company. The interest rate
will reset quarterly and will equal LIBOR plus 75 basis points during the first
year. Net proceeds from the offering were used to repay all of the borrowings
under the Unsecured Facility.
<PAGE>
The Company is in the process of developing other expansions and new centers for
completion in 1997 and beyond. The projects include a 300,000 square foot
expansion at Woodbury Common, and a new project in Wrentham, Massachusetts
(located near the junction of Interstates 95 and 495 between Boston, MA and
Providence, RI) with an expected initial phase of 200,000 square feet of GLA.
These projects are in various stages of development and there can be no
assurance that any of these projects will be completed or opened, or that there
will not be delays in the opening or completion of any of them. The Company
anticipates development and construction costs of $80 million to $100 million
annually.
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; (iv) maintaining a significant level of unencumbered assets; and (v)
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,
subject to market conditions.
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 September 30, 1996 closing price of
$30.625 per common share, the Company's ratio of debt to total market
capitalization was approximately 25%.
Net cash provided by operating activities was $36.5 million and $26.2 million
for the nine months ended September 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 $21.8 million for the nine months ended September
30, 1996 compared to the corresponding 1995 period, primarily as a result of
increased development activity. Net cash provided by financing activities
increased $19.3 million primarily due to the issuance of the Notes, offset by
repayment of the Secured Facility.
<PAGE>
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 for 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 nine months ended September 30, 1996
and 1995:
<TABLE>
<CAPTION>
CURRENT METHOD OLD METHOD
----------------------------- ----------------------------
THREE NINE THREE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
-------------- -------------- -------------- -------------
1996 1995 1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income before
extraordinary item....... $5,593 $4,793 $15,810 $ 14,322 $5,593 $4,793 $15,810 $14,322
Add back:
Depreciation and
amortization(1) 4,539 3,449 11,604 8,936 4,539 3,449 11,604 8,936
Amortization of deferred
financing costs and depreciation
of non-real estate assets. (264) (433) (920) (708) - - - -
Minority interest in the
Operating Partnership(1) 2,492 2,421 7,386 7,234 2,492 2,421 7,386 7,234
------ ------ ------ ------
====== ====== ====== ====== ====== ====== ====== ======
FFO....... $12,360 $10,230 $33,880 $29,784 $12,624 $10,663 $34,800 $30,492
====== ====== ====== ====== ====== ====== ====== ======
Weighted average shares/units
outstanding 17,305 17,007 17,220 16,815 17,305 17,007 17,220 16,815
- ---------------------------------------
(1) Excludes depreciation and minority interest attributed to a third-party
limited partner's interest in a partnership.
</TABLE>
<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: November 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-1-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,656
<SECURITIES> 0
<RECEIVABLES> 8,023
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 497,560
<DEPRECIATION> 51,536
<TOTAL-ASSETS> 446,024
<CURRENT-LIABILITIES> 0
<BONDS> 177,648
0
0
<COMMON> 121
<OTHER-SE> 180,662
<TOTAL-LIABILITY-AND-EQUITY> 487,606
<SALES> 23,323
<TOTAL-REVENUES> 23,323
<CGS> 0
<TOTAL-COSTS> 15,182
<OTHER-EXPENSES> 554
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,484
<INCOME-PRETAX> 5,593
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,593
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,593
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
</TABLE>
