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, 1997
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 15,264,086 at August 8, 1997.
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CHELSEA GCA REALTY, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
Condensed Consolidated Balance Sheets
as of June 30, 1997 and December 31, 1996......... 2
Condensed Consolidated Statements of Income
for the three and six months ended June 30, 1997
and 1996.......................................... 3
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1997 and 1996... 4
Notes to Condensed Consolidated Financial Statements.. 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................. 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.... 15
Signatures.................................................... 16
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CHELSEA GCA REALTY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
June 30, December 31,
1997 1996
--------------- ---------------
(Unaudited)
Assets
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Rental properties:
Land........................................................ $ 106,751 $ 80,312
Depreciable property........................................ 524,708 432,042
--------------- ---------------
Total rental property............................................ 631,459 512,354
Accumulated depreciation......................................... (68,712) (58,054)
--------------- ---------------
Rental properties, net........................................... 562,747 454,300
Cash and equivalents............................................. 6,377 13,886
Notes receivable-related parties................................. 4,700 8,023
Deferred costs, net.............................................. 11,130 10,321
Other assets..................................................... 10,387 15,682
--------------- ---------------
TOTAL ASSETS..................................................... $ 595,341 $ 502,212
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unsecured bank debt......................................... $ 55,035 $ -
7.75% Unsecured Notes due 2001.............................. 99,709 99,668
Remarketed Floating Rate Reset Notes due 2001............... 100,000 100,000
Construction payables....................................... 7,945 14,473
Accounts payable and accrued expenses 10,944 12,257
Obligation under capital lease.............................. 9,767 9,805
Distribution payable to stockholders........................ 9,610 -
Distribution payable to unitholders......................... 2,165 3,038
Rent payable................................................ 1,648 1,637
--------------- ---------------
TOTAL LIABILITIES................................................ 296,823 240,878
Commitments and contingencies
MINORITY INTEREST................................................ 49,155 75,994
Stockholders' equity:
Preferred stock, $0.01 par value,
5,000 shares authorized, none issued
Common stock, $0.01 par value,50,000 shares authorized, 153 124
issued and outstanding 15,253 in 1997 and 12,402 in 1996
Paid-in-capital............................................. 279,457 207,910
Distributions in excess of net income (30,247) (22,694)
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY....................................... 249,363 185,340
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................... $595,341 $502,212
=============== ===============
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, 1997 AND 1996
(UNAUDITED)
(In thousands, except per share data)
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
------------ ------------ ------------- ------------
REVENUES:
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Base rent................................................ $17,286 $13,746 $32,849 $26,423
Percentage rent.......................................... 1,784 881 3,082 1,679
Expense reimbursements................................... 7,062 5,709 12,426 10,854
Other income............................................. 505 593 929 1,028
------------ ------------ ------------- ------------
TOTAL REVENUES.............................................. 26,637 20,929 49,286 39,984
------------ ------------ ------------- ------------
EXPENSES:
Interest................................................. 4,401 1,848 7,558 3,426
Operating and maintenance................................ 7,637 6,073 13,527 11,596
Depreciation and amortzation............................. 6,190 3,529 11,968 7,168
General and administrative............................... 763 800 1,470 1,441
Other.................................................... 584 565 1,214 1,103
------------ ------------ ------------- ------------
TOTAL EXPENSES.............................................. 19,575 12,815 35,737 24,734
============= ============ ============ ============
INCOME BEFORE MINORITY INTEREST AND
EXTRAORDINARY ITEM......................................... 7,062 8,114 13,549 15,250
Minority interest........................................... (1,449) (2,658) (2,796) (5,033)
------------ ------------ ------------- ------------
Net income before extraordinary item........................ 5,613 5,456 10,753 10,217
Extraordinary item - loss on early extinguishment of
debt, net of minority interest in the amount of $295...... - - - (607)
------------ ------------ ------------- ------------
NET INCOME.................................................. $5,613 $5,456 $10,753 $9,610
============ ============ ============= ============
PER SHARE DATA:
Income per share before extraordinary item................. $0.39 $0.46 $0.76 $0.87
Extraordinary loss per share................................ - - - ($0.05)
------------ ------------ ------------- ------------
NET INCOME PER SHARE........................................ $0.39 $0.46 $0.76 $0.82
============ ============ ============= ============
Weighted average common shares outstanding.................. 14,333 11,814 14,169 11,720
============ ============ ============= ============
DIVIDENDS DECLARED PER COMMON SHARE......................... $0.63 $0.575 $1.26 $1.15
============ ============ ============= ============
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, 1997 AND 1996
(UNAUDITED)
(In thousands)
1997 1996
------------- ------------
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................... $10,753 $9,610
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization.. ................. 11,968 7,168
Minority interest in net income.................. 2,796 4,738
Loss on early extinguishment of debt............. - 902
Additions to deferred lease costs................ (744) (1,052)
Other operating activities....................... 37 59
Changes in assets and liabilities:
Straight line rent receivable................. (757) (887)
Other assets.................................. 6,052 1,322
Accounts payable and accrued expenses......... (1,340) 1,830
------------- ------------
Net cash provided by operating activities............. 28,765 23,690
------------- ------------
Cash flows from investing activities
Additions to and acquisitions of rental properties..... (127,314) (45,612)
Additions to deferred development costs................ (602) (6,145)
Advances to related parties............................ - (67)
Payments from related parties.......................... - 173
------------- ------------
Net cash used in investing activities.................. (127,916) (51,651)
------------- ------------
Cash flows from financing activities
Net proceeds from sale of common stock................ 51,586 1,091
Dividends and distributions............................ (14,686) (19,625)
Debt proceeds.......................................... 105,035 141,592
Repayments of debt..................................... (50,000) (89,000)
Additions to deferred financing costs.................. (293) (3,135)
----------- -----------
Net cash provided by financing activities.............. 91,642 30,923
------------- ------------
Net increase (decrease) in cash and equivalents........ (7,509) 2,962
Cash and equivalents, beginning of period.............. 13,886 3,987
------------- ------------
Cash and equivalents, end of period.................... $6,377 $6,949
============= ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: During the
six months ended June 30, 1997 and 1996, 1.4 million and 0.3 million Operating
Partnership units with a book value of approximately $20.0 million and $3.8
million, respectively, were converted to common shares. In June 1997, the
Company forgave a $3.3 million related party note receivable as partial
consideration to acquire the remaining 50% interest in Solvang. On March 31,
1997, the Company issued Operating Partnership units having a market value of
$0.5 million as partial consideration to acquire Waikele Factory Outlets.
Additionally, during 1996, the Company acquired property valued at $1.6 million
through the issuance of units in the Operating Partnership.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
<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 (the "IPO") on November 2, 1993 and simultaneously
became the managing general partner of Chelsea GCA Realty Partnership, L.P. (the
"Operating Partnership"), an operating partnership which at June 30, 1997 owned
and provided development, leasing, marketing and management services for 19
upscale and fashion-oriented manufacturers' outlet centers (the "Properties")
containing approximately 4.0 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 Honolulu, the Napa
Valley, Palm Springs and the Monterey Peninsula. The Company also has a number
of properties under development and expansion.
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, the Operating Partnership is consolidated in the
accompanying financial statements. All intercompany transactions have been
eliminated in consolidation.
Ownership of the Operating Partnership as of June 30, 1997 was as follows:
Company 81.6% 15,253,000 units
Unitholders 18.4% 3,436,000 units
---------------- -------------------
TOTAL 100.0% 18,689,000
The condensed consolidated financial statements of the Company include the
accounts of Solvang Designer Outlets ("Solvang"), a limited partnership. The
Company previously had a 50% interest and was the sole general partner. On June
30, 1997, the Company acquired the remaining 50% interest in Solvang. 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, 1997 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997. 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, 1996.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted for the quarter ending
March 31, 1998. At that time the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. Management does not believe
the adoption of Statement No. 128 will have a material impact on earnings per
share.
Certain prior period balances have been reclassified to conform with current
period presentation.
2. JOINT VENTURE AGREEMENT
In May 1997, the Company announced the formation of a strategic alliance with
Simon DeBartolo Group, Inc. ("Simon") to develop and acquire high-end outlet
centers with GLA of 500,000 square feet or more in the United States. The
Company and Simon will be co-managing general partners, each with 50% ownership
of the joint venture and any entities formed with respect to specific projects;
the Company will have primary responsibility for the day-to-day activities of
each project. In conjunction with the alliance, the Company completed the sale
to Simon of 1.4 million shares of new common stock, for an aggregate sales price
of $50 million. Net proceeds from the sale were used to repay borrowings under
the Company's Unsecured Facility.
3. PROPERTY ACQUISITION
On March 31, 1997, the Company acquired Waikele Factory Outlets, a
manufacturers' outlet shopping center located near Honolulu, Hawaii. The
consideration paid by the Company consisted of the assumption of $70.7 million
of indebtedness outstanding with respect to the property (which indebtedness was
repaid in full by the Company immediately after the closing) and the issuance of
special partnership units in the Company's Operating Partnership having a fair
market value of $0.5 million. Immediately after the closing, the Company paid a
special cash distribution of $5.0 million to special unit holders. The cash used
by the Company in the acquisition was obtained through borrowings under the
Company's Unsecured Facility.
4. DEBT
In March 1996, the Company replaced its secured revolving credit facility (the
"Secured Facility") with a new unsecured $100 million revolving credit facility
(the "Unsecured Facility") which expires March 29, 1998. In connection with the
termination of the Secured Facility, the Company expensed as an extraordinary
item unamortized deferred financing costs of $0.6 million (net of minority
interest of $0.3 million). In March 1997, the Company obtained a supplemental
$50 million unsecured revolving credit facility bearing the same terms and
conditions as the Unsecured Facility except that the additional facility expires
on September 30, 1997 unless extended for six months. Interest on the
outstanding balance of the unsecured facilities is payable monthly at a rate
equal to the London Interbank Offered Rate ("LIBOR") plus 1.45%, or the prime
rate, at the Company's option. Fees on the unused portion of the unsecured
facilities are payable quarterly at a rate of 0.25% per annum. The outstanding
balance at June 30, 1997 was $55.0 million, which approximates fair value,
leaving $95.0 million of borrowing availability.
The unsecured facilities require 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 facilities.
In June 1997, $50 million in proceeds from the sale of stock were used to repay
borrowings under the Company's Unsecured Facility.
In January 1996, the Company's Operating Partnership completed a $100 million
public debt offering of 7.75% unsecured term notes due January 2001 (the "Term
Notes"), which are guaranteed by the Company. The five-year non-callable Term
Notes were priced at a discount of 99.952 to yield 7.85% to investors. Net
proceeds from the offering were used to pay down substantially all of the
borrowings under the Secured Facility.
In October 1996, the Company's Operating Partnership completed a $100 million
offering of Remarketed Floating Rate Reset Notes (the "Reset Notes"), which are
guaranteed by the Company. The interest rate will reset quarterly and will equal
LIBOR plus 75 basis points during the first year. The spread and the spread
period for subsequent periods will be adjusted in whole or part at the end of
the first year, pursuant to an agreement with the underwriters. Unless
previously redeemed, the Reset Notes will have a final maturity of October 23,
2001. Net proceeds from the offering were used to repay all of the borrowings
under the Unsecured Facility and for working capital. The carrying amount of the
Reset Notes approximates their fair value.
Interest and loan costs of approximately $1.9 million and $2.5 million were
capitalized as development costs during the six months ended June 30, 1997 and
1996, respectively.
5. DIVIDENDS
On June 10, 1997, the Board of Directors of the Company declared a $0.63 per
share dividend to shareholders of record on June 30, 1997. The dividend,
totaling $9.6 million, was paid on July 21, 1997. The Operating Partnership
simultaneously paid a $0.63 per unit cash distribution, totaling $2.2 million,
to its unitholders.
6. 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 that 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, it 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, 1997
and 1996, the Company was in compliance with all REIT requirements and was not
subject to federal income taxes.
7. NET INCOME PER COMMON SHARE
Net income per common share is computed in accordance with the treasury stock
method and is based on the weighted average number of common shares and common
stock equivalent shares outstanding during the periods. The common stock
equivalent shares represent options outstanding.
8. COMMITMENTS AND CONTINGENCIES
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.
9. RELATED PARTY INFORMATION
On June 30, 1997, the Company forgave a $3.3 million related party note and paid
$2.4 million in cash to acquire the remaining 50% interest in Solvang Designer
Outlets. The Company also collected $0.8 million in accrued interest on the
note.
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.
10. 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 were expensed
and are 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 that, 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 19 manufacturers' outlet centers at June 30, 1997 compared
to 17 at the end of the same quarter in the prior year. The Company's operating
gross leasable area (GLA) at June 30, 1997, increased 21.5% to 4.0 million
square feet from 3.3 million square feet at June 30, 1996. GLA added since July
1, 1996 is detailed as follows:
12 mos ended 6 mos ended 6 mos ended
June 30, June 30, December 31,
1997 1997 1996
---------------- -------------- --------------
GLA added (in 000's):
NEW CENTERS OPENED:
Clinton Crossing........... 272 - 272
------------ ------------ ------------
TOTAL NEW CENTERS............. 272 - 272
CENTERS EXPANDED:
North Georgia............. 111 111 -
Desert Hills.............. 11 11 -
Woodbury Common........... 2 - 2
Camarillo................. 54 - 54
Folsom.................... 38 16 22
Liberty Village........... 2 (1) 3
Other..................... (5) (4) (1)
------------ ------------ ------------
TOTAL CENTERS EXPANDED........ 213 133 80
CENTER ACQUIRED:
Waikele................... 214 214 -
----------- ------------ ------------
Net GLA added during the
period........................ 699 347 352
GLA at end of period.......... 3,957 3,957 3,610
<PAGE>
RESULTS OF OPERATIONS
Comparison of the three months ended June 30, 1997 to the three months ended
June 30, 1996.
Net income before minority interest and extraordinary item decreased $1.0
million to $7.1 million for the three months ended June 30, 1997 from $8.1
million for the three months ended June 30, 1996. Increases in revenues were
more than offset by higher interest expense and depreciation and amortization.
Base rentals increased $3.6 million, or 25.8%, to $17.3 million for the three
months ended June 30, 1997 from $13.7 million for the three months ended June
30, 1996 due to expansions, new center openings, an acquisition and higher
average rents.
Percentage rents increased $0.9 million to $1.8 million for the three months
ended June 30, 1997, from $0.9 million for the three months ended June 30, 1996.
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 $1.4 million, or 23.7%, to $7.1 million for the
three months ended June 30, 1997 from $5.7 million for the three months ended
June 30, 1996, due to the recovery of operating and maintenance costs from
increased GLA. The average recovery of reimbursable expenses was 92.5% in the
second quarter of 1997, compared to 94.0% in the second quarter of 1996.
Other income decreased $0.1 million to $0.5 million for the three months ended
June 30, 1997 from $0.6 million for the three months ended June 30, 1996 due to
lease termination income in 1996.
Interest in excess of amounts capitalized increased $2.6 million to $4.4 million
for the three months ended June 30, 1997 from $1.8 million for the three months
ended June 30, 1996 primarily due to higher debt balances from new centers and
expansion openings and a center acquisition financed with borrowings.
Operating and maintenance expenses increased $1.5 million, or 25.8%, to $7.6
million for the three months ended June 30, 1997 from $6.1 million for the three
months ended June 30, 1996. The increase was primarily due to costs related to
increased GLA.
Depreciation and amortization expense increased $2.7 million, or 75.4%, to $6.2
million for the three months ended June 30, 1997 from $3.5 million for the three
months ended June 30, 1996. The increase was primarily related to increased GLA.
General and administrative expenses remained flat at $0.8 million for the three
months ended June 30, 1997 and 1996.
Other expenses remained flat at $0.6 million for the three months ended June 30,
1997 and 1996.
Minority interest decreased $1.3 million, or 45.5%, to $1.4 million for the
three months ended June 30, 1997 from $2.7 million for the three months ended
June 30, 1996 primarily as a result of the conversion by one limited partner of
1.3 million units in the Operating Partnership to 1.3 million common shares in
the Company and a subsequent distribution of the shares to third-party
investors.
Comparison of the six months ended June 30, 1997 to the six months ended June
30, 1996.
Net income before minority interest and extraordinary item decreased $1.8
million to $13.5 million for the six months ended June 30, 1997, from $15.3
million for the six months ended June 30, 1996. Increases in revenues were more
than offset by higher interest expense and increases in depreciation and
amortization.
Base rentals increased $6.4 million, or 24.3%, to $32.8 million for the six
months ended June 30, 1997, from $26.4 million for the six months ended June 30,
1996, due to expansions, new center openings, an acquisition and higher average
rents.
Percentage rents increased $1.4 million to $3.1 million for the six months ended
June 30, 1997 from $1.7 million for the six months ended June 30, 1996. 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 $1.5 million, or 14.5%, to $12.4 million for the
six months ended June 30, 1997 from $10.9 million for the six months ended June
30, 1996, due to the recovery of operating and maintenance costs from increased
GLA. The average recovery of reimbursable expenses was 91.9% in 1997 compared to
93.6% in 1996.
Other income decreased $0.1 million to $0.9 million for the six months ended
June 30, 1997 from $1.0 million for the six months ended June 30, 1996 due to
higher lease termination settlements in 1996.
Interest in excess of amounts capitalized increased $4.2 million to $7.6 million
for the six months ended June 30, 1997 from $3.4 million for the six months
ended June 30, 1996 primarily due to higher debt balances from new centers and
expansion openings and a center acquisition financed with borrowings.
Operating and maintenance expenses increased $1.9 million, or 16.7%, to $13.5
million for the six months ended June 30, 1997 from $11.6 million for the six
months ended June 30, 1996. The increase was primarily due to costs related to
increased GLA.
Depreciation and amortization expense increased $4.8 million, or 67.0%, to $12.0
million for the six months ended June 30, 1997 from $7.2 million for the six
months ended June 30, 1996. The increase was primarily due to costs related to
increased GLA.
General and administrative expenses increased $0.1 million to $1.5 million for
the six months ended June 30, 1997 from $1.4 million for the six months ended
June 30, 1996. The increase was primarily due to increased personnel and
overhead costs.
Other expenses increased $0.1 million to $1.2 million for the six months ended
June 30, 1997 from $1.1 million for the six months ended June 30, 1996. The
increase included additional reserves for bad debts.
Minority interest decreased $2.2 million, or 44.4%, to $2.8 million for the six
months ended June 30, 1997 from $5.0 million for the six months ended June 30,
1996 primarily as a result of the conversion by one limited partner of 1.3
million units in the Operating Partnership to 1.3 million common shares in the
Company and a subsequent distribution of the shares to third-party investors.
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, distributions, and planned development and construction activities.
Operating cash flow during 1997 is expected to increase with a full year of
operations of the 676,000 square feet of GLA added during 1996, the acquisition
of Waikele Factory Outlets and scheduled openings of one new center and
expansions in 1997. In addition, at June 30, 1997 the Company had $95.0 million
available under its unsecured facilities, access to the public markets through
its $200 million equity shelf registration, and cash and cash equivalents of
$6.4 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.
Distributions declared and recorded during the six months ended June 30, 1997
were $22.6 million, or $1.26 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 92.2% during the six months ended June 30, 1997.
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 March 1997, the Company entered into a $50 million supplemental unsecured
revolving credit facility bearing the same terms and conditions as the Unsecured
Facility except that the additional facility expires on September 30, 1997
unless extended for six months. Interest on the outstanding balance is payable
monthly at a rate equal to LIBOR plus 1.45%, or the prime rate, at the Company's
option. Fees on the unused portion of the unsecured facilities are payable
quarterly at a rate of 0.25% per annum.
The Company is in the process of planning development for 1997 and beyond,
including a new project in Wrentham, Massachusetts (near the junction of
Interstates 95 and 495 between Boston, MA and Providence, RI) with an expected
initial phase of 230,000 square feet of GLA, and expansions at Woodbury Common
(270,000 square feet), Desert Hills (35,000 square feet), Liberty Village
(13,000 square feet), Folsom (20,000 square feet) and Camarillo (85,000 square
feet). These projects are in various stages of development and there can be no
assurance that any of them 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 approximately $75 million to $115 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 June 30, 1997 closing price of $38.00
per common share, the Company's ratio of debt to total market capitalization was
approximately 26%.
Net cash provided by operating activities was $28.8 million and $23.7 million
for the six months ended June 30, 1997 and 1996, respectively. The increase was
primarily due to the growth of the Company's GLA to 4.0 million square feet in
1997 from 3.3 million square feet in 1996 and decreases in accounts receivable,
offset by decreases in accrued expenses. Net cash used in investing activities
increased $76.3 million for the six months ended June 30, 1997 compared to the
corresponding 1996 period, primarily as a result of the acquisition of Waikele
Factory Outlets. Net cash provided by financing activities increased $60.7
million primarily due to the purchase of stock by Simon.
FUNDS FROM OPERATIONS
Management believes that funds from operations ("FFO") should be considered in
conjunction with net income, as presented in the statements of operations
included elsewhere herein, to facilitate a clear understanding of the operating
results of the Company. Management considers FFO an appropriate measure of
performance for an equity real estate investment trust. FFO, as defined by the
National Association of Real Estate Investment Trusts ("NAREIT"), is net income
(computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of property,
exclusive of outparcel sales, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. Adjustments for unconsolidated partnerships and joint ventures are
calculated to reflect FFO on the same basis. FFO does not represent net income
or cash flow from operations as defined by generally accepted accounting
principles and should not be considered an alternative to net income as an
indicator of operating performance or to cash from operations, and is not
necessarily indicative of cash flow available to fund cash needs.
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
------------ ------------- ----------- ------------
Net income before
extraordinary item $5,613 $5,456 $10,753 $10,217
Add back:
Depreciation and
amortization (1) 6,136 3,478 11,856 7,065
Amortization of deferred
financing costs and
depreciation of non-real
estate assets (401) (269) (736) (656)
Minority interest in the
Operating Partnership (1) 1,372 2,584 2,669 4,894
------------ ----------- ---------- ----------
FFO $12,720 $11,249 $24,542 $21,520
============ =========== ========== ==========
---------------------------------------
(1) Excludes depreciation and minority interest attributed to a third-party
limited partner's interest in a partnership.
<PAGE>
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 10, 1997, at which
the following matters were voted upon:
1. Election of three directors.
2. Approval of appointment of Ernst & Young LLP as independent
auditors for the fiscal year ending December 31, 1997.
The results of the meeting were as follows:
BROKER
DIRECTORS FOR WITHHELD NON-VOTES
William D. Bloom 12,363,149 35,462 0
Robert Frommer 12,361,165 37,446 0
Reuben S. Leibowitz 12,369,565 29,046 0
BROKER
FOR AGAINST ABSTAIN NON-VOTES
Proposal 2 12,372,877 8,230 17,504 0
Messrs. David C. Bloom, Brendan T. Byrne, Barry M. Ginsburg and Philip D.
Kaltenbacher continued as directors after the meeting. Subsequent to the
meeting, John D. Santoleri resigned as a director.
<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
President and Chief Financial Officer
Date: August 13, 1997
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<PERIOD-END> JUN-30-1997
<CASH> 6,377
<SECURITIES> 0
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<DEPRECIATION> (68,712)
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0
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<COMMON> 153
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