<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
(Mark One)
/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
COMMISSION FILE NUMBER 1-12496
--------------
CHATEAU PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 38-3132038
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
19500 Hall Road, Clinton Township, Michigan 48038
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (810) 286-3600
Securities registered pursuant to section 12(b) of the Act
and listed on the New York Stock Exchange:
COMMON STOCK, $0.01 PAR VALUE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant: (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934
during the preceding 12 months, 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 on
November 11, 1996 was 5,649,710 shares.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHATEAU PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
-------
<TABLE>
<CAPTION>
Nine Months Ended
Third Quarter September 30,
---------------- ----------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Rental income $16,344 $15,004 $48,194 $44,525
Interest and other income 639 475 2,009 1,463
------- ------- ------- -------
16,983 15,479 50,203 45,988
------- ------- ------- -------
Expenses:
Property operating and maintenance 4,873 4,394 13,882 12,061
Real estate taxes 1,232 1,194 3,607 3,376
Depreciation 2,838 2,748 8,517 8,186
Administrative 886 955 2,905 2,984
Interest and related amortization 3,199 3,085 9,417 9,312
------- ------- ------- -------
13,028 12,376 38,328 35,919
------- ------- ------- -------
Income before extraordinary item and
majority interest 3,955 3,103 11,875 10,069
Extraordinary charge from early extinguishment
of debt - - - (829)
------- ------- ------- -------
Income before majority interest 3,955 3,103 11,875 9,240
Majority interest in Operating Partnership 2,340 1,822 7,017 5,534
------- ------- ------- -------
Net income $ 1,615 $ 1,281 $ 4,858 $ 3,706
======= ======= ======= =======
Earnings per share:
Income before extraordinary item $ .26 $ .21 $ .80 $ .68
Extraordinary item - - - (.05)
------- ------- ------- -------
Net income $ .26 $ .21 $ .80 $ .63
======= ======= ======= =======
Dividend/distribution declared per common
share/OP unit outstanding $ .405 $ .375 $ 1.215 $ 1.125
======= ======= ======= =======
Weighted average common shares
outstanding 6,100 6,089 6,098 5,914
======= ======= ======= =======
Weighted average common shares
and OP units outstanding 14,936 14,747 14,907 14,744
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE> 3
CHATEAU PROPERTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
-------
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Rental property:
Land $ 33,736 $ 32,891
Land and improvements for expansion sites 4,686 2,434
Depreciable property 261,057 241,098
-------- --------
299,479 276,423
Less accumulated depreciation (78,358) (69,868)
-------- --------
221,121 206,555
Cash and cash equivalents 247 944
Receivables 2,334 2,142
Prepaid expenses and other assets 6,563 2,393
-------- --------
Total assets $230,265 $212,034
======== ========
LIABILITIES
Debt $153,344 $132,700
Accounts payable and accrued expenses 9,306 8,444
Tenants' security deposits and rents received in advance 6,104 4,364
Accrued dividends and distributions 6,049 5,954
-------- --------
Total liabilities 174,803 151,462
Majority interest in Operating Partnership 33,298 36,264
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 2 million shares
authorized; no shares issued or outstanding
Common stock, $.01 par value, 30 million shares authorized;
6,099,710 shares issued and outstanding 61 61
Additional paid-in capital 28,517 33,152
Dividends in excess of accumulated earnings (5,589) (8,064)
Notes receivable, officers, 43,125 shares (825) (841)
-------- --------
Total shareholders' equity 22,164 24,308
-------- --------
Total liabilities and shareholders' equity $230,265 $212,034
======== ========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE> 4
CHATEAU PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
-------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,858 $ 3,706
Adjustments to reconcile to net cash
provided by operating activities:
Income attributable to majority interest 7,017 5,534
Extraordinary item - 829
Depreciation 8,517 8,186
Amortization of deferred financing costs 329 402
Decrease (increase) in operating assets (1,994) (1,573)
Increase (decrease) in operating liabilities 2,602 2,685
-------- --------
Net cash from operating activities 21,329 19,769
Cash flow from financing activities:
Proceeds from issuance of 8 3/4% Senior Notes - 74,866
Net borrowing (repayments) on line of credit 21,500 (27,400)
Repayment of mortgages - (43,952)
Prepayment penalties - (667)
Mortgage principal payments (856) (874)
Payment of deferred financing costs - (933)
Dividends/distributions to shareholders/OP unit holders (18,016) (16,448)
OP units reacquired (932) (882)
Other financing activities 94 177
-------- --------
Net cash provided by (used in) financing activities 1,790 (16,113)
Cash flow from investing activities:
Acquisitions of rental properties (18,540) (2,766)
Additions to rental property (3,579) (2,288)
Payment of deferred merger costs (1,697) -
-------- --------
Net cash used in investing activities (23,816) (5,054)
Decrease in cash and cash equivalents (697) (1,398)
Cash and cash equivalents, beginning of period 944 3,370
-------- --------
Cash and cash equivalents, end of period $ 247 $ 1,972
======== ========
Supplemental cash flow information:
OP units issued for rental property and joint
venture investment $ 1,964 $ 3,434
======== ========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE> 5
CHATEAU PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS
-------
1. BASIS OF PRESENTATION AND FORMATION OF COMPANY:
The accompanying unaudited condensed consolidated financial statements
of Chateau Properties, Inc. (the "Company"), a Real Estate Investment Trust
(REIT), have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a
fair presentation have been included, and such adjustments are of a normal
recurring nature. The year-end condensed consolidated balance sheet was
derived from audited consolidated financial statements, but does not include
all disclosures required by generally accepted accounting principles. For
further information, refer to the consolidated/combined financial statements
and footnotes thereto included in the Company's annual report on Form 10-K
for the year ended December 31, 1995.
On November 23, 1993, the Company completed a public offering of 5,700,000
shares of $.01 par value common stock (the "Equity Offering").
Simultaneous with the Equity Offering, the Company contributed the net
proceeds from the Equity Offering and was admitted as the sole general
partner in an operating partnership (the "Operating Partnership")
representing the successor owner of manufactured housing community
properties. As a result of the Company's unilateral control and complete
responsibility for management of the Operating Partnership as the sole
general partner, the consolidated financial statements include the accounts
of Chateau Properties, Inc. and the Operating Partnership. All significant
inter-entity balances and transactions have been eliminated in
consolidation.
In order to permit the Company's qualification as a REIT under the Internal
Revenue Code, the operations of four golf courses and a marina were
previously conducted by GC Properties, Inc. ("GCI"), a corporation wholly
owned by an equity owner of the Company. From November 23, 1993 through
December 31, 1995, the Company recognized net lease income from GCI which
was classified as other income. In early 1996, the Company received a
ruling from the Internal Revenue Service allowing it to conduct these
operations. Effective January 1, 1996, as a result of acquiring the
operations of GCI, the Company has consolidated these operations. For the
nine months ended September 30, 1996 the Company has included approximately
$1,242,000 in revenues and $780,000 in operating expenses for these
operations.
Continued
<PAGE> 6
CHATEAU PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
2. COMMON STOCK AND RELATED TRANSACTIONS:
On April 10, 1996, the Company, through its operating partnership, purchased
and retired 43,334 OP units that were issued in connection with the
acquisition of seven communities in November 1994. The purchase, at $21.50
per unit, was made pursuant to the terms of the purchase agreements.
On August 23, 1996, the Company declared a cash dividend/distribution of
$.405 per share/OP unit to shareholders and OP unit holders of record as of
September 30, 1996. The dividend/distribution was paid on October 15, 1996
and is included in accrued dividends and distributions in the accompanying
consolidated balance sheet as of September 30, 1996.
On May 16, 1996, the Company declared a cash dividend/distribution of $.405
per share/OP unit to shareholders and OP unit holders of record as of June
24, 1996. The dividend/distribution was paid on July 15, 1996.
On February 29, 1996 the Company declared a cash dividend/distribution of
$.405 per share/OP unit to shareholders and OP unit holders of record as of
March 22, 1996. The dividend/distribution was paid on April 15, 1996.
On November 19, 1995, the Company declared a cash dividend/distribution of
$.40 per share/OP unit to shareholders and OP unit holders of record as of
December 22, 1995. The dividend/distribution was paid on January 13, 1996
and is included in accrued dividends and distributions in the accompanying
condensed consolidated balance sheet as of December 31, 1995.
3. ACQUISITIONS OF RENTAL PROPERTY:
On September 30, 1996, the Company acquired six manufactured home
communities through a 50 percent investment in a joint venture with ROC
Communities, Inc. The six communities, which include a capacity for a total
of 2,700 homesites, were purchased for $21.2 million in cash. The Company's
investment of $10.3 million was financed through a borrowing under its line
of credit.
On May 16, 1996, the Company acquired two communities in Manteno, Illinois.
The communities, Maple Valley and Maple Ridge have a combined total of 276
sites. The purchase price of approximately $5.8 million was paid with
approximately $4.8 million in cash, which was borrowed on the Company's line
of credit and approximately $1.0 million through the issuance of 43,884 OP
units.
Continued
<PAGE> 7
CHATEAU PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
-------
3. ACQUISITIONS OF RENTAL PROPERTY, CONTINUED:
In connection with the above acquisition, the Company issued an additional
45,506 OP units in return for an investment interest in a joint venture.
The joint venture is currently developing four additional communities
aggregating 2,000 new homesites. The Company may guarantee up to $8 million
of debt of the joint venture in return for a guarantee fee, which guarantee
has not yet been utilized. Also, the Company will have first rights to
purchase the communities when they reach 95 percent occupancy.
On March 27, 1996, the Company acquired 134 occupied sites in the Chestnut
Creek Farm community in Davison, Michigan. The purchase price was
approximately $3.4 million, paid in cash, and was financed through a
borrowing on the Company's line of credit. The Company will acquire
approximately 300 additional sites as they are developed and leased by the
seller.
4. DEBT:
The following table sets forth certain information regarding debt at
September 30, 1996:
<TABLE>
<CAPTION>
Interest Rate Maturity Date Principal Balance
------------- ------------- -----------------
<S> <C> <C> <C>
Fixed Rate Mortgages:
Del Tura 8.40% 6/00 $33,460
Macomb 9.82% 9/99 16,413
Norton Shores/
Ferrand Estates 8.00% 4/99 3,558
Oak Hill 8.00% 9/98 1,264
Other Indebtedness:
Unsecured Senior Notes 8.79% 3/00 75,000
Unsecured Line of Credit 7.25 - 8.25% 1/99 21,500
Other notes payable various 1996-2020 2,149
--------
$153,344
========
</TABLE>
5. PROPOSED MERGER WITH ROC COMMUNITIES, INC.:
In September 1996, the Company amended its July Merger Agreement with ROC
Communities, Inc., a Maryland corporation ("ROC"), to provide for, among
other things, a 3.16% stock/OP unit dividend to the Company's stockholders
and OP unitholders. In connection with the Amended Merger Agreement, the
Company (i) elected to repurchase up to 1,450,000 shares of its Common
Stock, of which 450,000 shares were repurchased in October 1996 at an
average cost of $25 per share, and (ii) rejected separate proposals to merge
the Company with each of Sun Communities, Inc. and Manufactured Home
Communities, Inc. ("MHC"). The Company borrowed approximately $11.3 million
on its line of credit to finance the repurchase of shares.
Continued
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of interim results of operations and
financial condition covers the quarter and nine months ended September 30, 1996
and 1995 and should be read in conjunction with the Condensed Consolidated
Financial Statements and Notes thereto included in this report.
RESULTS OF OPERATIONS
Comparison of quarter ended September 30, 1996 to quarter ended September 30,
1995
For the quarter ended September 30, 1996, income before majority interest was
$3,955,000, an increase of $852,000 from the same period in 1995. The increase
was due primarily to increases in net operating income from communities owned
by the Company as of September 30, 1995 and to a lesser extent the acquisition
of three communities since September 30, 1995.
Rental revenue in the third quarter 1996 was $16,344,000, an increase of
approximately $1,340,000 or 8.9 percent from third quarter 1995. Approximately
34 percent of the increase was due to the acquisition of three communities
since September 30, 1995, 43 percent represented the effect of rent increases
and 23 percent was caused by increased occupancy. Weighted average occupancy
for the third quarter 1996 was 19,064 sites, or 5.6 percent higher than
weighted average occupancy for the third quarter 1995. On a per site basis,
weighted average monthly rental revenue for the third quarter 1996 increased to
$286 from $277 in 1995, or 3.1 percent. The occupancy rate was 95.4 percent as
of September 30, 1996 on 20,003 sites, increased from 93.6 percent as of
September 30, 1995 on 19,594 sites.
Interest and other income increased approximately $164,000 or 35 percent in
1996 from 1995. The increase is due to the inclusion of the results of
operations of four golf courses and a marina for the period beginning January
1, 1996. These operations were previously conducted by GC Properties, Inc.
("GCI"), a corporation wholly owned by an equity owner of the Company, in order
to permit the Company's qualification as a REIT under the Internal Revenue
Code. From November 23, 1993 through December 31, 1995, the Company recognized
net lease income from GCI which was classified as other income. In early 1996,
the Company received a ruling from the Internal Revenue Service allowing the
Company to conduct these operations. Effective January 1, 1996, as a result of
acquiring the operations of GCI, the Company has consolidated these operations.
The increase of $302,000 due to the inclusion of the golf course and marina
revenues, was partially offset by a decrease in interest income of $49,000 due
to the Company having less available cash to invest in the third quarter of
1996.
Property operating and maintenance expense for the third quarter 1996 increased
approximately $479,000 or 11 percent from the same period a year ago.
Approximately $274,000 of the increase represents the operating costs of the
golf course and marina operations as discussed above. The remaining increase of
$205,000, or 5 percent, is due to the acquisition of three communities over the
last year and increases at communities owned as of September 30, 1995. On a
per site basis, monthly weighted average property operating and maintenance
expense increased from $81 in 1995 to $85 in 1996, or 5 percent. Excluding the
golf course and marina operations, monthly weighted
<PAGE> 9
average property operating and maintenance expense decreased 1 percent on a per
site basis due primarily to timing of repairs and maintenance spending in 1996
as compared with 1995.
Real estate taxes in third quarter 1996 increased $38,000 or 3.2 percent from
third quarter 1995. The increase is due primarily to acquisitions, expansions
of communities and general tax increases. On a per site basis, monthly
weighted average real estate taxes were $21.54 in 1996 compared to $22.05 in
1995, a decrease of 2.3 percent. Real estate taxes may increase or decrease
due to inflation, expansions and improvements of communities, as well as
changes in taxation in the various tax jurisdictions in which the Company
operates.
Administrative expense for third quarter 1996 decreased $69,000 from 1995.
Administrative expense in 1996 was 5.2 percent of revenues as compared to 6.2
percent in 1995.
Interest and related amortization costs increased for third quarter 1996 by
$114,000 or 4 percent from third quarter 1995 due primarily to acquisitions.
Interest expense as a percentage of average debt outstanding decreased from 8.7
percent for the third quarter 1995 to 8.4 percent for the third quarter 1996.
Depreciation expense in third quarter 1996 increased $90,000 or 3 percent. The
increase is due to the acquisitions and expansions of communities.
Depreciation expense as a percentage of average depreciable rental property in
1996 from 1995 remained relatively constant.
Comparison of nine months ended September 30, 1996 to nine months ended
September 30, 1995
For the nine months ended September 30, 1996, income before extraordinary item
and majority interest was $11,875,000, an increase of $1,806,000 from the same
period in 1995. The increase was due primarily to increases in net operating
income from communities owned by the Company as of September 30, 1995 and to a
lesser extent the acquisition of three communities since September 30, 1995.
In the first quarter 1995, the Company recognized an extraordinary charge of
$829,000 related to the early extinguishment of debt.
Rental revenue in the first nine months 1996 was $48,194,000, an increase of
approximately $3,669,000 or 8.2 percent from first nine months 1995.
Approximately 30 percent of the increase was due to the acquisition of three
communities since September 30, 1995, 46 percent represented the effect of
annual rent increases and 24 percent was caused by increased occupancy.
Weighted average occupancy for the first nine months 1996 was 18,813 sites, or
5.0 percent higher than weighted average occupancy for the first nine months
1995. On a per site basis, weighted average monthly rental revenue for the
first nine months 1996 increased to $285 from $276 in 1995, or 3.1 percent.
Interest and other income increased approximately $546,000 or 37 percent in
1996 from 1995. The increase is due to the inclusion of the results of
operations of four golf courses and a marina for the period beginning January
1, 1996. These operations were previously conducted by GC Properties, Inc.
("GCI"), a corporation wholly owned by an equity owner of the Company, in order
to permit the Company's qualification as a REIT under the Internal Revenue
Code. From November 23, 1993 through December 31, 1995, the Company recognized
net lease income from GCI which was classified as other income. In early 1996,
the Company received a ruling from the Internal Revenue Service allowing the
Company to conduct these operations. Effective January 1,
<PAGE> 10
1996, as a result of acquiring the operations of GCI, the Company has
consolidated these operations. The increase of $764,000 due to the inclusion
of the golf course and marina revenues, was partially offset by a decrease in
interest income of $194,000 due to the Company having less available cash to
invest in the first nine months of 1996.
Property operating and maintenance expense for the first nine months 1996
increased approximately $1,821,000 or 15.1 percent from the same period a year
ago. Approximately $780,000 of the increase represents the operating costs of
the golf course and marina operations as discussed above. The remaining
increase of $1,041,000, or 8.6 percent, is due primarily to the acquisition of
three communities since September 30, 1995 and increases at communities owned
as of September 30, 1995. On a per site basis, monthly weighted average
property operating and maintenance expense increased from $75 in 1995 to $82 in
1996, or 9.6 percent. The increase on a per site basis, excluding the golf
course and marina operations, was 3.5 percent due primarily to timing of
repairs and maintenance spending in 1996 as compared with 1995.
Real estate taxes for the first nine months 1996 increased $231,000 or 6.8
percent from first nine months 1995. The increase is due primarily to
acquisitions and expansions of communities. On a per site basis, monthly
weighted average real estate taxes were $21.30 in 1996 compared to $20.90 in
1995, an increase of 1.8 percent due to general tax increases. Real estate
taxes may increase or decrease due to inflation, expansions and improvements of
communities, as well as changes in taxation in the tax jurisdictions in which
the Company operates.
Administrative expense for first nine months 1996 remained relatively constant
from 1995. Administrative expense in 1996 was 5.8 percent of revenues as
compared to 6.5 percent in 1995.
Interest and related amortization costs increased in 1996 primarily due to
acquisitions. Interest expense as a percentage of average debt outstanding
decreased in 1996 due to debt refinancing that occurred in first quarter 1995
and the line of credit which was renegotiated in January 1996.
Depreciation expense as a percentage of average depreciable rental property in
1996 remained relatively unchanged from 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $21,329,000 for first nine months
1996 compared to $19,769,000 for first nine months 1995. The increase in cash
provided by operating activities was due primarily to the increase in net
operating income.
Net cash provided by financing activities for first nine months 1996 was
$1,790,000 compared to net cash used of $16,113,000 for first nine months 1995.
The amount provided consisted of net borrowings on the line of credit of
$21,500,000 to fund three acquisitions during the period and the acquisition of
six communities through a joint venture with ROC Communities, Inc. The cash
provided by financing activities was offset partially by the dividends and
distributions paid to shareholders and OP unitholders of $18,016,000 and the
payment of $932,000 to reacquire 43,334 Operating Partnership ("OP") units. The
OP units were reacquired at $21.50 per OP unit pursuant to the terms of
purchase agreements related to the November 1994 acquisition of seven
communities.
<PAGE> 11
Net cash used in investing activities in first nine months 1996 was
$23,816,000. This amount represented the acquisition of six communities
through a joint venture with ROC Communities, Inc., the acquisition of 134
filled sites in the Chestnut Creek Farm community on March 27, 1996, the
acquisition of 276 filled sites in the Maple Valley and Maple Ridge communities
on May 16, 1996, capital expenditures and construction costs. The joint
venture and Chestnut Creek acquisition were financed by borrowings on the
Company's line of credit. The Maple Valley and Maple Ridge acquisition was
financed with approximately $4.8 million borrowed on the line of credit and
approximately $1 million with the issuance of 43,884 OP units. In connection
with the Maple Valley and Maple Ridge acquisition, the Company issued an
additional 45,506 OP units in return for an investment interest in a joint
venture. The joint venture is currently developing four additional communities
which, when completed, will aggregate 2,000 new homesites. The Company may
guarantee up to $8 million of debt of the joint venture in return for a
guarantee fee, which guarantee has not yet been utilized. Also, the Company
will have first rights to purchase the communities when they reach 95 percent
occupancy.
For the first nine months 1996, construction and development costs approximated
$2,700,000, while recurring property capital expenditures, other than
construction and development costs, were approximately $500,000. Aggregate
property capital expenditures for 1996 are anticipated to be approximately
$600,000. Capital expenditures have historically been financed with funds from
operations and it is the Company's intention that such future expenditures will
be financed with funds from operations.
Future acquisitions of communities and land for development of sites will be
financed through borrowings on the line of credit, the issuance of additional
equity or debt securities, assumption of existing secured or unsecured
indebtedness, or the issuance of OP units. The development of expansion sites
will be financed primarily by cash flow from operations and borrowings on the
line of credit. Huntington National Bank, as lead agent, along with Bank of
America and NBD Bank, have agreed until January, 1999 to lend the Company up to
$50 million which, subject to customary conditions, is available to finance the
development of expansion sites, the acquisition of additional properties and
for general business obligations. This line of credit is unsecured and
currently bears interest at 150 basis points over LIBOR. At September 30,
1996, $21,500,000 was outstanding under the line of credit.
The Company expects to meet its short-term liquidity requirements through cash
flow from operations and, if necessary, borrowings under its line of credit.
The Company anticipates meeting its long-term liquidity requirements from
borrowings under the line of credit, proceeds from the issuance of additional
debt or equity securities and cash flows from operations.
OTHER
Management considers Funds from Operations ("FFO") to be a supplemental measure
of the Company's operating performance. FFO is defined by the National
Association of Real Estate Investment Trusts ("NAREIT") as net income excluding
financing costs and gains (or losses) from debt restructuring and sales of
property plus depreciation and amortization and other non-cash items. For all
periods, depreciation of rental property is the only non-cash item. FFO should
not be considered as an alternative to net income, as the primary indicator of
operating performance,
<PAGE> 12
or to cash flows as a measure of liquidity nor does it indicate that cash flows
are sufficient to fund all cash needs.
FFO for the third quarter 1996 was $6,769,000 (including depreciation of
$2,814,000) compared to $5,828,000 (including depreciation of $2,725,000) for
the same period in 1995, an increase of $941,000 or 16.2 percent. The increase
in FFO is due primarily to increased revenues of $1,504,000, partially offset
by increased operating and administrative expenses of $448,000.
FFO for the first nine months 1996 was $20,323,000 (including depreciation of
$8,448,000) compared to $18,187,000 (including depreciation of $8,118,000) for
the same period in 1995, an increase of $2,136,000 or 11.7 percent. The
increase in FFO is due to increased revenues of $4,215,000, partially offset by
increased operating and administrative expenses of $1,973,000.
In September 1996, the Company amended its July Merger Agreement with ROC
Communities, Inc., a Maryland corporation ("ROC"), to provide for, among other
things, a 3.16% stock/OP Unit dividend to the Company's stockholders and OP
Unitholders. In connection with the Amended Merger Agreement, the Company (i)
elected to repurchase up to 1,450,000 shares of its Common Stock, of which
450,000 shares were repurchased in October 1996 at an average cost of $25 per
share, and (ii) rejected separate proposals to merge the Company with each of
Sun Communities, Inc. and Manufactured Home Communities, Inc. ("MHC"). The
Company borrowed approximately $11.3 million on its line of credit to finance
the repurchase of shares.
<PAGE> 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In connection with a tender offer by MHC's operating partnership for
shares of the Company's Common Stock, the Company commenced litigation against
MHC and its operating partnership in United States District Court in Baltimore,
Maryland seeking a declaratory judgment with respect to, among other things,
the 7 percent ownership limit set forth in the Company's Articles. MHC filed a
counterclaim against Chateau, its directors and ROC in the litigation alleging,
among other things, various breaches of fiduciary duty. Despite the withdrawal
by MHC of its tender offer, this litigation remains pending.
In addition, three separate purported class actions have been filed
against Chateau and its directors in the Circuit Court for Montgomery County,
Maryland alleging breaches of fiduciary duty by their agreeing to a merger with
ROC and refusing to endorse the MHC Tender Offer or the Sun Proposal.
The Company believes the counterclaim and the State court litigation
(which has been consolidated) are entirely without merit and intends to defend
these cases.
The information contained in the Schedule 14D-9 filed by the Company,
including amendments previously filed and those which may be filed after the
date hereof, is incorporated by reference.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters for a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
27 - Financial Data Schedule
99 - (a) Schedule 14D-9
(a) Incorporated by reference to the Company's Schedule 14D-9 filed with
the Commission on September 18, 1996.
No Reports on Form 8-K were filed.
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, and in the
capacities indicated, on the 14th day of November, 1996.
CHATEAU PROPERTIES, INC.
By: /s/ Tamara D. Fischer
-----------------------------------
Tamara D. Fischer
Executive Vice President
and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
<PAGE> 15
EXHIBIT
INDEX
Exhibit Number Exhibit Description
- -------------- -------------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 247
<SECURITIES> 0
<RECEIVABLES> 2,334
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,563
<PP&E> 299,479
<DEPRECIATION> 78,358
<TOTAL-ASSETS> 230,265
<CURRENT-LIABILITIES> 21,459
<BONDS> 153,344
0
0
<COMMON> 61
<OTHER-SE> 22,103
<TOTAL-LIABILITY-AND-EQUITY> 230,265
<SALES> 0
<TOTAL-REVENUES> 50,203
<CGS> 0
<TOTAL-COSTS> 17,489
<OTHER-EXPENSES> 11,422
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,417
<INCOME-PRETAX> 11,875
<INCOME-TAX> 0
<INCOME-CONTINUING> 11,875
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,858
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
</TABLE>
