<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 10, 1997
-------------------------------
Chateau Communities, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 001-12496 38-3132038
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
6430 South Quebec Street, Englewood, Colorado 80111
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 741-3707
-----------------------------
<PAGE> 2
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements:
Audited Consolidated Financial Statements of ROC Communities, Inc.
and Subsidiaries as of December 31, 1996 and 1995 and for the years
ended December 31, 1996, 1995 and 1994.
(b) Pro Forma Financial Information:
Combined Condensed Statements of Income of Chateau Communities,
Inc. for the year ended December 31, 1996.
Combined Condensed Balance Sheet of Chateau Communities, Inc. as of
December 31, 1996.
(c) Exhibits:
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Deloitte & Touche LLP
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 hereunto duly authorized.
Date: December 10, 1997 CHATEAU COMMUNITIES, INC.
By: /s/ Gary P. McDaniel
---------------------------------------
Gary P. McDaniel,
Chief Executive Officer
2
<PAGE> 3
ROC COMMUNITIES, INC. AND SUBSIDIARIES
-------
CONSOLIDATED FINANCIAL STATEMENTS
as of December 31, 1996 and 1995 and for
the years ended December 31, 1996, 1995 and 1994
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Chateau Communities, Inc.:
We have audited the accompanying consolidated balance sheet of ROC Communities,
Inc. and Subsidiaries as of December 31, 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for the year ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of ROC Communities, Inc. and
Subsidiaries as of December 31, 1996, and the results of their operations and
their cash flows for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
December 10, 1997
<PAGE> 5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
ROC Communities, Inc.:
We have audited the accompanying consolidated balance sheet of ROC Communities,
Inc. and Subsidiary as of December 31, 1995, and the related consolidated
statements of income, stockholders' equity and cash flows for the years ended
December 31, 1995 and 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of ROC Communities, Inc. and
Subsidiary as of December 31, 1995, and the results of their operations and
their cash flows for the years ended December 31, 1995 and 1994, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
February 2, 1996
<PAGE> 6
ROC COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of December 31, 1996 and 1995
(in thousands, except share data)
-------
<TABLE>
<CAPTION>
1996 1995
--------- ---------
ASSETS
<S> <C> <C>
Rental property, net $ 326,065 $ 271,550
Mortgages receivable 5,700 4,913
Cash and cash equivalents 1,318 652
Deferred financing costs, net 2,298 2,450
Prepaid expenses and other assets, net 14,467 5,637
--------- ---------
$ 349,848 $ 285,202
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Debt $ 154,827 $ 84,643
Accounts payable and accrued expenses 3,391 2,616
Interest payable 1,381 553
Other liabilities 1,269 911
Distributions payable 5,096 4,845
--------- ---------
Total liabilities 165,964 93,568
--------- ---------
Commitments and contingencies (Notes 4 and 6)
Stockholders' equity:
Preferred stock ($.01 par value; 10,000,000 shares authorized,
no shares issued) -- --
Common stock ($.01 par value; 90,000,000 shares authorized;
12,581,517 and 12,423,500 shares issued and outstanding
at December 31, 1996 and 1995, respectively) 126 124
Additional paid-in capital 212,595 208,868
Cumulative net income 29,416 20,577
Cumulative distributions (58,253) (37,935)
--------- ---------
Total stockholders' equity 183,884 191,634
--------- ---------
$ 349,848 $ 285,202
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 7
ROC COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1996, 1995 and 1994
(in thousands, except per share data)
-------
1996 1995 1994
------- ------- -------
Revenues:
Rental income $59,498 $49,260 $36,050
Management income 1,270 1,282 978
Other income 830 960 503
------- ------- -------
Total revenue 61,598 51,502 37,531
------- ------- -------
Expenses:
Property operations and maintenance 19,661 16,194 11,238
Real estate taxes 4,605 3,892 3,176
General and administrative 3,669 3,100 2,589
Interest and amortization 9,176 5,955 5,388
Depreciation and amortization 12,768 10,834 7,879
Merger expenses 2,880
------- ------- -------
Total expenses 52,759 39,975 30,270
------- ------- -------
Net income $ 8,839 $11,527 $ 7,261
======= ======= =======
Net income per share $ .71 $ .93 $ .80
======= ======= =======
Weighted average shares of common stock outstanding 12,504 12,424 9,071
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 8
ROC COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except per share data)
-------
<TABLE>
<CAPTION>
Shares of Additional
Common Paid-in Cumulative Cumulative
Stock Par Value Capital Net Income Distributions Total
--------- --------- ---------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 7,149 $ 71 $111,747 $ 1,789 $ (3,717) $ 109,890
Shares sold to public, net of issuance costs of $6,360 5,175 52 95,147 -- -- 95,199
Shares issued for acquisitions 100 1 1,974 -- -- 1,975
Net income -- -- -- 7,261 -- 7,261
Distributions declared ($1.52 per share) classified as:
Dividend ($.65 per share) -- -- -- -- (6,345) (6,345)
Return of capital ($.87 per share) -- -- -- -- (8,492) (8,492)
------- -------- -------- ------- -------- ---------
Balance, December 31, 1994 12,424 124 208,868 9,050 (18,554) 199,488
Net income -- -- -- 11,527 -- 11,527
Distributions declared ($1.56 per share) classified as:
Dividend ($.90 per share) -- -- -- -- (11,182) (11,182)
Return of capital ($.66 per share) -- -- -- -- (8,199) (8,199)
------- -------- -------- ------- -------- ---------
Balance, December 31, 1995 12,424 124 208,868 20,577 (37,935) 191,634
Net income 8,839 8,839
Shares issued for acquisitions 158 2 3,727 3,729
Distributions declared ($1.62 per share) classified as: (11,669) (11,669)
Dividend ($.93 per share) (8,649) (8,649)
Return of capital ($.69 per share)
------- -------- -------- ------- -------- ---------
Balance, December 31, 1996 12,582 $ 126 $212,595 $29,416 $(58,253) $ 183,884
======= ======== ======== ======= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 9
ROC COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
(in thousands)
-------
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,839 $ 11,527 $ 7,261
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 12,768 10,834 7,879
Amortization of debt costs 720 1,073 724
Changes in operating assets and liabilities:
Prepaid expenses and other assets (348) (239) (1,415)
Accounts payable, accrued expenses and other liabilities 1,961 129 1,267
--------- -------- --------
Net cash provided by operating activities 23,940 23,324 15,716
--------- -------- --------
Cash flows from investing activities:
Acquisition of rental properties (56,048) (28,023) (94,459)
Capital expenditures (9,623) (5,266) (2,851)
Disposition of rental properties 1,784 63 83
Collection of mortgages receivable 73 65 21
Acquisition of Chateau common stock (9,007) -- --
--------- -------- --------
Net cash used in investing activities (72,821) (33,161) (97,206)
--------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock, net -- -- 95,199
Proceeds from line of credit 125,995 28,114 58,003
Proceeds from issuance of debt 70,000 -- --
Principal payments on line of credit (124,959) (3,861) (58,003)
Principal payments on mortgages (852) (1,228) (590)
Distributions paid (20,069) (19,256) (12,761)
Purchase of mortgages receivable -- -- (4,999)
Payments of deferred financing costs (568) -- --
--------- -------- --------
Net cash provided by financing activities 49,547 3,769 76,849
--------- -------- --------
Net change in cash and cash equivalents 666 (6,068) (4,641)
Cash and cash equivalents at beginning of year 652 6,720 11,361
--------- -------- --------
Cash and cash equivalents at end of year $ 1,318 $ 652 $ 6,720
========= ======== ========
Supplemental cash flow information:
Interest paid $ 7,685 $ 4,773 $ 4,709
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 10
ROC COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Summary of Significant Accounting Policies:
Business:
ROC Communities, Inc. and ROCF, Inc. were organized on March 31,
1993 in Maryland. On June 26, 1996, the Company organized Redwood
Acquisition Corp. ("RAC"), a Maryland corporation. The Company
completed its initial public offering in August of 1993. RAC and
ROCF, are wholly-owned subsidiaries of the Company. ROC Communities,
Inc., ROCF, Inc. and RAC are collectively referred to as the
"Company." The Company operates as a real estate investment trust.
The Company and its predecessors have been engaged in the ownership,
management, acquisition, operation and expansion of manufactured
home communities since 1979. The Company owned 71 communities
(21,041 sites) located in 23 states and fee managed an additional 36
communities (7,167 sites) as of December 31, 1996. The Company
provides management services for third party owners and affiliated
entities.
Basis of Presentation:
The accompanying financial statements include the accounts of ROC
Communities, Inc. and its wholly owned subsidiaries, ROCF, Inc. and
RAC. The accompanying financial statements are presented utilizing
the historical cost basis of the Company and does not reflect the
acquisition of the Company by Chateau Properties, Inc., now called
Chateau Communities, Inc. discussed in Note 11. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results
could differ from those estimates.
Rental Property:
Rental property is carried at the lower of cost, less accumulated
depreciation, or fair value. Management evaluates the recoverability
of its investment in rental property in accordance with Statement of
Financial Accounting Standards No. 121 ("SFAS No. 121"), Accounting
for Impairment of Long-Lived Assets To Be Disposed Of. This
statement requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that full asset
recoverability is questionable. Management's assessment of
recoverability of its rental property under this statement includes,
but is not limited to, recent operating results, expected net
operating cash flow and management's plans for future operations.
The Company adopted SFAS No. 121 in 1996 and the adoption had no
effect on the financial condition or results of operations of the
Company. Expenditures for significant renovations and improvements
which improve or extend the useful life of rental property are
capitalized. Maintenance and repairs are expensed as incurred.
<PAGE> 11
ROC COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
1. Summary of Significant Accounting Policies, continued:
Rental Property, continued:
When rental property assets are sold or otherwise retired, the cost
of such property assets, net of accumulated depreciation compared to
the sale proceeds, are recognized in income as gains or losses on
disposition.
Depreciation is computed using the straight-line method over
estimated useful lives of 20 years for land improvements, 40 years
for buildings and 5 to 10 years for furniture, fixtures and
equipment.
Cash and Cash Equivalents:
Cash and cash equivalents include all cash and liquid investments
with a maturity less than three months from the date of purchase.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and
temporary cash investments. At times, cash balances held at
financial institutions were in excess of FDIC insurance limits. The
Company places its temporary cash investments with high-credit and
quality financial institutions. The Company believes no significant
concentration of credit risk exists with respect to these financial
instruments.
Deferred Financing Costs:
Included in deferred financing costs are certain costs of obtaining
the Company's debt and line of credit which are amortized over the
term of the loans. Accumulated amortization was $1,808,000 and
$1,983,000 at December 31, 1996 and 1995, respectively.
Revenue Recognition:
Rental income and management income is recognized when earned and
due from residents and customers.
Per Share Data:
Net income per share was calculated using a weighted average of
12,504,000, 12,424,000 and 9,071,000 shares of common stock
outstanding for the years ended December 31, 1996, 1995 and 1994,
respectively. The potential dilutive effect of stock options is not
material.
Income Taxes:
The Company files a consolidated federal income tax return. The
Company qualified as a Real Estate Investment Trust under Sections
856 to 860 of the Internal Revenue code. Accordingly, no provision
for federal income taxes has been reflected in the financial
statements.
Stock-Based Compensation:
During 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 123 for "Accounting for Stock-Based
Compensation." The Company has elected to continue to account for
employee stock based compensation under Accounting Principles Board
("APB") Opinion No. 25. "Accounting for stock issued to employees,"
and therefore the disclosure method as permitted and required by
SFAS No. 123 is presented in Note 8.
<PAGE> 12
ROC COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
2. Acquisitions of Rental Properties:
The Company acquired one manufactured home community in January 1996 for
cash of $9.4 million. The community is located in Cincinnati, Ohio and is
comprised of 354 homesites. The acquisition was funded from the Company's
$45 million line of credit.
The Company acquired one manufactured home community in April 1996 for
cash of $4 million. The community is located in Albion, New York and is
comprised of 235 homesites. In May 1996, the Company acquired one
manufactured home community for cash of $800,000. The community is located
in Shreveport, Louisiana and is comprised of 448 homesites. In June 1996,
RAC acquired two communities for $25.5 million. The communities are
located in Thornton, Colorado and aggregate 1,512 homesites. These
acquisitions were funded from the Company's $50 million line of credit
(the "Line of Credit"), $20 million term loan, and issuance of 158,017
shares of common stock.
In June 1996, the Company sold one 113-homesite community in Yuma, Arizona
for $1.2 million in cash.
The Company acquired one manufactured home community in July 1996 for cash
of $5.7 million. The community is located in Raleigh, North Carolina and
is comprised of 315 homesites. The acquisition was funded from the Line of
Credit.
On September 30, 1996, the Company and Chateau completed the acquisition
of six manufactured home communities through a joint venture with each
company owning 50%. The six communities, which include the capacity for a
total of 2,700 homesites, were purchased by the joint venture for $20.6
million in cash. In addition, from the same seller, the Company purchased
100% of a 320-homesite community adjacent to an existing community in
Augusta, Georgia for $1.9 million in cash. These acquisitions were funded
by a $12 million demand loan which was subsequently repaid on November 4,
1996. The Company's investment in this joint venture is included in rental
properties as of December 31, 1996. The Company also funded $860,000 to
this joint venture in 1996 which is included in prepaid expenses and other
assets in the balance sheet as of December 31, 1996.
All of the aforementioned acquisitions have been accounted for utilizing
the purchase method of accounting. As such, rental operations are included
in the statement of income from the respective date of purchase.
<PAGE> 13
ROC COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
2. Acquisitions of Rental Properties, continued:
Pro Forma Information
------------------------
1996 1995
---------- ----------
(Unaudited)
Revenues $ 64,764 $ 61,028
Net income 7,984 $ 8,937
Net income per share $ 0.64 $ 0.72
During 1995, the Company acquired four manufactured home communities
aggregating 1,830 sites for $25,335,000. Three of the communities were
purchased from an affiliate of the Company pursuant to an option
agreement.
During 1994, the Company acquired 14 manufactured home communities
aggregating 5,198 homesites for $90,194,000 and $4,999,000 of mortgages
receivable acquired in connection with the acquisition of Colony Cove.
3. Rental Property:
The following summarizes rental property (in thousands):
December 31,
-----------------------
1996 1995
--------- ---------
Land $ 72,985 $ 62,769
Land improvements and buildings 281,196 225,719
Furniture, fixtures and equipment 4,073 3,173
--------- ---------
358,254 291,661
Accumulated depreciation (32,189) (20,111)
--------- ---------
Rental property, net $ 326,065 $ 271,550
========= =========
Land improvements and buildings consist primarily of infrastructure,
roads, landscaping and clubhouses, storage buildings and common amenities.
<PAGE> 14
ROC COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
4. Mortgages Receivable:
In connection with the purchase of the Colony Cove community, the seller
assigned to the Company three mortgage loans, having an aggregate
principal balance of $3,839,000 and $3,892,000 as of December 31, 1996 and
1995, respectively, and the Company assumed obligations under existing
ground leases that expire 2017-2019. The loans, which are collateralized
by three separate fee interests underlying the three land parcels leased
by Colony Cove bear interest at an annual rate of 9.5%. Payments of
principal and interest under the three loans, which are fully amortizing
over their terms, aggregate approximately $420,000 per annum. Final
principal payments under the loans are due and payable to the Company on
May 1, 2017, March 1, 2019 and April 1, 2019. The future minimum lease
payments under the ground leases are as follows: 1997 - $1,064,000; 1998 -
$1,097,000; 1999 - $1,131,000; 2000 - $1,168,000; 2001 - $1,206,000 and
$35,350,000 thereafter. In addition, the Company has been assigned a
$1,050,000 fully amortizing blanket mortgage loan secured by the fee
interests described above. The loan bears interest at a variable rate
equal to the prime rate plus 2%, adjusted quarterly, is due and payable in
full on February 28, 2014, and currently provides for annual payments of
principal and interest of approximately $115,000. The loan balance at
December 31, 1996 and 1995 was $1,001,000 and $1,021,000, respectively.
The Company has a right to offset all payments due under the mortgage
loans against rents due under the ground leases.
5. Debt:
A summary of the Company's outstanding debt at December 31 is as follows
(in thousands):
1996 1995
-------- -------
Mortgage Debt $ 59,248 $60,000
Mortgage Note 290 390
Senior Unsecured Notes 70,000 --
Lines of Credit 22,854 23,253
$3 million Line of Credit 2,435 1,000
-------- -------
$154,827 $84,643
======== =======
Concurrent with the Company's initial public offering in 1993, the
Company's wholly owned subsidiary, ROCF, borrowed $60 million in principal
amount which is collateralized by first mortgage liens on 40 of the
Company's properties in 1995 and 39 properties in 1996 (the "Mortgage
Debt"). The Mortgage Debt bears interest at a rate of 7.16% and is due
and payable on August 1, 2000.
Also in 1993, the Company entered into a six-year mortgage note (the
"Mortgage Note") with a principal amount of $590,000 which is
collateralized by a first mortgage lien on one property. The Mortgage Note
bears interest at a rate of 6% and is payable $100,000 in the first five
years and $90,000 in the last year. The balance of the Mortgage Note at
December 31, 1996 and 1995 was $290,000 and $390,000, respectively.
<PAGE> 15
ROC COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
5. Debt, continued:
On November 4, 1996, the Company placed $70 million of senior unsecured
notes (the "Notes") that mature November 4, 2003. Interest is payable
semi-annually in arrears on May 4 and November 4 at a rate of 7.52%.
In 1995, the Company had a $45 million line of credit for acquisitions of
new properties. As collateral for the line of credit, the lender was
granted a first mortgage lien on 11 of the Company's properties. The line
of credit balance was $23,253,000 at December 31, 1995. During 1996, the
commitment was extended to June 30, 1997 at which time the balance was to
be due in full. Interest was modified and accrued on the outstanding
balance at 30 day LIBOR plus 1.75%. LIBOR at December 31, 1995 was 5.78%.
On May 2, 1996, the Company replaced its $45 million line of credit with a
$50 million line of credit (the "Line of Credit") and a $20 million term
loan (the "Term Loan") from the First National Bank of Chicago. The Line
of Credit and Term Loan, which mature in April 1999, are unsecured and
bear interest at LIBOR plus basis points ranging from 150 to 200. LIBOR at
December 31, 1996 was 5.38%. On September 30, 1996, the Company obtained a
$12 million demand loan (the "First Demand Loan"), which was unsecured and
bore interest at 8.50%, from the First National Bank of Chicago. The
proceeds of the Notes were used to repay the Term Loan, the First Demand
Loan, and $29 million of the Line of Credit. The Line of Credit was
$22,854,000 at December 31, 1996.
The Company has a $3 million unsecured working capital revolving line of
credit with a bank. The commitment is through August 10, 1997 and interest
accrues on the outstanding balance at 30 day LIBOR plus 1.75%. The balance
was $2,435,000 and $1,000,000 at December 31, 1996 and 1995, respectively.
The Company's agreements with its lenders contain a number of financial
and general covenants. These include, among others, restrictions on
borrowings, investments and dividends.
6. Acquisition of Property Management Contracts:
On December 1, 1994, the Company acquired management contracts for 22
manufactured home communities through the acquisition of a wholly owned
subsidiary of The Windsor Corporation ("Windsor"). Affiliates of Windsor
own the 22 manufactured home communities. The acquired subsidiary had no
other assets and no known liabilities. The Company issued 100,000 shares
of its Common Stock, valued at $1,975,000, to Windsor to acquire the
subsidiary, which was dissolved upon completion of the transaction.
Additional consideration may be required if management fees earned by the
Company during the five-year period after the acquisition reach certain
levels. A portion of the common stock issued to Windsor is subject to
return to the Company if the revenues from Windsor affiliates decline
below certain levels over a five-year period.
<PAGE> 16
ROC COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
7. Estimated Fair Value of Financial Instruments:
The estimated fair value of assets and liabilities considered to be
financial instruments has been determined using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented are not
necessarily indicative of the amounts the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts. The fair value of mortgages receivable is based on
discounted cash flows using estimated market interest rates. The fair
value of other financial instruments was estimated based on market
interest rates. The carrying value and estimated fair value of financial
instruments are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------------------- -----------------------
Carrying Fair Carrying Fair
Value Value Value Value
--------- --------- -------- -------
<S> <C> <C> <C> <C>
Investment in Chateau Common Stock $ 9,007 $ 9,079 $ $
Mortgage receivable 5,700 3,565 4,913 4,706
Mortgage Debt and Notes 129,538 129,538 60,390 59,905
Lines of credit 25,289 25,289 24,253 24,253
</TABLE>
8. Stock Option Plan:
The Company has established the 1993 Stock Option and Stock Appreciation
Rights Plan (the "Plan"). During 1995, the Plan was amended to increase
the number of shares of the Company's common stock reserved for issuance
under the Plan from 240,000 to 490,000 shares. The Plan allows for the
grant of "incentive" and "non-qualified" options (within the meaning of
the Internal Revenue Code of 1986, as amended) and stock appreciation
rights ("SARs"). A participant who holds SARs may receive cash or shares
of common stock for any appreciation of such rights at the discretion of
the Executive Compensation Committee of the Board of Directors. No SAR's
were issued or outstanding as of December 31, 1996.
<PAGE> 17
ROC COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
8. Stock Option Plan, continued:
A summary of the status of the Company's stock option plan as of
December 31, 1996, 1995 and 1994 is presented below:
Weighted
Number Average
of Shares Exercise
Granted Price
------------ -----------
Outstanding at December 31, 1993 117,000 $20.06
Granted 90,000 $21.83
--------
Outstanding at December 31, 1994 207,000 $20.83
Granted 171,000 $21.69
--------
Outstanding at December 31, 1995 378,000 $21.22
Granted 124,000 $24.63
--------
Outstanding at December 31, 1996 502,000 $22.08
========
All options are granted at the fair market value of the Company's stock on
the date of grant, as such, no compensation cost is recorded. These
options expire after ten years. Non-employee members of the Board of
Directors were each granted options to purchase 17,500 and 6,000 shares of
common stock during the years ended December 31, 1996 and 1995,
respectively. Such options vest immediately. Options granted to employees
and officers of the Company generally vest 20% per year after date of
grant. At December 31, 1996, 1995 and 1994, 221,400, 162,400 and 62,500
stock options, respectively, were exercisable. The range in exercise price
of outstanding options at December 31, 1996 is $20.00 to $24.63. The
weighted average remaining contractual life of options outstanding at
December 31, 1996 is 8.6 years. In connection with the Merger discussed in
Note 11, all of the aforementioned options became fully exercisable and
vested. All stock options were converted into stock options of Chateau
Communities, Inc. based on the exchange ratio discussed in Note 11.
If compensation cost for stock option grants had been recognized based on
the fair value method at the grant date for 1996 and 1995, net income and
net income per share would not have been materially different than
reported amounts.
<PAGE> 18
ROC COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
9. Benefit Plan:
The Company has established a 401(k) plan for all employees and has
committed to make contributions to the plan. Beginning January 1, 1995,
generally all employees employed prior to July 1, 1994, were eligible to
receive contributions of 3% of their annual salary. Company contributions
are used to purchase the Company's common stock. Employees hired July 1,
1994 or later are eligible to enter the plan following attainment of age
21 and one year of service. Employees must be employed at the end of the
year to receive the Company contributions. Vesting occurs ratably over a
five-year period of continuous service.
10. Related Party Transactions:
In 1996, the Company rented office space from certain of its executive
officers. This operating lease has a five-year term through 1998, minimum
annual rent of $120,000 and is noncancelable. Rent expense was $131,000,
$135,000 and $131,000 for the years ended December 31, 1996, 1995 and
1994, respectively. In January 1997, the Company purchased the building
for approximately $800,000.
The Company provides management services for properties owned by certain
entities that are affiliated with the executive officers of the Company.
The Company's management fee revenues from affiliates were $344,000,
$429,000 and $487,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
In connection with the Merger discussed in Note 11, the Company purchased
350,000 shares of Chateau Communities, Inc. common stock. Included in
prepaid expenses and other assets, net is approximately $9,000,000 related
to this investment.
11. Subsequent Event - Merger with Chateau Communities, Inc.:
On February 11, 1997, The Company completed its merger with Chateau
Properties, Inc. (the "Merger"). The Merger and related transactions were
accounted for as a purchase of the Company by Chateau Communities, Inc.
("Chateau"). Accordingly, the assets and liabilities of the Company will
be adjusted to fair value for financial accounting purposes in the
financial statements of Chateau Communities, Inc. The historical financial
statements presented herein reflect the historical cost basis of the
Company.
In connection with the Merger, the related transactions occurred:
o Chateau repurchased and retired 1,200,000 shares of its common
stock, of which 450,000 were repurchased in 1996.
o The Company purchased 350,000 shares of Chateau common stock, which
was retired at the time of the merger.
<PAGE> 19
ROC COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
11. Subsequent Event - Merger with Chateau Communities, Inc., continued:
o Chateau issued 1.042 shares of its common stock for each share of
the Company's stock outstanding.
o Chateau paid a stock dividend equal to .0326 shares of their stock
per common share/Operating Partnership ("OP") Units outstanding.
o Certain OP Unitholders of Chateau converted 6,170,908 OP Units into
common shares. These Unitholders waived their right to receive the
above dividend and as a result it was allocated to the existing
shareholders, resulting in a distribution to the common shareholders
of Chateau of .068 shares of common stock.
o Certain OP Unitholders of Chateau purchased 984,423 additional
shares of common stock from Chateau at $25.88 per share.
12. Quarterly Results (unaudited):
<TABLE>
<CAPTION>
Quarters Ended
-------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(in thousands except per share data)
<S> <C> <C> <C> <C>
1996:
Total revenues $14,239 $14,683 $16,199 $16,477
Operating income (a) $ 7,717 $ 8,073 $ 8,728 $ 9,145
Net income (loss) (b) $ 2,850 $ 3,114 $ 2,907 $ (32)
Net income (loss) per share $ 0.23 $ 0.25 $ 0.23 $ 0.00
Weighted average shares outstanding 12,424 12,429 12,582 12,582
1995:
Total revenues $12,341 $12,465 $13,082 $13,614
Operating income (a) $ 6,725 $ 6,935 $ 7,131 $ 7,525
Net income $ 2,813 $ 2,958 $ 2,932 $ 2,824
Net income per share $ 0.23 $ 0.24 $ 0.24 $ 0.22
Weighted average shares outstanding 12,424 12,424 12,424 12,424
</TABLE>
(a) Operating income represents total revenues less property operating and
maintenance expense, real estate taxes and administrative expense.
Operating income is a measure of the performance of the properties before
the effects of depreciation and interest and related amortization costs.
(b) Fourth quarter results include a charge of $2,880,000 for merger
expenses.
<PAGE> 20
ROC COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
12. Supplemental unaudited information-Funds From Operations
The Company believes that funds from operations ("FFO") is an appropriate
measure of performance of an equity REIT. Funds from operations is defined
by the National Association of Real Estate Investment Trusts ("NAREIT") as
"net income (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales
of property, plus depreciation and amortization, after adjustments for
unconsolidated partnerships and joint ventures". While the Company
believes that FFO is the most relevant and widely used measure of its
operating performance, it does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and
is not indicative of cash available to fund cash needs. FFO should not be
considered as an alternative to net income, as an indication of the
Company's operating performance or as an alternative to cash flow as a
measure of liquidity.
A. Funds from operations (in thousands):
1996 1995 1994
------- -------- -------
Net income $ 8,839 $11,527 $ 7,261
Add:
Depreciation and amortization 12,627 10,735 7,831
of rental property
Non recurring merger 2,880
expenses
------- ------- -------
Funds from operations $24,346 $22,262 $15,092
======= ======= =======
<PAGE> 21
CHATEAU COMMUNITIES, INC. SELECTED PRO FORMA
COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined condensed Balance Sheet is presented as if
the merger (the "Merger") between Chateau Communities, Inc. ("Chateau") and ROC
Communities, Inc. ("ROC"), and the repurchase of Chateau common shares in
connection with the Merger had occurred on December 31, 1996. The unaudited pro
forma combined condensed Statements of Income for the year ended December 31,
1996 are presented as if the Merger between Chateau and ROC, the repurchase of
Chateau common shares in connection with the Merger and the acquisitions of 14
communities acquired by Chateau and ROC had occurred as of January 1, 1996 and
carried forward through December 31, 1996.
Preparation of the pro forma financial information was based on assumptions
deemed appropriate by the management of Chateau and gives effect to the Merger
and other transactions described above under the purchase method of accounting
in accordance with generally accepted accounting principles and Chateau
continuing to qualify as a REIT, distributing all of its taxable income and,
therefore, incurring no federal income tax expense during the periods presented.
The pro forma financial information is unaudited and is not necessarily
indicative of the results which actually would have occurred if the Merger and
the other transactions had been consummated at the dates indicated, nor does it
purport to represent the future financial position and results of operation of
Chateau for future periods. The pro forma information should be read in
conjunction with the historical financial statements of Chateau and ROC.
<PAGE> 22
CHATEAU COMMUNITIES, INC.
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
For the Year Ended December 31, 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Merger and
Other
Transactions Pro Forma
Chateau ROC Pro Forma Combined
(Historical) (Historical) Acquisitions (A) Adjustments Condensed
------------ ------------ ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income .............................. $64,695 $59,498 $ 3,937 $128,130
Management and other income ................ 2,689 2,100 (118) 4,671
-------- -------- -------- -------- --------
Total revenue .............................. 67,384 61,598 3,819 132,801
Expenses:
Property operating, maintenance
and administrative ...................... 26,870 27,935 1,733 (2,850) (B) 53,688
Depreciation and amortization .............. 11,452 12,768 10,802 (C) 35,022
Interest and related amortization .......... 12,962 9,176 3,985 (D) 26,123
Merger expenses ............................ 2,880 (2,880) (E)
-------- -------- -------- -------- --------
Total Expenses ............................. 51,284 52,759 1,733 9,057 114,833
-------- -------- -------- -------- --------
Income before limited partners' interest ..... 16,100 8,839 2,086 (9,057) 17,968
Less limited partners' interest in the
Operating Partnership ..................... 9,566 (7,795) (F) 1,771
-------- -------- -------- -------- --------
Net Income ................................... $ 6,534 $ 8,839 $ 2,086 $ (1,262) $ 16,197
======== ======== ======== ======== ========
Net Income per share of common stock ......... $ 1.09 $ .71 $ .64
======== ======== ========
Weighted average shares outstanding .......... 6,022 12,504 25,125 (G)
======== ======== ========
Weighted average shares and OP
Units outstanding ......................... 14,837 12,504 27,873 (G)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the pro forma
combined condensed financial statements.
<PAGE> 23
Notes to Unaudited Pro Forma
Combined Condensed Financial Statements
(in thousands except share amounts)
Accounting Treatment
The merger and related transactions will be accounted for using the
purchase method of accounting in accordance with generally accepted accounting
principles. For financial accounting purposes these transactions result in the
purchase of all the ROC Stock by Chateau. Accordingly, the assets and
liabilities of ROC will be adjusted to acquisition value and the results of
operations of ROC will be included in the results of operations of Chateau for
periods subsequent to the merger.
Adjustments to Pro Forma Combined Condensed Statements of Income
(A) Acquisitions--Represents the operating results for 14 communities with a
total of 5,410 sites acquired in 1996 by Chateau and ROC from January 1,
1996 to the date of acquisition.
For the year
ended
December 31,1996
----------------
(B) To reflect cost savings to eliminate duplicative
public company costs and other identified redundancies
which have been estimated based upon historical costs
for those items as a result of the Merger and the Other
Transactions $(2,850)
==========
(C) To reflect the adjustments in depreciation for the
following:
(1) additional depreciation related to the 1996
acquisitions for the period from January 1,
1996 to the date of acquisition 1,401
(2) as a result of recording the rental properties
of ROC at acquisition value versus historical
cost and utilizing an estimated average
useful life of 20 years for depreciable property. 9,401
----------
$ 10,802
==========
(D) To reflect adjustment to interest expense for the
following:
(1) additional interest expense related to the 1996
acquisitions for the period from January 1, 1996
to the date of acquisition. Interest was
calculated based on rates in effect during
the periods at existing credit arrangements 2,102
(2) The interest associated with the borrowing on
the line of credit to pay the estimated Merger costs 1,155
(3) The interest associated with the borrowing on
the lines of credit to finance the purchase of
shares of Chateau common stock by ROC and
the repurchase by Chateau offset partially by
the proceeds from the issuance of Chateau
stock to certain OP Unitholders (see footnote (F)) 728
----------
$ 3,985
==========
<PAGE> 24
Notes to Unaudited Pro Forma
Combined Condensed Financial Statements (Continued)
(in thousands except share amounts)
For the Year
Ended
December 31, 1996
-----------------
(E) To reverse non-recurring charge for merger ($ 2,880)
expenses ==========
(F) To adjust the limited partners' ownership interest
in the Operating Partnership based on the
outstanding number of OP Units as a percentage
of total outstanding shares of Chateau Common
Stock and OP Units, as follows:
Pro forma income before limited partners' interest $ 17,968
Pro forma minority interest percentage (see
footnote (F)) 9.86%
----------
$ 1,771
==========
(G) The following adjustments are to reflect the
Chateau Common Stock and OP Unit transactions
associated with the Merger and related transactions
The pro forma weighted average shares and OP Units
outstanding are computed as follows:
Chateau Historical Weighted Average Shares
Outstanding 6,021,767
Chateau stock dividend 310,474
Exchange of OP Units for shares of Chateau Common
Stock 6,170,909
Purchase of Chateau Common Stock by ROC (350,000)
Purchase and retirement of Chateau Common Stock in
connection with the Merger (1,122,541)
Issuance of shares of Chateau Common Stock to OP
Unitholders 984,423
Issuance of shares of Chateau Common Stock in
connection with the Merger (12,581,517 shares of
ROC Stock outstanding immediately prior to the Merger) 13,109,941
----------
Total Shares 25,124,973
==========
Chateau's Historical Weighted Average OP Units
Outstanding 8,815,178
OP Unit Adjustment for Chateau Stock Dividend 86,892
Exchange of OP Units for shares of Chateau Common
Stock (6,170,909)
Adjustment for OP Units issued in connection with
Chateau's Acquisitions 16,785
----------
Total OP Units 2,747,946
==========
Pro forma weighted average shares and OP Units
outstanding 27,872,919
==========
Pro forma weighted average shares 25,124,973
90.14%
Pro forma weighted average OP Units 2,747,946
9.86%
<PAGE> 25
CHATEAU COMMUNITIES, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
As of December 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Merger and
Other
Transactions Pro Forma
Chateau ROC Pro Forma Combined
(Historical) (Historical) Adjustments Condensed
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
Assets:
Rental property, net ......................... $ 219,338 $ 326,065 $171,216 (A) $ 716,619
Cash and cash equivalents .................... 586 1,318 -- 1,904
Receivables .................................. 5,403 5,700 -- 11,103
Prepaid expenses and other assets ............ 6,739 16,765 (15,415 )(B) 8,089
----------- ----------- ----------- -----------
Total assets $ 232,066 $ 349,848 $155,801 $ 737,715
=========== =========== =========== ===========
Liabilities:
Debt ......................................... $ 168,315 $ 154,827 $ 6,256 (C) $ 329,398
Accounts payable, accrued expenses
and other liabilities ...................... 21,008 11,137 1,719 (A) 33,864
----------- ----------- ----------- -----------
Total liabilities 189,323 165,964 7,975 363,262
Limited partners' interest in the
Operating Partnership .......................... 26,552 -- 10,483 (D) 37,035
Stockholders Equity:
Preferred stock ..............................
Common stock ................................. 57 126 68 (D) 251
Additional paid in capital ................... 28,187 212,595 108,438 (D) 349,220
Dividends in excess of accumulated earnings .. (11,233) (28,837) 28,837 (11,233)
Notes receivable, officers ................... (820) -- -- (820)
----------- ----------- ----------- -----------
Total stockholders' equity ................ 16,191 183,884 137,343 337,418
----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity ................... $ 232,066 $ 349,848 $155,801 $ 737,715
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the pro forma
Combined condensed financial statements.
<PAGE> 26
Notes to Unaudited Pro Forma
Combined Condensed Financial Statements
(in thousands, except share amounts)
Adjustments to Pro Forma Combined Condensed Balance Sheet
(A) Represents adjustments to record the Merger in accordance with the
purchase method of accounting, assuming a market value of Chateau Common
Stock of $25.50 (which was the average closing price of Chateau Common
Stock for the period of December 18-23, 1996), and the exchange ratio of
1.042 for each share of ROC Stock as follows:
Value of ROC Stock (12,581,517 shares
outstanding immediately prior to the Merger)
multiplied by 1.042 and the market value of
Chateau Common Stock ......................................... $ 334,303
Merger and related transaction costs (see below) ............. 15,620
Acquired outstanding ROC stock options ....................... 1,719
---------
Purchase Price ............................................... $ 351,642
=========
Estimated fees and expenses related to the Merger and
related transactions as follows:
Advisory fees ................................................ $ 8,000
Legal and accounting ......................................... 4,000
Severance, contract buyouts and relocation costs ............. 1,500
Other including printing, filing fees and transfer costs ..... 2,120
---------
$ 15,620
=========
Adjustment required to reflect investment in rental
properties, at acquisition value:
Purchase price (see above) ................................... 351,642
Historical book value of ROC equity .......................... (183,884)
To adjust ROC historical book value for the elimination
of certain deferred charges in accordance with purchase
accounting including organization costs, abandoned shelf
registration costs and deferred financing costs
associated with ROC's mortgage indebtedness and line of
credit ....................................................... 3,458
---------
Adjustment required to reflect investment in ROC's rental
property, at acquisition value ............................... 171,216
=========
(B) To adjust for the elimination of certain costs (see
footnote (A)): and the value of Chateau shares acquired
by ROC, included in the equity adjustment (see footnote (D)) (15,415)
=========
<PAGE> 27
Notes to Unaudited Pro Forma
Combined Condensed Financial Statements (Continued)
(in thousands, except share amounts)
(C) To reflect the increase in the line of credit borrowings due to the
following:
(1) Estimated Merger costs .................................. $ 12,000
(2) Repurchases of Chateau Common in connection with the
Merger; offset by the issuance of Chateau Common Stock
to the Exchanging OP Unitholders ........................ (5,744)
--------
$ 6,256
========
(D) To adjust limited partners' interest and stockholders' equity to reflect
the Chateau Common Stock and OP Unit transactions in connection with the
merger and related transactions based on ownership computed as follows:
<TABLE>
<CAPTION>
Common
Shares Op Units Total
------ -------- -----
<S> <C> <C> <C>
Shares of Chateau Common Stock outstanding
and Chateau Shares issuable in exchange for
Chateau's Op Units .................................. 5,660,960 8,836,310 14,497,270
Exchange of OP Units for shares of Chateau's
Common Stock ........................................ 6,170,909 (6,170,909) --
Purchase of Chateau Common Stock by ROC ............... (350,000) -- (350,000)
Purchase and retirement of Chateau Common Stock
in connection with the merger ....................... (750,000) -- (750,000)
Issuance of shares of Chateau Common Stock to
the exchanging OP Unitholders ....................... 984,423 -- 984,423
Shares of Chateau Common Stock issued in exchange
for shares of ROC stock outstanding ................. 13,109,941 -- 13,109,941
Chateau stock dividend in connection with the merger .. 310,474 86,892 397,366
---------- ---------- ----------
Pro Forma Shares and OP Units outstanding ............. 25,136,707 2,752,293 27,889,000
========== ========== ==========
Ownership percentages ................................. 90.13% 9.87% 100.0%
========== ========== ==========
Pro forma book value .................................. 338,238 37,035 375,273
========== ========== ==========
Pro forma book value per common share/OP Unit ......... 13.46 13.46 13.46
========== ========== ==========
</TABLE>
- ----------
* Before Notes Receivable, Officers
<PAGE> 28
EXHIBIT INDEX
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Deloitte & Touche LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement Chateau Communities, Inc. on Form S-3 (File No. 333-36323) and in the
Registration Statement of Chateau Communities, Inc. and CP Limited Partnership
on Form S-3 (File Nos. 333-4544 and 333-4544-01) of our report, dated December
10, 1997, on our audit of the consolidated financial statements of ROC
Communities, Inc., as of December 31, 1996, and for the year ended December 31,
1996. We also consent to the reference to our firm under the caption
"Experts."
/s/Coopers & Lybrand L.L.P.
Denver, Colorado
December 10, 1997
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement (file
Nos. 333-4544 and 333-4544-01) of Chateau Communities, Inc. and CP Limited
Partnership on Form S-3 of our report dated February 2, 1996 (related to the
consolidated financial statements of ROC Communities, Inc.) appearing in Form
8-K of Chateau Communities, Inc. dated December 10, 1997 and to the reference
to us under the heading "Experts" in the Prospectus, which is a part of such
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Denver, Colorado
December 10, 1997
