<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended SEPTEMBER 30, 1997
OR
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-12496
CHATEAU COMMUNITIES, INC.
(Exact name of Registrant as specified in its charter)
MARYLAND 38-3132038
(State or other jurisdiction (IRS Employer
of incorporation or organization) (Identification No.)
6430 SOUTH QUEBEC STREET, ENGLEWOOD, CO 80111
(Address of principal executive offices, including zip code)
(303) 741-3707
(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, 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, $0.01par
value, on November 11, 1997 was 25,472,272 shares.
<PAGE>
CHATEAU COMMUNITIES, INC.
FORM 10-Q
INDEX
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Income for the
Three and Nine Months Ended September 30,
1997 and 1996 1
Condensed Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1996 2
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1997 and 1996 3
Notes to Condensed Consolidated Financial Statements 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
PART II. OTHER INFORMATION 12
SIGNATURES 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHATEAU COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 34,032 $ 16,954 $ 95,723 $ 50,100
Management fee, interest and other income 1,263 29 2,514 103
--------- --------- --------- ---------
35,295 16,983 98,237 50,203
Expenses:
Property operating and maintenance 9,582 4,873 25,302 13,882
Real estate taxes 2,578 1,232 7,272 3,607
Depreciation and amortization 8,968 2,838 24,144 8,517
Administrative 1,740 886 5,311 2,905
Interest and related amortization 6,757 3,199 18,828 9,417
--------- --------- --------- ---------
29,625 13,028 80,857 38,328
--------- --------- --------- ---------
Income before minority interest 5,670 3,955 17,380 11,875
Minority interest in Operating Partnership 557 2,340 2,245 7,017
Net income $ 5,113 $ 1,615 $ 15,135 $ 4,858
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per share $ .20 $ .26 $ .66 $ .80
--------- --------- --------- ---------
--------- --------- --------- ---------
Dividend/distribution declared per common
Share/OP unit outstanding $ .43 $ .405 $ 1.29 $ 1.215
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares
outstanding 25,308 6,100 23,086 6,098
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares
and OP units outstanding 28,064 14,936 26,510 14,907
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral
part of the financial statements.
1
<PAGE>
CHATEAU COMMUNITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1997 1996
------------- ------------
<S> <C> <C>
Rental property:
Land $ 111,198 $ 33,821
Land and improvements for expansion sites 13,751 1,988
Depreciable property 692,698 264,822
---------- ---------
817,647 300,631
Less accumulated depreciation 105,148 81,293
---------- ---------
712,499 219,338
Cash and cash equivalents 315 586
Receivables 12,689 5,403
Notes receivable 9,218 90
Prepaid expenses and other assets 15,073 6,649
---------- ---------
Total assets $ 749,794 $ 232,066
---------- ---------
---------- ---------
LIABILITIES
Debt $ 350,239 $ 168,315
Accounts payable and accrued expenses 17,781 10,285
Tenants' security deposits and rents received in advance 7,180 4,852
Accrued dividends and distributions 12,185 5,871
---------- ---------
Total liabilities 387,385 189,323
Limited partners' interest in Operating Partnership 35,477 26,552
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;
25,469,358 and 5,660,960 shares issued and outstanding
at September 30, 1997 and December 31, 1996, respectively 258 57
Additional paid-in capital 356,365 28,187
Dividends in excess of accumulated earnings (28,787) (11,233)
Notes receivable from officers, 43,125 shares (904) (820)
---------- ---------
Total shareholders' equity 326,932 16,191
---------- ---------
Total liabilities and shareholders' equity $ 749,794 $ 232,066
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral
part of the financial statements.
2
<PAGE>
CHATEAU COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996.
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 15,135 $ 4,858
Adjustments to reconcile net income to net cash
provided by operating activities:
Income attributable to limited partners' interest 2,245 7,017
Depreciation and amortization 24,144 8,517
Amortization of deferred financing costs 354 329
Decrease (increase) in operating assets ( 4,803) (1,994)
Increase (decrease) in operating liabilities (1,380) 2,602
--------- --------
Net cash from operating activities 35,695 21,329
Cash flows from financing activities:
Net borrowing on line of credit 16,917 21,500
Mortgage principal payments (1,124) (856)
Dividends/distributions to shareholders/OP unit holders (29,929) (18,016)
Common shares/OP units reacquired and retired (19,851) (932)
Proceeds from the issuance of common shares 25,477 -
Other financing activities 3,109 94
--------- --------
Net cash provided by (used in) financing activities (5,401) 1,790
Cash flows from investing activities:
Acquisition of rental properties (2,930) (18,540)
Additions to rental property (15,178) (3,579)
Payment of merger costs (12,457) (1,697)
--------- --------
Net cash used in investing activities (30,565) (23,816)
--------- --------
Decrease in cash and cash equivalents (271) (697)
Cash and cash equivalents, beginning of period 586 944
--------- --------
Cash and cash equivalents, end of period $ 315 $ 247
--------- --------
--------- --------
Supplemental cash flow information:
OP Units/shares issued in connection with acquisition $ 3,121 $ 1,964
--------- --------
--------- --------
</TABLE>
The accompanying notes are an integral
part of the financial statements.
3
<PAGE>
CHATEAU COMMUNITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND FORMATION OF COMPANY:
The accompanying unaudited condensed consolidated financial statements of
Chateau Communities, 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 financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1996.
2. MERGER WITH ROC COMMUNITIES, INC.
In February 1997, the Company completed its merger with ROC Communities,
Inc. (the "Merger"). The Merger and related transactions were accounted for
using the purchase method of accounting in accordance with generally
accepted accounting principles. Accordingly, the assets and liabilities of
ROC were adjusted to fair value for financial accounting purposes and the
results of operations of ROC are included in the results of operations of
the Company beginning February 1, 1997.
In connection with the Merger, the following related transactions occurred:
- The Company repurchased and retired 1,200,000 shares of its common
stock in late 1996 and early 1997.
- ROC purchased 350,000 shares of Chateau common stock, which were
retired at the time of the Merger.
- The Company issued 1.042 shares of its common stock for each 1.0
share of ROC capital stock outstanding.
- The Company paid a stock dividend equal to .0326 shares of its common
stock per common share/OP Unit outstanding.
- Certain OP Unitholders converted 6,170,908 OP Units into common
shares. These Unitholders waived their right to receive the above
dividend and agreed to the re-allocation to the existing shareholders
resulting in an effective distribution to the common shareholders of
.068 shares of common stock.
- Certain OP Unitholders purchased 984,423 additional shares of common
stock from the Company at $25.88 per share.
4
<PAGE>
In connection with the Merger, the Company issued common stock valued at
approximately $351 million, including the costs incurred to complete the
Merger, which was allocated as follows:
Rental property $ 501.3
Net working capital 15.8
Debt assumed (166.1)
---------
$ 351.0
---------
---------
As of September 30, 1997, the Company owned 128 communities with an aggregate
of approximately 43,300 residential homesites. In addition, it fee managed
and controlled 6,700 residential homesites in 32 communities.
The following unaudited pro forma income statement information has been
prepared as if the Merger and related transactions had occurred on January 1,
1996. In addition, the pro forma information is presented as if the
acquisition of 13 properties made in 1996 by the Company and ROC had occurred
on January 1, 1996. The pro forma income statement information is not
necessarily indicative of the results which actually would have occurred if
the Merger had been consummated on January 1, 1996.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------
(In thousands, except per share data)
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 35,295 $ 33,311 $ 103,672 $ 99,143
Expenses:
Property, operating, maintenance and administrative 13,900 13,863 39,758 40,591
Depreciation and amortization 8,968 8,335 26,003 25,202
Interest and related amortization 6,757 6,310 20,100 18,973
---------- ---------- ----------- ----------
Total expenses 29,625 28,508 85,861 84,766
---------- ---------- ----------- ----------
Income before minority interest 5,670 4,803 17,811 14,377
---------- ---------- ----------- ----------
Per share* $ .20 $ .17 $ .64 $ .52
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Weighted average common shares and
OP Units outstanding 28,070 27,923 27,997 27,893
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</TABLE>
*Assumes all OP Units are exchanged for common stock.
3. COMMON STOCK AND RELATED TRANSACTIONS:
In September, 1997, the Company issued 101,239 shares of common stock in a
private placement, under section 4(2) of the Securities Act of 1933, as
amended, and $750,000 in cash, in exchange for all of the outstanding
shares of The Windsor Corporation ("Windsor"). Windsor Corporation is the
general partner of five public limited partnerships and trust advisor for
one public, REIT owning, in the aggregate, 28 manufactured home communities
containing approximately 5,700 homesites, currently managed by the Company.
On August 21, 1997, The Company declared a cash dividend/distribution of
$.43 per share/OP unit to shareholders and OP Unitholders of record as of
September 30, 1997. The dividend was paid on October 15, 1997 and is
included in accrued dividends and distributions in the accompanying
condensed consolidated balance sheet as of September 30, 1997.
5
<PAGE>
On May 22, 1997, the Company declared a cash dividend/distribution of $.43
per share/OP Unit to shareholders and OP Unitholders of record as of
September 30, 1997. The dividend/distribution was paid on July 15, 1997.
On March 20, 1997, the Company declared a cash dividend/distribution of
$.43 per share/OP Unit to shareholders and OP Unitholders of record as of
March 31, 1997. The dividend/distribution was paid on April 14, 1997.
On November 13, 1996, the Company declared a cash dividend/distribution of
$.405 per share/OP unit to shareholders and OP Unitholders of record as of
December 31, 1996. The dividend/ distribution was paid on January 15, 1997
and is included in accrued dividends and distributions in the accompanying
condensed consolidated balance sheet as of December 31, 1996.
4. DEBT:
The following table sets forth certain information regarding debt at
September 30, 1997.
<TABLE>
<CAPTION>
WEIGHTED
INTEREST RATE MATURITY DATE PRINCIPAL BALANCE
------------- ------------- -----------------
<S> <C> <C> <C>
Fixed Rate Mortgage Debt 7.94 % 1998-2011 $ 115,486
Unsecured Senior Notes 8.16 % 2000-2003 145,000
Unsecured Lines of Credit 6.77 % - 87,751
Other notes payable various various 2,002
------------
$ 350,239
------------
------------
</TABLE>
5. CONTINGENCIES:
Several claims and legal actions arising from the normal course of
business, none of which are environmental related matters, have been
asserted against the Company, and are pending final resolution. Although
the amount of liability at September 30, 1997, if any, with respect to
these matters is not determinable, in the opinion of management, none of
these matters will result in material liability.
6. SUBSEQUENT EVENT:
On November 6, 1997, the Company announced the acquisition of four
manufactured home communities for an aggregate purchase price of $20
million. The acquisition was financed with the issuance of 16,480 OP units
and the remainder with cash funded by its line of credit and a bridge
facility issued as an extension to its line of credit. The communities are
located near Boston, Massachusetts and contain more than 600 homesites.
6
<PAGE>
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 three and nine months ended September 30, 1997
and 1996 and should be read in conjunction with the Condensed Consolidated
Financial Statements and Notes thereto included in this report. Certain
statements in this report constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements.
On February 11, 1997, the Company completed its merger ("the "Merger") with
ROC Communities, Inc. ("ROC"). The historical results of the Company in 1997
include the results of operations of ROC since February 1, 1997.
HISTORICAL RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
For the three months ended September 30, 1997, income before minority
interest was $5,670,000, an increase of $1,715,000 from the three months
ended September 30, 1996. The increase was due primarily to the Merger, as
well as acquisitions that were consummated in 1997 and 1996 by the Company or
ROC, and increased net operating income from communities owned by the Company
and ROC on at the beginning of the period (the "Core 1996 Portfolio"). The
increase in net operating income from the Company's Core 1996 Portfolio was
due to increased occupancy and rental increases partially offset by general
operating expense increases.
Rental revenue in the three months ended September 30, 1997 was $34,032,000;
an increase of $17,078,000 from the three months ended September 30, 1996.
Approximately 85 percent of the increase was due to the Merger, and 6 percent
was due to 1997 and 1996 acquisitions made by the Company or ROC. The
remaining 9 percent increase was due to rental increases and occupancy gains
in the Company's Core 1996 Portfolio.
Weighted average occupancy for the three months ended September 30, 1997 was
39,653 compared with 19,064 for the same period in 1996. The occupancy rate
was 91.7 percent on approximately 43,300 sites as of September 30, 1997,
compared to 95.4 percent on approximately 20,000 sites as of September 30,
1996. The decrease in the occupancy rate is due to the increase in available
sites added through expansions of existing communities and the acquisition of
six development communities in 1996. The occupancy rate on the stabilized
portfolio was 94.2 percent as of September 30, 1997. On a per site basis,
weighted average monthly rental revenue for the three months ended September
30, 1997 was $288 compared with $289 in the same period of 1996. The decrease
is due to the properties acquired having a lower per site monthly rent. For
the Company's Core 1996 Portfolio, on a per site basis, weighted average
monthly rental revenue for the three months ended September 30, 1997 was $291
compared with $279 for the same period in 1996, an increase of 4.5 percent.
Management fee, interest and other income primarily include management fee
income for the management of 32 manufactured home communities, equity
earnings from the Company's sales subsidiary and interest income on notes
receivable. The increase in 1997 from 1996 is due primarily to business
activities acquired in conjunction with the Merger.
Property operating and maintenance expense for the three months ended
September 30, 1997 increased by $4,709,000 or 97 percent from the same period
a year ago. The majority of the increase was due to the Merger and 1997 and
1996 acquisitions. The remaining increase was due to increases in the
Company's Core 1996 Portfolio. On a per site basis, monthly weighted average
property operating and maintenance expense decreased 4.7 percent from
approximately $85 in 1996 to approximately $81 in 1997.
7
<PAGE>
Real estate taxes for the three months ended September 30, 1997, increased by
$1,346,000 or 109 percent from the three months ended September 30, 1996.
The increase is due primarily to the Merger, acquisitions and expansions of
communities and general 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 the three months ended September 30, 1997
increased due to the Merger. Administrative expense in 1997 was 4.9 percent
of revenues as compared to 5.2 percent in 1996.
Interest and related amortization costs increased for the three months ended
September 30, 1997 by $3,558,000, as compared with the three months ended
September 30, 1996. The increase is attributable to the indebtedness
incurred in connection with the Merger and to finance the 1997 and 1996
acquisitions. Interest expense as a percentage of average debt outstanding
decreased to approximately 7.7 percent in 1997 from approximately 8.4 percent
in 1996. The decrease is due primarily to the ROC debt assumed in the Merger
having a lower average interest rate as well as much of the financing in
connection with the Merger and the 1997 and 1996 acquisitions being done with
the Company's lines of credit which have a lower average interest rate. In
addition, in July 1997, the Company renegotiated its lines of credit into a
new line with a lower borrowing rate of 110 basis points over LIBOR versus
150 basis points over LIBOR on the old lines.
Depreciation expense for the three months ended September 30, 1997, increased
$6.1 million from the same period a year ago. The increase is directly
attributable to the Merger and acquisitions.
Depreciation expense as a percentage of average depreciable rental property
in 1997 remained relatively unchanged from 1996.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
For the nine months ended September 30, 1997, income before minority interest
was $17,380,000, an increase of $5,505,000 from the nine months ended
September 30, 1996. The increase was due primarily to the Merger, as well as
acquisitions that were consummated in 1997 and 1996 by the Company or ROC,
and increased net operating income from the Core 1996 Portfolio. The
increase in net operating income from the Company's Core 1996 Portfolio was
due to increased occupancy and rental increases partially offset by general
operating expense increases.
Rental revenue in the first nine months of 1997 was $95,723,000 an increase
of $45,623,000 from the first nine months of 1996. Approximately 77 percent
of the increase was due to the Merger, and 12 percent was due to 1997 and
1996 acquisitions made by the Company or ROC. The remaining 11 percent
increase was due to rental increases and occupancy gains in the Company's
Core 1996 Portfolio. Weighted average occupancy for the nine months ended
September 30, 1997 was 37,390 compared with 18,813 for the same period in
1996. On a per site basis, weighted average monthly rental revenue for the
nine months ended September 30, 1997 was $286 compared with $287 in the same
period of 1996. The decrease is due to the properties acquired having a lower
per site monthly rent. For the Company's Core 1996 Portfolio, on a per site
basis, weighted average monthly rental revenue for the nine months ended
September 30, 1997 was $293 compared with $277 for the same period in 1996,
an increase of 5.9 percent.
Management fee, interest and other income primarily includes management fee
income for the management of 32 manufactured home communities; equity
earnings form the Company's sales subsidiary and interest income on notes
receivable. The increase in 1997 from 1996 is due primarily to business
activities acquired in conjunction with the Merger.
Property operating and maintenance expense for the nine months ended
September 30, 1997 increased by $11,420,000 or 82 percent from the same period
a year ago. The majority of the increase was due to the Merger and 1997 and
1996 acquisitions. The remaining increase was due to increases in the
Company's Core 1996 Portfolio. On a per site basis, monthly weighted average
property operating and maintenance expense decreased 8.3 percent from
approximately $82 in 1996 to approximately $75 in 1997
8
<PAGE>
Real estate taxes for the first nine months ended September 30, 1997,
increased by $3,665,000 or 102 percent from the first nine months ended
September 30, 1996. The increase is due primarily to the Merger,
acquisitions and expansions of communities and general 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 the
first nine months of 1997 increased due to the Merger. Administrative
expense in 1997 was 5.4 percent of revenues as compared to 5.8 percent in
1996.
Interest and related amortization costs increased for the nine months ended
September 30, 1997 by $9,411,000, as compared with the nine months ended
September 30, 1996. The increase is attributable to the indebtedness
incurred in connection with the Merger and to finance the 1997 and 1996
acquisitions. Interest expense as a percentage of average debt outstanding
decreased to approximately 7.7 percent in 1997 from approximately 8.6 percent
in 1996. The decrease is due primarily to the ROC debt assumed in the Merger
having a lower average interest rate as well as much of the financing in
connection with the Company's Merger and the 1997 and 1996 acquisitions being
done with the Company's lines of credit which have a lower average interest
rate. In addition, in July 1997, the Company renegotiated its lines of
credit into a new line with a lower borrowing rate of 110 basis points over
LIBOR versus 150 basis points over LIBOR on the old lines.
Depreciation expense for the nine months ended September 30, 1997, increased
$15.6 million from the same period a year ago. The increase is directly
attributable to the Merger and acquisitions. Depreciation expense as a
percentage of average depreciable rental property in 1997 remained relatively
unchanged from 1996.
Liquidity and Capital Resources
Net cash provided by operating activities was $35,695,000 for the nine months
ended September 30, 1997, compared to $21,329,000 for the nine months ended
September 30, 1996. The increase in cash provided by operating activities
was due primarily to the increase in net operating income.
Net cash used in financing activities for the nine months ended September 30,
1997 was $5,401,000. Use of cash included distributions made to
shareholders/OP Unitholders of $29,929,000; net borrowings on the lines of
credit of $16,917,000 and the payment of $19,851,000 to repurchase and retire
750,000 shares of the Company's common stock in connection with the Merger.
The shares purchased in 1997 and 1996 as a part of the program were purchased
at an average price of approximately $25.75. This use of cash was offset
partially by proceeds of $25,477,000 from the issuance of 984,423 shares of
the Company's common stock at approximately $25.88 per share.
Net cash used in investing activities for the nine months ended September 30,
1997 was $30,565,000. This amount represented joint venture investments,
acquisitions, capital expenditures and construction and development costs.
Also included in this is the investment in the Windsor Corporation financed
with the issuance of 101,239 shares of common stock at a price of
approximately $29 per share and $750,000 in cash. For the nine months ended
September 30, 1997, construction and development costs, including joint
ventures, were approximately $7.2 million, while recurring property capital
expenditures, other than construction and development costs, were
approximately $2.9 million. Recurring property capital expenditures in 1997
increased due to the Company's larger size. 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.
On November 6, 1997 the Company announced the acquisition of four
manufactured home communities for an aggregate purchase price of $20 million.
The acquisition was financed with the issuance of 16,480 OP units and the
remainder with cash funded by its line of credit and an interim bridge
facility issued in connection with its line of credit. The communities are
located near Boston, Massachusetts and contain more than 600 homesites.
9
<PAGE>
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. At September 30, the Company had available a credit facility
of $100 million, including a term loan for $25 million. As of September 30,
1997, there was $87.8 million outstanding under the line of credit.
The line of credit has First Chicago/NBD acting as lead agent. It is
unsecured and bears interest at 110 basis points over LIBOR.
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 its line of credit, from the issuance of additional debt or
equity securities and cash flows from operations.
OTHER
Funds from operations ("FFO") is defined by the National Association of Real
Estate Investment Trusts (NAREIT) as net income excluding gains (or losses)
from debt restructuring and sales of property plus rental property
depreciation and amortization. Management believes that FFO is an important
and widely used measure of the operating performance of REITs which provides
a relevant basis for comparison among REITs. FFO (i) does not represent cash
flow from operations as defined by generally accepted accounting principles;
(ii) should not be considered as an alternative to net income as a measure of
operating performance or to cash flows from operating, investing and
financing activities; and (iii) is not an alternative to cash flows as a
measure of liquidity. FFO is calculated as follows:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
-------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income before minority interest $ 5,670 $ 3,955 $ 17,380 $ 11,875
Depreciation of rental property 8,796 2,814 23,674 8,448
Amortization of other intangibles 110 -- 296 --
---------- ---------- ----------- -----------
Funds from operations $ 14,576 $ 6,769 $ 41,350 $ 20,323
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
On a pro forma basis, FFO is calculated as follows:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
------------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income before minority interest $ 5,670 $ 4,802 $ 17,811 $ 14,377
Depreciation of rental property 8,796 8,129 25,484 24,645
Amortization of other intangibles 110 146 333 386
--------- --------- ---------- -----------
Funds from operations $ 14,576 $ 13,077 $ 43,628 $ 39,408
--------- --------- ---------- -----------
--------- --------- ---------- -----------
</TABLE>
10
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Three separate purported class actions have been filed against the Company
and its directors in the Circuit Court of Montgomery County, Maryland
alleging breaches of fiduciary duty for agreeing to the Merger with ROC and
refusing to endorse alternative transactions proposed by Manufactured Home
Communities, Inc. or Sun Communities, Inc. The three class actions are
entitled HARBOR FINANCE PARTNERS V. CHATEAU PROPERTIES, et al. (Case No.
157467), NILES V. CHATEAU PROPERTIES, ET AL. (Case No. 158284), AND ZSA ASSET
ALLOCATION FUND V. BOLL, ET AL. (Case No. 158652) and were filed on or about
September 12, 1996, September 27, 1996 and October 4, 1996, respectively.
The Company believes that such litigation (which has been consolidated) is
entirely without merit and intends to vigorously defend such litigation if
pursued.
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
None
12
<PAGE>
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, and in the capacities indicated, on
the 14th day of November, 1997.
CHATEAU COMMUNITIES, 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)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEETS FOUND ON PAGES
1 AND 2 OF THE COMPANY 10-Q FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 315
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 817,647
<DEPRECIATION> 105,148
<TOTAL-ASSETS> 749,794
<CURRENT-LIABILITIES> 0
<BONDS> 387,385
0
0
<COMMON> 0
<OTHER-SE> 362,409
<TOTAL-LIABILITY-AND-EQUITY> 749,794
<SALES> 0
<TOTAL-REVENUES> 98,237
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 62,029
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,828
<INCOME-PRETAX> 15,135
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,135
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
</TABLE>
