<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1998
-------------
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 Identification No.)
of incorporation or organization)
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 Registrant's Common Stock, $0.01 par value,
on August 10, 1998 was 27,618,354 shares.
<PAGE> 2
CHATEAU COMMUNITIES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1998 and 1997 1
Condensed Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997 2
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997 3
Notes to Condensed Consolidated Financial Statements 4-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II. OTHER INFORMATION 14
SIGNATURES 15
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHATEAU COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Rental income $42,214 $34,817 $81,307 $63,725
Management fee, interest and other income 1,535 783 2,647 1,251
------- ------- ------- -------
43,749 35,600 83,954 64,976
Expenses:
Property operating and maintenance 11,810 9,746 22,886 17,755
Real estate taxes 3,071 2,565 6,026 4,694
Depreciation and amortization 9,849 8,499 18,958 15,176
Administrative 1,973 2,025 4,123 3,571
Interest and related amortization 8,010 6,642 15,556 12,070
------- ------- ------- -------
34,713 29,477 67,549 53,266
------- ------- ------- -------
Income before minority interests 9,036 6,123 16,405 11,710
Less income allocated to minority interests:
Preferred OP Units 1,202 1,202
Common OP Units 931 560 1,710 1,692
------- ------- ------- -------
Net income available to
common shareholders $ 6,903 $ 5,563 $13,493 $10,018
======= ======= ======= =======
Basic earnings per common share $ .25 $ .22 $ .50 $ .45
======= ======= ======= =======
Diluted earnings per common share $ .25 $ .22 $ .50 $ .45
======= ======= ======= =======
Dividends/distributions declared
per common share/OP Unit outstanding $ .455 $ .43 $ .91 $ .86
======= ======= ======= =======
Weighted average common shares
outstanding 27,312 25,253 26,844 22,079
======= ======= ======= =======
Weighted average common shares/
OP Units outstanding 30,995 28,009 30,245 25,809
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral
part of the financial statements.
1
<PAGE> 4
CHATEAU COMMUNITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1998 1997
--------- ---------
<S> <C> <C>
Rental property:
Land $ 134,294 $ 111,832
Land and improvements for expansion sites 18,058 14,437
Depreciable property 854,870 709,906
---------- ---------
1,007,222 836,175
Less accumulated depreciation 131,041 112,314
---------- ---------
Net rental property 876,181 723,861
Cash and cash equivalents 125 14,910
Receivables 3,661 2,936
Notes receivable 8,052 8,143
Investment in and advances to affiliates 41,856 21,646
Prepaid expenses and other assets 12,420 11,242
---------- ---------
Total assets $ 942,295 $ 782,738
========== =========
LIABILITIES
Debt $ 398,599 $ 387,015
Accounts payable and accrued expenses 21,638 19,757
Tenants' security deposits and rents received in advance 6,721 5,580
Accrued dividends and distributions 15,300 12,148
---------- ---------
Total liabilities 442,258 424,500
Minority Interests 124,417 35,272
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 2 million shares
authorized; no shares issued or outstanding
Common stock; $.01 par value, 90 million shares authorized;
27,301,101 and 25,476,172 shares issued and outstanding
at June 30, 1998 and December 31, 1997, respectively 273 255
Additional paid-in capital 420,799 356,780
Dividends in excess of accumulated earnings (44,573) (33,174)
Notes receivable from officers, 49,507 shares (879) (895)
---------- ---------
Total shareholders' equity 375,620 322,966
---------- ---------
Total liabilities and shareholders' equity $ 942,295 $ 782,738
========== =========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
2
<PAGE> 5
CHATEAU COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997.
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,493 $ 10,018
Adjustments to reconcile net income to net cash
provided by operating activities:
Income attributable to limited partners' interest 1,710 1,692
Depreciation and amortization 18,958 15,176
Increase in accrued preferred distributions 1,202 --
Amortization of deferred financing costs 377 217
Decrease (increase) in operating assets (2,401) (5,120)
Increase (decrease) in operating liabilities 3,022 (2,004)
-------- --------
Net cash provided by operating activities 36,361 19,979
Cash flows from financing activities:
Borrowings on the line of credit 67,026 40,030
Payments on the line of credit (86,800) (29,320)
Mortgage principal payments (1,221) (725)
Dividends/distributions to shareholders/OP Unitholders (26,006) (17,878)
Common shares/OP Units reacquired and retired (930) (19,851)
Proceeds from the issuance of common shares 53,924 25,477
Net proceeds from the issuance of Preferred OP Units 73,002 --
Exercise of common stock options and other financing activities 223 1,567
-------- --------
Net cash provided by (used in) financing activities 79,218 (700)
Cash flows from investing activities:
Acquisition of rental properties (105,556) (2,180)
Additions to rental property (4,587) (6,089)
Investment in and advances to joint ventures/affiliates (20,221) --
Payment of merger costs -- (11,438)
-------- --------
Net cash used in investing activities (130,364) (19,707)
-------- --------
Decrease in cash and cash equivalents (14,785) (428)
Cash and cash equivalents, beginning of period 14,910 586
-------- --------
Cash and cash equivalents, end of period $ 125 $ 158
======== ========
Supplemental cash flow information:
Fair market value of common shares/OP Units issued in connection with acquisitions $ 28,323 $ 98
======== ========
Debt assumed in connection with acquisitions $ 32,579 $ --
======== ========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
3
<PAGE> 6
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, 1997.
On February 11, 1997, the Company completed a strategic merger of
equals (the "Merger") with ROC Communities, Inc. ("ROC"). 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 were included in the results of operations
of the Company beginning in February 1997.
2. ACQUISITION OF RENTAL PROPERTIES
During the second quarter of 1998, the Company completed the following
acquisitions:
<TABLE>
<CAPTION>
Acquisition Acquisition Purchase
Date and Location Price
---- ------------ -----
(in thousands)
<S> <C>
April 1998 Purchase of 12 communities in Michigan $ 75,300
(10) and North Carolina (2), containing
an aggregate of 3,036 homesites
</TABLE>
4
<PAGE> 7
CHATEAU COMMUNITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
2. ACQUISITION OF RENTAL PROPERTIES CONTINUED:
During the first quarter of 1998, the Company completed the following
acquisitions:
<TABLE>
<CAPTION>
Acquisition Acquisition Purchase
Date and Location Price
---- ------------ -----
(in thousands)
<S> <C> <C>
January 1998 Purchase of 2 communities in South Carolina, $15,800
containing an aggregate of 961 homesites
January 1998 Purchase of 11 manufactured home communities and 3
park model/RV communities in Connecticut (4) and
Florida (10), containing an aggregate of 1,372
homesites and 1,359 park model/RV sites $38,200
March 1998 Purchase of 6 communities in Indiana (5) and
Michigan (1), containing an aggregate of 1,521 $37,200
homesites -------
$91,200
=======
</TABLE>
The Company's total investment of $166.5 million was financed primarily
by the assumption of $32.5 million of mortgage and other notes, the
issuance of 923,828 OP Units, borrowing under the Company's lines of
credit and the proceeds received from the issuance of common stock in
April 1998. The lines of credit were subsequently repaid with the
issuance of $75 million of Preferred OP Units.
As of June 30, 1998, the Company owned 165 communities with an
aggregate of 50,891 residential homesites and 1,359 park model/RV
sites. In addition, it fee managed approximately 7,100 residential
homesites in 34 communities.
3. EQUITY FINANCINGS; COMMON STOCK AND RELATED TRANSACTIONS :
On April 20, 1998, the Company through its Operating Partnership
completed the issuance of $75 million of 8.125% Series A Cumulative
Redeemable Preferred Units (the "Series A Preferred Units"). The
proceeds of this issuance were used to pay off the outstanding balances
on the Company's line of credit, which were used to finance the
acquisition of properties. The Series A Preferred Units were issued in
a private placement exempt from the registration requirements of the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.
In February 1998, the Company received net proceeds of approximately
$53.9 million from the issuance of 1,850,000 shares of its common
stock. The proceeds from the offering were used to finance the March
1998 acquisitions and to reduce outstanding balances under the
Company's line of credit, which were used to finance the January 1998
acquisitions.
5
<PAGE> 8
CHATEAU COMMUNITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
3. EQUITY FINANCINGS; COMMON STOCK AND RELATED TRANSACTIONS CONTINUED:
On May 21, 1998, the Company declared a cash dividend/distribution of
$.455 per common share/OP Unit to shareholders and OP Unitholders of
record as of June 30, 1998. The dividend/distribution was paid on July
15, 1998 and is included in accrued dividends and distributions in the
accompanying condensed consolidated balance sheet as of June 30, 1998.
On February 25, 1998, the Company declared a cash dividend/distribution
of $.455 per common share/OP Unit to shareholders and OP Unitholders of
record as of June 30, 1998. The dividend/distribution was paid on April
14, 1998.
On November 20, 1997, the Company declared a cash dividend/distribution
of $.43 per common share/OP Unit to shareholders and OP Unitholders of
record as of December 29, 1997. The dividend/distribution was paid on
January 15, 1998 and is included in accrued dividends and distributions
in the accompanying condensed balance sheet as of December 31, 1997.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share". SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS") and replaces the presentation of
primary EPS with a presentation of basic EPS and diluted EPS, as
summarized in the table below:
<TABLE>
<CAPTION>
(In thousands, except per share data) FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
-------------------------- -------------------------
JUNE 30, JUNE 30,
------- -------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic EPS:
Income (1) .................................... $ 7,834 $ 6,123 $ 15,203 $ 11,710
Shares (2) .................................... 30,995 28,009 30,245 25,809
Per Share ..................................... $ .25 $ .22 $ .50 $ .45
Diluted EPS:
Income (1) ..................................... $ 7,834 $ 6,123 $ 15,203 $ 11,710
Shares (3) ..................................... 31,298 28,212 30,565 26,022
Per Share ...................................... $ .25 $ .22 $ .50 $ .45
</TABLE>
(1) Represents income before minority interests less the income allocated
to Preferred OP Units
(2) Represents the weighted average common shares and OP Units outstanding
(3) Represents the weighted average common shares and OP Units outstanding,
as well as dilutive stock options
6
<PAGE> 9
CHATEAU COMMUNITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
4. DEBT:
The following table sets forth certain information regarding debt at
June 30, 1998.
<TABLE>
<CAPTION>
Weighted
Interest Rate Maturity Date Principal Balance
------------- ------------- -----------------
<S> <C> <C> <C>
Fixed Rate Mortgage Debt 7.88 % 1998-2011 $ 132,466
Unsecured Senior Notes 7.46 % 2000-2004 245,000
Unsecured Line of Credit 6.90 % 1999 5,226
Other notes payable various various 15,907
-----------
$ 398,599
===========
</TABLE>
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes thereto included elsewhere in this
report. Certain statements in this discussion constitute "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. 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 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 a strategic merger of equals (the
"Merger") with ROC Communities, Inc. ("ROC"). 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 were included in the
results of operations of the Company beginning in February 1997.
RESULTS OF OPERATIONS
Comparison of three months ended June 30, 1998 to three months ended June 30,
1997
For the three months ended June 30, 1998, income before minority interests was
$9,036,000, an increase of $2,913,000 from the three months ended June 30, 1997.
The majority of the increase was due to the acquisitions made in 1997 and during
the first half of 1998 and increased net operating income from the communities
owned by the Company or ROC at the beginning of the 1997 period (Core 1997
Portfolio).
Rental revenue for the three months ended June 30, 1998 was $42,214,000, an
increase of $7,397,000 from the three months ended June 30, 1997. Approximately
72 percent of the increase was due to the acquisitions in 1997 and the first
half of 1998. Rental revenue increased 6 percent due to rent increases and
occupancy gains from the Company's Core 1997 Portfolio.
Weighted average occupancy for the three months ended June 30, 1998 was 46,717
sites compared with 39,686 sites for the same period in 1997. The occupancy rate
was 92.1 percent on 50,891 sites as of June 30, 1998, compared to 91.4 percent
on 43,306 sites as of June 30, 1997. The occupancy rate on the stabilized
portfolio was 93.4 percent as of June 30, 1998. On a per site basis, weighted
average monthly rental revenue for the three months ended June 30, 1998 was $289
compared with $284 in the same period of 1997. For the Company's Core 1997
Portfolio, on a per site basis, weighted average monthly rental revenue for the
three months ended June 30, 1998 was $298 compared with $284 for the same period
in 1997, an increase of 4.8 percent.
Management fee, interest and other income primarily includes management fee
income for the management of 34 manufactured home communities, equity earnings
from Community Sales, Inc., the Company's sales subsidiary ("CSI") and interest
income on notes receivable and advances to joint ventures/affiliates.
Property operating and maintenance expense for the three months ended June 30,
1998 increased by $2,064,000 or approximately 21.0 percent from the same period
a year ago. The majority of the increase was due to the 1997 and 1998
acquisitions. The remaining increase is due to increases in the Company's Core
1997 Portfolio. On a per site basis, monthly weighted average property operating
and maintenance expense increased 2.9 percent from $82 for the three months
ended June 30, 1997 to $84 for the same period in 1998.
8
<PAGE> 11
Real estate taxes for the three months ended June 30, 1998, increased by
$506,000 or 19.7 percent from the three months ended June 30, 1997. The increase
is due primarily to acquisitions and expansions of communities and general
increases. On a per site basis, monthly weighted average real estate taxes were
$21.90 for the three months ended June 30, 1998 compared to $21.50 for the same
period in 1997. Real estate taxes may increase or decrease in the future 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 June 30, 1998 decreased
slightly compared to the same period in 1997. Administrative expense in 1998 was
4.5 percent of revenues as compared to 5.7 percent in 1997.
Interest and related amortization costs increased for the three months ended
June 30, 1998 by $1,368,000, as compared with the three months ended June 30,
1997. The increase is attributable primarily to the indebtedness incurred to
finance the acquisitions. Interest expense as a percentage of average debt
outstanding decreased to approximately 7.6 percent in 1998 from approximately
7.7 percent in 1997. The decrease is due primarily to the issuance of $100
million of the MandatOry Par Put Remarketing Securities in December 1997 at an
effective rate of 6.44 percent and a lower borrowing rate of 110 basis points
over LIBOR on the Company's short term lines of credit.
Depreciation expense for the three months ended June 30, 1998 increased
$1,350,000 from the same period a year ago. The increase is directly
attributable to acquisitions. Depreciation expense as a percentage of average
depreciable rental property in 1998 remained relatively unchanged from 1997.
Comparison of six months ended June 30 1998 to six months ended June 30, 1997
For the six months ended June 30, 1998, income before minority interests was
$16,405,000, an increase of $4,695,000 from the six months ended June 30, 1997.
The increase was due primarily to the Merger, the acquisitions and increased net
operating income from communities in the Company's Core 1997 Portfolio.
Rental revenue for the first half of 1998 was $81,307,000; an increase of
$17,582,000 from the first half of 1997. The majority of the increase was due to
the Merger and the acquisitions in 1997 and in 1998. Rental revenue increased 6
percent due to rent increases and occupancy gains in the Company's Core 1997
Portfolio.
Weighted average occupancy for the six months ended June 30, 1998 was 44,740
sites compared with 36,249 sites for the same period in 1997. On a per site
basis, weighted average monthly rental revenue for the six months ended June 30,
1998 was $291 compared with $284 in the same period of 1997. For the Company's
Core 1997 Portfolio, on a per site basis, weighted average monthly rental
revenue for the six months ended June 30, 1998 was $297 compared with $283 for
the same period in 1997, an increase of 4.8 percent.
Property operating and maintenance expense for the six months ended June 30,
1998 increased by $5,131,000 from the same period a year ago. The majority of
the increase was due to the Merger and 1997 and 1998 acquisitions. The remaining
increase is due to increases in the Company's Core 1997 Portfolio. On a per site
basis, monthly weighted average property operating and maintenance expense
increased 4.4 percent from $82 for the six months ended June 30, 1997 to $85 for
the same period in 1998. A portion of this increase is due to the operating
expenses related to the properties managed by the Company for a management fee
beginning in February 1997.
Real estate taxes for the six months ended June 30, 1998, increased by
$1,332,000 or 28 percent from the six months ended June 30, 1997. The increase
is due primarily to the Merger, acquisitions and expansions of communities and
general increases. On a per site basis, monthly weighted real estate taxes were
$22.40 for the six months ended 1998 compared to $21.60 for the same period in
1997. Real estate taxes may increase or decrease in the future 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 six months ended June 30, 1998 increased due to
the Company's increased size. Administrative expense in 1998 was 4.9 percent of
revenues as compared to 5.5 percent in 1997.
9
<PAGE> 12
Interest and related amortization costs increased for the six months ended June
30, 1998 by $3,486,000, as compared with the six months ended June 30, 1997. The
increase is attributable to the indebtedness incurred to finance the 1997 and
1998 acquisitions. Interest expense as a percentage of average debt outstanding
decreased to approximately 7.6 percent in 1998 from approximately 7.7 percent in
1997. The decrease is due primarily to the issuance of $100 million of the
MandatOry Par Put Remarketing Securities in December 1997 at an effective rate
of 6.44 percent and a lower borrowing rate of 110 basis points over LIBOR on the
Company's short term lines of credit.
Depreciation expense for the three months ended June 30, 1998 increased
$3,782,000 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 1998 remained relatively
unchanged from 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $36,361,000 for the six months
ended June 30, 1998, compared to $19,979,000 for the six months ended June 30,
1997. 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 the six months ended June 30, 1998
was $79,218,000. This was due primarily to the proceeds received from the
issuance in February 1998 of common stock of approximately $53.9 million and the
net proceeds of $73 million received from the issuance in April 1998 of $75
million of Series A Preferred Units to an institutional investor, offset
partially by $26 million in dividends and distributions paid to shareholders and
OP Unitholders in the first six months of 1998 and net repayments on the lines
of credit of $20 million.
On April 20, 1998, the Company through its operating partnership, CP Limited
Partnership, completed the issuance of $75 million of 8.125% Series A Cumulative
Redeemable Preferred Units (the "Series A Preferred Units"). The proceeds of
this issuance were used to pay off the outstanding balances on the Company's
lines of credit, which were used to finance the acquisition of properties. The
Series A Preferred Units were issued in a private placement exempt from the
registration requirement of the Securities Act of 1933, as amended, pursuant to
section 4(2) thereof.
10
<PAGE> 13
Net cash used in investing activities for the six months ended June 30, 1998 was
$130,364,000. This amount represents acquisitions, joint venture investments,
capital expenditures and construction and development costs. In the first six
months of 1998, the Company acquired, through four separate portfolio
acquisitions, 31 manufactured home communities and three park model/RV
communities with a total of 6,890 homesites and 1,359 park model/RV sites. Nine
of the properties acquired, containing approximately 900 homesites and 1,100
park model/RV sites, are subject to long term ground leases. The Company's total
investment of $166.5 million was financed primarily by the assumption of $32.5
million of mortgage and other notes, the issuance of 923,828 OP Units, borrowing
under the Company's lines of credit and the proceeds received from the issuance
of common stock. The lines of credit were subsequently repaid with the issuance
of $75 million of Preferred OP Units. For the six months ended June 30, 1998,
construction and development costs, including joint venture investments and
advances were approximately $9.8 million, while recurring property capital
expenditures, other than construction and development costs, were approximately
$2.4 million. Capital expenditures have historically been financed out of funds
from operations and it is the Company's intention that such future expenditures
will be financed with funds from operations.
As of June 30, 1998, the Company had available two credit facilities with the
First National Bank of Chicago and other lenders, consisting of a $25 million
term loan and a $75 million revolving line of credit (the "First Chicago Credit
Facilities"). The interest rate on the revolving credit facility was LIBOR plus
110 basis points. In addition, the Company has a $7.5 million revolving line of
credit from Colorado National Bank which bears interest at a rate of LIBOR plus
125 basis points (the "CNB Facility" and , together with the First Chicago
Credit Facilities, the "Credit Facilities"). As of June 30, 1998, approximately
$5.2 million was outstanding under the Credit Facilities and the Company had
available $77.3 million in additional borrowing capacity.
In August 1998, the Company renegotiated its Credit Facilities with the First
National Bank of Chicago increasing the facility from $75 million to $100
million. The interest rate was reduced from 110 basis points to a maximum of
LIBOR plus 80 basis points and its maturity date was extended to 2001.
In December 1997, the Company issued 6.92% MandatOry Par Put Remarketed
Securities(SM) ("MOPPRS(SM)") due December 10, 2014. The net proceeds to the
Company from the issuance before deducting offering expenses, were approximately
$102.0 million. The net proceeds from the MOPPRS(SM) were utilized primarily to
reduce outstanding balances under the Credit Facilities and to finance
acquisitions. The MOPPRS(SM) are rated as "BBB" by Standard & Poor's Rating
Service and "Baa3" by Moody's Investors Service.
In connection with the issuance of the MOPPRS(SM), the Company and the Operating
Partnership entered into a Remarketing Agreement, dated as of December 23, 1997
(the "Remarketing Agreement"), with the remarketing dealer named therein (the
"Remarketing Dealer"), pursuant to which the MOPPRS(SM) are subject to mandatory
tender in favor of the Remarketing Dealer on December 10, 2004 (the "Remarketing
Date"), for a purchase price equal to 100% of the principal amount of the
outstanding MOPPRS(SM). Upon the Remarketing Dealer's election to remarket the
MOPPRS(SM), the interest rate to the December 10, 2014 maturity date of the
MOPPRS(SM) will be adjusted to equal the sum of 5.75% plus the Applicable Spread
(as defined in the Remarketing Agreement). In the event the Remarketing Dealer
does not elect to remarket the MOPPRS(SM), the MOPPRS(SM) will mature on the
Remarketing Date.
As of June 30, 1998, the Company had outstanding, in addition to the Credit
Facilities and the MOPPRS(SM), $145 million of other unsecured senior debt with
a weighted average interest rate and maturity of 8.2 percent and 3.5 years,
respectively, and $132 million of secured mortgage debt with a weighted average
interest rate and maturity of 7.88 percent and 2.9 years, respectively.
Repayment of long-term borrowings and amounts outstanding under the Credit
Facilities, future acquisitions of communities and land for development and new
community development activities represent the principal long-term liquidity
needs of the Company. The Company does not expect to generate sufficient funds
from operations to finance these long-term liquidity needs and instead intends
to meet its long-term liquidity requirements through additional borrowing under
the Credit Facilities or other lines of credit, the issuance of additional
equity or debt securities and the assumption of existing secured or unsecured
indebtedness.
11
<PAGE> 14
The Company expects to meet its short-term liquidity requirements, including
expansion activities and capital expenditure requirements, through cash flow
from operations and, if necessary, borrowings under the Credit Facilities and
other lines of credit.
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>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FFO Reconciliation:
Income before minority interests $ 9,036 $ 6,123 $ 16,405 $ 11,710
Plus:
Depreciation and amortization 9,849 8,499 18,958 15,176
Less:
Depreciation expense on
corporate assets (63) (69) (125) (112)
Preferred distributions (1,202) (1,202)
---------- ---------- ---------- ----------
FFO $ 17,620 $ 14,553 $ 34,036 $ 26,774
========== ========== ========== ==========
</TABLE>
12
<PAGE> 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
13
<PAGE> 16
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 agreed to settle the Harbor, Niles, and ZSA actions brought in 1996
for $287,000 plus expenses not to exceed $25,000, subject to court approval.
Reimbursement from the Company's directors' and officers' liability insurer,
Genesis Insurance, Co., is being pursued in the amount of approximately $1.1
million, which includes the amount of the settlement plus expenses incurred in
the course of the defense and settlement of these actions.
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
On May 21, 1998, the Company held its annual meeting of
shareholders. The following matters were voted upon at the
meeting:
1. The election of directors named in the proxy statement:
<TABLE>
<CAPTION>
Abstentions and
Votes for Votes against Broker Non-Votes
--------- ------------- ----------------
<S> <C> <C> <C>
C.G. (Jeff) Kellogg 16,872,857 0 35,321
Edward R. Allen 16,872,857 0 35,321
James M. Hankins 16,872,857 0 35,321
Donald E. Miller 16,872,857 0 35,321
</TABLE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
The Company's Form 8-K filed with the Commission on May 1,
1998.
The Company's Form 8-K filed with the Commission on June 30,
1998.
14
<PAGE> 17
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
13th day of August, 1998.
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)
15
<PAGE> 18
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 125
<SECURITIES> 0
<RECEIVABLES> 3,661
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,007,222
<DEPRECIATION> 131,041
<TOTAL-ASSETS> 942,295
<CURRENT-LIABILITIES> 0
<BONDS> 398,599
0
0
<COMMON> 273
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 942,295
<SALES> 0
<TOTAL-REVENUES> 43,749
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 26,703
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,010
<INCOME-PRETAX> 7,834
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,903
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
