<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For the quarterly period ended June 30, 1999
-------------
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)
6160 South Syracuse Way, Greenwood Village, 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, 1999 was 28,116,831 shares.
<PAGE>
CHATEAU COMMUNITIES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1999 and 1998 1
Condensed Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998 2
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II. OTHER INFORMATION 14-20
SIGNATURES 21
</TABLE>
<PAGE>
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, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 44,119 $ 42,214 $ 88,289 $ 81,307
Management fee, interest and
other income 2,718 1,535 4,156 2,647
--------- --------- --------- ---------
46,837 43,749 92,445 83,954
Expenses:
Property operating and
maintenance 12,482 11,810 24,574 22,886
Real estate taxes 3,167 3,071 6,373 6,026
Depreciation and amortization 10,326 9,849 20,649 18,958
Administrative 2,235 1,973 4,307 4,123
Interest and related amortization 8,127 8,010 16,089 15,556
--------- --------- --------- ---------
36,337 34,713 71,992 67,549
--------- --------- --------- ---------
Income before net gain on sales of
properties
and minority interests 10,500 9,036 20,453 16,405
Net gain on sales of properties 3,141 - 2,805 -
--------- --------- --------- ---------
Income before minority interests 13,641 9,036 23,258 16,405
Less income allocated to minority
interests:
Preferred OP Units 1,524 1,202 3,047 1,202
Common OP Units 1,346 931 2,258 1,710
--------- --------- --------- ---------
Net income available to common
shareholders $ 10,771 $ 6,903 $ 17,953 $ 13,493
========= ========= ========= =========
Per share/OP Unit information:
Basic earnings per common share $ .38 $ . 25 $ .64 $ .50
========= ========= ========= =========
Diluted earnings per common share $ .38 $ . 25 $ .64 $ .50
========= ========= ========= =========
Dividend/distribution declared
per common
share/OP Unit outstanding $ .485 $ .455 $ .97 $ .91
========= ========= ========= =========
Weighted average common shares
outstanding - basic 28,078 27,312 28,020 26,844
========= ========= ========= =========
Weighted average common shares
and OP Units outstanding -
assuming dilution 31,748 31,298 31,716 30,565
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
1
<PAGE>
CHATEAU COMMUNITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
June 30, December 31,
ASSETS 1999 1998
----------- ------------
Rental property:
Land 134,057 135,444
Land and improvements for
expansion sites 15,874 22,184
Depreciable property 880,683 868,881
----------- ------------
1,030,614 1,026,509
Less accumulated depreciation 170,944 151,260
----------- ------------
Net rental property 859,670 875,249
Cash and cash equivalents 6,743 450
Receivables 3,704 3,123
Notes receivable 8,893 7,163
Investment in and advances to
affiliates 88,268 65,473
Prepaid expenses and other assets 8,736 7,736
----------- ------------
Total assets $ 976,014 $ 959,194
----------- ------------
LIABILITIES
Debt $ 451,960 $ 427,778
Accounts payable and accrued
expenses 19,804 21,030
Rents received in advance and
security deposits 7,664 6,898
Dividends and distributions payable 15,829 15,078
----------- ------------
Total liabilities 495,257 470,784
Minority interests in Operating
Partnership 118,904 120,475
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;
28,113,337and 27,936,016 shares
issued and outstanding at June 30,
1999 and December 31, 1998,
respectively 281 279
Additional paid-in capital 436,282 432,711
Dividends in excess of accumulated
earnings (65,889) (56,637)
Notes receivable from officers,
406,569 shares (8,821) (8,418)
----------- ------------
Total shareholders' equity 361,853 367,935
----------- ------------
Total liabilities and
shareholders' equity $ 976,014 $ 959,194
----------- ------------
The accompanying notes are an integral
part of the financial statements.
2
<PAGE>
CHATEAU COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998.
(DOLLARS IN THOUSANDS)
Six Months Ended
June 30,
------------------
1999 1998
-------- ---------
Cash Flows from Operating Activities:
Net income $ 17,953 $ 13,493
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of property (2,805) -
Income attributable to minority interests 5,305 2,912
Depreciation and amortization 20,649 18,958
Amortization of debt issuance costs 407 377
Increase in operating assets (4,153) (2,401)
(Decrease) increase in operating liabilities (460) 3,022
-------- ---------
Net cash provided by operating activities 36,896 36,361
Cash flows from financing activities:
Borrowings on the line of credit 43,201 67,026
Payments on the line credit (10,267) (86,800)
Payoff of mortgages and other debt (8,050) -
Mortgage principal payments (703) (1,221)
Dividends/distributions to shareholders/OP
Unitholders (29,870) (26,006)
Common shares OP Units reacquired and retired - (930)
Proceeds from the issuance of common shares 146 53,924
Net Proceeds from the issuance of Preferred OP Units - 73,002
Exercise of common stock options and other financing
activities 1,480 223
-------- ---------
Net cash (used in) provided by financing
activities (4,063) 79,218
Cash flows from investing activities:
Acquisition of rental properties (5,706) (105,556)
Additions to rental property (7,659) (4,587)
Disposition of rental property 9,620 -
Investment in and advances to joint
ventures/affiliates (22,795) (20,221)
-------- ---------
Net cash used in investing activities (26,540) (130,364)
-------- ---------
Increase (decrease) in cash and cash equivalents 6,293 (14,785)
Cash and cash equivalents, beginning of period 450 14,910
-------- ---------
Cash and cash equivalents, end of period $ 6,743 $ 125
======== =========
Supplemental cash flow information:
Fair Market Value of OP Units/common shares issued in
connection
with acquisitions/development $ 890 $ 28,323
======== =========
Debt assumed in connection with acquisitions $ - $ 32,579
======== =========
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:
----------------------
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, 1998.
2. Rental Property
---------------
On April 1, 1999, the Company purchased a manufactured home community
located in Montgomery, Alabama with 309 homesites for a purchase price of
approximately $4 million.
On April 15, 1999 the Company sold one manufactured home community located
at Bradenton, Florida with 295 home sites for a gross sales price of $8.5
million, resulting in a gain of $3.1 million.
On January 25, 1999, the Company sold one manufactured home community
located in Melbourne, Florida with 217 sites for a gross sales price of
$3,200,000. Upon the sale of the property, the Company recognized a net loss
of $336,000.
As of June 30, 1999, the Company owned 164 communities with an aggregate of
51,156 residential homesites and 1,359 park model/RV sites. In addition, it
fee managed approximately 8,500 residential homesites and 175 park model/RV
sites in 38 communities.
3. Common Stock and Related Transactions:
--------------------------------------
On May 20, 1999, the Company declared a cash dividend/distribution of $.485
per share/OP Unit to shareholders and OP Unitholders of record as of June
30, 1999. The dividend/distribution was paid on July 15, 1999 and is
included in the dividends and distributions payable in the accompanying
condensed consolidated balance sheet as of June 30, 1999.
On February 25, 1999, the Company declared a cash dividend/distribution of
$.485 per share/OP Unit to shareholders and OP Unitholders of record as of
March 31, 1999. The dividend/distribution was paid on April 14, 1999.
On November 18, 1998, the Company declared a cash dividend/distribution of
$.455 per share/OP Unit to shareholders and OP Unitholders of record as of
December 28, 1998. The dividend/distribution was paid on January 15, 1999,
and is included in dividends and distributions payable in the accompanying
condensed consolidated balance sheet as of December 31, 1998.
4
<PAGE>
<TABLE>
<CAPTION>
CHATEAU COMMUNITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
__________
3. Common Stock and Related Transactions Continued:
------------------------------------------------
(In thousands, except per share data) For the three months ended June 30,
---------------------------------------------------
1999 1998
------------------------- ------------------------
<S> <C> <C>
Basic EPS:
Income (1) $ 12,117 $ 7,834
Weighted average common shares outstanding 28,078 27,312
Weighted average common OP Units outstanding 3,497 3,683
------------------------ ------------------------
Weighted average common shares/OP Units - basic 31,575 30,995
------------------------ ------------------------
Per share - basic $ .38 $ .25
======================== ========================
Diluted EPS:
Income (1) $ 12,117 $ 7,834
Weighted average common shares outstanding 28,078 27,312
Weighted average common OP Units outstanding 3,497 3,683
Employee stock options 173 303
------------------------ ------------------------
Weighted average common shares/OP
Units - assuming dilution 31,748 31,298
------------------------ ------------------------
Per share - assuming dilution $ .38 $ .25
======================== ========================
For the six months ended June 30,
---------------------------------------------------
1999 1998
------------------------- ------------------------
Basic EPS:
<S> <C> <C>
Income (1) $ 20,211 $ 15,203
Weighted average common shares outstanding 28,020 26,844
Weighted average common OP Units outstanding 3,521 3,401
------------------------ ------------------------
Weighted average common shares/OP Units - basic 31,541 30,245
------------------------ ------------------------
Per share - basic $ .64 $ .50
======================== ========================
Diluted EPS:
Income (1) $ 20,211 $ 15,203
Weighted average common shares outstanding 28,020 26,844
Weighted average common OP Units outstanding 3,521 3,401
Employee stock options 175 320
------------------------ ------------------------
Weighted average common shares/OP
Units - assuming dilution 31,716 30,565
------------------------ ------------------------
Per share - assuming dilution $ .64 $ .50
======================== ========================
</TABLE>
(1) Represents income before minority interests less the income allocated
to the Preferred OP Units.
5
<PAGE>
CHATEAU COMMUNITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
4. Debt:
-----
The following table sets forth certain information regarding debt of the
Company at June 30, 1999.
<TABLE>
<CAPTION>
Weighted Average
Dollars in thousands: Interest Rate Maturity Date Principal Balance
-------------- ------------- -----------------
<S> <C> <C> <C>
Fixed Rate Mortgage Debt 7.90 % 1999-2011 $ 121,758
Unsecured Senior Notes 7.46 % 2000-2004 245,000
Unsecured Lines of Credit 5.87 % - 69,669
Other notes payable various various 15,533
-------------
$ 451,960
=============
</TABLE>
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities":
("SFAS 133"), which is effective for the Company in the year 2000. The
only derivative instrument the Company currently utilizes is an interest
rate hedge agreement related to the anticipated refinancing of $75 million
of its senior notes. SFAS 133 requires that all derivative instruments be
measured on the balance sheet at fair value. The interest rate hedge
agreement fixes the base rate for the anticipated refinancing at 6.28
percent. The Company anticipates that the adoption of SFAS 133 will not
have a significant effect on its 2000 financial statements.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the consolidated
financial statements and Notes thereto included elsewhere in this Quarterly
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 may involve the Company's
plans, objectives and expectations, which are dependent upon a number of
factors, including site expansions, acquisitions, development and other new
business initiatives that are subject to a number of contingency factors such as
the effects of national and local economic conditions, changes in interest
rates, supply and demand for affordable housing and the condition of the capital
markets that may prevent the Company from achieving its objectives.
Results of Operations
The following table summarizes certain information relative to the Company's
properties as of and for the three and six months ended June 30, 1999 and 1998.
The Company considers all communities owned by the Company at the beginning of
the period as the "Core Portfolio."
<TABLE>
<CAPTION>
Core Portfolio Total
---------------------------------- -----------------------------------
1999 1998 1999 1998
-------------- ------------------ ----------------- ----------------
Dollars in thousands, except per site
As of June 30,
<S> <C> <C> <C> <C>
Number of communities 162 162 164 165
Total manufactured homesites 50,710 50,100 51,156 50,891
Occupied sites 46,769 46,216 47,165 46,861
Occupancy % 92.2% 92.2% 92.2% 92.1%
For the three months ended June 30,
Rental income $43,831 $41,654 $44,119 $42,214
Property operating expenses $15,478 $14,639 $15,649 $14,881
Net operating income $28,353 $27,015 $28,470 $27,333
Weighted average monthly rent per $ 301 $ 289 $ 300 $ 289
site
For the six months ended June 30,
Rental income $80,617 $76,786 $88,289 $81,307
Property operating expenses $28,370 $27,348 $30,947 $28,912
Net operating income $52,247 $49,438 $57,342 $52,395
Weighted average monthly rent per $ 304 $ 292 $ 300 $ 290
site
</TABLE>
Comparison of three months ended June 30, 1999 to three months ended June 30,
1998
For the three months ended June 30, 1999, income before minority interests was
$13,641,000 an increase of $4,605,000 from the three months ended June 30, 1998.
The increase was due primarily to a gain of $3.1 million on the sale of a
property and increased net operating income from the Core Portfolio. The
increase in net operating income in the Company's Core Portfolio is primarily
due to increases in occupancy and rental increases partially offset by general
operating expense increases.
7
<PAGE>
Rental revenue for the three months ended June 30, 1999 was $44,119,000, an
increase of $1,905,000 from the three months ended June 30, 1998. The increase
is primarily due to rental increases and occupancy gains in the Company's Core
Portfolio.
Weighted average occupancy for the three months ended June 30, 1999 was 47,172
sites compared with 46,726 sites for the same period in 1998. The occupancy rate
was 92.2 percent on 51,156 sites as of June 30, 1999, compared to 92.1 percent
on 50,891 sites as of June 30, 1998. The occupancy rate on the stabilized
portfolio was 93.7 percent as of June 30, 1999. The stabilized portfolio
includes communities where the Company does not have, or has not recently had,
expansion of the Community. On a per site basis, weighted average monthly
rental revenue for the three months ended June 30, 1999 was $300 compared with
$289 in the same period of 1998. For the Company's Core Portfolio, on a per site
basis, weighted average monthly rental revenue for the three months ended June
30, 1999 was $301 compared with $289 for the same period in 1998, an increase of
4.2 percent.
Management fee, interest and other income primarily includes management fee
income for the management of 38 manufactured home communities, equity earnings
from the Company's sales subsidiary and interest income on notes receivable and
advances to joint ventures/affiliates. The increase in the three months ended
June 30, 1999 from the same period in 1998 is due primarily to increased
development activities in which the Company funds the development of joint
ventures and increased management fee income.
Property operating and maintenance expense for the three months ended June 30,
1999 increased by $672,000 or 5.7 percent from the same period a year ago. The
majority of the increase was due to increases in the Company's Core Portfolio.
Real estate taxes for the three months ended June 30, 1999, increased by $96,000
or 3.1 percent from the three months ended June 30, 1998. On a per site basis,
monthly weighted real estate taxes were $22.38 for the three months ended June
30, 1999 compared to $21.91 for the same period in 1998. 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 June 30, 1999 increased by
$262,000 from the same period a year ago. Administrative expense in 1999 was
4.8 percent of revenues as compared to 4.5 percent in 1998.
Interest and related amortization costs increased for the three months ended
June 30, 1999 by $117,000, as compared with the three months ended June 30,
1998. Interest expense as a percentage of average debt outstanding decreased to
approximately 7.4 percent in 1999 from approximately 7.7 percent in 1998. The
decrease is due primarily to the Company's lower borrowing rate of 80 basis
points over LIBOR on the Company's line of credit and lower interest rates in
general, combined with higher borrowing on the lines of credit as a percentage
of total debt and the payoff of higher rate mortgage debt.
Depreciation and amortization expense for the three months ended June 30, 1999
increased $477,000 from the same period a year ago. The increase is directly
attributable to the 1998 acquisitions. Depreciation expense as a percentage of
average depreciable rental property in 1999 remained relatively unchanged from
1998.
Comparison of six months ended June 30, 1999 to six months ended June 30, 1998
For the six months ended June 30, 1999, income before minority interests was
$23,258,000, an increase of $6,853,000 from the six months ended June 30, 1998.
The increase was due primarily to acquisitions and increased net operating
income from the Core Portfolio as well as a net gain recorded on the sales of
two properties. The increase in net operating income in the Company's Core
Portfolio is primarily due to increases in occupancy and rental increases
partially offset by general operating expense increases.
8
<PAGE>
Rental revenue for the six months ended June 30, 1999 was $88,289,000 an
increase of $6,982,000 from the six months ended June 30, 1998. Approximately
44 percent was due to acquisitions, net of dispositions, and the remaining 56
percent was due to rental increases and occupancy gains in the Company's Core
Portfolio.
Weighted average occupancy for the six months ended June 30, 1999 was 47,139
sites compared with 44,820 sites for the same period in 1998. On a per site
basis, weighted average monthly rental revenue for the six months ended June 30,
1999 was $300 compared with $290 in the same period of 1998. For the Company's
Core Portfolio, on a per site basis, weighted average monthly rental revenue for
the six months ended June 30, 1999 was $304 compared with $292 for the same
period in 1998, an increase of 4.1 percent.
Property operating and maintenance expense for the six months ended June 30,
1999 increased by $1,688,000 or 7.4 percent from the same period a year ago.
The majority of the increase was due to the 1998 acquisitions and increases in
the Company's Core Portfolio.
Real estate taxes for the six months ended June 30, 1999, increased by $347,000
or 5.8 percent from the six months ended June 30, 1998. On a per site basis,
monthly weighted real estate taxes were $22.53 for the six months ended June 30,
1999 compared to $22.41 for the same period in 1998. 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 six months ended June 30, 1999 increased by
approximately $184,000 from the same period a year ago. Administrative expense
in 1999 was 4.7 percent of revenues as compared to 4.9 percent in 1998.
Interest and related amortization costs increased for the six months ended June
30, 1999 by $533,000, as compared with the six months ended June 30, 1998. The
increase was due to financing of acquisitions, advances to affiliates and
development activity. Interest expense as a percentage of average debt
outstanding decreased to approximately 7.3 percent in 1999 from approximately
7.8 percent in 1998. The decrease is due primarily to the Company's lower
borrowing rate of 80 basis points over LIBOR on the Company's line of credit and
lower interest rates in general, combined with higher borrowing on the lines of
credit as a percentage of total debt and the payoff of higher rate mortgages.
Depreciation and amortization expense for the six months ended June 30, 1999
increased $1,691,000 from the same period a year ago. The increase is directly
attributable to the 1998 acquisitions. Depreciation expense as a percentage of
average depreciable rental property in 1999 remained relatively unchanged from
1998.
Liquidity and Capital Resources
Net cash provided by operating activities was $36,896,000 for the six months
ended June 30, 1999, compared with $36,361,000 for the six months ended June 30,
1998. 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 six months ended June 30, 1999 was
$4,063,000. This was due primarily to $29,870,000 in dividends and
distributions paid to common shareholders and OP Unitholders in the first half
of 1999, the payoff of mortgage and other debt of $8,050,000 offset partially by
net borrowings on the lines of credit of $2,934,000.
9
<PAGE>
Net cash used in investing activities for the six months ended June 30, 1999 was
$26,540,000. This amount represented joint venture advances, capital
expenditures and construction and development costs. For the six months ended
June 30, 1999, acquisition costs were $5.7 million, including the acquisition
of one manufactured home community with 309 homesites for a purchase price of
$4 million. Construction and development costs were approximately $3.6 million,
recurring property capital expenditures were approximately $3.4 million, and
advances to joint ventures and affiliates, including construction costs were
$22.8. 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.
The Company has available a line of credit with Bank One, N.A., acting as lead
agent, for $100 million (the "Bank One Credit Facility"). The interest rate on
the Bank One Credit Facility is LIBOR plus 80 basis points. In addition, the
Company has a $7.5 million revolving line of credit from US Bank which bears
interest at a rate of LIBOR plus 125 basis points (the "USB Facility" and,
together with the Bank One Credit Facility, the "Credit Facilities"). As of
June 30, 1999, approximately $69.7 million was outstanding under the Credit
Facilities and the Company had available $37.8 million in additional borrowing
capacity.
As of June 30, 1999, the Company had outstanding, in addition to the Credit
Facilities, $245 million of other unsecured senior debt with a weighted average
interest rate and maturity of 7.5 percent and 3.7 years, respectively, and $122
million of secured mortgage debt with a weighted average interest rate and
maturity of 7.9 percent and 2.0 years, respectively. For the Company's total
fixed rate debt, the weighted average interest rate and maturity was 7.6 percent
and 3.2 years, respectively.
Repayment of long-term borrowings and amounts outstanding under the Credit
Facilities, future acquisitions of communities and land for development and
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.
The Company expects to meet its short-term liquidity requirements, including
dividends, expansion activities and capital expenditure requirements, through
cash flow from operations and, if necessary, borrowings under the Credit
Facilities and other lines of credit.
Recently Issued Accounting Standards
- ------------------------------------
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities": ("SFAS
133"), which is effective for the Company in the year 2000. The only derivative
instrument the Company currently utilizes is an interest rate hedge agreement
related to the anticipated refinancing of $75 million of its senior notes. SFAS
133 requires that all derivative instruments be measured on the balance sheet at
fair value. The interest rate hedge agreement fixes the base rate for the
anticipated refinancing at 6.28 percent. The Company anticipates that the
adoption of SFAS 133 will not have a significant effect on its 2000 financial
statements.
10
<PAGE>
Year 2000
- ---------
Management has assessed the impact of the year 2000 issue on its reporting
systems and operations. The year 2000 issue exists because many computer systems
and applications abbreviate dates by eliminating the first two digits of the
year, assuming that these two digits are always "19". As a result, date-
sensitive computer programs may recognize a date using "00" as the year 1900
rather than the year 2000. Unless corrected, the potential exists for computer
system failures or incorrect processing of financial and operational
information, which could disrupt operations.
To help facilitate the Company's continued growth, substantially all of the
computer systems and applications and other operating systems in use in its home
office and properties have been, or are in the process of being upgraded and
modified. The Company is of the opinion that, in connection with those upgrades
and modifications, it has addressed applicable year 2000 issues as they might
affect the computer systems and applications located in the Company's offices
and properties. The Company anticipates that implementation of solutions to any
year 2000 issue which it may discover will require the expenditure of sums which
the Company does not expect to be material.
The Company is exposed to the risk that one or more of its vendors or service
providers may experience year 2000 problems which impact the ability of such
vendor or service provider to provide goods and services. Due to the
availability of alternative suppliers, this is not considered as significant a
risk with respect to the suppliers of goods. The disruption of certain services,
however, such as utilities, could, depending upon the extent of the disruption,
have a material adverse impact on the Company's operations. To date, the
Company is not aware of any vendor or service provider year 2000 issue that
management believes would have a material adverse impact on the Company's
operations.
The Company, however, has no means of ensuring that its vendors or service
providers will be year 2000 ready. The inability of vendors or service
providers to complete the year 2000 resolution process in a timely fashion could
have an adverse impact on the Company and the effect of non-compliance by
vendors or service providers is not determinable at this time. Residents do not
pose year 2000 problems for the Company in view of the nature of the Company's
properties.
Widespread disruptions in the national or international economy, including
disruptions affecting the financial markets, resulting from year 2000 issues, or
in certain industries, such as commercial or investment banks, could also have
an adverse impact on the Company. The likelihood and effect of such disruptions
is not determinable at this time.
The Company expects to have all systems appropriately modified before any
significant processing malfunctions could occur and does not expect the year
2000 issue will materially impact the financial condition or operations of the
Company.
11
<PAGE>
Other
Funds from operations ("FFO") is defined by the National Association of Real
Estate Investment Trusts ("NAREIT") as consolidated net income of the Company
without giving effect to gains (or losses) from debt restructuring and sales of
property, certain non-recurring items and 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 six months
ended June 30 ended June 30
-------------------- ------------------
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Income before minority interests $13,641 $ 9,036 $23,258 $16,405
Plus:
Depreciation and amortization 10,326 9,849 20,649 18,958
Less:
Non-recurring item (1) 3,141 - 2,805 -
Depreciation expense on corporate assets 65 63 130 125
Distribution on Preferred OP Units 1,524 1,202 3,047 1,202
------- ------- ------- -------
FFO $19,237 $17,620 $37,925 $34,036
======= ======= ======= =======
</TABLE>
(1) Represents net gain recorded on sales of properties.
12
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The following table sets forth certain information relating to the secured and
unsecured indebtedness of the Company outstanding as of June 30, 1999.
<TABLE>
<CAPTION>
Weighted
Average
Amount of Percent of Interest Maturity
Indebtedness total debt Rate Date
------------ ---------- -------- ---------
<S> <C> <C> <C> <C>
(dollars in thousands)
Mortgage Debt:
Del Tura $ 31,788 7.3% 8.40% 2000
Macomb 15,398 3.5% 9.82% 1999
Other (8 properties) 19,838 4.6% 7.69% 2002-2011
Pacific Life (36 properties) 54,734 12.5% 7.16% 2000
-------- ---- ----
Total Mortgage 121,758 27.9% 7.90%
Unsecured Debt:
Unsecured Senior Notes 70,000 16.0% 7.52% 2003
Unsecured Senior Notes 75,000 17.2% 8.75% 2000
Unsecured Senior Notes 100,000 22.9% 6.44% 2004
-------- ---- ----
Total Unsecured 245,000 56.1% 7.46%
-------- ---- ----
Total Fixed Rate 366,758 84.0% 7.60%
Variable Rate Debt:
Credit Facilities 69,669 16.0% 5.87%
--------
Total Secured and Unsecured Debt $436,427
========
</TABLE>
Based on the amount outstanding under the Credit Facilities at June 30, 1999 of
$69,669,000, if the interest rate under the Credit Facilities was 100 basis
points higher or lower during the period, then the Company's interest expense
(net of adjustments for capitalized items), for the six months ended June 30,
1999, would have increased or decreased by approximately $348,000.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
On May 20, 1999, the Company held its annual meeting of shareholders. The
following matters were voted upon at the meeting:
1. The election of the following Class III directors named in the
proxy statement:
<TABLE>
<CAPTION>
Abstentions and
Votes for Votes against Broker Non-votes
--------------- ------------- ----------------
<S> <C> <C> <C>
John A. Boll 20,116,139 0 50,795
James L. Clayton 20,105,965 0 60,969
Steven G. Davis 19,857,984 0 308,950
</TABLE>
Class I directors (Gary P. McDaniel, Gebron S. Anton, James M. Lane and Rhonda
G. Hogan) and Class II directors (C.G. ("Jeff") Kellogg, Edward R. Allen, James
M. Hankins and Donald E. Miller) also continued in office as directors after the
meeting.
2. The approval of the Company's 1999 Equity Compensation Plan:
<TABLE>
<CAPTION>
Abstentions and
Votes for Votes against Broker Non-votes
--------------- ------------- ----------------
<S> <C> <C>
19,093,377 897,694 176,530
</TABLE>
14
<PAGE>
Item 5. Other Information
Property Information
The Company classifies all of its properties in either the Stable Portfolio or
the Active Expansion Portfolio. The Stable Portfolio includes the communities
where the Company does not have, or has not recently had, expansion of the
community. These communities generally have stable occupancy rates. The Active
Expansion Portfolio are those properties where the Company is currently, or has
recently, expanded the community by adding homesites to the available homesites
for rental. Generally, these communities will have a lower occupancy rate than
our Stable Portfolio as they are in the lease-up phase. In addition, the
Company owns three park model/RV communities.
The following table sets forth certain information, as of June 30, 1999,
regarding the Properties.
<TABLE>
<CAPTION>
Weighted
Average
Total Number of Monthly Rent
Location Total Sites Occupancy as of per Site
Community State (Closest Major City) Communities 6/30/99 6/30/99 6/30/99
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
100 Oaks AL Fultondale 230 91% $ 204
Lakewood AL Montgomery 309 87% $ 149
Total Alabama 2 539 89% $ 173
Bermuda Palms CA Palm Springs 185 94% $ 331
Eastridge CA San Jose 187 99% $ 642
La Quinta Ridge CA Palm Springs 152 86% $ 406
The Colony CA Palm Springs 220 97% $ 621
The Orchard CA San Francisco 233 100% $ 581
Total California 5 977 96% $ 527
CV-Denver CO Denver 345 94% $ 358
CV-Longmont CO Longmont 310 99% $ 370
Friendly Village CO Greeley 226 98% $ 284
Pine Lakes Ranch CO Denver 762 97% $ 327
Redwood Estates CO Denver 753 98% $ 325
Total Colorado 5 2,396 97% $ 332
Cedar Grove CT New Haven 60 100% $ 289
Evergreen CT New Haven 102 98% $ 291
Green Acres CT New Haven 64 95% $ 287
Highland CT New Haven 50 92% $ 303
Total Connecticut 4 276 97% $ 292
Anchor North FL Tampa Bay 94 95% $ 262
Audubon FL Orlando 280 99% $ 263
Colony Cove FL Sarasota 2,211 100% $ 335
Conway Circle FL Orlando 111 95% $ 301
Crystal Lake FL St. Petersburg 166 93% $ 263
* Crystal Lakes FL Tampa 330 55% $ 152
CV-Jacksonville FL Jacksonville 643 97% $ 303
Del Tura FL Fort Myers 1,344 88% $ 432
Eldorado Estates FL Daytona Beach 126 98% $ 259
Emerald Lake FL Fort Myers 201 100% $ 291
Fairways Country Club FL Orlando 1,141 99% $ 293
* Foxwood Farms FL Orlando 375 75% $ 198
Hidden Valley FL Orlando 303 100% $ 294
Indian Rocks FL Clearwater 148 68% $ 237
Jade Isle FL Orlando 101 94% $ 317
Lakeland Harbor FL Tampa 504 100% $ 251
Lakeland Junction FL Tampa 191 100% $ 196
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Weighted
Average
Total Number of Monthly Rent
Location Total Sites Occupancy as of per Site
Community State (Closest Major City) Communities 6/30/99 6/30/99 6/30/99
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lakes at Leesburg FL Orlando 640 100% $ 261
Land O' Lakes FL Orlando 173 99% $ 256
Midway Estates FL Vero Beach 204 80% $ 322
Oak Springs FL Orlando 438 74% $ 247
Orange Lake FL Orlando 242 93% $ 248
Palm Beach Colony FL West Palm Beach 285 94% $ 308
Pedaler's Pond FL Orlando 214 86% $ 194
Pinellas Cascades FL Clearwater 238 93% $ 366
Shady Lane FL Clearwater 108 94% $ 265
Shady Oak FL Clearwater 250 99% $ 320
Shady Village FL Clearwater 156 97% $ 306
Southwind Village FL Naples 337 93% $ 300
Starlight Ranch FL Orlando 783 94% $ 287
Tarpon Glen FL Clearwater 170 90% $ 289
Town & Country FL Orlando 73 96% $ 313
Whispering Pines FL Clearwater 392 96% $ 361
Winter Haven Oaks FL Orlando 343 52% $ 210
Total Florida 34 13,315 92% $ 300
Atlanta Meadows GA Atlanta 75 99% $ 226
* Butler Creek GA Augusta 376 81% $ 185
Camden Point GA Kingsland 268 54% $ 171
Castlewood Estates GA Atlanta 334 85% $ 311
Colonial Coach Estates GA Atlanta 481 86% $ 277
Golden Valley GA Atlanta 131 95% $ 253
Landmark GA Atlanta 524 94% $ 269
Marnelle GA Atlanta 205 98% $ 265
Oak Grove Estates GA Albany 174 98% $ 133
Paradise Village GA Albany 226 95% $ 144
Total Georgia 10 2,794 87% $ 234
Lakewood Estates IA Davenport 180 92% $ 249
Terrace Heights IA Dubuque 317 95% $ 254
Total Iowa 2 497 94% $ 252
Coach Royale ID Boise 91 99% $ 274
Maple Grove Estates ID Boise 270 99% $ 288
Shenandoah Estates ID Boise 154 97% $ 269
Total Idaho 3 515 98% $ 280
Falcon Farms IL Moline 215 91% $ 226
Maple Ridge IL Kankakee 201 100% $ 247
Maple Valley IL Kankakee 75 100% $ 247
Total Illinois 3 491 96% $ 238
* Broadmore IN South Bend 344 85% $ 234
Forest Creek IN South Bend 167 100% $ 287
* Fountainvue IN Marion 120 88% $ 151
Hickory Knoll IN Indianapolis 325 98% $ 292
Mariwood IN Indianapolis 296 92% $ 289
Oak Ridge IN South Bend 204 100% $ 237
Pendleton IN Indianapolis 102 96% $ 215
Sherwood IN Marion 89 81% $ 157
Skyway IN Indianapolis 156 97% $ 285
Twin Pines IN Goshen 238 98% $ 225
Total Indiana 10 2,041 94% $ 249
Mosby's Point KY Cincinnati 150 96% $ 288
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Weighted
Average
Total Number of Monthly Rent
Location Total Sites Occupancy as of per Site
Community State (Closest Major City) Communities 6/30/99 6/30/99 6/30/99
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rolling Hills KY Louisville 158 96% $ 202
Total Kentucky 2 308 96% $ 244
Pinecrest Village LA Shreveport 446 73% $ 152
Stonegate, LA LA Shreveport 157 99% $ 174
Total Louisiana 2 603 80% $ 158
Hillcrest MA Boston 83 93% $ 299
Leisurewoods Rockland MA Boston 394 99% $ 315
* Leisurewoods Taunton MA Boston 130 96% $ 278
The Glen MA Boston 36 100% $ 380
Total Massachusetts 4 643 98% $ 309
* Algoma Estates MI Grand Rapids 294 97% $ 280
* Anchor Bay MI Detroit 1,384 95% $ 337
Arbor Village MI Jackson 266 98% $ 248
Avon MI Detroit 617 99% $ 392
Canterbury Estates MI Grand Rapids 209 81% $ 233
Chesterfield MI Detroit 345 97% $ 361
Chestnut Creek MI Flint 221 70% $ 311
Clinton MI Detroit 1,000 99% $ 359
Colonial Acres MI Kalamazoo 612 95% $ 280
Colonial Manor MI Kalamazoo 195 95% $ 267
Country Estates MI Grand Rapids 254 96% $ 267
Cranberry MI Pontiac 232 99% $ 346
Ferrand Estates MI Grand Rapids 420 99% $ 324
* Forest Lake Estates MI Grand Rapids 221 80% $ 271
* Grand Blanc MI Flint 478 85% $ 332
Holiday Estates MI Grand Rapids 205 99% $ 311
Howell MI Lansing 455 98% $ 364
Huron Estates MI Flint 111 71% $ 208
Lake in the Hills MI Detroit 238 100% $ 371
* Leonard Gardens MI Grand Rapids 216 91% $ 288
Macomb MI Detroit 1,426 98% $ 359
Norton Shores MI Grand Rapids 656 87% $ 250
Novi MI Detroit 725 98% $ 405
Oakhill MI Flint 504 90% $ 351
Old Orchard MI Flint 200 100% $ 316
Orion MI Detroit 423 99% $ 343
Pinewood MI Columbus 380 99% $ 297
Pleasant Ridge MI Lansing 305 85% $ 215
Royal Estates MI Kalamazoo 183 94% $ 299
Science City MI Midland 170 99% $ 285
Springbrook MI Utica 398 98% $ 329
Sun Valley MI Jackson 195 95% $ 242
Swan Creek MI Ann Arbor 294 100% $ 335
* The Highlands MI Flint 682 89% $ 269
Torrey Hills MI Flint 346 96% $ 341
Valley Vista MI Grand Rapids 137 93% $ 323
Villa MI Flint 319 95% $ 335
* Westbrook MI Detroit 220 64% $ 364
Yankee Spring MI Grand Rapids 284 92% $ 248
Total Michigan 39 15,820 94% $ 323
Cedar Knolls MN Minneapolis 458 98% $ 384
Cimmaron MN St. Paul 505 99% $ 383
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Weighted
Average
Total Number of Monthly Rent
Location Total Sites Occupancy as of per Site
Community State (Closest Major City) Communities 6/30/99 6/30/99 6/30/99
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
President's Park MN Grand Forks 174 85% $ 219
Rosemount MN Minneapolis/St. Paul 182 100% $ 375
Twenty-Nine Pines MN St. Paul 152 94% $ 309
Total Minnesota 5 1,471 97% $ 355
* Springfield Farms MO Springfield 134 72% $ 170
Total Missouri 1 134 72% $ 170
Countryside Village G.F. MT Great Falls 226 97% $ 200
Total Montana 1 226 97% $ 200
Autumn Forest NC Greensboro 299 98% $ 221
Foxhall Village NC Raleigh 315 97% $ 299
Oakwood Forest NC Greensboro 481 93% $ 259
Woodlake NC Greensboro 308 98% $ 233
Total North Carolina 4 1,403 96% $ 247
Buena Vista ND Fargo 400 96% $ 256
Columbia Heights ND Grand Forks 302 99% $ 266
Meadow Park ND Fargo 118 87% $ 191
Total North Dakota 3 820 96% $ 250
Casual Estates NY Syracuse 961 73% $ 320
Meadowbrook NY Ithaca 237 78% $ 253
Oak Orchard Estates NY Rochester 235 93% $ 282
Shadybrook NY Syracuse 89 73% $ 320
Total New York 4 1,522 77% $ 304
* Hunter's Chase OH Lima 136 44% $ 165
Vance OH Columbus 110 94% $ 213
Willo-Arms OH Cleveland 262 99% $ 194
Yorktowne OH Cincinnati 354 98% $ 322
Total Ohio 4 862 89% $ 244
Crestview OK Stillwater 237 89% $ 196
Total Oklahoma 1 237 89% $ 196
Knoll Terrace OR Salem 212 97% $ 345
Riverview OR Portland 133 99% $ 372
Total Oregon 2 345 98% $ 356
* Carnes Crossing SC 535 97% $ 167
* Conway Plantation SC Myrtle Beach 299 66% $ 179
Saddlebrook SC 426 97% $ 185
Total South Carolina 3 1,260 90% $ 176
* Eagle Creek TX Tyler 198 45% $ 156
Homestead Ranch TX McAllen 126 86% $ 220
Leisure World TX Brownsville 201 88% $ 204
The Homestead TX McAllen 99 96% $ 221
Trail's End TX Brownsville 307 77% $ 199
Total Texas 5 931 76% $ 196
* Regency Lakes VA Winchester 384 73% $ 205
Total Virginia 1 384 73% $ 205
Eagle Point WA Seattle 230 97% $ 447
Total Washington 1 230 97% $ 447
Breazeale WY Laramie 116 97% $ 229
Total Wyoming 1 116 97% $ 229
Totals 161 51,156 92.2% $ 300
</TABLE>
* These properties are included in the Active Expansion Portfolio.
18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and Index of Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the second quarter of
1999.
19
<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
13th day of August, 1999.
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)
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 6,743
<SECURITIES> 0
<RECEIVABLES> 12,597
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,030,614
<DEPRECIATION> 170,944
<TOTAL-ASSETS> 976,014
<CURRENT-LIABILITIES> 0
<BONDS> 451,960
0
0
<COMMON> 361,853
<OTHER-SE> 118,904
<TOTAL-LIABILITY-AND-EQUITY> 976,014
<SALES> 0
<TOTAL-REVENUES> 92,445
<CGS> 0
<TOTAL-COSTS> 30,947
<OTHER-EXPENSES> 24,956
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,089
<INCOME-PRETAX> 17,953
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,953
<EPS-BASIC> .64
<EPS-DILUTED> .64
</TABLE>
