<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
---
Act of 1934
FOR THE YEAR ENDED DECEMBER 31, 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
6430 South Quebec Street, Englewood, Colorado 80111
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (303) 741-3707
Securities registered pursuant to section 12(b) of the Act
and listed on the New York Stock Exchange:
COMMON STOCK, $0.01 PAR VALUE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant: (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No ___
---
X Indicate by check mark if disclosure of delinquent filers pursuant
---
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
The aggregate market value of voting stock held by non-affiliates of the
Registrant on March 12, 1999 was approximately $673,266,000 based on the closing
price of the stock on the New York Stock Exchange on such date. For the
purposes of this response, executive officers and directors have been deemed to
be affiliates of the Registrant.
The number of shares of the Registrant's Common Stock outstanding on March
12, 1999 was 27,977,814 shares.
Portions of the Registrant's 1998 definitive Proxy Statement to be filed
for its 1999 Annual Meeting of Shareholders are incorporated by reference into
Part III of this Report.
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CHATEAU COMMUNITIES, INC.
FORM 10-K ANNUAL REPORT
for the year ended December 31, 1998
TABLE OF CONTENTS
_______
<TABLE>
<CAPTION>
ITEM PAGES
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<S> <C>
PART I
1. Business....................................................... 3
2. Properties..................................................... 8
3. Legal Proceedings.............................................. 14
4. Submission of Matters to a Vote of Security Holders............ 14
PART II
5. Market for Registrant's Common Equity and
Related Security Holder Matters............................ 15
6. Selected Financial Data........................................ 16
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 18
8. Financial Statements and Supplementary Data.................... 26
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................ 47
PART III
10. Directors and Executive Officers of the Registrant............. 48
11. Executive Compensation......................................... 48
12. Security Ownership of Certain Beneficial Owners
and Management............................................. 48
13. Certain Relationships and Related Transactions................. 48
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K........................................ 49
Signatures..................................................... 53
FINANCIAL STATEMENT SCHEDULES
Chateau Communities, Inc. Financial Statement Schedules........ F1
</TABLE>
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PART I
ITEM 1. BUSINESS
- ------- --------
GENERAL DEVELOPMENT OF BUSINESS.
Chateau Communities, Inc. (the "Company"), a self-administered and self-managed
equity real estate investment trust ("REIT"), is one of the largest
owner/manager of manufactured home communities in the United States, based both
on the number of communities and the number of residential homesites owned. The
Company conducts substantially all of its activities through CP Limited
Partnership, a Maryland limited partnership (the "Operating Partnership") in
which it owns, directly and through ROC Communities, Inc. ("ROC"), the other
general partner of the Operating Partnership, an approximate 89% general partner
interest. The Company owns and operates 164 manufactured home community
properties (the "Properties") containing 50,887 homesites and 1,359 park
model/RV sites in 28 states. The Company also fee manages 36 manufactured home
community properties containing 7,500 homesites. The Company is also involved in
the development and expansion of manufactured home communities, and through its
subsidiary, Community Sales Inc., the sale of new and pre-owned homes, brokerage
of used homes and assisting residents in the arrangements of financing and
insurance services.
FORMATION OF THE COMPANY
The Company was formed in Maryland on August 25, 1993, as Chateau Properties,
Inc., to continue and expand the manufactured home community operations and
business objectives of Chateau Estates ("Chateau"), a Michigan co-partnership.
Chateau had developed, owned and operated manufactured home communities and
properties since 1966.
On February 11, 1997, the Company completed a strategic merger of equals with
ROC (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 in February 1997.
INDUSTRY OVERVIEW
A manufactured home community is a residential subdivision designed and improved
with homesites for the placement of manufactured homes including related
improvements and amenities. Manufactured homes are detached, single-family homes
which are produced off-site by manufacturers and installed on sites within the
community. Manufactured homes are available in a variety of architectural styles
and floor plans, offering a variety of amenities, custom options and on-site
built additional structures.
Modern manufactured home communities are similar to typical residential
subdivisions and generally contain centralized entrances, paved streets, curbs
and gutters and parkways. In addition, such communities often provide a variety
of amenities to residents which may include a clubhouse, swimming pools and
jacuzzis, playgrounds, basketball courts, picnic areas, shuffleboard courts,
tennis courts, cable television service, golf courses, marinas and laundry
facilities. Utilities are provided or arranged for by the owner of the
community. Some communities provide water and sewer service through public or
private utilities, while others provide these services to residents from on-site
facilities.
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The owner of each home in a manufactured home community leases a site from the
community. The manufactured home community is the owner of the underlying land,
utility connections, streets, lighting, driveways, common area amenities and
other capital improvements and is responsible for enforcement of community
guidelines and maintenance. Each owner within the manufactured home community is
responsible for the maintenance of his home and leased site. Additionally,
manufactured home communities tend to have stable resident bases, with
relatively few residents moving manufactured homes out of the communities.
Management thus tends to be more stable, and capital expenditure needs less
significant, relative to multi-family rental apartment complexes.
OPERATING AND INVESTMENT STRATEGIES
The Company seeks to maximize long-term growth in income and portfolio value
through active management and expansion of certain of its manufactured home
communities and the selective acquisition and development of additional
communities. The Company focuses on manufactured home communities that have
growth potential and expects to hold such properties for long-term investment
and capital appreciation. The Company's operating and investment strategies
include:
OPERATIONS
* Providing attractive and desirable manufactured home communities for
existing and prospective residents;
* Maintaining and upgrading communities on a continuous basis through a
program of regular and preventive maintenance and replacement;
* Offering residents accessibility to on-site managers to maximize
retention, encourage home maintenance and improvements and to minimize
turnover;
* Providing frequent personal contact between on-site managers and
residents to foster a sense of pride in the community and to promote
desirability of each property;
* Offering potential community residents the convenience of purchasing a
home already in place within the community or ordering a new product;
* Increasing value to residents and shareholders of the Company by
providing additional value-added leasing programs to our residents;
and
* Assisting potential residents in securing financing and insurance for
their home.
ACQUISITIONS, DEVELOPMENT AND EXPANSIONS
* Selectively acquiring well-located manufactured home communities that
demonstrate the potential for increases in revenue and cash flow
through professional property management, improved operating
efficiencies, aggressive leasing and, where appropriate, expansion on
adjacent land;
* Acquiring properties in existing markets in order to achieve economies
of scale in operations, and in new markets where portfolios may be
acquired with regional management in place;
* Utilizing the expertise and relationships developed by the Company's
management to identify acquisition and development opportunities;
4
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* Selectively developing new communities in strategically desirable
regions where development is supported by favorable demographics and
strong market demand; and
* Capitalizing on opportunities to renovate and expand properties
consistent with local market demand.
FINANCING STRATEGIES
The Company intends to maintain a conservative and flexible capital structure
that enables it to (i) continue to access the capital markets on favorable
terms; (ii) enhance potential earnings growth; (iii) minimize its level of
encumbered assets; and (iv) limit its exposure to variable rate debt. The
Company intends to maintain a debt-to-market capitalization ratio of
approximately 50% or less. The Company, however, may from time to time re-
evaluate this policy and decrease or increase such ratio accordingly in light of
then current economic conditions, relative costs to the Company of debt and
equity capital, market values of the properties and other factors.
EXPANSION AND IMPROVEMENT OF MANUFACTURED HOME COMMUNITY PROPERTIES
The Company will seek to increase the income generated from its manufactured
home communities and from any additional properties acquired by expanding the
number of sites available to be leased to residents if justified by local market
conditions and permitted by zoning and other applicable laws, and by filling
vacant sites. During 1998, the Company substantially completed the development
of 407 expansion sites. As of December 31, 1998, the Company owned undeveloped
land adjacent to existing communities containing approximately 4,700 expansion
sites, which are zoned for manufactured housing. All necessary utilities are
available at these expansion sites; however, building permits would need to be
obtained prior to development. This undeveloped land will facilitate additional
growth to the extent conditions warrant. In addition, where appropriate, the
Company will consider upgrading or adding facilities and amenities to certain
communities in order to make those communities more attractive in their markets.
The Company is currently involved in seven joint ventures to construct ground-up
"greenfield communities". In the majority of the arrangements, the Company acts
as the developer or co-developer, performs all accounting and property
management functions and, in many of the arrangements, the Company acts as a
lender to finance the development costs. As such, the Company advances amounts
to the joint ventures to fund construction and recognizes the related interest
income as earned. The Company primarily borrows on its line of credit to fund
the advances and, accordingly, includes the related borrowing costs in interest
expense. In the majority of the arrangements, the Company has the option to
purchase the completed community when it reaches a pre-determined occupancy
rate. The Company is also involved in two joint ventures in which the
communities are being constructed by its joint venture partner. The Company has
similar arrangements to lend these joint ventures funds to finance development.
5
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1998 PROPERTY ACQUISITIONS
During 1998, the Company completed the following acquisitions:
<TABLE>
<CAPTION>
Acquisition Acquisition Purchase
Date and Location Price
----------- ------------ -----
(in thousands)
<S> <C> <C>
January 1998 2 communities in South Carolina, containing an
aggregate of 961 homesites $ 15,900
January 1998 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 38,700
March 1998 6 communities in Indiana (5) and Michigan (1),
containing an aggregate of 1,521 homesites 37,600
April 1998 12 communities in Michigan (10)
and North Carolina (2), containing an aggregate
of 3,036 homesites 78,100
--------
$170,300
========
</TABLE>
COMMUNITY SALES, INC.
The Company conducts its sales and brokerage activities through Community Sales,
Inc. ("CSI"), which is operated as a taxable subsidiary of the Operating
Partnership. During 1998, CSI sold 481 new or pre-owned homes and brokered the
sales of 1,067 homes. CSI added a Financial Services Division, which arranges
financing and insurance services for prospective residents. During 1998, the
Financial Services Division arranged financing on approximately 250 loans.
THE WINDSOR CORPORATION
In September 1997, the Company completed the acquisition of The Windsor
Corporation ("Windsor"), the general partner in five partnerships and advisor to
one REIT, N'Tandem Trust ("N'Tandem", previously known as Windsor Real Estate
Investment Trust 8). These six entities owned 30 manufactured home communities
(containing 6,300 homesites), all of which have been managed by the Company or
ROC on a fee basis since 1993.
In March 1998, the Company entered into an investment agreement ("Agreement")
with N'Tandem. Pursuant to the Agreement, the Company purchased 19,139 common
shares of N'Tandem and issued two notes, one secured and one unsecured, for an
aggregate of $5,001,000 due March 1999 for the acquisition by N'Tandem of one
community in Montgomery, Alabama. On November 30, 1998, N'Tandem borrowed
$5,650,000 from the Company for the acquisition of three communities in
Lexington Park, Maryland. The notes bear interest at the prime rate of interest
plus one percent per annum and are due November 1999. The Company owns
approximately 17 percent of N'Tandem's outstanding common stock and accounts for
its investment on an equity basis, recognizing income from an advisory agreement
and interest income on the notes as earned. As of December 31, 1998, N'Tandem
owned 6 communities with 1,307 homesites and an interest in 3 communities with
419 homesites.
COMPETITION
Many of the Properties are located in developed areas that include other
manufactured home community properties. The number of competitive manufactured
home community properties in a particular area could have a material effect on
the Company's ability to lease sites at its communities and on the rents
charged. In addition, other forms of multi-family residential properties and
single-family housing provide housing alternatives to residents.
6
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EMPLOYEES
As of December 31, 1998, the Company had approximately 1,200 full and part-time
employees. The Company utilizes a resident administrator for the on-site
administration of each of the Properties. Important duties of on-site
administrators as well as the office manager include extensive contact with
residents through initial introduction to community guidelines and on-going
accessibility for resident assistance. Typically, clerical and maintenance
workers are employed to assist these individuals in the management and care of
the residents and properties. Direct supervision of on-site administrators is
the responsibility of the Company's regional vice presidents and managers and
four divisional presidents. These individuals have significant experience in
addressing the needs of residents and in finding or creating innovative
approaches to value maximization and increased cash flow from property
operations. Complementing this field management staff are 53 corporate
employees who assist on-site administrators in all property management
functions.
Commitment to resident satisfaction is demonstrated by the ongoing training that
the Company provides for on-site staff. Community administrators meet
periodically at regional and divisional seminars to review Company philosophy
and policy, to discuss relevant administration issues and solutions and to share
ideas and experiences.
TAX STATUS
The Company has elected to be taxed as a REIT under Section 856(c) of the
Internal Revenue Code of 1986, as amended (the "Code"). The Company generally
will not be subject to Federal income tax to the extent it distributes 95
percent of its REIT taxable income to its stockholders. REITs are subject to a
number of organizational and operational requirements. If the Company fails to
qualify as a REIT in any taxable year, the Company will be subject to Federal
income tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Even as a REIT, the Company is subject to
certain state and local taxes on its income and property and Federal income and
excise taxes to the extent of its undistributed income.
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
Certain information both included and incorporated by reference in this Annual
Report on Form 10-K may contain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act, and as
such may involve known and unknown risks, uncertainties and other factors which
may cause the actual results, performance or achievements of our company to be
materially different from future results, performance or achievements expressed
or implied by such forward-looking statements. Forward-looking statements,
which are based on certain assumptions and describe our future plans, strategies
and expectations are generally identifiable by use of the words "may," "will,"
"should," "expect," "anticipate," "estimate," "believe," "intend," or
"project," or the negative thereof or other variations thereon or comparable
terminology. Factors which could have a material adverse effect on the
operations and future prospects of our company include, but are not limited to,
changes in: economic conditions generally and the real estate market
specifically legislative/regulatory changes (including changes to laws governing
the taxation of REITs), availability of capital, interest rates, competition,
supply and demand for properties in our current and proposed market areas and
general accounting principles, policies and guidelines applicable to REITs.
These risks and uncertainties should be considered in evaluating any forward-
looking statements contained or incorporated by reference herein.
7
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ITEM 2. PROPERTIES
- ------- ----------
At December 31, 1998, the Properties consisted of 165 manufactured home
communities containing 51,101 homesites and 1,359 park model/RV sites, in 28
states, with amenities designed for either retirement or family living. The
Company also fee managed 36 manufactured home communities containing 7,500 sites
in 15 states. The Company also owned land adjacent to certain existing
communities containing approximately 4,700 expansion sites which, although not
yet developed, was zoned for manufactured housing.
At December 31, 1998, the Properties had an occupancy rate of approximately 92.4
percent with weighted average rent for the year ended December 31, 1998 of $292
per month. This compares to an occupancy rate of 92 percent and with weighted
average rent of $287 per month for the prior year. Weighted average rent is
calculated as rental and utility income for the period, on a monthly basis,
divided by the weighted average occupied sites. Weighted average occupancy is
computed by averaging the number of revenue producing sites at the end of each
month in the period.
The Company believes that the Properties provide amenities and common facilities
that create a safe and attractive community for residents. All of the Properties
provide residents with attractive amenities with most offering a clubhouse, a
swimming pool and playgrounds. Many Properties offer additional amenities such
as sauna/whirlpool spas, indoor pools, tennis courts, libraries, shuffleboard
courts, basketball courts, golf courses, day care facilities, exercise rooms and
marinas.
Since residents own their homes, it is their responsibility to maintain their
homes and the surrounding area. The communities have extensive guidelines for
maintenance. It is management's role to provide maintenance of common areas,
facilities and amenities and to ensure that residents comply with community
policies. The Company holds periodic meetings of its property management
personnel for training and implementation of the Company's strategies, and
property administrators make a daily inspection of the Properties. The Company
believes that, due in part to this strategy, the Properties historically have
had and will continue to have low turnover and high occupancy rates. Since
1989, the Properties have averaged an annual turnover of homes (where the home
is moved out of the community) of three to four percent.
LEASES
The typical lease entered into between the resident and one of the Company's
manufactured home communities for the rental of a site is month-to-month or
year-to-year, renewable upon the consent of both parties or, in some instances,
as provided by statute.
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INDEBTEDNESS
The following table sets forth certain information relating to the secured and
unsecured indebtness of the Company outstanding as of December 31, 1998.
<TABLE>
<CAPTION>
Weighted
Average
Amount of Percent of Interest Maturity
Indebtedness total debt Rate Date
------------ ---------- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Mortgage Debt:
Del Tura $ 32,120 7.8% 8.40% 2000
Macomb 15,574 3.8% 9.82% 1999
Other (11 properties) 24,575 6.0% 7.68% 1999-2011
Pacific Life (37 properties) 57,179 13.9% 7.16% 2000
-------- ---- ----
Total Mortgage 129,448 31.5% 7.89%
Unsecured Debt:
Unsecured Senior Notes 70,000 17.0% 7.52% 2003
Unsecured Senior Notes 75,000 18.2% 8.75% 2000
Unsecured Senior Notes 100,000 24.4% 6.44% 2004
-------- ---- ----
Total Unsecured 245,000 59.6% 7.50%
-------- ---- ----
Total Fixed Rate 374,448 91.1% 7.60%
Variable Rate Debt:
Credit Facilities 36,735 8.9% 6.39% 1999-2001
--------
Total Secured and Unsecured Debt $411,183
========
</TABLE>
Based on the average amount outstanding under the Credit Facilities
during the year ended December 31, 1998 of approximately $20,600,000, 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) would have increased or decreased by approximately $206,000.
9
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The following table sets forth certain information, as of December 31, 1998,
regarding the Properties.
The Company classifies all of its properties in either the Stable Portfolio or
the Active Expansion Portfolio. The Stable Portfolio includes the communities
where we do not have, or have 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.
PROPERTY
INFORMATION
The following table sets forth certain information, as of December 31, 1998,
regarding the properties.
<TABLE>
<CAPTION>
WEIGHTED
TOTAL TOTAL AVERAGE
COMM- NUMBER OF OCCUPANCY MONTHLY RENT
LOCATION UNITIES SITES AS OF PER SITE
- --------------------------------------------------------------------------------------------------------------------------------
COMMUNITY STATE (CLOSEST MAJOR CITY) 12/31/98 12/31/98 12/31/98
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
100 Oaks AL Fultondale 1 230 92% $197
TOTAL ALABAMA 230 92% $197
Bermuda Palms CA Palm Springs 185 98% $335
Eastridge CA San Jose 187 99% $617
La Quinta Ridge CA Palm Springs 152 88% $408
The Colony CA Palm Springs 220 98% $649
The Orchard CA San Francisco 233 100% $550
TOTAL CALIFORNIA 5 977 97% $522
CV-Denver CO Denver 345 94% $353
CV-Longmont CO Longmont 310 100% $363
Friendly Village CO Greeley 226 98% $280
Pine Lakes Ranch CO Denver 762 98% $310
Redwood Estates CO Denver 753 97% $306
TOTAL COLORADO 5 2,396 97% $319
Cedar Grove CT New Haven 60 100% $286
Evergreen CT New Haven 102 99% $289
Green Acres CT New Haven 64 98% $280
Highland CT New Haven 50 98% $313
TOTAL CONNECTICUT 4 276 99% $291
Anchor North FL Tampa Bay 94 96% $261
Audubon FL Orlando 280 97% $256
Colony Cove FL Sarasota 2,207 100% $321
Conway Circle FL Orlando 111 98% $297
Crystal Lake FL St. Petersburg 166 95% $259
* Crystal Lakes FL Tampa 330 53% $149
CV-Jacksonville FL Jacksonville 643 96% $290
Del Tura FL Fort Myers 1,342 89% $435
Eldorado Estates FL Daytona Beach 126 95% $248
Emerald Lake FL Fort Myers 201 100% $285
Fairways Country Club FL Orlando 1,141 99% $287
* Foxwood Farms FL Orlando 375 75% $188
* Gold Tree FL Tampa 295 89% $326
Hidden Valley FL Orlando 303 100% $282
Indian Rocks FL Clearwater 148 64% $231
Jade Isle FL Orlando 101 99% $297
Lakeland Harbor FL Tampa 504 100% $246
Lakeland Junction FL Tampa 191 100% $192
</TABLE>
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<TABLE>
<CAPTION>
WEIGHTED
TOTAL TOTAL AVERAGE
CORE COMM- NUMBER OF OCCUPANCY MONTHLY RENT
PORTFOLIO LOCATION UNITIES SITES AS OF PER SITE
- -------------------------------------------------------------------------------------------------------------------
COMMUNITY STATE (CLOSEST MAJOR CITY) 12/31/98 12/31/98 12/31/98
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lakes at Leesburg FL Orlando 640 100% $254
Land O' Lakes FL Orlando 173 99% $242
Midway Estates FL Vero Beach 204 82% $303
Mobiland-by-the-Sea FL Melbourne 217 71% $306
Oak Springs FL Orlando 438 74% $233
Orange Lake FL Orlando 242 94% $237
Palm Beach Colony FL West Palm Beach 285 95% $297
Pedaler's Pond FL Orlando 214 85% $188
Pinellas Cascades FL Clearwater 238 92% $353
Shady Lane FL Clearwater 108 94% $257
Shady Oaks FL Clearwater 250 99% $317
Shady Village FL Clearwater 156 98% $299
Southwind Village FL Naples 337 93% $297
Starlight Ranch FL Orlando 783 94% $284
Tarpon Glen FL Clearwater 170 90% $272
Town & Country FL Orlando 73 96% $287
Whispering Pines FL Clearwater 392 98% $346
Winter Haven Oaks FL Orlando 343 52% $205
TOTAL FLORIDA 36 13,821 92% $292
Atlanta Meadows GA Atlanta 75 97% $226
* Butler Creek GA Augusta 358 82% $177
Camden Point GA Kingsland 268 47% $175
Castlewood Estates GA Atlanta 334 84% $306
Colonial Coach Estates GA Atlanta 481 85% $266
Golden Valley GA Atlanta 131 96% $241
Landmark GA Atlanta 524 95% $266
Marnelle GA Atlanta 205 99% $253
Oak Grove Estates GA Albany 174 97% $134
Paradise Village GA Albany 226 95% $138
TOTAL GEORGIA 10 2,776 86% $229
Lakewood Estates IA Davenport 172 94% $242
Terrace Heights IA Dubuque 317 97% $245
TOTAL IOWA 2 489 96% $244
Coach Royale ID Boise 91 99% $262
Maple Grove Estates ID Boise 270 99% $274
Shenandoah Estates ID Boise 154 97% $265
TOTAL IDAHO 3 515 98% $269
Falcon Farms IL Moline 215 91% $220
Maple Ridge IL Kankakee 75 100% $233
Maple Valley IL Kankakee 201 100% $233
TOTAL ILLINOIS 3 491 96% $227
* Broadmore IN South Bend 297 89% $226
Forest Creek IN South Bend 167 97% $273
* Fountainvue IN Marion 120 87% $153
Hickory Knoll IN Indianapolis 325 99% $281
Mariwood IN Indianapolis 296 94% $276
Oak Ridge IN South Bend 204 100% $227
Pendleton IN Indianapolis 102 98% $205
Sherwood IN Marion 89 80% $167
Skyway IN Indianapolis 156 97% $272
Twin Pines IN Goshen 238 97% $216
TOTAL INDIANA 10 1,994 95% $241
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
WEIGHTED
TOTAL TOTAL AVERAGE
CORE COMM- NUMBER OF OCCUPANCY MONTHLY RENT
PORTFOLIO LOCATION UNITIES SITES AS OF PER SITE
- -------------------------------------------------------------------------------------------------------------------
COMMUNITY STATE (CLOSEST MAJOR CITY) 12/31/98 12/31/98 12/31/98
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mosby's Point KY Cincinnati 150 97% $275
Rolling Hills KY Louisville 158 95% $190
TOTAL KENTUCKY 2 308 96% $232
Pinecrest Village LA Shreveport 446 71% $150
Stonegate, LA LA Shreveport 157 97% $170
TOTAL LOUISIANA 2 603 78% $155
Hillcrest MA Boston 83 94% $280
Leisurewoods Rockland MA Boston 394 99% $286
* Leisurewoods Taunton MA Boston 128 94% $249
The Glen MA Boston 36 100% $365
TOTAL MASSACHUSETTS 4 641 97% $282
* Algoma Estates MI Grand Rapids 294 95% $276
* Anchor Bay MI Detroit 1,384 93% $326
Arbor Village MI Jackson 266 98% $241
Avon MI Detroit 617 99% $385
Canterbury Estates MI Grand rapids 209 77% $224
Chesterfield MI Detroit 345 98% $350
Chestnut Creek MI Flint 160 96% $304
Clinton MI Detroit 1,000 99% $352
Colonial Acres MI Kalamazoo 612 96% $271
Colonial Manor MI Kalamazoo 195 97% $259
Country Estates MI Grand Rapids 254 93% $260
Cranberry MI Pontiac 232 100% $336
Ferrand Estates MI Grand Rapids 420 99% $317
* Forest Lake Estates MI Grand Rapids 221 77% $270
* Grand Blanc MI Flint 415 96% $331
Holiday Estates MI Grand Rapids 205 100% $303
Howell MI Lansing 455 99% $354
Huron Estates MI Flint 111 68% $202
Lake in the Hills MI Detroit 238 100% $359
* Leonard Gardens MI Grand Rapids 216 80% $286
Macomb MI Detroit 1,426 99% $352
Norton Shores MI Grand Rapids 656 86% $242
Novi MI Detroit 725 98% $392
Oakhill MI Flint 504 90% $349
Old Orchard MI Flint 200 100% $306
Orion MI Detroit 423 99% $332
Pinewood MI Columbus 380 98% $273
Pleasant Ridge MI Lansing 305 88% $206
Royal Estates MI Kalamazoo 183 92% $293
Science City MI Midland 171 99% $277
Springbrook MI Utica 398 97% $314
Sun Valley MI Jackson 203 96% $238
Swan Creek MI Ann Arbor 294 100% $323
* The Highlands MI Flint 682 89% $261
Torrey Hills MI Flint 346 97% $330
Valley Vista MI Grand Rapids 137 93% $313
Villa MI Flint 319 97% $322
* Westbrook MI Detroit 162 68% $356
Yankee Spring MI Grand Rapids 284 90% $244
TOTAL MICHIGAN 39 15,647 95% $314
</TABLE>
12
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<TABLE>
<CAPTION>
CORE
PORTFOLIO WEIGHTED AVERAGE
TOTAL TOTAL NUMBER OCCUPANCY MONTHLY RENT
LOCATION COMMUNITIES OF SITES AS OF PER SITE
- -----------------------------------------------------------------------------------------------------------------------
COMMUNITY STATE (CLOSEST MAJOR CITY) 12/31/98 12/31/98 12/31/98
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cedar Knolls MN Minneapolis 458 98% $365
Cimmaron MN St. Paul 505 98% $368
President's Park MN Grand Forks 174 80% $214
Rosemount MN Minneapolis/St. Paul 182 100% $356
Twenty-Nine Pines MN St. Paul 152 92% $294
TOTAL MINNESOTA 5 1,471 96% $340
* Springfield Farms MO Springfield 134 68% $170
TOTAL MISSOURI 1 134 68% $170
Countryside Village G.F. MT Great Falls 222 98% $199
TOTAL MONTANA 1 222 98% $199
Autumn Forest NC Greensboro 299 98% $204
Foxhall Village NC Raleigh 315 98% $314
Oakwood Forest NC Greensboro 481 96% $248
Woodlake NC Greensboro 308 98% $218
TOTAL NORTH CAROLINA 4 1,403 97% $247
Buena Vista ND Fargo 400 97% $242
Columbia Heights ND Grand Forks 302 99% $256
Meadow Park ND Fargo 118 88% $180
TOTAL NORTH DAKOTA 3 820 96% $238
Casual Estates NY Syracuse 961 74% $315
Meadowbrook NY Ithaca 237 75% $251
Oak Orchard Estates NY Rochester 235 93% $272
Shadybrook NY Syracuse 89 74% $315
TOTAL NEW YORK 4 1,522 77% $299
* Hunter's Chase OH Lima 136 36% $165
Vance OH Columbus 110 95% $204
Willo-Arms OH Cleveland 262 100% $184
Yorktowne OH Cincinnati 354 98% $311
TOTAL OHIO 4 862 88% $236
Crestview OK Stillwater 237 89% $185
TOTAL OKLAHOMA 1 237 89% $185
Knoll Terrace OR Salem 212 99% $328
Riverview OR Portland 133 99% $362
TOTAL OREGON 2 345 99% $341
* Carnes Crossing SC Summerville 535 96% $158
* Conway Plantation SC Myrtle Beach 299 64% $177
Saddlebrook SC Charleston 426 97% $180
TOTAL SOUTH CAROLINA 3 1,260 88% $170
* Eagle Creek TX Tyler 198 40% $158
Homestead Ranch TX McAllen 126 91% $211
Leisure World TX Brownsville 201 92% $190
The Homestead TX McAllen 99 98% $208
Trail's End TX Brownsville 307 82% $183
TOTAL TEXAS 5 931 78% $185
* Regency Lakes VA Winchester 384 70% $202
TOTAL VIRGINIA 1 384 70% $202
Eagle Point WA Seattle 230 99% $430
TOTAL WASHINGTON 1 230 99% $430
Breazeale WY Laramie 116 96% $221
TOTAL WYOMING 1 116 96% $221
Totals 51,101 92.4% $292
</TABLE>
*Communities in the Active Expansion Portfolio.
13
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
No matters were submitted to a vote of the Company's security holders during the
last quarter of its fiscal year ended December 31, 1998.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
- ------- -----------------------------------------------------------------
MATTERS
-------
The Company's Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol CPJ. The following table sets forth, for the quarterly periods
shown, the high and low sales price per share as reported on the NYSE for the
years ended December 31, 1997 and 1998.
<TABLE>
<CAPTION>
Price Range Cash Dividend
-----------
Quarter Ended High Low Declared
------------- ---- --- --------
<S> <C> <C> <C>
March 31, 1997 $ 28 $24-3/4 $ .43
June 30, 1997 $ 28-3/4 $24-3/4 $ .43
September 30, 1997 $ 31-1/8 $27-7/8 $ .43
December 31, 1997 $31-9/16 $29-1/4 $ .43
</TABLE>
<TABLE>
<CAPTION>
Price Range Cash Dividend
-----------
Quarter Ended High Low Declared
------------- ---- --- --------
<S> <C> <C> <C>
March 31, 1998 $ 32 $28-3/4 $.455
June 30, 1998 $ 30-1/2 $28-1/8 $.455
September 30, 1998 $30-5/16 $25-3/4 $.455
December 31, 1998 $ 30 $26-1/4 $.455
</TABLE>
Distributions by the Company to the extent of its current and accumulated
earnings and profits for Federal income tax purposes will be taxable to
stockholders as dividend income. Distributions in excess of earnings and profits
generally will be treated as a non-taxable reduction of the stockholder's basis
in the common stock to the extent thereof, with the remainder as taxable gain.
At March 12, 1999, there were approximately 680 holders of record and
approximately 16,000 beneficial owners of the Company's common stock.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
The following table sets forth summary financial information of the Company for
the periods and dates indicated.
<TABLE>
<CAPTION>
For the Year Ended December 31,
In thousands, except per share data 1998 1997(1) 1996 1995 1994
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Rental income $ 167,206 $134,801 $ 67,233 $ 61,558 $ 47,318
Management, interest and other income 5,924 3,368 151 297 749
---------- -------- -------- -------- --------
Total revenues 173,130 138,169 67,384 61,855 48,067
Expenses:
Property operating and
administrative 67,699 56,053 26,870 24,410 19,944
Depreciation and amortization 39,658 31,510 11,452 11,014 7,230
Interest and related amortization 31,287 25,918 12,962 12,452 5,996
---------- -------- -------- -------- --------
Total expenses 138,644 113,481 51,284 47,876 33,170
---------- -------- -------- -------- --------
Income before extraordinary
item and minority interests 34,486 24,688 16,100 13,979 14,897
Extraordinary item (2) - - - (829) -
Less income allocated to minority interests:
Preferred OP Units 4,249 - - - -
Common OP Units 3,436 2,986 9,566 7,847 8,860
---------- -------- -------- -------- --------
Net income available to
common shareholders $ 26,801 $ 21,702 $ 6,534 $ 5,303 $ 6,037
========== ======== ======== ======== ========
Weighted average common shares
outstanding 27,282 23,688 6,022 5,959 5,750
Weighted average common shares
and OP Units outstanding 30,779 26,947 14,837 14,779 14,189
EARNINGS PER SHARE/OP UNIT DATA:
Income before extraordinary
item $ .98 $ .92 $ 1.09 $ .95 $ 1.05
Extraordinary item $ $ - $ - $ (.06) $ -
- -
Net income - basic $ .98 $ .92 $ 1.09 $ .89 $ 1.05
Net income - diluted $ .97 $ .91 $ 1.08 $ .89 $ 1.05
Dividends/distributions declared $ 1.82 $ 1.72 $ 1.62 $ 1.525 $ 1.425
CASH FLOW DATA:
Net cash provided by operating
activities $ 76,809 $ 54,545 $ 29,755 $ 28,097 $ 22,584
Net cash provided by (used in)
financing activities $ 75,820 $ 21,088 $ (595) $(24,365) $ 7,056
Net cash (used in) investing activities $ (167,089) $(61,309) $(29,518) $ (6,158) $(46,214)
BALANCE SHEET DATA:
Rental property, before accumulated
depreciation $1,026,509 $836,175 $300,631 $276,423 $266,833
Rental property, net of accumulated
depreciation $ 875,249 $723,861 $219,338 $206,555 $207,977
Total assets $ 959,194 $782,738 $232,066 $212,034 $215,418
Total debt $ 427,778 $387,015 $168,315 $132,700 $132,747
Minority interests in
Operating Partnership $ 120,475 $ 35,272 $ 26,552 $ 36,264 $ 41,569
Shareholders' equity $ 367,935 $322,966 $ 16,191 $ 24,308 $ 25,542
</TABLE>
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA, CONTINUED
- ------- ----------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
OTHER DATA:
Dollars in thousands 1998 1997(1) 1996 1995 1994
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Total properties (at end of period) 165 131 47 44 43
Total sites (at end of period) (3) 51,101 43,800 20,279 19,594 19,185
Weighted average occupied sites 45,882 38,053 18,889 18,051 14,913
Funds from operations (4) $69,767 $55,962 $27,460 $24,898 $22,015
</TABLE>
(1) In February 1997, the Company completed the Merger with ROC. See Note 3 to
the Consolidated Financial Statements for information regarding the
Merger.
(2) The extraordinary item represents prepayment penalties and certain other
related costs associated with the early extinguishment of debt.
(3) Does not include 1,359 park model/RV sites, purchased in 1998
(4) 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. For all
periods presented, depreciation of rental property, amortization of
intangibles and certain non-recurring items are the only non-cash
adjustments. 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 Year Ended December 31,
(In thousands) 1998 1997 1996 1995 1994
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income before extraordinary item
and minority interests $34,486 $24,688 $16,100 $13,979 $14,897
Less:
Income allocated to
Preferred OP Units 4,249 - - - -
Plus:
Depreciation of rental
property 38,962 30,867 11,360 10,919 7,118
Amortization of intangibles 446 407 - - -
Non-recurring items, net 122 - - - -
------- ------- ------- ------- -------
Funds from Operations $69,767 $55,962 $27,460 $24,898 $22,015
======= ======= ======= ======= =======
</TABLE>
17
<PAGE>
ITEM 7. 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 Annual 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.
OVERVIEW
The Company is one of the largest owner/managers of manufactured home
communities in the United States, based both on the number of communities and
the number of residential homesites owned. The Company added 121 manufactured
home communities to its portfolio over the three-year period ended December 31,
1998. At the end of this period, the Company's portfolio was comprised of 165
manufactured home communities containing 51,101 manufactured homesites and 1,359
park model/RV sites, located in 28 states.
A substantial portion of the Company's growth since the beginning of 1996 can be
attributed to the Company's merger with ROC on February 11, 1997. The historical
results of the Company include the results of operations of ROC since February
1, 1997. In addition, as a result of the Merger, the Company acquired ROC's
third-party property management operations and its taxable sales and brokerage
subsidiary, CSI. During 1998, the Company acquired 34 communities (the
"Acquisition Properties") in four separate portfolio acquisitions, containing an
aggregate of 7,045 manufactured homesites and 1,359 park model/RV sites.
Company growth since the beginning of 1996 can also be attributed to increased
operating performance at existing communities, community expansions, new
community development and additional acquisition activities.
Since its organization, the Company has elected to qualify as a REIT under the
Code and thus does not generally pay federal corporate income taxes on its
earnings to the extent that such earnings are distributed to shareholders.
The Company conducts substantially all of its activities through the Operating
Partnership in which it owned a combined 89 percent general partner interest as
of December 31, 1998.
18
<PAGE>
HISTORICAL RESULTS OF OPERATIONS
Comparison of the year ended December 31, 1998 to the year ended December 31,
1997
The following table summarizes certain information relative to the Company's
properties, as of and for the years ended December 31, 1998 and 1997. The
Company considers all communities owned by the Company or ROC as of January 1,
1997 as the "Core 1997 Portfolio".
<TABLE>
<CAPTION>
Core 1997 Portfolio Total
----------------------- -------------------
1998 1997 1998 1997
--------- -------- ------- -------
Dollars in thousands, except per site
<S> <C> <C> <C> <C>
As of December 31,
Number of Communities 126 126 165 131
Total manufactured homesites 43,379 43,051 51,101 43,800
Occupied sites 39,973 39,564 47,192 40,286
Occupancy % 92.1% 91.9% 92.4% 92.0%
For the year ended December 31,
Rental income $146,445 $139,048 $167,206 $134,801
Property operating expense $ 52,259 $ 50,712 $ 59,345 $ 49,092
Net operating income $ 94,186 $ 88,336 $107,861 $ 85,709
Weighted average monthly rent $ 299 $ 286 $ 292 $ 287
per site
</TABLE>
For the year ended December 31, 1998, income before minority interests was
$34,486,000, an increase of $9,798,000 from the year ended December 31, 1997.
The increase was due primarily to acquisitions and the Merger, as well as
increased net operating income from the Core 1997 Portfolio. The increase in net
operating income from the Company's Core 1997 Portfolio was due to increased
occupancy and rental increases partially offset by general operating expense
increases. Rental revenue for the year ended December 31, 1998 was $167,206,000,
an increase of $32,405,000 from 1997. Approximately 57 percent was due to
acquisitions and 18 percent was due to the Merger. The remaining 25 percent
increase was due to rental increases and occupancy gains in the Company's Core
1997 Portfolio.
Weighted average occupancy for the year ended December 31, 1998 was 45,882 sites
compared with 38,053 sites for the same period in 1997. During 1998, the Company
increased occupancy by 627 sites, of which 344 were in its active expansion
communities. The Company also added 407 sites to its portfolio through the
expansion of its communities. The occupancy rate for the total portfolio was
92.4 percent on 51,101 sites as of December 31, 1998, compared to 92.0 percent
on sites as of December 31, 1997. The occupancy rate on the stabilized portfolio
was 94.0 percent as of December 31, 1998. On a per site basis, weighted average
monthly rental revenue for the year ended December 31, 1998 was $292 compared
with $287 for the same period in 1997. For the Company's Core 1997 Portfolio, on
a per site basis, weighted average monthly rental revenue for the year ended
December 31, 1998 was $299 compared with $286 for the same period in 1997, an
increase of 4.5 percent.
19
<PAGE>
Management fee, interest and other income primarily include management fee
income for the management of 36 manufactured home communities, equity earnings
from the Company's sales subsidiary, CSI, and interest income on notes
receivable and advances to affiliates. The increase in 1998 from 1997 is due
primarily to increased development activities in which the Company funds the
development costs and recognizes interest income and expense.
Property operating and maintenance expense for the year ended December 31, 1998
increased by $7,948,000 or 20.3 percent from the same period a year ago. The
majority of the increase was due to the acquisitions and the Merger. The
remaining increase was due to increases in the Company's Core 1997 Portfolio. On
a per site basis, monthly weighted average property operating and maintenance
expense remained constant at $86.
Real estate taxes for the year ended December 31, 1998 increased by $2,305,000
or 23.2 percent from the year ended December 31, 1997. The increase is due
primarily to acquisitions and expansions of communities, the Merger and general
increases. On a per site basis, monthly weighted average real estate taxes were
$22.25 in 1998 compared to $21.78 in 1997, an increase of 2.2 percent. 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 year ended December 31, 1998 increased due to
acquisitions and the Merger. Administrative expense in 1998 was 4.8 percent of
total revenues as compared to 5.0 percent in 1997.
Interest and related amortization costs increased for the year ended December
31, 1998 by $5,369,000, as compared with the year ended December 31, 1997. The
increase is attributable primarily to the indebtedness incurred to finance the
acquisitions. Interest expense as a percentage of average debt outstanding
remained relatively constant at approximately 7.7 percent.
Depreciation expense for the year ended December 31, 1998, increased $8,148,000
from the same period a year ago. The increase is directly attributable to
acquisitions and the Merger. Depreciation expense as a percentage of average
depreciable rental property in 1998 remained relatively unchanged from 1997.
Comparison of the year ended December 31, 1997 to the year ended December 31,
1996
For the year ended December 31, 1997, income before minority interests was
$24,688,000, an increase of $8,588,000 from the year ended December 31, 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 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 for the year ended December 31, 1997 was $134,801,000, an increase of
$67,568,000 from 1996. Approximately 80 percent of the increase was due to the
Merger, and 9 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.
20
<PAGE>
Weighted average occupancy for the year ended December 31, 1997 was 38,053 sites
compared with 18,889 sites for the same period in 1996. During 1997, the Company
increased occupancy by nearly 400 sites, primarily in its active expansion
communities. The occupancy rate for the total portfolio was 92.0 percent on
approximately 43,800 sites as of December 31, 1997, compared to 94.4 percent on
approximately 20,279 sites as of December 31, 1996. The decrease in the
occupancy rate is due to the increase in available sites added through
expansions of existing communities. The occupancy rate on the stabilized
portfolio was 93.6 percent as of December 31, 1997. On a per site basis,
weighted average monthly rental revenue for the year ended December 31, 1997 was
$287, which is consistent with the same period of 1996. For the Company's Core
1996 Portfolio, on a per site basis, weighted average monthly rental revenue for
the year ended December 31, 1997 was $289 compared with $278 for the same period
in 1996, an increase of 4.1 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, CSI, 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 year ended December 31, 1997
increased by $20,945,000 or 115 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 increased 6.8 percent from approximately $80 in 1996 to
approximately $86 in 1997. 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 1997.
Real estate taxes for the year ended December 31, 1997 increased by $5,090,000
or 105 percent from the year ended December 31, 1996. The increase is due
primarily to the Merger, acquisitions and expansions of communities and general
increases. On a per site basis, monthly weighted average real estate taxes were
$21.78 in 1997 compared to $21.42 in 1996, an increase of 1.7 percent. 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 year ended December 31, 1997 increased due to the
Merger. Administrative expense in 1997 was 5.0 percent of total revenues as
compared to 5.7 percent in 1996.
Interest and related amortization costs increased for the year ended December
31, 1997 by $12,956,000, as compared with the year ended December 31, 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 8.1 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 had 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 year ended December 31, 1997, increased $20.1
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.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $76,809,000 for the year ended
December 31, 1998, compared to $54,545,000 for the same period in 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 year ended December 31, 1998
was $75,820,000. This consisted primarily of $53,678,000 of net proceeds
received from the issuance in February 1998 of 1,850,000 shares of common stock,
$73,002,000 in net proceeds received from the issuance in April 1998 of Series A
Preferred OP Units to an institutional investor, and net borrowings on the
Company's line of credit of $11,736,000. These proceeds were offset partially by
$57,878,000 in dividends and distributions paid to shareholders and OP
Unitholders in 1998.
Net cash used in investing activities for the year ended December 31, 1998 was
$167,089,000. This amount represents acquisitions, joint venture investments and
advances, capital expenditures and development costs. During 1998, the Company
acquired, through four separate portfolio acquisitions, 31 manufactured home
communities and three park model/RV communities with a total of 7,045 homesites
and 1,359 park model/RV sites. The Company's total investment of approximately
$170 million was financed primarily by the assumption of $31.7 million of
mortgage and other notes, the issuance of 943,075 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 proceeds of $73
million from the issuance of Series A Preferred OP Units.
During 1998, the Company invested approximately $6.5 million in the expansion of
its existing communities. During 1998, the Company added 407 available sites to
its portfolio. In addition, during 1998, the Company invested or advanced $33.2
million to certain affiliates of the Company. This consisted primarily of
approximately $10.2 million to seven joint ventures, through which the Company
is developing manufactured home communities, $11.1 million to N'Tandem Trust, an
entity in which the Company owns approximately 17 percent of its outstanding
common stock and $10 million in other investments in entities owning
manufactured home communities. For the year ended December 31, 1998, recurring
property capital expenditures, other than development costs, were approximately
$5.2 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.
In August 1998, the Company renegotiated its line of credit with Bank One, N.A.,
acting as lead agent, (the "Bank One Credit Facility") increasing the line from
$75 million to $100 million. The interest rate was reduced from LIBOR plus 110
basis points to a maximum of LIBOR plus 80 basis points and its maturity date
was extended to 2001.
As of December 31, 1998, in addition to the Bank One Credit Facility, the
Company had 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
December 31, 1998, approximately $36.7 million was outstanding under the Credit
Facilities and the Company had available $70.8 million in additional borrowing
capacity.
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.
22
<PAGE>
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 December 31, 1998, the Company had outstanding, in addition to the Credit
Facilities, $245 million of unsecured senior debt with a weighted average
interest rate and maturity of 7.5 percent and 4.2 years, respectively, and $129
million of secured mortgage debt with a weighted average interest rate and
maturity of 7.9 percent and 2.5 years, respectively. As of December 31, 1998,
the Company had approximately $428 million of total debt outstanding,
representing 29 percent of the Company's total market capitalization. All of the
debt is fixed rate debt, other than the Company's Credit Facilities and has a
weighted average interest rate of 7.6 percent.
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 assumption of existing
secured or unsecured indebtedness and depending on market conditions and capital
availability factors, the issuance of additional equity or debt securities.
The Company expects to meet its short-term liquidity requirements, including
expansion activities and capital expenditure requirements, through cash flows
from operations and, if necessary, borrowings under the Credit Facilities and
other lines of credit.
INFLATION
All of the leases or terms of tenants' occupancies at the communities allow for
at least annual rental adjustments. In addition, all leases are short-term
(generally one year or less) and enable the Company to seek market rentals upon
reletting the sites. Such leases generally minimize the risk to the Company of
any adverse effect of inflation.
YEAR 2000 COMPLIANCE
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.
23
<PAGE>
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.
Management 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.
RECENTLY ISSUED ACCOUNTING STANDARD
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
for $75 million of its senior notes. SFAS 133 requires that all derivative
instruments be measured on the balance sheet at fair value. The Company
anticipates that the adoption of SFAS 133 will not have a significant effect on
its 2000 financial statements.
24
<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. For all periods presented, depreciation of rental
property, amortization of intangibles and certain non-recurring items are the
only non-cash adjustments. 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 year ended December 31,
-----------------------------------
1998 1997 1996
------- -------- --------
(in thousands)
<S> <C> <C> <C>
Income before extraordinary item
and minority interests $34,486 $24,688 $16,100
Less:
Income allocated to Preferred OP Units 4,249 - -
Plus:
Depreciation of rental property 38,962 30,867 11,360
Amortization of intangibles 446 407 -
Non-recurring items, net 122 - -
------- ------- -------
Funds from operations $69,767 $55,962 $27,460
======= ======= =======
</TABLE>
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Chateau Communities, Inc.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) present fairly, in all material respects,
the financial position of Chateau Communities, Inc. (the "Company") at December
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
February 8, 1999
26
<PAGE>
CHATEAU COMMUNITIES, INC.
CONDSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
In thousands, except per share data
FOR THE YEAR ENDED DECEMBER 31,
1998 1997 1996
---------- --------- --------
<S> <C> <C> <C>
Revenues:
Rental income $167,206 $134,801 $67,233
Management, interest and other income 5,924 3,368 151
-------- -------- -------
173,130 138,169 67,384
Expenses:
Property operating and maintenance 47,094 39,146 18,201
Real estate taxes 12,251 9,946 4,856
Depreciation and amortization 39,658 31,510 11,452
Administrative 8,354 6,961 3,813
Interest and related amortization 31,287 25,918 12,962
-------- -------- -------
138,644 113,481 51,284
-------- -------- -------
Income before minority interests 34,486 24,688 16,100
Less income allocated to minority interests:
Preferred OP Units 4,249 - -
Common OP Units 3,436 2,986 9,566
-------- -------- -------
Net income available to
common shareholders $ 26,801 $ 21,702 $ 6,534
======== ======== =======
Per share/OP Unit information:
Basic earnings per common share $ .98 $ .92 $ 1.09
======== ======== =======
Diluted earnings per common share $ .97 $ .91 $ 1.08
======== ======== =======
Dividends/distributions declared per
common share/OP Unit outstanding $ 1.82 $ 1.72 $ 1.62
======== ======== =======
Tax status of dividends,
return of capital portion $ .69 $ .62 $ .65
======== ======== =======
Weighted average common shares
outstanding - basic 27,282 23,688 6,022
======== ======== =======
Weighted average common
shares/OP Units outstanding - basic 30,779 26,947 14,837
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
CHATEAU COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
In thousands, except share data 1998 1997
----------- ---------
<S> <C> <C>
ASSETS
Rental property:
Land $ 135,444 $111,832
Land and improvements for expansion sites 22,184 14,437
Manufactured home community improvements 791,859 647,388
Community buildings 55,887 44,406
Furniture and other equipment 21,135 18,112
---------- --------
Total rental property 1,026,509 836,175
Less accumulated depreciation 151,260 112,314
---------- --------
Net rental property 875,249 723,861
Cash and cash equivalents 450 14,910
Rents, notes and other receivables 10,286 11,034
Investments in and advances to affiliates 65,473 25,662
Prepaid expenses and other assets 7,736 7,271
---------- --------
Total assets $ 959,194 $782,738
========== ========
LIABILITIES
Debt $ 427,778 $387,015
Accrued interest payable 4,322 3,909
Accounts payable and accrued expenses 16,708 15,848
Rents received in advance and security deposits 6,898 5,580
Dividends/distributions payable 15,078 12,148
---------- --------
Total liabilities 470,784 424,500
COMMITMENTS AND CONTINGENCIES (NOTES 11 & 12) - -
MINORITY INTERESTS IN OPERATING PARTNERSHIP 120,475 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;
27,936,016 and 25,476,172 shares issued and outstanding at,
December 31, 1998 and 1997, respectively 279 255
Additional paid-in capital 432,711 356,780
Dividends in excess of accumulated earnings (56,637) (33,174)
Notes receivable, officers, 406,569 and 49,507
shares outstanding at December 31, 1998
and 1997, respectively (8,418) (895)
---------- --------
Total shareholders' equity 367,935 322,966
---------- --------
Total liabilities and shareholders' equity $ 959,194 $782,738
========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
CHATEAU COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
In thousands, except per share data 1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Common stock:
Balance at beginning of period $ 255 $ 57 $ 61
Common stock issued, net of issuance costs 19 - -
Issuance of shares from awards, exercise of
options and sales to key employees 4 2 -
Issuance of shares in connection with
acquisitions - 1 -
Issuance of shares in exchange for OP Units 2 10 -
Repurchase and retirement of shares (1) (11) (4)
Issuance of shares in connection with the Merger - 196 -
-------- --------- --------
Balance at end of period $ 279 $ 255 $ 57
======== ========= ========
Additional paid-in capital:
Balance at beginning of period $356,780 $ 28,187 $ 33,152
Common stock issued, net of issuance costs 53,659 - -
Issuance of shares from awards, exercise of
options and sales to key employees 9,115 4,492 239
Issuance of shares in connection with
acquisitions - 3,022 -
Issuance of shares in exchange for OP Units 6,553 159,693 -
Repurchase and retirement of shares (931) (28,676) (11,235)
Issuance of shares in connection with the Merger - 359,584 -
Transfer (to)from minority interests
ownership in Operating Partnership 7,535 (169,522) 6,031
-------- --------- --------
Balance at end of period $432,711 $ 356,780 $ 28,187
======== ========= ========
Dividends in excess of accumulated earnings:
Balance at beginning of period $(33,174) $ (11,233) $ (8,064)
Net income 26,801 21,702 6,534
Dividends declared, $1.82, $1.72
and $1.62 per share (50,264) (43,643) (9,703)
-------- --------- --------
Balance at end of period $(56,637) $ (33,174) $(11,233)
======== ========= ========
Notes receivable, officers:
Balance at beginning of period $ (895) $ (820) $ (841)
Issuance of 357,062 shares in 1998 through sales
to key employees (7,557) (100) -
Payments received 34 25 21
-------- --------- --------
Balance at end of period $ (8,418) $ (895) $ (820)
======== ========= ========
Total shareholders' equity, end of period $367,935 $ 322,966 $ 16,191
======== ========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
CHATEAU COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
In thousands 1998 1997 1996
------------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 26,801 $ 21,702 $ 6,534
Adjustments to reconcile net income to net
cash provided by operating activities:
Income attributable to minority interests 7,685 2,986 9,566
Depreciation and amortization 39,658 31,510 11,452
Amortization of debt issuance costs 764 480 437
Decrease (increase) in operating assets (690) 1,495 (562)
Increase (decrease) in operating liabilities 2,591 (3,628) 2,328
--------- --------- --------
Net cash provided by operating activities 76,809 54,545 29,755
--------- --------- --------
Cash flows from financing activities:
Proceeds from issuance of Senior Notes - 102,630 -
Borrowings on line of credit 120,935 105,111 36,750
Payments on line of credit (109,200) (150,945) -
Principal payments on mortgages (1,828) (1,596) (1,135)
Payoff of mortgages (3,315) - -
Payment of debt issuance costs (237) (895) (234)
Distributions to shareholders/OP
Unitholders (57,878) (42,111) (24,065)
Common shares/OP Units repurchased and retired (932) (19,851) (12,171)
Net proceeds from the issuance of common shares 53,678 25,477 -
Net proceeds from the issuance of Preferred OP Units 73,002 - -
Exercise of common stock options and other 1,595 3,268 260
--------- --------- --------
Net cash provided by (used in)
financing activities 75,820 21,088 (595)
--------- --------- --------
Cash flows from investing activities:
Acquisition of rental properties (116,605) (22,655) (21,727)
Disposition of rental property 3,329 2,455 -
Additions to rental properties (14,958) (15,544) (4,731)
Investments in and advances to affiliates (32,205) (4,259) -
Advances to CSI (6,650) (8,849) -
Merger costs - (12,457) (3,060)
--------- --------- --------
Net cash used in investing activities (167,089) (61,309) (29,518)
--------- --------- --------
Increase (decrease) in cash and cash equivalents (14,460) 14,324 (358)
Cash and cash equivalents, beginning of period 14,910 586 944
--------- --------- --------
Cash and cash equivalents, end of period $ 450 $ 14,910 $ 586
========= ========= ========
Supplemental information:
Cash paid for interest, net of amounts capitalized $ 30,110 $ 24,325 $ 12,176
========= ========= ========
Fair market value of OP Units/shares issued
for acquisitions/joint venture investments $ 29,150 $ 3,683 $ 1,964
========= ========= ========
Debt assumed in connection with acquisitions
and development $ 34,171 $ 1,049 $166,100
========= ========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______
1. ORGANIZATION AND FORMATION OF COMPANY:
-------------------------------------
Chateau Communities, Inc. (the "Company"), a real estate investment trust, was
formed in November 1993 as Chateau Properties, Inc. In 1997, the Company merged
with ROC Communities, Inc. ("ROC").
The Company is engaged in the business of owning and operating manufactured
housing community properties primarily through CP Limited Partnership (the
"Operating Partnership"). As of December 31, 1998, the Company owned 165
properties containing an aggregate of 51,101 homesites and 1,359 park model/RV
sites, located in 28 states. Approximately 29 percent of these homesites were
in Florida and 27 percent were in Michigan. The Company also fee managed 36
properties containing an aggregate of 7,500 homesites. A manufactured housing
community is real estate designed and improved with sites for placement of
manufactured homes. The owner of the home leases the site from the Company
generally for a term of one year or less.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Basis of Presentation
The accompanying consolidated financial statements include all accounts of the
Company, its wholly owned qualified REIT subsidiaries and its Operating
Partnership. The Company and ROC are the general partners of the Operating
Partnership. All significant inter-entity balances and transactions have been
eliminated in consolidation.
The Company conducts manufactured home sales and brokerage activities through
its taxable subsidiary Community Sales, Inc. ("CSI"). The Company owns 100% of
the preferred stock of CSI and is entitled to 100% of its cash flow. The
Company accounts for its investment in CSI utilizing the equity method of
accounting.
31
<PAGE>
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
_______
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED:
----------------------------------------------------
Minority Interests
Minority interests include common operating partnership units ("OP Units") which
are convertible into an equivalent number of shares of the Company's common
stock. Issuance of additional shares of common stock or OP Units changes the
percentage ownership of both the minority interests and the Company. Since an
OP Unit is equivalent to a common share (due to, among other things, its
exchangeability for a common share), such transactions are treated as capital
transactions and result in an equity transfer adjustment among shareholders'
equity and minority interests in the Company's balance sheet to account for the
change in the respective ownership in the underlying equity of the Operating
Partnership.
Income before minority interests is ascribed to the holders of common OP Units
based on their respective weighted average ownership percentage of the Operating
Partnership. The ownership percentage is determined by dividing the number of
common OP Units held by the limited partners by the total common OP Units
outstanding including the OP Units held by the Company.
Also included in minority interests is $73,002,000, which represents 1.5 million
8.125% Series A Cumulative Redeemable Preferred Units ("Preferred Units"). The
Preferred Units are exchangeable on or after April 20, 2008 for authorized but
unissued shares of 8.125% Series A Cumulative Redeemable Preferred Stock of the
Company.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles involves the use of certain management estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Rental income is recognized when earned and due from residents. The leases
entered into by residents for the rental of a site are generally for terms not
longer than one year and are renewable upon the consent of both parties or, in
some instances, as provided by statute.
32
<PAGE>
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
_______
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED:
-----------------------------------------------------
Rental Property
Rental property is carried at cost less accumulated depreciation. Management
evaluates the recoverability of its investment in rental property whenever
events or changes in circumstances indicate that full asset recoverability is
questionable. Management's assessment of the recoverability of its rental
property includes, but is not limited to, recent operating results, expected net
operating cash flow and management's plans for future operations. If a rental
property is determined to be significantly impaired, the asset is written down
to its estimated fair value.
Depreciation
Depreciation on manufactured home communities is computed primarily on the
straight-line method over the estimated useful lives of the assets. The
estimated useful lives of the various classes of rental property assets are
primarily as follows:
ESTIMATED USEFUL
CLASS OF ASSET LIVES (YEARS)
- -------------- -------------
Manufactured home community improvements 20 to 30
Community buildings 25 to 30
Furniture and other equipment 3 to 10
Maintenance, repairs and minor improvements to rental properties are expensed
when incurred. Major improvements and renewals are capitalized. When rental
property assets are sold or otherwise retired, the cost of such assets, net of
accumulated depreciation compared to the sale proceeds, are recognized in income
as gains or losses on disposition.
Capitalized Interest
Interest is capitalized on development projects during periods of construction
through obtainment of a certificate of occupancy. Interest capitalized by the
Company during 1998 and 1997 was $579,000 and $708,000, respectively.
Income Taxes
The Company has elected to be taxed as a real estate investment trust ("REIT")
under Section 856(c) of the Internal Revenue Code of 1986, as amended. The
Company generally will not be subject to Federal income tax to the extent it
distributes its REIT taxable income to its shareholders. REITs are subject to a
number of organizational and operational requirements. If the Company fails to
qualify as a REIT in any taxable year, the Company will be subject to Federal
income tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. The Company remains subject to certain state
and local taxes on its income and property as well as Federal income and excise
taxes on its undistributed income.
33
<PAGE>
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
_______
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED:
----------------------------------------------------
Earnings Per Share
Basic earnings per share are computed based upon the weighted average number of
common shares outstanding during the period. The conversion of an OP Unit to
common stock has no effect on earnings per common share since the earnings of an
OP Unit are equivalent to the earnings of a share of common stock. Diluted
earnings per common share are computed assuming the exercise of all outstanding
stock options, which would have a dilutive effect.
Cash Equivalents
All highly liquid investments with an initial maturity of three months or less
are considered to be cash equivalents.
Reclassifications
Certain reclassifications have been made to the prior year information to
conform to the current year presentation. These reclassifications have no impact
on net operating results previously reported.
Fair Value of Financial Instruments
The fair value of the Company's financial instruments approximate their carrying
values at December 31, 1998 and 1997.
Debt Issuance Costs
Costs incurred to obtain financing and costs of interest rate protection are
deferred and amortized on a straight line basis, which approximates the
effective interest method, over the term of the related loans or agreements.
These costs, net of accumulated amortization, are included in prepaid expenses
and other assets in the accompanying consolidated balance sheets.
Recently Issued Accounting Standard
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
for $75 million of its senior notes. SFAS 133 requires that all derivative
instruments be measured on the balance sheet at fair value. The Company
anticipates that the adoption of SFAS 133 will not have a significant effect on
its 2000 financial statements.
34
<PAGE>
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
_______
3. MERGER WITH ROC COMMUNITIES, INC.:
----------------------------------
On February 11, 1997, the Company completed its merger with ROC (the "Merger").
The Merger and related transactions was accounted for using the purchase method
of accounting. 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.
In connection with the Merger, the following transactions occurred:
- - The Company repurchased and retired 1,200,000 shares of its common stock,
of which 750,000 and 450,000 shares were repurchased in 1997 and 1996,
respectively;
- - ROC purchased 350,000 shares of the Company's common stock in 1996, which
was retired at the time of the Merger;
- - The Company issued 1.042 shares of its common stock for each share of ROC
stock outstanding;
- - The Company paid a stock dividend equal to .0326 shares of Company common
stock per common share/OP Unit outstanding;
- - Certain OP Unitholders converted 6,170,908 OP Units into common shares.
These OP Unitholders waived their right to receive the above dividend and
as a result it was re-allocated to the existing shareholders, resulting in
a 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; and
- - In May 1997 the Company's name was changed to Chateau Communities, Inc.
The total ROC purchase price of $351 million was allocated as follows:
<TABLE>
<CAPTION>
<S> <C>
Rental property $ 501.3
Net working capital 15.8
Debt assumed (166.1)
-------
$ 351.0
=======
</TABLE>
35
<PAGE>
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
_______
3. MERGER WITH ROC COMMUNITIES, INC. CONTINUED
-------------------------------------------
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 acquisitions of 14
properties made in 1996 by the Company and ROC had occurred on January 1, 1996.
No pro forma adjustments were made for the 1997 acquisitions made by the
Company. 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>
(In thousands, except per share data)
1997 1996
--------- --------
<S> <C> <C>
Revenues $142,600 $132,800
======== ========
Total expenses $117,500 $113,200
======== ========
Net income* $ 25,100 $ 19,600
======== ========
Per common share* $ .89 $ .70
======== ========
</TABLE>
*Assumes all common OP Units are exchanged for common stock.
4. COMMON STOCK AND RELATED TRANSACTIONS
-------------------------------------
The following table presents the changes in the Company's outstanding common
stock for the years ended December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- -------------------
<S> <C> <C> <C>
Common shares outstanding at January 1 25,476,172 5,660,960 6,095,960
Common stock issued 1,850,000 - -
Shares repurchased and retired (43,333) (1,100,100) (450,000)
Shares issued in exchange for OP Units 246,489 6,170,908 -
Shares issued through stock awards, sales to key
employees and the exercise of stock options 406,688 238,478 15,000
Shares issued to certain OP Unitholders for cash - 984,423 -
Shares issued in exchange for ROC
common stock outstanding - 13,109,941 -
Shares issued in connection with the stock dividend - 310,323 -
Shares issued in connection with the acquisition
of The Windsor Corporation - 101,239 -
---------- ---------- ---------
Common shares outstanding at December 31 27,936,016 25,476,172 5,660,960
========== ========== =========
</TABLE>
The Company paid a dividend/distribution of $.455 per common share/OP Unit on
April 14, 1998, July 15, 1998, October 15, 1998 and January 15, 1999 to
shareholders and OP Unitholders of record as of March 31, 1998, June 30, 1998,
September 30, 1998 and December 28, 1998, respectively. The
dividend/distribution paid on January 15, 1999 was included in distributions
payable in the accompanying consolidated balance sheet as of December 31, 1998.
The notes receivable from officers bear interest and are collateralized by the
underlying common shares.
36
<PAGE>
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
_______
4. COMMON STOCK AND RELATED TRANSACTIONS CONTINUED:
------------------------------------------------
In February 1998, the Company received net proceeds of approximately $53.7
million from the issuance of 1,850,000 shares of its common stock. The proceeds
from the offering were used to finance acquisitions made in March 1998 and to
reduce outstanding balances under the Company's line of credit, which was used
to finance acquisitions made in January.
Basic and diluted earnings per share ("EPS") are summarized in the table below:
<TABLE>
<CAPTION>
(In thousands, except per share data) FOR THE YEAR ENDED DECEMBER 31,
1998 1997 1996
------------ ------------- -----------
<S> <C> <C> <C>
Basic EPS:
Income (1) $30,237 $24,688 $16,100
============ ============= ===========
Weighted average
common shares outstanding 27,282 23,688 6,022
Weighted average 8,815
common OP Units outstanding 3,497 3,259
Weighted average ------------ ------------- -----------
common shares/OP Units - Basic 30,779 26,947 14,837
============ ============= ===========
Per Share $ .98 $ .92 $ 1.09
============ ============= ===========
Diluted EPS:
Income (1) $30,237 $24,688 $16,100
============ ============= ===========
Weighted average
common shares outstanding 27,282 23,688 6,022
Weighted average
common OP Units outstanding 3,497 3,259 8,815
Employee stock options 275 245 120
------------ ------------- -----------
Weighted average
common shares/OP Units - Diluted 31,054 27,192 14,957
============ ============= ===========
Per Share $ .97 $ .91 $ 1.08
============ ============= ===========
</TABLE>
(1) Represents income before minority interests less the income allocated to
the Preferred Units.
37
<PAGE>
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
_______
5. ACQUISITIONS OF RENTAL PROPERTY:
--------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
Amount Fair Market
Allocated Value of OP
Acquisition # of to Assets Units/Shares Debt
Date Communities # of Sites State Acquired Issued Assumed Cash(1)
- ------------- ----------- ---------- ------- ---------- ------------ ------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
January 1998 2 961 SC $15,900 $ 9,620 - $ 6,280
January 1998 10 1,093(2) FL $38,700 $18,307 $19,335(4) $ 1,058
4 276 CT
March 1998 5 839 IN $37,600 - - $37,600
1 682 MI
April 1998 10 2,587 MI $78,100 $12,401 $65,699
2 607 NC
- -------------------------------------------------------------------------------------------------------------------------
November 1997 4 641 MA $20,000 $ 500 $19,500
- -------------------------------------------------------------------------------------------------------------------------
March 1996 1 160 MI $ 3,400 $ 3,400
May 1996 2 276 IL $ 5,800 $ 1,000 $ 4,800
September 1996 (3) 6 Various $10,300 $10,300
</TABLE>
(1) The cash used to finance the Company's acquisitions was provided by
borrowings on the line of credit, the issuance of 1.85 million common
shares in February 1998 (see Note 4) and the issuance of $75 million of
Preferred Units (see Note 2).
(2) Does not include park model/RV sites.
(3) Represents a 50 percent interest in a joint venture with ROC. After the
Merger in February 1997, the Company owns 100 percent of these properties.
(4) Includes $12 million for a capital lease obligation.
The following unaudited pro forma income statement information has been prepared
as if the significant acquisitions made in 1998 had occurred on January 1 1997.
No pro forma adjustments were made for the 1997 acquisitions as the effects on
reported results were not material. The pro forma income statement information
is not necessarily indicative of the results which actually would have occurred
if these acquisitions had been consummated on January 1, 1997.
<TABLE>
<CAPTION>
(in thousands, except per share data) 1998 1997
---------------- ---------------
<S> <C> <C>
Revenues $176,154 $150,055
======== ========
Total expenses $141,125 $124,982
======== ========
Net income* $ 29,872 $ 21,441
======== ========
Per common share* $ .93 $ .75
======== ========
</TABLE>
*After allocation to Preferred Units. Assumes all common OP Units are exchanged
for common stock.
38
<PAGE>
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
_______
6. INVESTMENTS IN AND ADVANCES TO AFFILIATES:
------------------------------------------
Investments in and advances to affiliates as of December 31, consisted primarily
of the following:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Community Sales, Inc. ("CSI") $19,600 $12,950
Development and other joint ventures 34,743 12,712
N'Tandem Trust ("N'Tandem") 11,130 -
------- -------
$65,473 $25,662
======= =======
</TABLE>
CSI
- ---
Advances to CSI are primarily used to finance inventory purchases. The Company
accounts for its investment in CSI using the equity method of accounting.
Development Joint Ventures
- --------------------------
The Company is currently involved in seven joint ventures to construct ground-up
"greenfield communities". In the majority of the arrangements, the Company acts
as the developer or co-developer, performs all accounting and property
management functions and, in many of the arrangements, the Company acts as a
lender to finance the development costs. As such, the Company advances amounts
to the joint ventures to fund construction and recognizes the related interest
income as earned. The Company primarily borrows on its line of credit to fund
the advances and, accordingly, includes the related borrowing costs in interest
expense. In the majority of the arrangements, the Company has the option to
purchase the completed community when it reaches a pre-determined occupancy
rate. The Company is also involved in two joint ventures in which the
communities are being constructed by its joint venture partner. The Company has
similar arrangements to lend these joint ventures funds to finance development.
N'Tandem
- --------
In September 1997, the Company completed the acquisition of The Windsor
Corporation ("Windsor"), the general partner in five partnerships and advisor to
one REIT, N'Tandem Trust ("N'Tandem", previously known as Windsor Real Estate
Investment Trust 8). These six entities owned 30 manufactured home communities
(containing 6,300 homesites), all of which have been managed by the Company or
ROC on a fee basis since 1993.
In March 1998, the Company entered into an investment agreement ("Agreement")
with N'Tandem. Pursuant to the Agreement, the Company purchased 19,139 common
shares of N'Tandem and issued two notes; one secured and one unsecured, for an
aggregate of $5,001,000 due March 1999 for the acquisition by N'Tandem of one
community in Montgomery, Alabama. On November 30, 1998, N'Tandem borrowed
$5,650,000 from the Company for the acquisition of three communities in
Lexington Park, Maryland. The notes bear interest at the prime rate of interest
plus one percent per annum and are due November 1999. The Company owns
approximately 17 percent of N'Tandem's outstanding common stock and accounts for
its investment on an equity basis, recognizing income from an advisory agreement
and interest income on the notes as earned. As of December 31, 1998, N'Tandem
owned 6 communities with 1,307 homesites and an interest in 3 communities with
419 homesites.
39
<PAGE>
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
_______
7. FINANCING:
---------
The following table sets forth certain information regarding debt at December
31:
<TABLE>
<CAPTION>
Weighted Principal Balance
Average Maturity -----------------
Interest Rate Date 1998 1997
---------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
(in thousands)
Fixed rate mortgages 7.89% 1999-2011 $129,448 $113,969
Unsecured Senior Notes 7.50% 2000-2004 245,000 245,000
Unsecured lines of credit 6.39% 1999-2001 36,735 25,000
Capital lease obligation 11,836 -
Other notes payable 4,759 3,046
-------- --------
$427,778 $387,015
======== ========
</TABLE>
At December 31, 1998, the Company had a $100 million line of credit arrangement
with Bank One, NA acting as lead agent for a bank group to provide financing for
future construction, acquisitions and general business obligations. The line of
credit arrangement is unsecured, bears interest at the prime rate of interest
or, at the Company's option, LIBOR plus 80 basis points. The line matures in
2001. In addition, the Company has a $7.5 million unsecured line of credit from
US Bank which bears interest at a rate of LIBOR plus 125 basis points. As of
December 31, 1998, approximately $36.7 million was outstanding under the
Company's lines of credit and the Company had available $70.8 million in
additional borrowing capacity. The financing arrangements contain customary
covenants, including a debt service coverage ratio and a restriction on the
incurrence of additional collateralized indebtedness without a corresponding
increase in rental property.
During 1998, the Company assumed $19.4 million in fixed rate mortgages related
to 6 properties, in connection with the acquisitions of the properties, with a
weighted average interest rate of 7.54 percent.
In connection with the acquisitions made in 1998, the Company acquired nine
communities, containing 900 homesites and 1,100 park model/RV sites, subject to
long-term capital leases. The leases were convertible, at the lessor's option,
into common OP Units. That option was exercised in January 1999.
On December 23, 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, was approximately
$102 million. The additional $2 million, included in prepaid expenses and other
assets in the accompanying balance sheets, represents a payment made by a
remarketing dealer for the right to remarket the securities in 2004. The
remarketing fee is being amortized over the life of the related debt.
40
<PAGE>
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
_______
7. FINANCING CONTINUED:
-------------------
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.
The aggregate amount of principal maturities on the fixed rate mortgages and
Senior Notes payable subsequent to December 31, 1998 (in thousands) is as
follows:
YEARS ENDING
DECEMBER 31,
- --------------
1999 $ 21,160
2000 163,976
2001 390
2002 839
2003 70,394
Thereafter 117,689
--------
$374,448
========
The Company has entered into an interest rate hedge agreement in order to hedge
the interest rate on $75 million of senior notes.
8. MINORITY INTERESTS IN OPERATING PARTNERSHIP:
--------------------------------------------
Minority interests in the accompanying consolidated balance sheets represent
both the common and preferred ownership interests in the Operating Partnership
held by third parties. The common minority interest represents common OP Units
which are convertible into an equivalent number of shares of the Company's
common stock. As of December 31, 1998 and 1997, common minority interest was
approximately 11 and 10 percent, respectively.
During 1998 and 1997, in connection with the Merger, certain OP Unitholders
converted their OP Units into 246,489 and 6,170,908 shares of common stock,
respectively, of the Company at a one for one exchange ratio. These transactions
resulted in an increase of outstanding common shares, and a corresponding
decrease of outstanding OP Units. In connection with these transactions, there
were no proceeds received nor expenses incurred by the Company.
41
<PAGE>
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
_______
8. MINORITY INTERESTS IN OPERATING PARTNERSHIP CONTINUED:
------------------------------------------------------
The following is a summary of activity of the common minority interest in the
Operating Partnership, including the transfer adjustment among the common
minority interest and shareholders' equity in the consolidated balance sheets to
account for the change in the respective ownership in the underlying equity of
the Operating Partnership.
<TABLE>
<CAPTION>
OPERATING
PARTNERSHIP MINORITY
UNITS INTEREST
----- --------
(in thousands)
<S> <C> <C>
Majority interest in Operating Partnership
at January 1, 1996 8,790 $ 36,264
Majority interest in income - 9,566
Distributions declared, $1.62 per unit - (14,279)
Issuance of OP Units at fair value in connection
with acquisitions 89 1,964
OP Units reacquired and retired by Operating
Partnership (43) (932)
Transfer to shareholders' equity - (6,031)
--------- ---------
Majority interest in Operating Partnership
at December 31, 1996 8,836 $ 26,552
--------- ---------
Minority interest in income - $ 2,986
Distributions declared, $1.72 per unit - (4,745)
Issuance of OP Units at fair value in
connection with acquisitions 23 660
Exchange of OP Units for shares of common
stock (6,171) (159,703)
Issuance of OP Units through a dividend 87 -
Transfer from shareholders' equity - 169,522
Minority interest in Operating Partnership --------- ---------
at December 31, 1997 2,775 $ 35,272
--------- ---------
Minority interest in income - $ 3,436
Distributions declared, $1.82 per unit - (6,295)
Issuance of OP Units at fair value in
connection with acquisitions/investments
in joint ventures 995 29,150
Exchange of OP Units for shares of common
stock (246) (6,555)
Transfer to shareholders' equity - (7,535)
Minority interest in Operating Partnership --------- ---------
at December 31, 1998 3,524 $ 47,473
========= =========
</TABLE>
Also included in minority interests on the accompanying consolidated balance
sheets are 1.5 million Preferred Units issued in April 1998. The proceeds of
this issuance, $73,002,000, were used to pay off the outstanding balances on the
Company's lines of credit, which were used to finance the acquisition of
properties.
42
<PAGE>
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
_______
9. STOCK OPTION PLAN:
-----------------
The Company measures compensation cost using the intrinsic value method, in
accordance with Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees."
The Company's 1997 Equity Compensation Plan and 1993 Long Term Incentive Stock
Plan (collectively, the "Plans") provide for up to 2.2 million shares of common
stock that may be granted to directors, executive officers and other key
employees. The Plans provide for the grant of options, restricted stock awards
and stock appreciation rights. The Plans provide for the grant of options at
"fair market value" which represents the quoted market price of the Company's
common stock on the date of grant. The Compensation Committee of the Board of
Directors determines the vesting schedule of each option and the term, which
term shall not exceed ten years from the date of grant.
Information concerning stock options is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- -----------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Price Shares Price Shares Price
---------- --------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares subject to option:
Outstanding at beginning of year 1,197,406 $ 21.66 735,300 $ 21.66 454,150 $ 20.08
Granted (1) 447,500 30.12 60,000 25.62 308,150 23.99
Issued in connection with the Merger (2) - - 557,334 21.06 - -
Exercised (406,838) 19.30 (155,228) 21.00 (11,250) 21.21
Forfeited (1,175) 19.10 - - (15,750) 22.11
--------- ------- --------- -------- ------- -------
Outstanding at end of year 1,236,893 $ 24.79* 1,197,406 $ 21.66* 735,300 $21.66*
========= ======= ========= ======== ======= =======
Options exercisable at year-end 823,257 1,182,406 176,287
========= ========= =======
Options available for grant at year-end 363,675 810,000 238,900
========= ========= =======
Weighted average remaining
contractual life (in years) 7.7 7.3 8.2
========= ========= =======
</TABLE>
(1) The options granted do not include the grant of 80,000 shares of restricted
stock in 1997 to executive officers of the Company.
(2) These represent options issued in exchange for existing ROC options at the
time of the Merger and the adjustments for a 6.8 percent stock dividend
paid on the Company's common stock, also in connection with the Merger.
* Ranging in price from $18.18-$29.94 and $19.50-$24.25 at December 31,
1997 and 1996, respectively. See table below for information as of December
31, 1998.
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1998.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ ----------------------------
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Price Outstanding Contract Life Exercise Price Exercisable Exercise Price
-------------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 18.25-$27.11 774,393 6.8 years $21.68 774,393 $21.68
$ 30.01 462,500 9.2 years $30.01 48,864 $29.23
</TABLE>
43
<PAGE>
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
_______
9. STOCK OPTION PLAN CONTINUED:
---------------------------
The fair value of each option was estimated as of date of grant using an option-
pricing model with the following assumptions used:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Estimated fair value per option granted $3.56 $3.58 $3.39
Assumptions:
Annualized dividend yield 6.25% 6.1% 6.7%
Common stock price volatility 22.6% 20.0% 20.0%
Risk-free rate of return 5.63% 6.35% 6.56%
Expected option term (in years) 10 10 10
</TABLE>
If compensation cost for stock option grants had been recognized based on the
fair value at the grant dates for 1998, 1997 and 1996 consistent with the method
allowed by SFAS No. 123 "Accounting for Stock-Based Compensation", net income
and net income per common share would have been:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income, pro forma $ 26,490,000 $ 20,091,000 $ 6,457,000
Basic earnings per common share, pro forma $ .97 $ .85 $ 1.07
Diluted earnings per common share, pro forma $ .96 $ .84 $ 1.06
</TABLE>
10. SAVINGS PLAN:
------------
The Company has a qualified retirement plan designed to qualify under Section
401 of the Internal Revenue Code (the "Plan"). The Plan allows employees of the
Company and its subsidiaries to defer a portion of their eligible compensation
on a pre-tax basis subject to certain maximum amounts. Contributions by the
Company are discretionary and determined by the Company's management. Company
contributions are allocated to each participant based on the relative
compensation of the participant to the compensation of all participants. The
Company contributed approximately $550,000, $421,000 and $300,000 to the Plan
for the years ended December 31, 1998, 1997 and 1996, respectively.
44
<PAGE>
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
_______
11. RELATED PARTY TRANSACTIONS:
--------------------------
Rental expense of approximately $100,000 annually has been incurred for leasing
space in an office building owned by certain officers and equity owners. The
office lease expires November 2001.
The Company, through CSI, purchases manufactured home inventory for resale from
Clayton Homes, Inc., which is affiliated with one of the Company's directors.
During 1998 and 1997, CSI purchased approximately 22 homes for a cost of
approximately $540,000 and 94 homes for a cost of approximately $2.2 million,
respectively, from Clayton Homes, Inc. In certain instances, the Company
finances the purchase of these homes with Vanderbilt Mortgage and Finance, Inc.
("Vanderbilt"), which is also affiliated with the same director . As of December
31, 1998 and 1997, the Company had a payable to Vanderbilt for $122,000 and
$656,000, respectively.
In addition, when CSI sells homes, the purchaser often obtains financing from
Vanderbilt. In certain cases, Vanderbilt has recourse to the Company if these
loans are not repaid for homes sold through June 1998. As of December 31, 1998
there is a total of approximately $ 16.5 million of such amounts that are
recourse to the Company.
Included in management, interest and other income is $581,800 and $28,500 of
management and other fee income received from N'Tandem for the years ended
December 31, 1998 and 1997, respectively.
As of December 31, 1998 the Company had a receivable of $ 3.3 million from a
partnership with which several officers of the Company are affiliated. The
partnership owns a manufactured home community that the Company has the option
to purchase. The receivable is collateralized by the property and was approved
by the directors of the Company who have no interest in the partnership.
12. CONTINGENCIES:
-------------
Several claims and legal actions arising from the normal course of business have
been asserted against the Company, and are pending final resolution. In the
opinion of management, none of these matters will have a material adverse affect
upon the results of operations, financial condition or cash flows of the
Company.
The Company, through its joint venture arrangements, has guaranteed
approximately $20 million of debt.
45
<PAGE>
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
_______
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
--------------------------------------------
The following is quarterly financial information for the years ended December
31, 1998 and 1997 (amounts in thousands, except per share data.)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
1998
Total revenues $40,205 $43,749 $44,065 $45,111
======= ======= ======= =======
Operating income (a) $24,024 $26,895 $26,659 $27,853
======= ======= ======= =======
Income before minority interests $ 7,369 $ 9,036 $ 8,412 $ 9,669
Less income allocated to minority interests:
Preferred OP Units - 1,202 1,523 1,524
Common OP Units 779 931 809 913
------- ------- ------- -------
Net income available to common shareholders $ 6,590 $ 6,903 $ 6,080 $ 7,232
======= ======= ======= =======
Weighted average common shares outstanding 26,370 27,312 27,509 27,917
======= ======= ======= =======
Weighted average common shares and OP
Units outstanding 29,486 30,995 31,169 31,441
======= ======= ======= =======
Net income per share - basic (b) $ .25 $ .25 $ .22 $ .26
======= ======= ======= =======
Net income per share - diluted (b) $ .25 $ .25 $ .22 $ .26
======= ======= ======= =======
1997
Total revenues $29,376 $35,600 $36,560 $36,633
======= ======= ======= =======
Operating income (a) $17,693 $21,264 $21,395 $21,764
======= ======= ======= =======
Income before minority interests $ 5,588 $ 6,123 $ 5,670 $ 7,307
Less income allocated to minority interests:
Preferred OP Units - - - -
Common OP Units 1,133 560 557 736
------- ------- ------- -------
Net income available to common shareholders $ 4,455 $ 5,563 $ 5,113 $ 6,571
======= ======= ======= =======
Weighted average common shares outstanding 18,720 25,253 25,308 25,473
======= ======= ======= =======
Weighted average common shares and OP Units
outstanding 23,480 28,009 28,064 28,242
======= ======= ======= =======
Net income per share - basic (b) $ .24 $ .22 $ .20 $ .25
======= ======= ======= =======
Net income per share - diluted (b) $ .24 $ .22 $ .20 $ .25
======= ======= ======= =======
</TABLE>
(a) Operating income represents total revenues less property operating and
maintenance expense, real estate taxes and administrative expense.
Operating income is a measure of the performance of the properties before
the effects of depreciation and interest and related amortization costs.
(b) Quarterly earnings per common share amounts may not total to the full year
amounts due to rounding and to the change in the number of common shares
outstanding.
46
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURES
---------------------
None.
47
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
The information required by Item 10 is incorporated by reference to the
information in the Registrant's proxy statement (filed or to be filed pursuant
to Regulation 14A) for its Annual Meeting of Shareholders to be held on May 20,
1999.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
The information required by Item 11 is incorporated by reference to the
information in the Registrant's proxy statement (filed or to be filed pursuant
to Regulation 14A) for its Annual Meeting of Shareholders to be held on May 20,
1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
The information required by Item 12 is incorporated by reference to the
information in the Registrant's proxy statement (filed or to be filed pursuant
to Regulation 14A) for its Annual Meeting of Shareholders to be held on May 20,
1999
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
The information required by Item 13 is incorporated by reference to the
information in the Registrant's proxy statement (filed or to be filed pursuant
to Regulation 14A) for its Annual Meeting of Shareholders to be held on May 20,
1999.
48
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------- ----------------------------------------------------------------
a. 1. Financial Statements
Report of Independent Accountants
Consolidated Statements of Income for the years ended December 31, 1998,
1997 and 1996
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
----------------------------
III - Real Estate and Accumulated Depreciation
3. Exhibits
<TABLE>
<CAPTION>
Exhibit Number
(Referenced to Item 601 of
Regulation S-K)
Exhibit Description
-------------------
<S> <C>
3(i) (a)(c) Chateau Communities, Inc. Amended and Restated
Articles of Incorporation
3(ii) (b)(e) Chateau Communities, Inc. Amended and Restated Bylaws
4.1 (b) Form of Stock Certificate
4.2(i) (f) Indenture dated as of December 19, 1997 between CP
Limited Partnership and The First National Bank of Chicago,
as supplemented
4.2(ii) (f) First Supplemental Indenture dated as of December 19,
1997 between CP Limited Partnership and The First National
Bank of Chicago related to the $100,000,000 MandatOry Par Put
Remarketed Securities/SM/ ("MOPPRS/SM/") due December 10,
2014.
4.2(iii) (f) Remarketing Agreement dated as of December 23, 1997
among Chateau Communities, Inc., CP Limited Partnership and
the "Remarketing Dealer" named therein.
4.3* (k) $75,000,000 8 3/4% Indenture, dated March 2, 1995, of CP
Limited Partnership.
4.4* (g) Note Purchase Agreement dated as of November 4, 1996,
between Pacific Mutual and ROC Communities, Inc. for
$70,000,000 in Senior Notes due November 4, 2003
</TABLE>
49
<PAGE>
4.5* (g) Deed to secure Debt and Security Agreement from ROCF,
Inc. to Pacific Mutual, dated as of August 25, 1993
10.1 (h) Amended and Restated Agreement of Limited Partnership of
CP Limited Partnership dated January 22, 1997.
10.2 (b) Lease of 19500 Hall Road
10.3 (b) Form of Noncompetition Agreement (Boll and Allen)
10.4(i) (e) Employment Agreement (McDaniel)
10.4(ii) (e) Employment Agreement (Kellogg)
10.4(iii) (e) Employment Agreement (Fischer)
10.4(iv) (e) Employment Agreement (Davis)
10.5 (h) 1997 Equity Compensation Plan
10.6 (b) Long-Term Incentive Stock Plan
10.7 (i) Amended and Restated Agreement of Limited Partnership of
CP Limited Partnership dated April 20, 1998.
10.8 (j) Articles supplementary dated April 20, 1998
21 (d) List of Subsidiaries of Chateau Communities, Inc.
23 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
* Other instruments defining long-term debt not exceeding 10 percent of total
assets have been omitted in reliance on Item 601(b)(4)(iii)(A) of
Regulation S-K but will be filed upon the request of the Commission.
(a) Incorporated by reference to the Exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995
filed with the Commission on August 10, 1995 (Commission File No. 1-12496).
(b) Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-11 filed with the Commission on
November 10, 1993 (Commission File No. 33-69150).
(c) Incorporated by reference to the Exhibits filed with the Company's Form 8-K
filed with the Commission on May 23, 1997.
(d) Incorporated by reference to the exhibits filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 filed with the
Commission on March 29, 1996 (Commission File No. 1-12496).
(e) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
filed with the Commission on May 14, 1997.
(f) Incorporated by reference to the Company's Form 8-K filed with the
Commission on December 9, 1997.
(g) Incorporated by reference to the Company's Form S-4 filed with the
Commission on September 24, 1996.
(h) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997
(i) Incorporated by reference to CP Limited Partnership's Form 8-K filed with
the Commission on May 1, 1998.
50
<PAGE>
(j) Incorporated by reference to the Company's Form 8-K filed with the
Commission on May 1, 1998.
(k) Incorporated by reference to the Exhibits filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1994 filed with the
Commission on March 30, 1995 (Commission File No. 1-12496)
b. Reports on Form 8-K
-------------------
No reports on Form 8-K were filed in the fourth quarter of the year ended
December 31, 1998.
EXHIBIT
INDEX
<TABLE>
<CAPTION>
Exhibit Number
(Referenced to Item 601 of
Regulation S-K)
<S> <C>
3(i) (a)(c) Chateau Communities, Inc. Amended and Restated
Articles of Incorporation
3(ii) (b)(e) Chateau Communities, Inc. Amended and Restated Bylaws
4.1 (b) Form of Stock Certificate
4.2(i) (f) Indenture dated as of December 19, 1997 between CP
Limited Partnership and The First National Bank of Chicago,
as supplemented
4.2(ii) (f) First Supplemental Indenture dated as of December 19,
1997 between CP Limited Partnership and The First National
Bank of Chicago related to the $100,000,000 MandatOry Par Put
Remarketed Securities/SM/ ("MOPPRS/SM/") due December 10,
2014.
4.2(iii) (f) Remarketing Agreement dated as of December 23, 1997
among Chateau Communities, Inc., CP Limited Partnership and
the "Remarketing Dealer" named therein.
4.3* (k) $75,000,000 8 3/4% Indenture, dated March 2, 1995, of CP
Limited Partnership.
4.4* (g) Note Purchase Agreement dated as of November 4, 1996,
between Pacific Mutual and ROC Communities, Inc. for
$70,000,000 in Senior Notes due November 4, 2003
4.5* (g) Deed to secure Debt and Security Agreement from ROCF,
Inc. to Pacific Mutual, dated as of August 25, 1993
10.1 (h) Amended and Restated Agreement of Limited Partnership of
CP Limited Partnership dated January 22, 1997.
10.2 (b) Lease of 19500 Hall Road
10.3 (b) Form of Noncompetition Agreement (Boll and Allen)
10.4(i) (e) Employment Agreement (McDaniel)
10.4(ii) (e) Employment Agreement (Kellogg)
10.4(iii) (e) Employment Agreement (Fischer)
10.4(iv) (e) Employment Agreement (Davis)
10.5 (h) 1997 Equity Compensation Plan
10.6 (b) Long-Term Incentive Stock Plan
10.7 (i) Amended and Restated Agreement of Limited Partnership of
CP Limited Partnership dated April 20, 1998.
10.8 (j) Articles supplementary dated April 20, 1998
21 (d) List of Subsidiaries of Chateau Communities, Inc.
23 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
</TABLE>
51
<PAGE>
EXHIBIT
INDEX
* Other instruments defining long-term debt not exceeding 10 percent of total
assets have been omitted in reliance on Item 601(b)(4)(iii)(A) of
Regulation S-K but will be filed upon the request of the Commission.
(a) Incorporated by reference to the Exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995
filed with the Commission on August 10, 1995 (Commission File No. 1-12496).
(b) Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-11 filed with the Commission on
November 10, 1993 (Commission File No. 33-69150).
(c) Incorporated by reference to the Exhibits filed with the Company's Form 8-K
filed with the Commission on May 23, 1997.
(d) Incorporated by reference to the exhibits filed with the Company's Annual
Report in Form 10-K for the year ended December 31, 1995 filed with the
Commission on March 29, 1996 (Commission File No. 1-12496).
(e) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
filed with the Commission on May 14, 1997.
(f) Incorporated by reference to the Company's Form 8-K filed with the
Commission on December 9, 1997.
(g) Incorporated by reference to the Company's Form S-4 filed with the
Commission on September 24, 1996.
(h) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997
(i) Incorporated by reference to CP Limited Partnership's Form 8-K filed with
the Commission on May 1, 1998.
(j) Incorporated by reference to the Company's Form 8-K filed with the
Commission on May 1, 1998.
(k) Incorporated by reference to the Exhibits filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1994 filed with the
Commission on March 30, 1995 (Commission File No. 1-12496)
b. Reports on Form 8-K
-------------------
No reports on Form 8-K were filed in the fourth quarter of the year ended
December 31, 1998.
52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, and in the capacities
indicated, on the 25th day of March, 1999.
CHATEAU COMMUNITIES, INC.
By:/s/ Gary P. McDaniel
------------------------------------------
Gary P. McDaniel
Director and Chief Executive Officer
(Principal Executive Officer)
By:/s/ Tamara D. Fischer
------------------------------------------
Tamara D. Fischer
Executive Vice President and Chief Financial
Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 25, 1999.
Signature Title
--------- -----
/s/ John Boll Chairman of the Board of Directors
- --------------------------------
John A. Boll
/s/ C.G. Kellogg Director and President
- --------------------------------
C.G. Kellogg
/s/ Gary P. McDaniel Director and Chief Executive Officer
- --------------------------------
Gary P. McDaniel
/s/ Edward R. Allen Director
- --------------------------------
Edward R. Allen
/s/ Gebran S. Anton, Jr. Director
- --------------------------------
Gebran S. Anton, Jr.
53
<PAGE>
/s/James L. Clayton Director
- --------------------------------
James L. Clayton
/s/Steven G. Davis Director
- --------------------------------
Steven G. Davis
/s/James M. Hankins Director
- --------------------------------
James M. Hankins
/s/Rhonda Hogan Director
- --------------------------------
Rhonda Hogan
/s/James M. Lane Director
- --------------------------------
James M. Lane
/s/Donald E. Miller Director
- --------------------------------
Donald E. Miller
54
<PAGE>
CHATEAU COMMUNITIES, INC.
FINANCIAL STATEMENT SCHEDULES
PURSUANT TO ITEM 14(a)(2) OF FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
for the year ended December 31, 1998
CHATEAU COMMUNITIES, INC.
FINANCIAL STATEMENT SCHEDULE
Pages
-----
III. Real Estate and Accumulated Depreciation.................F-2
No other financial statement schedules are required as the amounts are not
significant, or not applicable, or reported in the Company's consolidated
financial statements or notes thereto.
F-1
<PAGE>
CHATEAU COMMUNITIES, INC.
SCHEDULE III, REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Cost Capitalized Gross Amount
Subsequent to Acquisition Carried at Close of
Initial Cost to Company (Improvements) Period 12/31/98
----------------------------------------------------------------------------
Building & Building & Building &
Community Location Encumbrance Land Fixtures Land Fixtures Land Fixtures
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Algoma Algoma Township, MI 60 66 2,284 126 2,284
Anchor Bay Ira Township, MI 432 80 2,877 15,403 3,309 15,483
Anchor North Bay Tampa Bay, FL 288 1,422 288 1,422
Arbor Village Jackson, MI 1,156 813 4,787 813 4,787
Atlanta Meadows Atlanta, GA 554 625 435 0 19 625 454
Audubon Orlando, FL 281 296 2 2,920 283 3,216
Autumn Forest Greensboro, NC 4,742 918 6,747 918 6,747
Avalon RV Park Clearwater, FL 263 2,202 263 2,202
Avon Rochester Hills, MI 621 484 640 7,019 1,261 7,503
Bermuda Palms Indio, CA 1,291 2,477 0 77 1,291 2,554
Breazeale Laramie, WY. 1,094 251 1,618 0 17 251 1,635
Broadmore South Bend, IN 777 4,115 421 1284 1,198 5,399
Buena Vista Fargo, ND 713 6,248 0 258 713 6,506
Butler Creek Augusta, GA 1,238 2,309 0 374 1,238 2,683
Camden Point Kingsland, GA 466 1,701 0 64 466 1,765
Camp Inn RV Park Frostproof, FL 796 4,220 796 4,220
Canterbury Grand Rapids, MI 705 3,107 705 3,107
Carnes Crossing Summerville, SC 1,503 7,161 450 49 1,953 7,210
Castlewood Estates Mabelton, GA 656 2,918 0 132 656 3,050
Casual Estates Syracuse, NY 9,208 2,136 14,324 0 314 2,136 14,638
Cedar Grove Clinton, CT 180 1,140 180 1,140
Cedar Knolls Minneapolis, MN 1,217 11,006 0 200 1,217 11,206
Central Office Englewood, CO 0 0 80 11,513 80 11,513
Chesterfield Chesterfield Township, MI 405 0 262 2,174 667 2,174
Chestnut Creek Davison, MI 274 0 334 5,072 608 5,072
<CAPTION>
Date of
Accumulated Construction (C)
Community Total Depreciation Acquisition (A)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Algoma 2,410 831 1974(C)
Anchor Bay 18,792 7,087 1968(C)
Anchor North Bay 1,710 4 1998(A)
Arbor Village 5,600 193 1998(A)
Atlanta Meadows 1,079 48 08/25/93 (A)
Audubon 3,499 1,676 1988(A)
Autumn Forest 7,665 268 1998(A)
Avalon RV Park 2,465 91 1998(A)
Avon 8,764 5,142 1988(A)
Bermuda Palms 3,845 208 08/29/94(A)
Breazeale 1,886 119 08/25/93(A)
Broadmore 6,597 185 1998(A)
Buena Vista 7,219 1,120 1994(A)
Butler Creek 3,921 205 08/25/93(A)
Camden Point 2,231 127 08/25/93(A)
Camp Inn RV Park 5,016 19 1998(A)
Canterbury 3,812 120 1998(A)
Carnes Crossing 9,163 295 1998(A)
Castlewood Estates 3,706 251 2/1/97(A)
Casual Estates 16,774 1,416 08/25/93(A)
Cedar Grove 1,320 4 1998(A)
Cedar Knolls 12,423 1,997 1994(A)
Central Office 11,593 1224
Chesterfield 2,841 1,624 1969(C)
Chestnut Creek 5,680 405 1996(A)
</TABLE>
F-2
<PAGE>
CHATEAU COMMUNITIES, INC.
SCHEDULE III, REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent to Acquisition
Initial Cost to Company (Improvements)
----------------------- -------------------------------
Building & Building &
Community Location Encumbrance Land Fixtures Land Fixtures Land
- -------------------------------------------------------------------------------- ------------------------ ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cimarron Park St. Paul, MN 1,424 12,882 0 191 1,424
Clinton Clinton Township, MI 989 0 430 5,536 1,419
Coach Royale Boise, ID 197 1,065 11 197
Colonial Kalamazoo, MI 816 195 4 7,575 820
Colonial Coach Riverdale, GA 1,052 4,277 26 350 1,078
Colony Cove Ellenton, FL 5,683 28,256 0 246 5,683
Columbia Heights Grand Forks, ND 588 5,282 0 127 588
Conway Circle Orlando, FL 931 544 864 0 12 544
Conway Plantation Conway, SC 428 3,696 0 22 428
Country Estates Spring Lake Township, MI 30 0 0 1,814 30
Countryside Great Falls Great Falls, MT 629 361 1,650 0 -12 361
Countryside Village Denver Denver, CO 1,460 4,384 0 40 1,460
Countryside Village Jackson Jacksonville, FL 962 4,796 0 221 962
Countryside Village Longmont Longmont, CO 1,481 4,455 0 175 1,481
Cranberry Lake White Lake Township, MI 432 220 1050 2,833 1,482
Crestview Stillwater, OK 689 362 963 0 48 362
Crystal Lake St. Petersburg, FL 498 2,475 498
Crystal Lakes Zephryhills, FL 1,323 2,239 154 1,323
Del Tura Fort Myers, FL 32,120 4,360 50,508 418 3,346 4,778
Eagle Creek Tyler, TX 1,291 1,761 300 387 1,591
Eagle Point Seattle, WA 2,738 1,048 3,514 0 10 1,048
Eastridge San Jose, CA 2,476 4,671 0 33 2,476
Eldorado Daytona Bch, FL 967 408 1,248 0 39 408
Emerald Lake Punta Gorda, FL 399 1,150 0 257 399
<CAPTION>
Gross Amount
Carried at Close of
Period 12/31/98 Date of
--------------------------------
Building & Accumulated Construction (C)
Community Fixtures Total Depreciation Acquisition (A)
- ----------------------------------------------------- -------------- -------------------------------------------
<S> <C> <C> <C> <C>
Cimarron Park 13,073 14,497 2,334 1994(A)
Clinton 5,536 6,955 4,572 1969(C)
Coach Royale 1,076 1,273 101 01/01/94(A)
Colonial 7,770 8,590 5,156 1985(A)
Colonial Coach 4,627 5,705 375 2/1/97(A)
Colony Cove 28,502 34,185 2,369 08/02/94(A)
Columbia Heights 5,409 5,997 938 1994(A)
Conway Circle 876 1,420 72 08/25/93(A)
Conway Plantation 3,718 4,146 317 2/1/97(A)
Country Estates 1,814 1,844 1,278 1974(C)
Countryside Great Falls 1,638 1,999 142 08/25/93(A)
Countryside Village Denver 4,424 5,884 375 08/25/93(A)
Countryside Village Jackson 5,017 5,979 425 08/25/93(A)
Countryside Village Longmont 4,630 6,111 385 08/25/93(A)
Cranberry Lake 3,053 4,535 1,778 1986(A)
Crestview 1,011 1,373 77 08/25/93(A)
Crystal Lake 2,475 2,973 7 1998(A)
Crystal Lakes 2,393 3,716 210 2/1/1998(A)
Del Tura 53,854 58,632 9,296 1994(A)
Eagle Creek 2,148 3,739 172 2/1/97(A)
Eagle Point 3,524 4,572 298 08/25/93(A)
Eastridge 4,704 7,180 391 08/29/94(A)
Eldorado 1,287 1,695 104 08/25/93(A)
Emerald Lake 1,407 1,806 668 1988(A)
</TABLE>
F-3
<PAGE>
CHATEAU COMMUNITIES, INC.
SCHEDULE III, REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent to Acquisition
Initial Cost to Company (Improvements)
---------------------------- ------------------------------
Building & Building &
Community Location Encumbrance Land Fixtures Land Fixtures
- ------------------------------------------------------------------------------ ----------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Evergreen New Haven, CT 309 1,883
Fairways Country Club Orlando, FL 955 5,823 9 1,660
Falcon Farms Moline, IL 801 295 1,576 0 207
Ferrand Estates Wyoming, MI 257 1,579 0 236
Forest Creek South Bend, IN 501 4,849
Forest Lake Estates Spring Lake Township, MI 414 2,293 18 674
FountainVue Marion, IN 360 1,210 90 12
Foxhall Village Raleigh, NC 521 5,283 0 414
Foxwood Farms Ocala, FL 691 1,502 0 311
Friendly Village Greeley, CO 523 2,702 -5 83
Gold Tree Bradenton, FL 1,285 3,850 0 191
Golden Valley Douglasville, GA 254 800 0 162
Grand Blanc Grand Blanc, MI 1,749 0 284 8,104
Green Acres New Haven, CT 195 1,286
Hickory Knoll Indianapolis, IN 3,029 356 2,669 0 29
Hidden Valley Orlando, FL 492 5,714 0 76
Highland New Haven, CT 153 1,140
Highlands (the) Flint, MI 7,000 2,323 13,260 1,160 2042
Hillcrest Rockland, MA 236 1,285 0
Holiday Estates Byron Township, MI 93 0 0 1,703
Homestead Ranch McAllen, TX 250 195 1,108 0 170
Howell Howell, MI 345 151 2,714
Hunters Chase Lima, OH 921 1,246 163
Huron Estates Flint, MI 354 1,882
<CAPTION>
Gross Amount
Carried at Close of
Period 12/31/98 Date of
-----------------------------------
Building & Accumulated Construction (C)
Community Land Fixtures Total Depreciation Acquisition (A)
- ------------------------- ---------- ------------ ------- ------------------------------------
<S> <C> <C> <C> <C> <C>
Evergreen 309 1,883 2,192 6 1998(A)
Fairways Country Club 964 7,483 8,447 5,114 1979(A)(C)
Falcon Farms 295 1,783 2,078 142 08/25/93(A)
Ferrand Estates 257 1,815 2,072 1,479 1989(A)
Forest Creek 501 4,849 5,350 180 1998(A)
Forest Lake Estates 432 2,967 3,399 552 1994(A)
FountainVue 450 1,222 1,672 47 1998(A)
Foxhall Village 521 5,697 6,218 486 2/1/97(A)
Foxwood Farms 691 1,813 2,504 135 07/26/94(A)
Friendly Village 518 2,785 3,303 235 01/18/94(A)
Gold Tree 1,285 4,041 5,326 299 11/23/93(A)
Golden Valley 254 962 1,216 80 2/1/97(A)
Grand Blanc 2,033 8,104 10,137 2,151 1990(C)
Green Acres 195 1,286 1,481 53 1998(A)
Hickory Knoll 356 2,698 3,054 236 08/25/93(A)
Hidden Valley 492 5,790 6,282 691 1995(A)
Highland 153 1,140 1,293 47 1998(A)
Highlands (the) 3,483 15,302 18,785 574 1998(A)
Hillcrest 236 1,285 1,521 67 11/5/97(A)
Holiday Estates 93 1,703 1,796 1,198 1984(C)
Homestead Ranch 195 1,278 1,473 114 2/1/97(A)
Howell 496 2,714 3,210 2,246 1972(C)
Hunters Chase 921 1,409 2,330 116 2/1/97(A)
Huron Estates 354 1,882 2,236 73 1998(A)
</TABLE>
F-4
<PAGE>
CHATEAU COMMUNITIES, INC.
SCHEDULE III, REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent to Acquisition
Initial Cost to Company (Improvements)
------------------------- ---------------------------------
Building & Building &
Community Location Encumbrance Land Fixtures Land Fixtures Land
- -------------------------------------------------------------------------- ------------------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Indian Rocks Clearwater, FL 441 1,032 441
Jade Isle Orlando, FL 863 273 1,076 0 15 273
Knoll Terrace Salem, OR 1,986 1,379 2,050 0 77 1,379
La Quinta Ridge Indio, CA 1,014 1,873 0 332 1,014
Lake in the Hills Auburn Hills, MI 952 6,389 0 27 952
Lakeland Harbor Lakeland, FL 875 0 0 3,306 875
Lakeland Junction Lakeland, FL 471 972 0 116 471
Lakes at Leesburg Leesburg, FL 1,178 0 39 3,451 1,217
Lakewood Davenport, LA 892 442 1,210 0 270 442
Land O'Lakes Orlando, FL 1,416 473 2,507 0 28 473
Landmark Village Fairburn, GA 2,539 4,352 0 138 2,539
Leisure Woods 0 Rockland Rockland, MA 831 14,326 48 831
Leisure Woods 0 Tauton Tauton, MA 256 2,780 174 -68 430
Leisure World Weslaco, TX 228 1,639 0 36 228
Leonard Gardens Walker, MI 94 0 245 4,263 339
Macomb Macomb Township, MI 15,574 1,459 0 1,182 14,206 2,641
Maintenance Clinton, Township, MI 0 0 0 0 0
Maple Grove Boise, ID 1,139 702 2,384 0 34 702
Maple Ridge Manteno, IL 126 0 0 1,455 126
Maple Valley Manteno, IL 338 0 0 3,901 338
Mariwood Indianapolis, IN 2,138 324 2,415 99 324
Marnelle Fayetteville, GA 1,105 464 2,635 0 376 464
Meadow Park Fargo, ND 133 1,183 0 47 133
Meadowbrook Ithaca, NY 1,849 291 4,029 0 47 291
<CAPTION>
Gross Amount
Carried at Close of
Period 12/31/98 Date
----------------------
Building & Accumulated Construction (C)
Community Fixtures Total Depreciation Acquisition (A)
- ----------------------------- ----------- -------- --------------------------------
<S> <C> <C> <C> <C>
Indian Rocks 1,032 1,473 4 1998(A)
Jade Isle 1,091 1,364 88 08/25/93(A)
Knoll Terrace 2,127 3,506 175 08/25/93(A)
La Quinta Ridge 2,205 3,219 159 08/29/94(A)
Lake in the Hills 6,416 7,368 1,442 1994(A)
Lakeland Harbor 3,306 4,181 2,286 1983(C)
Lakeland Junction 1,088 1,559 816 1981(C)
Lakes at Leesburg 3,451 4,668 2,070 1984(C)
Lakewood 1,480 1,922 124 08/25/93(A)
Land O'Lakes 2,535 3,008 212 08/25/93(A)
Landmark Village 4,490 7,029 388 07/15/94(A)
Leisure Woods 0 Rockland 14,374 15,205 389 11/5/97(A)
Leisure Woods 0 Tauton 2,712 3,142 75 11/5/97(A)
Leisure World 1,675 1,903 140 05/06/94(A)
Leonard Gardens 4,263 4,602 1,266 1987(C)
Macomb 14,206 16,847 8,296 1973(C)
Maintenance 0 0 2/1/97(A)
Maple Grove 2,418 3,120 201 08/25/93(A)
Maple Ridge 1,455 1,581 182 2/1/97(A)
Maple Valley 3,901 4,239 481 2/1/97(A)
Mariwood 2,514 2,838 212 08/25/93(A)
Marnelle 3,011 3,475 265 2/1/97(A)
Meadow Park 1,230 1,363 212 1994(A)
Meadowbrook 4,076 4,367 287 08/25/93(A)
</TABLE>
F-5
<PAGE>
CHATEAU COMMUNITIES, INC.
SCHEDULE III, REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Cost Capitaled
Subsequent to Date Amount
Acquisition Carried at Close of
Initial Cost to Company (Improvements) Period 12/3/98
----------------------------------------------------------------------------------
Building & Building & Building &
Community Location Encumbrance Land Fixtures Land Fixtures Land Fixtures
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Midway Estates Vero Bch., FL 1,841 1,313 2,095 2 66 1,315 2,161
Mobiland Melbourne, FL 1,941 1,247 2,238 0 25 1,247 2,263
Mosby's Point Florence, KY 1,201 608 1,574 0 27 608 1,601
Norton Shores Norton Shores, MI 3,327 103 0 118 4,748 221 4,748
Novi Novi, MI 896 0 393 4,921 1,289 4,921
Oak Grove Albany, GA 416 418 764 0 22 418 786
Oak Hill Groveland Township, MI 115 2,165 0 4,027 115 6,192
Oak Orchard Albion, NY 701 3,425 0 30 701 3,455
Oak Ridge South Bend, IN 615 3,770 615 3,770
Oak Springs Sorrento, FL 206 1,461 2 380 208 1,841
Oakwood Forest Greensboro, NC 1,111 3,843 0 205 1,111 4,048
Old Orchard Davison, MI 210 182 0 2,645 210 2,827
One Hundred Oaks Fultondale, AL 345 1,839 0 4 345 1,843
Orange Lake Clermont, FL 246 85 1 2,051 247 2,136
Orion Orion Township, MI 422 198 0 4,608 422 4,806
Palm Beach Colony West Palm Beach, FL 691 1,962 0 164 691 2,126
Paradise Village Albany, GA 492 340 918 0 14 340 932
Pedaler's Pond Lake Wales, FL 350 285 0 2,345 350 2,630
Pendleton Indianapolis, IN 634 122 964 0 12 122 976
Pine Lakes Ranch Thornton,CO 2,463 10,099 34 609 2,497 10,708
Pinecrest Village Shreveport, LA 93 719 0 486 93 1,205
Pinellas Cascades Clearwater, FL 2,169 1,747 2,313 0 14 1,747 2,327
Pinewood Columbus, MI 1,242 10,070 1,242 10,070
Pleasant Ridge Lansing, MI 915 3,898 6 915 3,904
<CAPTION>
Date of
--------
Accumulated Construction (C)
Community Total Depreciation Acquisition (A)
- --------------------------- -------- ------------------------------
<S> <C> <C> <C>
Midway Estates 3,476 178 08/25/93(A)
Mobiland 3,510 192 08/25/93(A)
Mosby's Point 2,209 134 08/25/83(A)
Norton Shores 4,969 2,782 1978(C)
Novi 6,210 4,615 1973(C)
Oak Grove 1,204 63 08/25/93(A)
Oak Hill 6,307 3,244 1983(A)
Oak Orchard 4,156 304 2/1/97(A)
Oak Ridge 4,385 144 1998(A)
Oak Springs 2,049 1,339 1981(A)
Oakwood Forest 5,159 339 08/25/93(A)
Old Orchard 3,037 1,475 1988(A)
One Hundred Oaks 2,188 124 2/1/97(A)
Orange Lake 2,383 1005 1988(A)
Orion 5,228 2,913 1986(A)
Palm Beach Colony 2,817 729 1983(A)
Paradise Village 1,272 80 08/25/93(A)
Pedaler's Pond 2,980 1,182 1990(A)
Pendleton 1,098 80 08/25/93(A)
Pine Lakes Ranch 13,205 890 2/1/97(A)
Pinecrest Village 1,298 92 2/1/97(A)
Pinellas Cascades 4,074 189 08/25/93(A)
Pinewood 11,312 389 1998(A)
Pleasant Ridge 4,819 160 1998(A)
</TABLE>
F-6
<PAGE>
CHATEAU COMMUNITIES, INC.
SCHEDULE III, REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent to Acquisition
Initial Cost to Company (Improvements)
----------------------------------------------------------
Building & Building &
Community Location Encumbrance Land Fixtures Land Fixtures
- ---------------------------------------------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Presidents Park Grand Forks, ND 258 1,283 0 70
Redwood Estates Thornton,CO 2,473 10,044 0 95
Regency Lakes Winchester, VA 1,176 3,705 1233
Riverview Portland, OR 1,429 537 1,942 0 49
Rolling Hills Louisville, KY 736 342 1,034 0 25
Rosemount Woods Minneapolis/St. Paul, MN 475 4,297 0 61
Royal Estates Kalamazoo, MI 1,015 2,475 0 34
Saddlebrook Charleston, SC 1,284 5,497
Science City Midland, MI 1,496 870 1,760 0 67
Shady Lane Clearwater, FL 324 1,574
Shady Oaks Clearwater, FL 750 6,967
Shady Village Clearwater, FL 468 3,179
Shenandoah Boise, ID 443 2,528 0 153
Sherwood Marion, IN 264 1,175 240
Skyway Indianapolis, IN 1,207 178 1,366 0 38
Southwind Naples, FL 2,619 1,476 3,463 0 112
Spring Brook Utica, MI 4,774 1,209 10,928
Springfield Farms Brookline, MO 1,698 2,157 1,729
Starlight Ranch Orlando, FL 5,597 8,859 0 79
Stonegate, LA Shreveport, LA 455 160 642 0 95
Sun Valley Jackson, MI 606 2,514
Swan Creek Ann Arbor, MI 882 9,709
Tarpon Glen Clearwater, FL 510 2,893
Terrace Heights Dubuque, IA 1,686 919 2,413 0 30
<CAPTION>
Gross Amount
Carried at Close of
Period 12/31/98 Date of
---------------------------
Building & Accumulated Construction (C)
Community Land Fixtures Total Depreciation Acquisition (A)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Presidents Park 258 1,353 1,611 113 01/01/94(A)
Redwood Estates 2,473 10,139 12,612 880 2/1/97(A)
Regency Lakes 1176 4,938 6,114 371 2/1/97(A)
Riverview 537 1,991 2,528 165 08/25/93(A)
Rolling Hills 342 1,059 1,401 90 08/25/93(A)
Rosemount Woods 475 4,358 4,833 758 1994(A)
Royal Estates 1,015 2,509 3,524 217 08/25/93(A)
Saddlebrook 1,284 5,497 6,781 227 1998(A)
Science City 870 1,827 2,697 153 08/25/93(A)
Shady Lane 324 1,574 1,898 65 1998(A)
Shady Oaks 750 6,967 7,717 276 1998(A)
Shady Village 468 3,179 3,647 8 1998(A)
Shenandoah 443 2,681 3,124 207 05/06/94(A)
Sherwood 504 1,175 1,679 40 1998(A)
Skyway 178 1,404 1,582 116 08/25/93(A)
Southwind 1,476 3,575 5,051 291 08/25/93(A)
Spring Brook 1,209 10,928 12,137 432 1998(A)
Springfield Farms 1,698 3,886 5,584 215 2/1/97(A)
Starlight Ranch 5,597 8,938 14,535 754 2/1/97(A)
Stonegate, LA 160 737 897 49 08/25/93(A)
Sun Valley 606 2,514 3,120 104 1998(A)
Swan Creek 882 9,709 10,591 380 1998(A)
Tarpon Glen 510 2,893 3,403 8 1998(A)
Terrace Heights 919 2,443 3,362 206 08/25/93(A)
</TABLE>
F-7
<PAGE>
CHATEAU COMMUNITIES, INC.
SCHEDULE III, REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent to Acquisition
Initial Cost to Company (Improvements)
------------------------ ----------------------------------------
Building & Building & Building &
Community Location Encumbrance Land Fixtures Land Fixtures Land Fixtures
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Colony Rancho Mirage, CA 2,259 4,745 0 63 2,259 4,808
The Glen Rockland, MA 261 252 266 261 518
The Homestead McAllen, TX 628 100 742 0 216 100 958
The Orchard Santa Rosa, CA 2,795 6,363 0 10 2795 6,373
Torrey Hills Flint, MI 346 205 50 4,307 396 4,512
Town & Country, FL Orlando, FL 458 245 896 0 13 245 909
Trails End Weslaco, TX 260 1,804 0 60 260 1,864
Twenty Nine Pines St. Paul, MN 317 2,871 0 16 317 2,887
Twin Pines Goshen, IN 1,078 197 1,934 0 77 197 2,011
Valley Vista Grand Rapids, MI 1,593 411 2,791 411 2,791
Vance Columbus, OH 670 200 993 0 31 200 1,024
Villa Flint, MI 135 332 -7 2,744 128 3,076
Westbrook Detroit, MI 190 2451 531 2,120 721 4,571
Whispering Pines Clearwater, FL 4,165 4,208 4,071 0 84 4208 4,155
Willo Arms Cleveland, OH 1,563 473 2,146 0 32 473 2,178
Winter Haven Oaks Winter Haven, FL 490 705 362 1,319 852 2,024
Winter Paradise RV Hudson, FL 300 1,593 300 1,593
Woodlake Greensboro, NC 924 6,311 924 6,311
Yankee Springs Grand Rapids, MI 948 5,360 948 5,360
Yorktowne Sharonville, OH 2,130 6,311 167 2130 6,478
Difference between allocated
purchase price and
historical cost of
properties acquired in the
ROC Acquisition 959 179,080 959 179,080
129,448 132,203 535,287 13,392 345,627 145,595 880,914
<CAPTION>
Gross Amount
Carried at Close of
Period 12/31/98 Date of
-------------------
Accumulated Construction (C)
Community Total Depreciation Acquisition (A)
- ---------------------- ----------- --------------------------------
<S> <C> <C> <C>
The Colony 7,067 382 09/02/94(A)
The Glen 779 16 11/5/97(A)
The Homestead 1,058 75 2/1/97(A)
The Orchard 9,168 475 08/29/94(A)
Torrey Hills 4,908 2,594 1987(A)
Town & Country, FL 1,154 72 08/25/93(A)
Trails End 2,124 146 05/06/94(A)
Twenty Nine Pines 3,204 517 1994(A)
Twin Pines 2,208 168 08/25/93(A)
Valley Vista 3,202 88 1998(A)
Vance 1,224 69 08/25/93(A)
Villa 3,204 2,181 1984(A)
Westbrook 5,292 265
Whispering Pines 8,363 262 08/25/93(A)
Willo Arms 2,651 187 08/25/93(A)
Winter Haven Oaks 2,876 1000 1988(A)(C)
Winter Paradise RV 1,893 6 1998(A)
Woodlake 7,235 253 1998(A)
Yankee Springs 6,308 205 1998(A)
Yorktowne 8,608 571 2/1/97(A)
Difference between allocated
purchase price and
historical cost of
properties acquired in the
ROC Acquisition 180,039 20,371
1,026,509 151,260
</TABLE>
F-8
<PAGE>
SCHEDULE III
CONTINUED
CHATEAU COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued
__________
The changes in total real estate for the years ended December 31, 1998, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 836,175 $300,631 $276,423
Acquisitions 172,422 525,625 19,531
Improvements 21,486 13,250 4,731
Dispositions and other (3,574) (3,331) (54)
---------- -------- --------
Balance, end of year $1,026,509 $836,175 $300,631
========== ======== ========
The change in accumulated depreciation for the years ended December 31, 1998,
1997 and 1996 are as follows:
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 112,314 $ 81,293 $ 69,868
Depreciation for the year 39,213 31,103 11,452
Dispositions and other (267) (82) (27)
---------- -------- --------
Balance, end of year $ 151,260 $112,314 $ 81,293
========== ======== ========
</TABLE>
F-9
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Chateau Communities, Inc. or CP Limited Partnership on Form S-8 (File Nos. 33-
84616 and 333-28583) and Form S-3 (File Nos. 333-36323, 333-28703, 333-4544,
333-4544-01, 333-43981 and 333-38307) of our report dated February 8, 1999, on
our audits of the consolidated financial statements and financial statement
schedule of Chateau Communities, Inc. as of December 31, 1998 and 1997, and for
each of the three years in the period ended December 31, 1998, which report is
included in this Annual Report on Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Denver, Colorado
March 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 450
<SECURITIES> 0
<RECEIVABLES> 10,286
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,026,509
<DEPRECIATION> 151,260
<TOTAL-ASSETS> 959,194
<CURRENT-LIABILITIES> 0
<BONDS> 427,778
0
0
<COMMON> 279
<OTHER-SE> 432,711
<TOTAL-LIABILITY-AND-EQUITY> 959,194
<SALES> 0
<TOTAL-REVENUES> 173,130
<CGS> 0
<TOTAL-COSTS> 59,345
<OTHER-EXPENSES> 48,012
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,287
<INCOME-PRETAX> 26,801
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,801
<EPS-PRIMARY> .98
<EPS-DILUTED> .97
</TABLE>
