<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the quarterly period ended June 30, 1998
-------------
OR
Transition report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
Commission file number 33-85492
--------
CP LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its charter)
MARYLAND 38-3140664
(State or other jurisdiction (IRS Employer
of incorporation or organization) (Identification No.)
6430 SOUTH QUEBEC STREET, ENGLEWOOD, CO 80111
(Address of principal executive offices, including zip code)
(303) 741-3707
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
<PAGE> 2
CP LIMITED PARTNERSHIP
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1998 and 1997 1
Condensed Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997 2
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997 3
Notes to Condensed Consolidated Financial Statements 4-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II. OTHER INFORMATION 14
SIGNATURES 15
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CP LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997.
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 42,214 $ 34,817 $ 81,307 $ 63,725
Management fee, interest and other income 1,535 783 2,647 1,251
---------- ---------- ---------- ----------
43,749 35,600 83,954 64,976
Expenses:
Property operating and maintenance 11,810 9,746 22,886 17,755
Real estate taxes 3,071 2,565 6,026 4,694
Depreciation and amortization 9,849 8,499 18,958 15,176
Administrative 1,973 2,025 4,123 3,571
Interest and related amortization 8,010 6,642 15,556 12,070
---------- ---------- ---------- ----------
34,713 29,477 67,549 53,266
---------- ---------- ---------- ----------
Net Income $ 9,036 $ 6,123 $ 16,405 $ 11,710
Preferred Distributions 1,202 -- 1,202 --
---------- ---------- ---------- ----------
Net Income available to OP Unitholders $ 7,834 $ 6,123 $ 15,203 $ 11,710
========== ========== ========== ==========
Net income attributed to common OP Unitholders:
General Partner 6,903 5,563 13,493 10,018
Limited Partners 931 560 1,710 1,692
---------- ---------- ---------- ----------
$ 7,834 $ 6,123 $ 15,203 $ 11,710
========== ========== ========== ==========
Basic earnings per common OP Unit
outstanding $ .25 $ .22 $ .50 $ .45
========== ========== ========== ==========
Diluted earnings per common OP Unit
outstanding $ .25 $ .22 $ .50 $ .45
========== ========== ========== ==========
Distributions declared per
common OP Unit outstanding $ .455 $ .43 $ .91 $ .86
========== ========== ========== ==========
Weighted average common OP Units
outstanding 30,995 28,009 30,245 25,809
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
1
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CP LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
Rental property:
Land $ 134,294 $ 111,832
Land and improvements for expansion sites 18,058 14,437
Depreciable property 854,870 709,906
------------ ------------
1,007,222 836,175
Less accumulated depreciation 131,041 112,314
------------ ------------
Net rental property 876,181 723,861
Cash and cash equivalents 125 14,910
Receivables 3,661 2,936
Notes receivable 8,052 8,143
Investment in and advances to affiliates 41,856 21,646
Prepaid expenses and other assets 12,420 11,242
------------ ------------
Total assets $ 942,295 $ 782,738
============ ============
LIABILITIES
Debt $ 398,599 $ 387,015
Accounts payable and accrued expenses 21,638 19,757
Tenants' security deposits and rents received in advance 6,721 5,580
Accrued distributions 15,300 12,148
------------ ------------
Total liabilities 442,258 424,500
PARTNERS' CAPITAL, Unlimited authorized units; 31,029,333 and
28,250,803 OP units outstanding at June 30, 1998 and
December 31, 1997, respectively
General partner 375,620 322,966
Limited partners 124,417 35,272
------------ ------------
Total partners' capital 500,037 358,238
------------ ------------
Total liabilities and partners' capital $ 942,295 $ 782,738
============ ============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
2
<PAGE> 5
CP LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997.
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income attributable to common OP Unitholders $ 15,203 $ 11,710
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 18,958 15,176
Increase in accrued preferred distributions 1,202 --
Amortization of deferred financing costs 377 217
Decrease (increase) in operating assets (2,401) (5,120)
Increase (decrease) in operating liabilities 3,022 (2,004)
------------ ------------
Net cash provided by operating activities 36,361 19,979
Cash flows from financing activities:
Borrowings on the line of credit 67,026 40,030
Payments on the line credit (86,800) (29,320)
Mortgage principal payments (1,221) (725)
Distributions to common OP Unitholders (26,006) (17,878)
Common OP Units reacquired and retired (930) (19,851)
Proceeds from the issuance of common OP Units 53,924 25,477
Net proceeds from the issuance of Preferred OP Units 73,002 --
Other financing activities 223 1,567
------------ ------------
Net cash provided by (used in) financing activities 79,218 (700)
Cash flows from investing activities:
Acquisition of rental properties (105,556) (2,180)
Additions to rental property (4,587) (6,089)
Investment in and advances to joint ventures/affiliates (20,221) --
Payment of merger costs -- (11,438)
------------ ------------
Net cash used in investing activities (130,364) (19,707)
------------ ------------
Decrease in cash and cash equivalents (14,785) (428)
Cash and cash equivalents, beginning of period 14,910 586
------------ ------------
Cash and cash equivalents, end of period $ 125 $ 158
============ ============
Supplemental cash flow information:
Fair Market Value of common OP Units issued in connection with acquisitions $ 28,323 $ 98
============ ============
Debt assumed in connection with acquisitions $ 32,579 $ --
============ ============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
3
<PAGE> 6
CP LIMITED PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND FORMATION OF COMPANY:
The accompanying unaudited condensed consolidated financial statements
of CP Limited Partnership (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair
presentation have been included, and such adjustments are of a normal
recurring nature. The year-end condensed consolidated balance sheet was
derived from audited consolidated financial statements, but does not
include all disclosures required by generally accepted accounting
principles. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended December 31, 1997.
Chateau Communities, Inc. ("Chateau"), a Real Estate Investment Trust
("REIT"), is the sole general partner of the Company.
On February 11, 1997, Chateau completed a strategic merger of equals
(the "Merger") with ROC Communities, Inc. ("ROC"). The Merger and
related transactions were accounted for using the purchase method of
accounting in accordance with generally accepted accounting principles.
Accordingly, the assets and liabilities of ROC were adjusted to fair
value for financial accounting purposes and the results of operations
of ROC were included in the results of operations of the Company
beginning in February 1997.
2. ACQUISITION OF RENTAL PROPERTIES
During the second quarter of 1998, the Company completed the following
acquisitions:
<TABLE>
<CAPTION>
Acquisition Acquisition Purchase
Date and Location Price
----------- ------------ --------
(in thousands)
<S> <C> <C>
April 1998 Purchase of 12 communities in Michigan
(10) and North Carolina (2), containing
an aggregate of 3,036 homesites $ 75,300
</TABLE>
4
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CP LIMITED PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
2. ACQUISITION OF RENTAL PROPERTIES CONTINUED:
During the first quarter of 1998, the Company completed the following
acquisitions:
<TABLE>
<CAPTION>
Acquisition Acquisition Purchase
Date and Location Price
----------- ------------ --------
(in thousands)
<S> <C> <C>
January 1998 Purchase of 2 communities in South Carolina, $15,800
containing an aggregate of 961 homesites
January 1998 Purchase of 11 manufactured home communities and 3
park model/RV communities in Connecticut (4) and
Florida (10), containing an aggregate of 1,372
homesites and 1,359 park model/RV sites $38,200
March 1998 Purchase of 6 communities in Indiana (5) and
Michigan (1), containing an aggregate of 1,521 $37,200
homesites -------
$91,200
=======
</TABLE>
The Company's total investment of $166.5 million was financed primarily
by the assumption of $32.5 million of mortgage and other notes, the
issuance of 923,828 OP Units, borrowing under the Company's lines of
credit and the contribution received from Chateau from its issuance of
common stock. The lines of credit were subsequently repaid with the
issuance of $75 million of Preferred OP Units.
As of June 30, 1998, the Company owned 165 communities with an
aggregate of 50,891 residential homesites and 1,359 park model/RV
sites. In addition, it fee managed approximately 7,100 residential
homesites in 34 communities.
3. EQUITY TRANSACTIONS:
On April 20, 1998, the Company completed the issuance of $75 million of
8.125% Series A Cumulative Redeemable Preferred Units (the "Series A
Preferred Units"). The proceeds of this issuance were used to pay off
the outstanding balances on the Company's line of credit, which were
used to finance the acquisition of properties. The Series A Preferred
Units were issued in a private placement exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to
Section 4(2) thereof.
In February 1998, Chateau received net proceeds of approximately $53.9
million from the issuance of 1,850,000 shares of its common stock.
Chateau contributed the proceeds to the Company in exchange for the
issuance of the same number of OP Units to Chateau. The contribution
was used to finance the March 1998 acquisitions and to reduce
outstanding balances under the Company's line of credit which were used
to finance the January 1998 acquisitions.
On May 21, 1998, the Company declared a cash distribution of $.455 per
common OP Unit to OP Unitholders of record as of June 30, 1998. The
distribution was paid on July 15, 1998 and is included in accrued
distributions in the accompanying condensed consolidated balance sheet
as of June 30, 1998.
5
<PAGE> 8
CP LIMITED PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
3. EQUITY TRANSACTIONS CONTINUED:
On February 25, 1998, the Company declared a cash distribution of $.455
per common OP Unit to OP Unitholders of record as of June 30, 1998. The
distribution was paid on April 14, 1998.
On November 20, 1997, the Company declared a cash distribution of $.43
per common OP Unit to OP Unitholders of record as of December 29, 1997.
The distribution was paid on January 15, 1998 and is included in
accrued distributions in the accompanying condensed balance sheet as of
December 31, 1997.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share". SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS") and replaces the presentation of
primary EPS with a presentation of basic EPS and diluted EPS, as
summarized in the table below:
<TABLE>
<CAPTION>
(In thousands, except per share data) FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
-------------------------- ------------------------
JUNE 30, JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic EPS:
Income (1)........................... $ 7,834 $ 6,123 $ 15,203 $ 11,710
Common OP Units (2).................. 30,995 28,009 30,245 25,809
Per Common OP Unit................... $ .25 $ .22 $ .50 $ .45
Diluted EPS:
Income (1)............................ $ 7,834 $ 6,123 $ 15,203 $ 11,710
Common Op Units (3)................... 31,298 28,212 30,565 26,022
Per Common OP Unit.................... $ .25 $ .22 $ .50 $ .45
</TABLE>
(1) Represents net income less the income allocated to Preferred OP
Units
(2) Represents the weighted average common OP Units outstanding
(3) Represents the weighted average common OP Units outstanding, as
well as dilutive Chateau stock options
6
<PAGE> 9
CP LIMITED PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
4. DEBT:
The following table sets forth certain information regarding debt at
June 30, 1998.
<TABLE>
<CAPTION>
Weighted
Interest Rate Maturity Date Principal Balance
------------- ------------- -----------------
<S> <C> <C> <C>
Fixed Rate Mortgage Debt 7.88 % 1998-2011 $ 132,466
Unsecured Senior Notes 7.46 % 2000-2004 245,000
Unsecured Line of Credit 6.90 % 1999 5,226
Other notes payable various various 15,907
-----------
$ 398,599
===========
</TABLE>
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes thereto included elsewhere in this
report. Certain statements in this discussion constitute "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company or industry to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements.
On February 11, 1997, Chateau completed a strategic merger of equals (the
"Merger") with ROC Communities, Inc. ("ROC"). The Merger and related
transactions were accounted for using the purchase method of accounting in
accordance with generally accepted accounting principles. Accordingly, the
assets and liabilities of ROC were adjusted to fair value for financial
accounting purposes and the results of operations of ROC were included in the
results of operations of the Company beginning in February 1997.
RESULTS OF OPERATIONS
Comparison of three months ended June 30, 1998 to three months ended June 30,
1997
For the three months ended June 30, 1998, net income before distribution to
Preferred OP Units was $9,036,000, an increase of $2,913,000 from the three
months ended June 30, 1997. The majority of the increase was due to the
acquisitions made in 1997 and during the first half of 1998 and increased net
operating income from the communities owned by the Company or ROC at the
beginning of the 1997 period (Core 1997 Portfolio).
Rental revenue for the three months ended June 30, 1998 was $42,214,000, an
increase of $7,397,000 from the three months ended June 30, 1997. Approximately
72 percent of the increase was due to the acquisitions in 1997 and the first
half of 1998. Rental revenue increased 6 percent due to rent increases and
occupancy gains from the Company's Core 1997 Portfolio.
Weighted average occupancy for the three months ended June 30, 1998 was 46,717
sites compared with 39,686 sites for the same period in 1997. The occupancy rate
was 92.1 percent on 50,891 sites as of June 30, 1998, compared to 91.4 percent
on 43,306 sites as of June 30, 1997. The occupancy rate on the stabilized
portfolio was 93.4 percent as of June 30, 1998. On a per site basis, weighted
average monthly rental revenue for the three months ended June 30, 1998 was $289
compared with $284 in the same period of 1997. For the Company's Core 1997
Portfolio, on a per site basis, weighted average monthly rental revenue for the
three months ended June 30, 1998 was $298 compared with $284 for the same period
in 1997, an increase of 4.8 percent.
Management fee, interest and other income primarily includes management fee
income for the management of 34 manufactured home communities, equity earnings
from Community Sales, Inc., the Company's sales subsidiary ("CSI") and interest
income on notes receivable and advances to joint ventures/affiliates.
Property operating and maintenance expense for the three months ended June 30,
1998 increased by $2,064,000 or approximately 21.0 percent from the same period
a year ago. The majority of the increase was due to the 1997 and 1998
acquisitions. The remaining increase is due to increases in the Company's Core
1997 Portfolio. On a per site basis, monthly weighted average property operating
and maintenance expense increased 2.9 percent from $82 for the three months
ended June 30, 1997 to $84 for the same period in 1998.
8
<PAGE> 11
Real estate taxes for the three months ended June 30, 1998, increased by
$506,000 or 19.7 percent from the three months ended June 30, 1997. The increase
is due primarily to acquisitions and expansions of communities and general
increases. On a per site basis, monthly weighted average real estate taxes were
$21.90 for the three months ended June 30, 1998 compared to $21.50 for the same
period in 1997. Real estate taxes may increase or decrease in the future due to
inflation, expansions and improvements of communities, as well as changes in
taxation in the tax jurisdictions in which the Company operates.
Administrative expense for the three months ended June 30, 1998 decreased
slightly compared to the same period in 1997. Administrative expense in 1998 was
4.5 percent of revenues as compared to 5.7 percent in 1997.
Interest and related amortization costs increased for the three months ended
June 30, 1998 by $1,368,000, as compared with the three months ended June 30,
1997. The increase is attributable primarily to the indebtedness incurred to
finance the acquisitions. Interest expense as a percentage of average debt
outstanding decreased to approximately 7.6 percent in 1998 from approximately
7.7 percent in 1997. The decrease is due primarily to the issuance of $100
million of the MandatOry Par Put Remarketing Securities in December 1997 at an
effective rate of 6.44 percent and a lower borrowing rate of 110 basis points
over LIBOR on the Company's short term lines of credit.
Depreciation expense for the three months ended June 30, 1998 increased
$1,350,000 from the same period a year ago. The increase is directly
attributable to acquisitions. Depreciation expense as a percentage of average
depreciable rental property in 1998 remained relatively unchanged from 1997.
Comparison of six months ended June 30 1998 to six months ended June 30, 1997
For the six months ended June 30, 1998, net income before distribution to
Preferred OP Units was $16,405,000, an increase of $4,695,000 from the six
months ended June 30, 1997. The increase was due primarily to the Merger, the
acquisitions and increased net operating income from communities in the
Company's Core 1997 Portfolio.
Rental revenue for the first half of 1998 was $81,307,000; an increase of
$17,582,000 from the first half of 1997. The majority of the increase was due to
the Merger and the acquisitions in 1997 and in 1998. Rental revenue increased 6
percent due to rent increases and occupancy gains in the Company's Core 1997
Portfolio.
Weighted average occupancy for the six months ended June 30, 1998 was 44,740
sites compared with 36,249 sites for the same period in 1997. On a per site
basis, weighted average monthly rental revenue for the six months ended June 30,
1998 was $291 compared with $284 in the same period of 1997. For the Company's
Core 1997 Portfolio, on a per site basis, weighted average monthly rental
revenue for the six months ended June 30, 1998 was $297 compared with $283 for
the same period in 1997, an increase of 4.8 percent.
Property operating and maintenance expense for the six months ended June 30,
1998 increased by $5,131,000 from the same period a year ago. The majority of
the increase was due to the Merger and 1997 and 1998 acquisitions. The remaining
increase is due to increases in the Company's Core 1997 Portfolio. On a per site
basis, monthly weighted average property operating and maintenance expense
increased 4.4 percent from $82 for the six months ended June 30, 1997 to $85 for
the same period in 1998. A portion of this increase is due to the operating
expenses related to the properties managed by the Company for a management fee
beginning in February 1997.
9
<PAGE> 12
Real estate taxes for the six months ended June 30, 1998, increased by
$1,332,000 or 28 percent from the six months ended June 30, 1997. The increase
is due primarily to the Merger and acquisitions and expansions of communities
and general increases. On a per site basis, monthly weighted real estate taxes
were $22.40 for the six months ended 1998 compared to $21.60 for the same period
in 1997. Real estate taxes may increase or decrease in the future due to
inflation, expansions and improvements of communities, as well as changes in
taxation in the tax jurisdictions in which the Company operates.
Administrative expense for the six months ended June 30, 1998 increased due to
the Merger and the Company's increased size. Administrative expense in 1998 was
4.9 percent of revenues as compared to 5.5 percent in 1997.
Interest and related amortization costs increased for the six months ended June
30, 1998 by $3,486,000, as compared with the six months ended June 30, 1997. The
increase is attributable to the indebtedness incurred to finance the 1997 and
1998 acquisitions. Interest expense as a percentage of average debt outstanding
decreased to approximately 7.6 percent in 1998 from approximately 7.7 percent in
1997. The decrease is due primarily to the issuance of $100 million of the
MandatOry Par Put Remarketing Securities in December 1997 at an effective rate
of 6.44 percent and a lower borrowing rate of 110 basis points over LIBOR on the
Company's short term lines of credit.
Depreciation expense for the three months ended June 30, 1998 increased
$3,782,000 from the same period a year ago. The increase is directly
attributable to the Merger and acquisitions. Depreciation expense as a
percentage of average depreciable rental property in 1998 remained relatively
unchanged from 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $36,361,000 for the six months
ended June 30, 1998, compared to $19,979,000 for the six months ended June 30,
1997. The increase in cash provided by operating activities was due primarily to
the increase in net operating income.
Net cash provided by financing activities for the six months ended June 30, 1998
was $79,218,000. This was due primarily to the cash contribution from Chateau
from the proceeds received from the issuance in February 1998 of common stock of
approximately $53.9 million and the net proceeds received by the Company of $73
million received from the issuance in April 1998 of $75 million of Series A
Preferred Units to an institutional investor, offset partially by $26 million in
distributions paid to common OP Unitholders in the first six months of 1998 and
net repayments on the lines of credit of $20 million.
On April 20, 1998, the Company completed the issuance of $75 million of 8.125%
Series A Cumulative Redeemable Preferred Units (the "Series A Preferred Units").
The proceeds of this issuance were used to pay off the outstanding balances on
the Company's lines of credit, which were used to finance the acquisition of
properties. The Series A Preferred Units were issued in a private placement
exempt from the registration requirements of the Securities Act of 1933, as
amended, pursuant to Section 4(2) thereof.
10
<PAGE> 13
Net cash used in investing activities for the six months ended June 30, 1998 was
$130,364,000. This amount represents acquisitions, joint venture investments,
capital expenditures and construction and development costs. In the first six
months of 1998, the Company acquired, through four separate portfolio
acquisitions, 31 manufactured home communities and three park model/RV
communities with a total of 6,890 homesites and 1,359 park model/RV sites. Nine
of the properties acquired, containing approximately 900 homesites and 1,100
park model/RV sites, are subject to long term ground leases. The Company's total
investment of $166.5 million was financed primarily by the assumption of $32.5
million of mortgage and other notes, the issuance of 923,828 OP Units, borrowing
under the Company's lines of credit and the contribution received from Chateau
from issuance of its common stock. The lines of credit were subsequently repaid
with the issuance of $75 million of Preferred OP Units. For the six months ended
June 30, 1998, construction and development costs, including joint venture
investments and advances were approximately $9.8 million, while recurring
property capital expenditures, other than construction and development costs,
were approximately $2.4 million. Capital expenditures have historically been
financed out of funds from operations and it is the Company's intention that
such future expenditures will be financed with funds from operations.
As of June 30, 1998, the Company had available two credit facilities with the
First National Bank of Chicago and other lenders, consisting of a $25 million
term loan and a $75 million revolving line of credit (the "First Chicago Credit
Facilities"). The interest rate on the revolving credit facility was LIBOR plus
110 basis points. In addition, the Company has a $7.5 million revolving line of
credit from Colorado National Bank which bears interest at a rate of LIBOR plus
125 basis points (the "CNB Facility" and , together with the First Chicago
credit facilities (the "Credit Facilities"). As of June 30, 1998, approximately
$5.2 million was outstanding under the Credit Facilities and the Company had
available $77.3 million in additional borrowing capacity.
In August 1998, the Company renegotiated its Credit Facilities with the First
National Bank of Chicago increasing the facility from $75 million to $100
million. The interest rate was reduced from 110 basis points to a maximum of
LIBOR plus 80 basis points and its maturity date was extended to 2001.
In December 1997, the Company issued 6.92% MandatOry Par Put Remarketed
Securities(SM) ("MOPPRS(SM)") due December 10, 2014. The net proceeds to the
Company from the issuance before deducting offering expenses, were approximately
$102.0 million. The net proceeds from the MOPPRS(SM) were utilized primarily to
reduce outstanding balances under the Credit Facilities and to finance
acquisitions. The MOPPRS(SM) are rated as "BBB" by Standard & Poor's Rating
Service and "Baa3" by Moody's Investors Service.
In connection with the issuance of the MOPPRS(SM), the Company and the Operating
Partnership entered into a Remarketing Agreement, dated as of December 23, 1997
(the "Remarketing Agreement"), with the remarketing dealer named therein (the
"Remarketing Dealer"), pursuant to which the MOPPRS(SM) are subject to mandatory
tender in favor of the Remarketing Dealer on December 10, 2004 (the "Remarketing
Date"), for a purchase price equal to 100% of the principal amount of the
outstanding MOPPRS(SM). Upon the Remarketing Dealer's election to remarket the
MOPPRS(SM), the interest rate to the December 10, 2014 maturity date of the
MOPPRS(SM) will be adjusted to equal the sum of 5.75% plus the Applicable Spread
(as defined in the Remarketing Agreement). In the event the Remarketing Dealer
does not elect to remarket the MOPPRS(SM), the MOPPRS(SM) will mature on the
Remarketing Date.
As of June 30, 1998, the Company had outstanding, in addition to the Credit
Facilities and the MOPPRS(SM), $145 million of other unsecured senior debt with
a weighted average interest rate and maturity of 8.2 percent and 3.5 years,
respectively, and $132 million of secured mortgage debt with a weighted average
interest rate and maturity of 7.88 percent and 2.9 years, respectively.
Repayment of long-term borrowings and amounts outstanding under the Credit
Facilities, future acquisitions of communities and land for development and new
community development activities represent the principal long-term liquidity
needs of the Company. The Company does not expect to generate sufficient funds
from operations to finance these long-term liquidity needs and instead intends
to meet its long-term liquidity requirements through additional borrowing under
the Credit Facilities or other lines of credit, the issuance of additional
equity or debt securities and the assumption of existing secured or unsecured
indebtedness.
11
<PAGE> 14
The Company expects to meet its short-term liquidity requirements, including
expansion activities and capital expenditure requirements, through cash flow
from operations and, if necessary, borrowings under the Credit Facilities and
other lines of credit.
OTHER
Funds from operations (FFO) is defined by the National Association of Real
Estate Investment Trusts (NAREIT) as net income excluding gains (or losses) from
debt restructuring and sales of property plus rental property depreciation and
amortization. Management believes that FFO is an important and widely used
measure of the operating performance of REITs which provides a relevant basis
for comparison among REITs. FFO (i) does not represent cash flow from operations
as defined by generally accepted accounting principles; (ii) should not be
considered as an alternative to net income as a measure of operating performance
or to cash flows from operating, investing and financing activities; and (iii)
is not an alternative to cash flows as a measure of liquidity. FFO is calculated
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FFO Reconciliation:
Net Income before distribution to Preferred Op Units $ 9,036 $ 6,123 $ 16,405 $ 11,710
Plus:
Depreciation and amortization 9,849 8,499 18,958 15,176
Less:
Depreciation expense on
corporate assets (63) (69) (125) (112)
Distribution to Preferred Op Units (1,202) (1,202)
------------ ------------ ------------ ------------
FFO $ 17,620 $ 14,553 $ 34,036 $ 26,774
============ ============ ============ ============
</TABLE>
12
<PAGE> 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
13
<PAGE> 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Three separate purported class actions have been filed against the Company and
its directors in the Circuit Court of Montgomery County, Maryland alleging
breaches of fiduciary duty for agreeing to the Merger with ROC and refusing to
endorse alternative transactions proposed by Manufactured Home Communities, Inc.
or Sun Communities, Inc. The three class actions are entitled Harbor Finance
Partners v. Chateau Properties, et al. (Case No. 157467), Niles v. Chateau
Properties, et al. (Case No. 158284), and ZSA Asset Allocation Fund v. Boll, et
al. (Case No. 158652) and were filed on or about September 12, 1996, September
27, 1996 and October 4, 1996, respectively.
The Company agreed to settle the Harbor, Niles, and ZSA actions brought in 1996
for $287,000 plus expenses not to exceed $25,000, subject to court approval.
Reimbursement from the Company's directors' and officers' liability insurer,
Genesis Insurance, Co., is being pursued in the amount of approximately $1.1
million, which includes the amount of the settlement plus expenses incurred in
the course of the defense and settlement of these actions.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters for a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
The Company's Form 8-K filed with the Commission on May 1,
1998.
The Company's form 8-K filed with the Commission on June 30,
1998.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, and in the capacities indicated, on the
13th day of August, 1998.
CP LIMITED PARTNERSHIP
By: CHATEAU COMMUNITIES, INC.
By: /s/ Tamara D. Fischer
---------------------------------
Tamara D. Fischer
Executive Vice President
and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
15
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 125
<SECURITIES> 0
<RECEIVABLES> 3,661
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,007,222
<DEPRECIATION> 131,041
<TOTAL-ASSETS> 942,295
<CURRENT-LIABILITIES> 0
<BONDS> 398,599
0
0
<COMMON> 0
<OTHER-SE> 500,037
<TOTAL-LIABILITY-AND-EQUITY> 942,295
<SALES> 0
<TOTAL-REVENUES> 43,749
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 26,703
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,010
<INCOME-PRETAX> 7,834
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,834
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
