CHATEAU COMMUNITIES INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2002

or

o	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 (State of incorporation)	38-3132038 (I.R.S. Employer Identification No.)

6160 South Syracuse Way, Greenwood Village, Colorado 80111 (Address of principal executive offices)

(303) 741-3707 Registrant’s telephone number, including area code

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

The number of shares of the Registrant’s Common Stock outstanding on August 10, 2002 was 29,282,160 shares.

CHATEAU COMMUNITIES, INC.
FORM 10-Q
INDEX

		Pages

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2002 and 2001	1

	Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001	2

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001	3

	Notes to Condensed Consolidated Financial Statements	4-8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9-13

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	15

PART II.	OTHER INFORMATION	16

SIGNATURE		22

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CHATEAU COMMUNITIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)

	Three Months Ended				Six Months Ended
	June 30,				June 30,

	2002		2001		2002		2001

Revenues:
Rental income	$	66,215	$	49,355	$	132,313	$	97,967
Interest income		2,831		2,288		5,582		4,680
Management fee and other income		576		1,799		1,044		2,538

		69,622		53,442		138,939		105,185

Expenses:
Property operating and maintenance		20,453		14,337		40,374		28,229
Real estate taxes		4,322		3,477		8,847		6,912
Depreciation and amortization		17,982		11,672		34,879		23,620
Administrative		3,513		2,648		6,880		4,717
Interest and related amortization		16,835		9,146		33,630		18,210

		63,105		41,280		124,610		81,688


Income before gain on sale of properties		6,517		12,162		14,329		23,497

Gain on sales of properties		278		-		1,442		-

Income before minority interests		6,795		12,162		15,771		23,497

Less income allocated to minority interests:
Preferred OP Units		1,523		1,524		3,047		3,047
Common OP Units		881		1,220		2,126		2,318


Net income available to common shareholders	$	4,391	$	9,418	$	10,598	$	18,132


Per share/OP Unit information:

Basic earnings per common share	$	0.15	$	0.33	$	0.36	$	0.63


Diluted earnings per common share	$	0.15	$	0.33	$	0.36	$	0.63

The accompanying notes are an integral part of the financial statements.

CHATEAU COMMUNITIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

	June 30,			December 31,
ASSETS	2002			2001
	(unaudited)

Rental property:
Land	$	201,459		$	205,416
Land and improvements for expansion sites		116,761			112,821
Depreciable property, net		1,373,877			1,375,063

		1,692,097			1,693,300
Less: accumulated depreciation		318,193			285,209


Net rental property		1,373,904			1,408,091

Cash and cash equivalents		2,477			61
Rents and other receivables, net		4,255			17,591
Notes receivable		41,995			45,514
Investments in and advances to affiliates		115,103			108,674
Prepaid expenses and other assets		18,772			11,942


Total assets	$	1,556,506		$	1,591,873


LIABILITIES

Debt	$	1,026,714		$	1,053,436
Accrued interest payable		10,699			10,668
Accounts payable and accrued expenses		18,785			24,387
Rents received in advance and security deposits		13,429			12,749
Dividends and distributions payable		20,070			760


Total liabilities		1,089,697			1,102,000

Minority interests in Operating Partnership		141,226			144,919

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;
29,253,326 and 29,188,440, shares issued and outstanding at
June 30, 2002 and December 31, 2001, respectively		293			292
Additional paid-in capital		500,372			499,068
Dividends in excess of accumulated earnings		(155,722	)		(134,158	)
Accumulated other comprehensive income		(6,034	)		(6,516	)
Notes receivable from officers, 545,800 and 577,432 shares outstanding
at June 30, 2002 and December 31, 2001, respectively		(13,326	)		(13,732	)

Total shareholders’ equity		325,583			344,954


Total liabilities and shareholders’ equity	$	1,556,506		$	1,591,873

The accompanying notes are an integral part of the financial statements.

CHATEAU COMMUNITIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)

	Six Months Ended
	June 30,

	2002			2001

Cash flows from operating activities:
Net income	$	10,598		$	18,132
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sales of properties		(1,442	)		-
Income attributed to common minority interests		2,126			2,318
Depreciation and amortization		34,879			23,620
Amortization of debt issuance costs		1,979			370
Increase in operating assets		(1,390	)		(2,164	)
(Decrease) increase in operating liabilities		(3,973	)		5,651


Net cash provided by operating activities		42,777			47,927

Cash flows from investing activities:
Dispositions of rental properties		10,826			-
Proceeds from property dispositions, held in escrow		7,358			-
Collection of amounts held in escrow, from prior year property dispositions		10,660			-
Acquisitions of rental properties and land to be developed		(2,672	)		(20,766	)
Additions to rental property and equipment		(11,398	)		(14,902	)
Investment in and advances to affiliates		(6,709	)		(6,686	)
Payments (advances) on notes receivable, net		188			(8,799	)


Net cash provided by/(used in) investing activities		8,253			(51,153	)

Cash flows from financing activities:
Proceeds from issuance of Term Loan		125,000			-
Borrowings on line of credit		81,305			80,211
Payments on line of credit		(68,399	)		(58,592	)
Re-payment of Acquisition Facility		(162,700	)		-
Principal payments on debt		(1,928	)		(928	)
Dividends/distributions to shareholders/OP Unitholders		(20,675	)		(17,539	)
Payment of debt issuance costs		(2,929	)		-
Exercise of common stock options and other		1,712			2,853


Net cash (used in)/provided by financing activities		(48,614	)		6,005


Increase in cash and cash equivalents		2,416			2,779
Cash and cash equivalents, beginning of period		61			99

Cash and cash equivalents, end of period	$	2,477		$	2,878


Supplemental cash flow information:
Fair Market Value of OP Units/common shares issued in
Connection with acquisitions/development	$	1,396		$	9,243

The accompanying notes are an integral part of the financial statements.

CHATEAU COMMUNITIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.	Background and Basis of Presentation: Background - Chateau Communities, Inc. is a real estate investment trust (“REIT”) formed in 1993. We are engaged in owning and operating manufactured housing community properties, primarily through our Operating Partnership, CP Limited Partnership. As of June 30, 2002, our portfolio consisted of 212 properties, containing an aggregate of 69,789 homesites and 1,359 park model/RV sites, located in 32 states. We also fee manage 38 properties, containing an aggregate of 8,238 homesites.

	The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America and in conformity with the rules and regulations of the Securities and Exchange Commission requires management to make estimates and assumptions. These estimates may affect the reported amounts of 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.

	In our opinion, the interim financial statements presented herein reflect all adjustments of a normal and recurring nature that are necessary to fairly present the interim financial statements. The results of operations for the interim period are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. These financial statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2001.

	Basis of Presentation - The accompanying condensed consolidated financial statements include all accounts of Chateau, our wholly owned qualified REIT subsidiaries, our Operating Partnership and controlled joint ventures. All significant inter-entity balances and transactions have been eliminated. Investments in joint ventures or entities that we do not control but exercise significant influence over are accounted for using the equity method of accounting.

	We own 100% of the preferred stock of Community Sales, Inc. (“CSI”), our taxable service corporation through which we conduct manufactured home sales and brokerage activities. Through our ownership, we are entitled to 100% of the CSI cash flow and economics; however, we account for our investment in CSI using the equity method of accounting, since we do not own any of the voting common stock of CSI.

	Reclassifications – Certain prior year amounts have been reclassified to conform to current period presentation.

2.	Acquisition of CWS: On August 3, 2001 we purchased CWS Communities Trust (“CWS”), a private real estate investment trust for $552 million, consisting of $323 million in cash (including the payoff of $20 million in debt), $151 million in assumed liabilities, 2,040,878 OP Units (valued at $30.935 per OP Unit) and $9.9 million in 7.5% Senior Unsecured Notes due 2012 (the “7.5% Notes”). The portfolio, located in 11 states, consisted of 46 manufactured home communities with approximately 16,600 homesites and 1,518 expansion sites and three RV communities with 431 RV sites. We financed the cash portion of this transaction primarily through borrowings under a $323 million bridge facility (the “Acquisition Facility”). The Acquisition Facility was refinanced in May 2002.
	The following unaudited pro forma income statement information for the six months ended June 30, 2001 has been prepared as if the CWS Acquisition and related transactions had occurred on January 1, 2001.

In addition, the pro forma information is presented as if the disposition of certain CWS properties by us in 2001 had occurred on January 1, 2001. The pro forma income statement information is not necessarily indicative of the results that actually would have occurred if the CWS Acquisition had been consummated on January 1, 2001.

(in thousands, except per share data)

	Revenues	$	137,696

	Total expenses *		120,897

	Net income**	$	16,799

	Earnings per share - basic	$	0.48

	Earnings per share - diluted	$	0.48

	Weighted average common shares and OP Units outstanding - basic		34,645

	Weighted average common shares and OP Units outstanding - diluted		34,866


	* includes depreciation of $33,874

	** After gain on sale of properties and allocation to Preferred OP Units. Assumes all OP Unit s are exchanged for common stock.

Rental Property:
In the third quarter of 2001, we began implementing a disposition plan and started identifying a number of mature properties that no longer meet our portfolio objectives. As of June 30, 2002, we have sold fifteen properties and a parcel of land for approximately $66.4 million. During the first six months of 2002, we sold five properties and one parcel of land for a combined gross sales price of approximately $18.4 million and a gain of $1.4 million. The net proceeds of $10.8 million were used to pay down the Acquisition Facility and our line of credit. In addition, we have approximately $7.4 million in an escrow account until a replacement property is identified to effect a non-taxable exchange.

Comprehensive Income:
Accumulated other comprehensive income includes a cumulative effect of derivative securities from the adoption of FAS 138. Also included in accumulated other comprehensive income is a $7.1 million loss related to the issuance of Senior Notes in 2001. Total comprehensive income for the six months ended June 30, 2002 is summarized as follows (in thousands):

Net income before minority interests	$	15,771
Add back: amortization of deferred hedge losses		482

Total comprehensive income	$	16,253

5.	Common Stock and Related Transactions: On May 16, 2002, we declared a cash dividend/distribution of $.55 per share/OP Unit to Shareholders and OP Unitholders of record as of June 28, 2002. The dividend/distribution was paid July 15, 2002 and is included in dividends/distributions payable in the accompanying condensed consolidated balance sheet as of June 30, 2002.
	On February 21, 2002, we declared a cash dividend/distribution of $.55 per share/OP Unit to Shareholders and OP Unitholders of record as of March 29, 2002, that was paid in April 2002.

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