CHATEAU COMMUNITIES INC - 10-Q Quarterly Report

Back to GetFilings.com

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

FORM 10-Q

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

For the quarterly period ended September 30, 2002

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 o

The number of shares of the Registrant’s Common Stock outstanding on October 1, 2002 was 29,290,749 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 Nine Months Ended September 30, 2002 and 2001	1

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

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

		Notes to Condensed Consolidated Financial Statements	4 – 9

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10 - 16

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	17

	Item 4.	Controls and Procedures	18

PART II.	OTHER INFORMATION		19

SIGNATURE

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 September 30,						Nine Months Ended September 30,

	2002			2001			2002			2001

Revenues:
Rental income	$	65,692		$	59,780		$	195,409		$	155,876
Interest income		2,835			2,789			8,417			7,469
Management fee and other income		(263	)		897			781			3,435

		68,264			63,466			204,607			166,780
Expenses:
Property operating and maintenance		21,830			18,970			61,204			46,602
Real estate taxes		4,404			4,119			13,025			10,854
Depreciation and amortization		18,292			12,704			52,675			35,787
Administrative		3,511			2,398			10,391			7,231
Interest and related amortization		16,736			13,461			50,341			31,648

		64,773			51,652			187,636			132,122


Income before gain (loss) on sale of properties and minority interests		3,491			11,814			16,971			34,658
Gain (loss) on sales of properties		(715	)		—			901			—
Minority interests of preferred OP unitholders		(1,524	)		(1,523	)		(4,570	)		(4,570	)
Minority interests of common OP unitholders		(208	)		(1,581	)		(2,218	)		(3,826	)

Income from continuing operations		1,044			8,710			11,084			26,262


Discontinued operations:
Income from discontinued operations, net of minority interests		108			350			817			930
Impairment / gain on sales of properties, net of minority interests		2,047			—			1,900			—

Income from discontinued operations		2,155			350			2,717			930


Income before cumulative effect of accounting change		3,199			9,060			13,801			27,192
Cumulative effect of accounting change, net of minority interests		—			—			(845	)		—

Net income available to common shareholders	$	3,199		$	9,060		$	12,956		$	27,192


Earnings per common share / OP unit – basic
Income from continuing operations	$	0.04		$	0.30		$	0.38		$	0.92
Income from discontinued operations		0.07			0.01			0.09			0.03

Income before cumulative effect of accounting change		0.11			0.31			0.47			0.95
Cumulative effect of accounting change		—			—			(0.03	)		—

Net income available to common shareholders	$	0.11		$	0.31		$	0.44		$	0.95

Weighted average common shares - basic		29,282			28,762			29,228			28,679


Earnings per common share / OP unit – diluted
Income from continuing operations	$	0.04		$	0.30		$	0.38		$	0.91
Income from discontinued operations		0.07			0.01			0.09			0.03

Income before cumulative effect of accounting change		0.11			0.31			0.47			0.94
Cumulative effect of accounting change		—			—			(0.03	)		—

Net income available to common shareholders	$	0.11		$	0.31		$	0.44		$	0.94

Weighted average common shares - diluted		29,395			28,922			29,357			28,880

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

CHATEAU COMMUNITIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

	September 30, 2002			December 31, 2001
	(unaudited)


ASSETS
Rental property:
Land	$	200,636		$	205,416
Land and improvements for expansion sites		108,430			112,821
Depreciable property, net		1,369,724			1,368,437

		1,678,790			1,686,674
Less: accumulated depreciation		331,703			285,209


Net rental property		1,347,087			1,401,465

Rental property held for sale		1,804			6,626
Cash and cash equivalents		3,156			61
Rents and other receivables, net		5,746			17,591
Notes receivable		42,249			45,514
Investments in and advances to affiliates		112,917			108,674
Prepaid expenses and other assets		19,538			11,942


Total assets	$	1,532,497		$	1,591,873


LIABILITIES

Debt	$	1,010,957		$	1,053,436
Accrued interest payable		13,592			10,668
Accounts payable and accrued expenses		20,360			24,387
Rents received in advance and security deposits		13,894			12,749
Dividends and distributions payable		20,080			760


Total liabilities		1,078,883			1,102,000

Minority interests in Operating Partnership		138,769			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; 29,281,841 and 29,188,440, shares issued and outstanding at September 30, 2002 and December 31, 2001, respectively		293			292
Additional paid-in capital		500,888			499,068
Dividends in excess of accumulated earnings		(169,506	)		(134,158	)
Accumulated other comprehensive income		(5,794	)		(6,516	)
Notes receivable from officers, 415,800 and 577,432 shares outstanding at September 30, 2002 and December 31, 2001, respectively		(11,036	)		(13,732	)

Total shareholders’ equity		314,845			344,954


Total liabilities and shareholders’ equity	$	1,532,497		$	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)

	Nine Months Ended September 30,

	2002			2001

Cash flows from operating activities:
Net income	$	12,956		$	27,192
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash items included in discontinued operations		(1,044	)		614
Gain on sales of properties - continuing operations		(901	)		—
Income attributed to common minority interests - continuing operations		2,218			3,826
Cumulative effect of accounting change, net of minority interests		845			—
Depreciation and amortization		52,675			35,787
Amortization of debt issuance costs		2,944			703
Increase in operating assets		(3,227	)		(1,862	)
Increase in operating liabilities		301			7,502


Net cash provided by operating activities		66,767			73,762

Cash flows from investing activities:
Acquisition of CWS		—			(320,486	)
Proceeds from dispositions of rental properties		28,575			17,102
Proceeds from dispositions of rental properties, held in escrow		9,910			—
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		(22,208	)		(28,615	)
Investment in and advances to affiliates		(6,279	)		(7,603	)
Payments (advances) on notes receivable, net		2,218			(9,500	)


Net cash provided by (used in) investing activities		20,204			(369,868	)

Cash flows from financing activities:
Borrowings on short-term debt		—			432,551
Proceeds from issuance of Term Loan		125,000			—
Borrowings on line of credit		226,114			—
Payments on line of credit		(227,258	)		(101,050	)
Re-payment of Acquisition Facility		(162,700	)		—
Principal payments on debt		(3,635	)		(1,456	)
Dividends/distributions to shareholders/OP Unitholders		(38,613	)		(35,223	)
Payment of debt issuance costs		(3,236	)		(1,377	)
Exercise of common stock options and other		452			2,874


Net cash provided by (used in) financing activities		(83,876	)		296,319


Increase in cash and cash equivalents		3,095			213
Cash and cash equivalents, beginning of period		61			99

Cash and cash equivalents, end of period	$	3,156		$	312


Supplemental non-cash information:
Fair Market Value of OP Units/common shares issued in connection with acquisitions/development	$	1,933		$	71,934

Debt and liabilities assumed in connection with acquisitions	$	—		$	171,748

Notes payable issued in connection with acquisitions	$	—		$	9,942

Notes receivable issued in connection with OP Unit issuance	$	—		$	3,028

Accrual of costs associated with acquisition	$	—		$	4,888

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 September 30, 2002, our portfolio consisted of 207 properties, containing an aggregate of 68,842 homesites and 1,359 park model/RV sites, located in 32 states. We also fee manage 37 properties, containing an aggregate of 8,075 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 its voting common stock.

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 retirement 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”). A portion of the Acquisition Facility was paid in 2001 and 2002 and the remainder was refinanced in May 2002.

The following unaudited pro forma income statement information for the nine months ended September 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	$	200,931
Total expenses *		174,877

Income from continuing operations**	$	26,054

Earnings per share - basic	$	0.75

Earnings per share - diluted	$	0.75

Weighted average common shares and OP Units outstanding - basic		34,534

Weighted average common shares and OP Units outstanding - diluted		34,735

______________

includes depreciation of $48,000

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

3. 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 loss on the derivative which was hedging the issuance of Senior Notes in 2001, $5.8 million as of September 30, 2002. Total comprehensive income for the nine months ended September 30, 2002 is summarized as follows (in thousands):

Net income available to common shareholders	$	12,956
Add back: amortization of deferred hedge losses		722

Total comprehensive income	$	13,678

4. Common Stock and Related Transactions:

On August 14, 2002, we declared a cash dividend/distribution of $.55 per share/OP Unit to Shareholders and OP Unitholders of record as of September 30, 2002. The dividend/distribution was paid October 15, 2002 and is included in dividends/distributions payable in the accompanying condensed consolidated balance sheet as of September 30, 2002.

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, that was paid in July 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.

Basic and diluted earnings per share (“EPS”) are summarized in the following table:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,

(In thousands, except per share data)	2002		2001		2002		2001

Basic EPS:
Income from continuing operations plus minority interests of common OP unit holders	$	1,252	$	10,291	$	13,302	$	30,088

Weighted average common shares outstanding		29,282		28,762		29,228		28,679
Weighted average common OP Units outstanding		5,829		5,196		5,848		4,178

Weighted average common shares and OP Units - Basic		35,111		33,958		35,076		32,857

Per Share	$	0.04	$	0.30	$	0.38	$	0.92

Diluted EPS:
Income from continuing operations plus minority interests of common OP unit holders	$	1,252	$	10,291	$	13,302	$	30,088

Weighted average common shares outstanding		29,282		28,762		29,228		28,679
Weighted average common OP Units outstanding		5,829		5,196		5,848		4,178
Employee stock options		113		160		129		201

Weighted average common shares and OP Units - Diluted		35,224		34,118		35,205		33,058

Per Share	$	0.04	$	0.30		0.38	$	0.91

5. Financing:

The following table sets forth certain information regarding our debt at September 30, 2002:

(In thousands)	Weighted Average Interest Rate			Maturity Date		Principal Balance


Fixed rate mortgage debt		7.70	%		2002 - 2011	$	282,295
Unsecured Senior Notes		7.47	%		2003 - 2021		470,000
Unsecured Installment Notes		7.50	%		2012		9,662
Term Loan		3.01	%		2004		125,000
Unsecured lines of credit		2.87	%		2005		124,000

						$

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents