CP LTD PARTNERSHIP - 10-Q Quarterly Report

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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 33-85492

CP LIMITED PARTNERSHIP
(exact name of registrant as specified in its charter)

MARYLAND
(State of incorporation)

38-3140664
(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

CP LIMITED PARTNERSHIP
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

CP LIMITED PARTNERSHIP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per OP unit 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 sales of properties and distribution		3,491			11,814			16,971			34,658
Gain (loss) on sales of properties		(715	)		—			901			—
Distribution to preferred OP unitholders		(1,524	)		(1,523	)		(4,570	)		(4,570	)

Income from continuing operations		1,252			10,291			13,302			30,088


Discontinued operations:
Income from discontinued operations		130			413			980			1,066
Impairment / gain on sales of properties		2,454			—			2,280			—

Income from discontinued operations		2,584			413			3,260			1,066


Income before cumulative effect of accounting change		3,836			10,704			16,562			31,154
Cumulative effect of accounting change		—			—			(1,014	)		—

Net income attributable to common OP unitholders	$	3,836		$	10,704		$	15,548		$	31,154


Net income attributable to common OP Unitholders:
General partner	$	3,199		$	9,060		$	12,956		$	27,192
Limited partners		637			1,644			2,592			3,962

	$	3,836		$	10,704		$	15,548		$	31,154


Per common OP Unit information:

Basic earnings per OP Unit
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 attributable to common OP unitholders	$	0.11		$	0.31		$	0.44		$	0.95

Weighted average common OP Units - basic		35,111			33,958			35,076			32,857


Diluted earnings per OP Unit
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 attributable to common OP unitholders	$	0.11		$	0.31		$	0.44		$	0.94

Weighted average common OP Units - diluted		35,224			34,118			35,205			33,058

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

CP LIMITED PARTNERSHIP

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
Distributions payable		20,080		760


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


PARTNERS’ CAPITAL
Partners’ Capital, Unlimited Authorized Units: 35,116,784 and 35,021,703, Common OP Units outstanding at September 30, 2002 and December 31, 2001, respectively 1,500,000 Preferred OP Units outstanding at September 30, 2002 and December 31, 2001, respectively		—		—

General Partner		314,845		344,954
Limited Partners		65,812		71,962
Preferred OP Units, Series A		72,957		72,957

Total partners’ capital		453,614		489,873


Total liabilities and partners’ capital	$	1,532,497	$	1,591,873

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

CP LIMITED PARTNERSHIP

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

	Nine Months Ended September 30,

	2002			2001

Cash flows from operating activities:
Net income attributable to common OP Unitholders	$	15,548		$	31,154
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash items included in discontinued operations		(1,587	)		478
Gain on sales of properties - continuing operations		(901	)		—
Cumulative effect of accounting change, net of minority interests		1,014			—
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:
Dispositions of rental properties		28,575			17,102
Proceeds from property dispositions, held in escrow		9,910			—
Collection of amounts held in escrow, from prior year property dispositions		10,660			—
Acquisition of CWS		—			(320,486	)
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:
Proceeds from issuance of Term Loan		125,000			—
Borrowings on short-term debt		—			432,551
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	)
Payment of debt issuance costs		(3,236	)		(1,377	)
Distributions to OP Unitholders		(38,613	)		(35,223	)
Exercise of Chateau’s stock options and other		452			2,874

Net cash (used in)/provided by 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 cash flow information:
Fair Market Value of OP Units issued in connection with acquisitions/development	$	1,933		$	71,934

Debt & Liabilities assumed in connection with acquisitions	$	—		$	171,748

Notes Payable issued in connection with acquisition	$	—		$	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.

CP LIMITED PARTNERSHIP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Background and Basis of Presentation:

Background –
CP Limited Partnership is a limited partnership and was formed by Chateau Communities, Inc., a real estate investment trust, as a general partner and Chateau Estates, as the initial limited partner, on September 16, 1993. We are engaged in owning and operating manufactured housing community properties. 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 CP Limited and our subsidiaries. Chateau and ROC Communities, Inc. are general partners. As of September 30, 2002, Chateau owned on a combined basis, an 83 percent general partner interest. Pursuant to the terms of the operating partnership agreement, we are required to reimburse Chateau for the net expenses incurred by Chateau. Amounts paid on behalf of Chateau by us are reflected in the statement of income as general and administrative expenses. The balance sheet of Chateau as of September 30, 2002 is identical to our accompanying balance sheet, except as follows:

(In thousands)	As Presented Herein September 30, 2002		Adjustments			Chateau Communities, Inc September 30, 2002

Minority interests in CP Limited Partnership	$	—	$	138,769		$	138,769

Equity:
General partner	$	314,845	$	(314,845	)	$	—
Limited partners		138,769		(138,769	)		—
Common stock				293			293
Additional paid-in capital				500,888			500,888
Dividends in excess of accumulated earnings				(169,506	)		(169,506	)
Accumulated other comprehensive income				(5,794	)		(5,794	)
Notes receivable from officers				(11,036	)		(11,036	)

Partners’ capital/shareholders’ equity	$	453,614	$	(138,769	)	$	314,845

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 OP Unit data)

Revenues	$	200,931

Total expenses *		174,877

Net income from continuing operations**	$	26,054

Earnings per OP Unit - basic	$	0.75

Earnings per OP Unit - diluted	$	0.75

Weighted average common OP Units outstanding - basic		34,534

Weighted average common OP Units outstanding - diluted		34,735

______________

Includes depreciation of $48,000.

After gain on sale of properties and allocation to Preferred OP Units.

3. Partners Capital:

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

On May 16, 2002, we declared a cash distribution of $.55 per OP Unit to OP Unitholders of record as of June 28, 2002, that was paid in July 2002.

On February 21, 2002, we declared a cash distribution of $.55 per OP Unit to OP Unitholders of record as of March 29, 2002, that was paid in April 2002.

Basic and diluted earnings per OP Unit are summarized in the following table:

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

(In thousands, except per OP Unit data)	2002		2001		2002		2001

Basic earnings per OP Unit:S
Income from continuing operations	$	1,252	$	10,291	$	13,302	$	30,088

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

Per OP Unit	$	0.04	$	0.30	$	0.38	$	0.92

Diluted earnings per OP Unit:

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