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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, 1996
OR
Transition report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
COMMISSION FILE NUMBER 1-12496
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CHATEAU PROPERTIES, 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
--- ---
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 25, 1997 was approximately $572,887,000 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
25, 1997 was 25,163,101 shares.
Portions of the Registrant's 1996 definitive Proxy Statement to be filed
for its 1997 Annual Meeting of Shareholders are incorporated by reference into
Part III of this Report.
CHATEAU PROPERTIES, INC.
FORM 10-K ANNUAL REPORT
for the year ended December 31, 1996
TABLE OF CONTENTS
-----
ITEM PAGES
---- -----
PART I
1. Business . . . . . . . . . . . . . . . . . . . . . . 1
2. Properties . . . . . . . . . . . . . . . . . . . . . 6
3. Legal Proceedings. . . . . . . . . . . . . . . . . . 8
4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . 8
PART II
5. Market for Registrant's Common Equity and
Related Security Holder Matters . . . . . . . . 9
6. Selected Financial Data. . . . . . . . . . . . . . . 10
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . 12
8. Financial Statements and Supplementary Data. . . . . 18
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . 36
PART III
10. Directors and Executive Officers of the
Registrant. . . . . . . . . . . . . . . . . . . 37
11. Executive Compensation . . . . . . . . . . . . . . . 37
12. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . 37
13. Certain Relationships and Related Transactions . . . 37
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . 38
Signatures . . . . . . . . . . . . . . . . . . . . . 43
FINANCIAL STATEMENT SCHEDULES
Chateau Properties, Inc. Financial Statement
Schedules . . . . . . . . . . . . . . . . . . . F1
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS.
Chateau Properties, Inc. (the "Company") operates as a self-administered and
self-managed equity real estate investment trust ("REIT"). Through CP Limited
Partnership, a Maryland limited partnership (the "Operating Partnership") of
which the Company is the sole general partner, the Company owns and operates 47
manufactured home community properties in Michigan, Illinois, Florida, Minnesota
and North Dakota (the "Properties"). The Company also has a 50 percent interest
in a joint venture with ROC Communities, Inc. ("ROC") that owns 6 development
communities. The Company was formed in Maryland on August 25, 1993 to continue
and expand the manufactured home operations and business objectives of Chateau
Estates ("Chateau"), a Michigan co-partnership. Chateau had developed, owned
and operated manufactured home community properties since 1966.
On February 11, 1997, the Company completed its merger with ROC (the "Merger").
The Merger and related transactions will be accounted for using the purchase
method of accounting in accordance with generally accepted accounting
principles. Accordingly, the assets and liabilities of ROC will be adjusted to
fair value for financial accounting purposes and the results of operations of
ROC will be included in the results of operations of the Company in 1997.
In connection with the Merger, the following related transactions occurred:
- The Company repurchased and retired 1,200,000 shares of its common
stock, of which 450,000 were repurchased in 1996
- ROC purchased 350,000 shares of Chateau common stock, 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 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.
Since the Merger, Chateau now owns 128 communities with an aggregate 42,986
residential homesites. In addition, it now fee manages 6,953 residential
homesites in 34 communities.
1
FORMATION OF THE COMPANY
In November 1993, the Company issued, in an initial public offering, 5,700,000
shares of common stock (the "Offering"). In connection with the Offering, the
Company engaged in the following transactions:
* Chateau contributed fee title to twenty of the Properties to the
Operating Partnership in exchange for partnership interests in the
Operating Partnership ("OP units").
* InterCoastal Communities, Inc. a Florida corporation and its
affiliates (collectively "InterCoastal"), contributed fee title to one
Property and partnership interests in partnerships which own fee title
to six of the Properties to the Operating Partnership in exchange for
OP units.
* A group of six Michigan co-partnerships affiliated with Leonard
Maas (collectively "Maas") contributed fee title to six of the
Properties to the Operating Partnership in exchange for OP units.
* The Company contributed the net proceeds of the Offering of
$103.8 million to the Operating Partnership, in exchange for a 40.8
percent partnership interest in the Operating Partnership as its sole
general partner.
* The Operating Partnership used the net proceeds of the cash
contribution from the Company to repay approximately $88.2 million of
indebtedness (including related prepayment penalties) collateralized
by mortgages on certain of the Properties and the balance was retained
for working capital and for the possible acquisition of additional
manufactured home communities or development of expansion sites.
Chateau, InterCoastal, and Maas are referred to together as the Chateau
Properties Group or the Predecessor.
INDUSTRY OVERVIEW
A manufactured home community is a residential subdivision designed and improved
with sites for the placement of manufactured homes and 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 many amenities, custom options and on-site built additional
structures.
Modern manufactured home communities are similar to typical residential
subdivisions usually containing centralized entrances, paved streets, curbs and
gutters and parkways. These communities frequently provide a clubhouse for
social activities and recreation and other amenities, which may include swimming
pools, shuffleboard courts, tennis courts 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.
2
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.
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 existing manufactured
home communities and the selective acquisition of additional communities. The
Company focuses on manufactured home communities that have above-average cash
flow growth potential and expects to hold such properties for long-term
investment and capital appreciation. The Company's investment and operating
strategies include:
OPERATIONS
* Providing the most attractive and desirable manufactured home
communities in its markets.
* Offering a more extensive selection of amenities than other
manufactured home communities in its markets.
* Maintaining and upgrading on a systematic basis its manufactured
home communities through a regular preventive maintenance and
replacement program.
* Offering residents on-site services and accessibility to on-site
managers to maximize retention, encourage home maintenance and
improvements and minimize turnover.
* Providing frequent personal contact between on-site managers and
residents to foster a sense of pride in the community.
* Through a non-qualified REIT subsidiary, offer potential
community residents the convenience of purchasing a home in place.
ACQUISITIONS, DEVELOPMENT AND EXPANSIONS
* Selectively acquiring well-located manufactured home communities
that demonstrate the potential for increases in revenue and cash flow
by providing a professional property management team, correcting
operating inefficiencies, aggressively leasing and/or renovating sites
and developing additional sites.
* Acquiring properties in existing markets in order to achieve
economies of scale in management and operations, and in new markets
where portfolios may be acquired with regional management in place.
* Selectively developing new communities in regions where the
Company already does business and further development is supported by
demographics and strong market demand.
3
* Capitalizing on opportunities to renovate and expand properties
consistent with local market demand.
* Utilizing the expertise and relationships developed by the
Company's management to identify acquisition opportunities and
complete acquisitions directly with sellers prior to the active public
marketing of the properties.
Important factors to the Company when evaluating potential acquisitions include:
* Quality of the design and construction of the communities.
* Current condition and appearance of the communities.
* Current cash flow and ability of the Company to increase cash
flow through rental increases, enhanced operating efficiencies and
site expansions.
* Existing and potential competition from other manufactured home
communities.
* Economic strength of the surrounding area.
The Company intends to finance its acquisitions and expansions through its $50
million unsecured line of credit with Huntington National Bank, as lead agent,
along with Bank of America and First Chicago NBD, and/or through additional
equity and debt offerings or the issuance of OP units. The Company also intends
to maintain debt-to-total market capitalization (i.e., total debt of the Company
as a percentage of the market value of outstanding shares of Common Stock,
including OP Units exchangeable for such shares, plus total debt) of 40 percent
or less. At December 31, 1996, the Company had debt-to-total market
capitalization of approximately 30 percent.
EXPANSION AND IMPROVEMENT OF MANUFACTURED HOME COMMUNITY PROPERTIES
The Company will seek to increase the income generated from the Properties 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. During 1996, the Company
developed 276 expansion sites. As of December 31, 1996 the Company had 20,279
total sites, of which 1,131 were vacant. The Company owned at such date
undeveloped land adjacent to existing communities containing approximately 1,200
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.
During 1996, the Company expanded its Anchor Bay community by completing the
development of 103 sites, expanded its Algoma community by developing 53 sites,
expanded its Fairways community by completing the development of 10 sites and
developed 110 sites on land adjacent to its Macomb community.
4
1996 ACQUISITIONS
During 1996, the Company completed the following acquisitions:
Amount
Allocated OP
Community Name and to Assets Units
Date Location Acquired Cash Cash
---- ------------------ ---------- ----- ----
March, 1996 Chestnut Creek Farm $ 3,400 - $ 3,400
DAVISON, MI
May, 1996 Maple Valley and $ 5,800 $ 1,000 $ 4,800
Maple Ridge
MANTENO, IL
September, 1996 Joint venture with ROC $ 10,300 - $ 10,300
purchase of six
communities in six
states
Various Other joint ventures $ 4,200 $ 1,000 $ 3,200
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. Pursuant to Michigan Mobile Home Commission Act Section
28 which governs the leasing of manufactured home sites in Michigan,
prospective residents must be given the opportunity to sign a lease for a fixed
term for their site. The Company's experience has been that a majority of
Michigan residents decline to execute a lease, but like all residents of the
Company's properties, do execute less formal documentation which sets forth the
general terms of occupancy. Leases or other terms of residents' occupancy are
cancelable for non-payment of rent, violation of community rules and regulations
or other specified defaults.
COMPETITION
All 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 the Properties or at any newly acquired
properties and on the rents charged. Although the Company believes it has
adequate capital resources and its officers and directors have significant
experience, the Company competes with others that may have greater resources
than the Company and whose officers and directors may have more experience than
the Company's officers and directors. In addition, other forms of multi-family
residential properties and single-family housing provide housing alternatives to
potential residents of the Properties.
5
EMPLOYEES
As of December 31, 1996, the Company had approximately 276 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 rules and on-going
accessibility for resident assistance. The communities have extensive rules
and regulations to maintain their appearance at the highest level.
Administrators notify residents who are in violation of these rules and
regulations. Typically, clerical and maintenance workers are employed to
assist these individuals in the management and care of the Properties.
Direct supervision of on-site administrators is the responsibility of the
Company's four regional vice 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 23
corporate employees who assist on-site administrators in all property
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 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.
ITEM 2. PROPERTIES
At December 31, 1996 the Properties consisted of 47 manufactured home
communities containing 20,279 sites with amenities designed for either
retirement or family living of which 25 were located in Michigan, 13 in
Florida, 4 in Minnesota, 3 in North Dakota and 2 in Illinois. The Company
also owned land adjacent to certain existing communities containing
approximately 1,200 expansion sites which, although not yet developed, were
zoned for manufactured housing. Of the 47 Properties, 38 have 200 or more
sites, with the largest having 1,533 sites.
The Company also has a 50 percent interest in a joint venture with ROC that
owns 6 development communities.
6
At December 31, 1996, the Properties had an average occupancy rate of
approximately 94.4 percent with weighted average rent for the year ended
December 31, 1996 of $285 per month. Weighted average rent is calculated as
net rental income for the period, on a monthly basis, divided by the weighted
average occupied sites. Weighted average occupancy is computed by averaging
the occupied 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 the residents. All
of the Properties provide residents with attractive amenities with most
offering a clubhouse, a swimming pool and a library. Many Properties offer
additional amenities such as sauna/whirlpool spas, indoor pools, tennis
courts, shuffleboard courts, basketball courts, golf courses, day care
facilities, exercise rooms and a marina.
Since residents own their homes, it is their responsibility to maintain their
homes and the surrounding area. It is management's role to insure that
residents comply with community policies and to provide maintenance of the
common areas, facilities and amenities. The Company continually monitors
compliance by residents with its residents' regulations to assure that the
communities are maintained at the highest standards. 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 less than 3 percent. During this period, the average annual
turnover of residents in the Properties (where the home is sold and remains
within the community, typically without interruption of rental income) has
been approximately 10-12 percent.
The Operating Partnership owns a 100 percent beneficial interest in all of
the Properties, (other than the six properties held in the joint venture with
ROC, in which it has a 50 percent interest), except for Emerald Lake,
Fairways, Lakeland Junction, Lakes at Leesburg, Palm Beach Colony, Winter
Haven Oaks and Del Tura in which it owns a 99 percent beneficial interest and
in which the Company owns the remaining 1 percent beneficial interest.
INDEBTEDNESS
At December 31, 1996, the aggregate amount of indebtedness encumbering the
Properties was approximately $54.4 million. The amounts outstanding as of
December 31, 1996 for the indebtedness encumbering each of these Properties
is set forth (in thousands) in the following table. Prepayment of these debt
obligations may result in significant prepayment penalties.
Amount of
Amount of Interest Indebtedness
Property Pledged as Collateral Indebtedness Rate Maturity due at Maturity
- ------------------------------ ------------ ---- -------- ---------------
Del Tura $ 33,323 8.40% 2000 $ 31,138
Macomb 16,328 9.82% 1999 15,574
Norton Shores/Ferrand Estates 3,535 8.00% 1999 3,327
Oak Hill 1,255 8.00% 1998 1,219
-------- --------
Total $ 54,441 $ 51,258
-------- --------
-------- --------
7
ITEM 3. LEGAL PROCEEDINGS
In connection with a tender offer by Manufactured Home Communities, Inc.'s
("MHC") operating partnership for shares of the Company's Common Stock in
September 1996, the Company commenced litigation against MHC and its
operating partnership in United States District Court in Baltimore, Maryland
seeking a declaratory judgment with respect to, among other things, the 7
percent ownership limit set forth in the Company's Articles. MHC filed a
counterclaim against the Company, its directors and ROC in the litigation
alleging, among other things, various breaches of fiduciary duty. Despite
the withdrawal by MHC of its tender offer, this litigation remains pending.
In addition, 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 a merger with
ROC and refusing to endorse the MHC Tender Offer or the proposal received
from Sun Communities, Inc.
The Company believes the MHC counterclaim and the State Court litigation
(which has been consolidated) are entirely without merit and intends to
vigorously defend these cases if pursued.
The information contained in the Schedule 14D-9 filed by the Company,
including amendments previously filed and those which may be filed after the
date hereof, is incorporated herein by reference.
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, 1996.
8
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, 1995 and 1996.
Price Range
----------- Cash Dividend
Quarter Ended High Low Declared
------------- ---- --- --------
March 31, 1995 $22-1/2 $18 $ .375
June 30, 1995 $22-5/8 $19-3/4 $ .375
September 30, 1995 $22-1/2 $20-3/8 $ .375
December 31, 1995 $22-7/8 $20-3/4 $ .40
Price Range
----------- Cash Dividend
Quarter Ended High Low Declared
------------- ---- --- --------
March 31, 1996 $24-7/8 $22-1/8 $ .405
June 30, 1996 $23-7/8 $21-5/8 $ .405
September 30, 1996 $27 $22-1/8 $ .405
December 31, 1996 $26-5/8 $23-7/8 $ .405
The Company expects to continue to pay regular quarterly dividends to holders
of its Common Stock. Subject to the needs of the Company's acquisition and
expansion strategies and subject to the REIT qualification standards, the
Company intends to distribute annually up to 95 percent of its cash flow.
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.
In May 1995, the Company issued 335,460 shares of its Common Stock in
exchange for an equal number of OP Units. These OP Units, which were
exchangeable by their terms at the option of the holder, had previously been
issued in a privately negotiated transaction in exchange for properties
contributed on formation of the Operating Partnership in November, 1993. The
Company believes that these holders of OP Units were "accredited investors"
(as defined in Regulation D under the Securities Act of 1933) and issued
these shares of Common Stock in reliance on the exemption from registration
found in Section 4(2) of the Securities Act of 1933.
At March 25, 1997, there were approximately 600 holders of record and
approximately 12,000 beneficial owners of the Company's Common Stock.
9
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth summary financial information of the Company and
the Predecessor for the periods and dates indicated.
Predecessor
---------------------------
For the For the Period For the
Year Ended November 23- January 1 - year ended
December 31, December 31, December 31, December 31, November 22, December 31,
In thousands, except per share data 1996 (1) 1995 1994 (2) 1993 1993 1992
-------- -------- -------- ------- -------- --------
OPERATING DATA:
Revenues:
Rental income $ 64,695 $ 59,912 $ 47,318 $ 4,577 $ 38,242 $ 40,826
Interest and other income 2,689 1,943 749 110 684 541
-------- -------- -------- -------- -------- --------
Total revenues 67,384 61,855 48,067 4,687 38,926 41,367
Expenses:
Property operating and administrative 26,870 24,410 19,944 1,867 16,909 17,712
Depreciation 11,452 11,014 7,230 707 5,823 6,431
Interest and related amortization 12,962 12,452 5,996 576 12,101 14,303
Reorganization costs 1,699
-------- -------- -------- -------- -------- --------
Total expenses 51,284 47,876 33,170 4,849 34,833 38,446
-------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
item and majority interest 16,100 13,979 14,897 (162) 4,093 2,921
Extraordinary item (3) (829) (2,738)
Majority interest in Operating
Partnership (9,566) (7,847) (8,860) 1,717
-------- -------- -------- -------- -------- --------
Net income (loss) $ 6,534 $ 5,303 $ 6,037 $ (1,183) $ 4,093 $ 2,921
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Weighted average common shares
outstanding 6,022 5,959 5,750 5,750
Weighted average common shares
and OP Units outstanding 14,837 14,779 14,189 14,081
Earnings per Share/OP Unit Data:
Income (loss) before extraordinary
item $ 1.09 $ .95 $ 1.05 $ (.01)
Extraordinary item $ - $ (.06) $ - $ (.20)
Net income (loss) $ 1.09 $ .89 $ 1.05 $ (.21)
Dividends/distributions declared $ 1.62 $ 1.525 $ 1.425 $ .15
CASH FLOW DATA:
Net cash provided by operating
activities $ 29,755 $ 28,097 $ 22,584 $ 4,980 $ 8,659 $ 8,853
Net cash provided by (used in)
financing activities $ (595) $(24,365) $ 7,056 $ 15,591 $ (5,983) $ (5,933)
Net cash provided by (used in)
investing activities $(29,518) $ (6,158) $(46,214) $ (639) $ (3,416) $ (3,140)
BALANCE SHEET DATA:
Rental property, before accumulated
depreciation $300,631 $276,423 $266,833 $151,069 $147,107
Rental property, net of accumulated
depreciation $219,338 $206,555 $207,977 $ 97,755 $100,230
Total assets $232,066 $212,034 $215,418 $120,524 $106,449
Total debt $168,315 $132,700 $132,747 $ 52,831 $143,148
Majority interest in Operating
Partnership $ 26,552 $ 36,264 $ 41,569 $ 35,441
Shareholders' equity (owners' deficit) $ 16,191 $ 24,308 $ 25,542 $ 23,424 $(46,016)
10
ITEM 6. SELECTED FINANCIAL DATA, CONTINUED
OTHER DATA: Predecessor
---------------------------
For the For the Period For the
Year Ended November 23- January 1 - year ended
December 31, December 31, December 31, December 31, November 22, December 31,
Dollars in thousands 1996 (1) 1995 1994 (2) 1993 1993 1992
-------- -------- -------- ------- -------- --------
Total properties (at end of period) 47 44 43 33 33
Total sites (at end of period) 20,279 19,594 19,185 15,261 15,072
Weighted average occupied sites 18,889 18,051 14,913 14,025 14,025 13,683
Funds from operations (4) $ 27,460 $ 24,898 $ 22,015 $ 536 $ 9,822 $ 9,252
(1) In February 1997, the Company completed a merger with ROC
Communities, Inc. See Note 12 to the Consolidated Financial
Statements for information regarding the merger.
(2) The Company acquired eight communities in the fourth quarter of 1994.
(3) The extraordinary items represent prepayment penalties and
certain other related costs associated with the early extinguishment
of debt.
(4) 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. For all periods presented, depreciation
of rental property is the only non-cash adjustment. 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:
Predecessor
---------------------------
For the For the period For the
Year Ended November 23- January 1 - year ended
December 31, December 31, December 31, December 31, November 22, December 31,
In thousands 1996 1995 1994 1993 1993 1992
-------- -------- -------- ------- -------- --------
Income (loss) before
extraordinary item $ 16,100 $ 13,979 $ 14,897 $ (162) $ 4,093 $ 2,921
Depreciation of rental
property 11,360 10,919 7,118 698 5,729 6,331
-------- -------- -------- -------- -------- --------
Funds from Operations $ 27,460 $ 24,898 $ 22,015 $ 536 $ 9,822 $ 9,252
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The following discussion and analysis of results of operations and financial
condition covers the years ended December 31, 1996, 1995 and 1994 and should
be read in conjunction with the consolidated financial statements of the
Company included elsewhere herein.
On February 11, 1997, the Company completed its merger with ROC Communities,
Inc. ("ROC") (the "Merger"). The pro forma discussion covers the years ended
December 31, 1996 and 1995 assuming the Merger and related transactions had
occurred on January 1, 1995. This pro forma discussion should be read in
conjunction with Note 12 to the financial statements of the Company included
elsewhere herein.
HISTORICAL RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
For the year ended December 31, 1996, income before majority interest and
extraordinary item was $16,100,000, an increase of $2,121,000 from the year
ended December 31, 1995. The increase was due primarily to increased net
operating income from communities owned by the Company on January 1, 1995
(the "Core 1995 Portfolio") and to a lesser extent, the acquisition of three
communities in 1996 and one community in 1995. The increase in net operating
income from the Company's Core 1995 Portfolio was due to increased occupancy
and rental increases offset by general operating expense increases.
Rental revenue in 1996 was $64,695,000, an increase of $4,783,000 or 8.0
percent from 1995. Approximately 2.3 percent of the increase was due to the
acquisitions of three communities in 1996 and one in 1995, 3.9 percent
represented the effect of annual rent increases in the Core 1995 Portfolio
and 1.8 percent was due to increased occupancy in the Core 1995 Portfolio.
Weighted average occupancy for the year ended December 31, 1996, was 18,889
sites, or 4.6 percent higher than weighted average occupancy for the year
ended December 31, 1995. Weighted average occupancy increased in 1996 due to
the 1996 and 1995 acquisitions and the filling of 265 additional sites that
were either vacant at January 1, 1996 or developed in 1996. The occupancy
rate was 94.4 percent on 20,279 sites as of December 31, 1996, as compared
with 94.3 percent on 19,594 sites as of December 31, 1995. On a per site
basis, weighted average monthly rental revenue for the year ended December
31, 1996 increased to $285 from $277 in 1995 or 3.2 percent due to rental
increases in the Core 1995 Portfolio in 1996.
Interest and other income increased approximately $746,000, or 38 percent, in
1996 from 1995. The increase is due primarily to the inclusion of the
results of operations of four golf courses and a marina for the period
beginning January 1, 1996. These operations were previously conducted by GC
Properties, Inc. ("GCI"), a corporation wholly owned by an equity owner of
the Company, in order to permit the Company's qualification as a REIT under
the Internal Revenue Code. From November 23, 1993 through December 31, 1995,
the Company recognized net lease income from GCI which was classified as
other income. In early 1996, the Company received a ruling from the Internal
Revenue Service allowing the Company to conduct these operations. Effective
January 1, 1996, as a result of acquiring the operations of GCI, the Company
has consolidated these operations.
12
Property operating and maintenance expense for the year ended December 31,
1996 increased by $2,180,000 or 13.6 percent from the same period a year ago.
Approximately $1,028,000 of the increase represents the operating costs of
the golf course and marina operations discussed above. The remaining
increase of $1,152,000 or a 7.2 percent increase over the prior year, is due
primarily to the acquisition of three communities in 1996 and one in 1995.
On a per site basis, monthly weighted average property operating and
maintenance expense increased from $74 in 1995 to $80 in 1996, or 8.6
percent. Excluding the golf course and marina operations, monthly weighted
average property operating and maintenance expense increased 2.4 percent, on
a per site basis, year over year.
Real estate taxes for the year ended December 31, 1996, increased by
$333,000, or 7.4 percent, from the year ended December 31, 1995. 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 $21.40 in 1996 compared to $20.90 in 1995, an increase of 2.6
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 1996 was relatively constant with 1995.
Administrative expense in 1996 was 5.7 percent of revenues as compared to 6.3
percent in 1995.
Interest and related amortization costs increased for the year ended December
31, 1996, by $510,000, as compared with the year ended December 31, 1995.
The increase is attributable to the indebtedness incurred to finance the 1996
acquisitions of three communities and one in 1995, as well as the investment
in a joint venture with ROC that owns six development communities. Interest
expense also increased due to the financing of the Company's repurchase and
retirement of 450,000 shares of its common stock in connection with the
Merger. Interest expense as a percentage of average debt outstanding
decreased to approximately 8.1 percent in 1996 from approximately 8.9 percent
in 1995.
Depreciation expense for the year ended December 31, 1996, increased $438,000
from the same period a year ago. The increase is due to acquisitions and
expansions. Depreciation expense as a percentage of average depreciable
rental property in 1996 remained relatively unchanged from 1995.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
For the year ended December 31, 1995, income before majority interest and
extraordinary item was $13,979,000, a decrease of $918,000 from the year
ended December 31, 1994. The decrease was due to an increase in depreciation
of $3,784,000 and increased interest costs of $6,456,000, which were offset
by increased net operating income of $9,322,000. These increases were
primarily due to the acquisitions of one community in 1995 and 10 communities
in 1994, as well as an increase in net rental revenue from the communities
owned by the Company on January 1, 1994 (the "Core 1994 Portfolio"). The
increase in net operating income from the Company's Core 1994 Portfolio was
due to increased occupancy and rental increases offset by general operating
expense increases. In the first quarter 1995, the Company recognized an
extraordinary charge of $829,000 related to the early extinguishment of debt.
13
Rental revenue in 1995 was $59,912,000, an increase of $12,594,000 or 26.6
percent from 1994. Approximately 84.8 percent of the increase was due to the
acquisition of one community in September 1995 and 10 communities in 1994,
eight of which were acquired in the fourth quarter, 9.2 percent represents
the effect of annual rent increases in the Core 1994 Portfolio and 6.0
percent was due to increased occupancy in the Core 1994 Portfolio.
Weighted average occupancy for the year ended December 31, 1995, was 18,051
sites, or 21 percent higher than weighted average occupancy for the year
ended December 31, 1994. Weighted average occupancy increased in 1995 due to
the 1995 and 1994 acquisitions and the filling of 381 additional sites that
were either vacant at January 1, 1995, or developed in 1995. The occupancy
rate was 94.3 percent on 19,594 sites as of December 31, 1995, as compared
with 92.7 percent on 19,185 sites as of December 31, 1994.
On a per site basis, weighted average monthly rental revenue for the year
ended December 31, 1995 increased to $277 from $264 in 1994 or 4.6 percent.
This increase was due to acquisitions made in 1995 and 1994 and rental
increases in the Core 1994 Portfolio in 1995, partially offset by a weighted
average $2 per month per site rebate that the Company passed through to its
Michigan residents. The rebate represented the net savings realized by the
Company from a change in real estate taxation in Michigan.
Interest and other income increased approximately $1,194,000, or 159 percent,
in 1995 from 1994 primarily due to other operating revenues generated by the
communities acquired by the Company in November 1994.
Property operating and maintenance expense for the year ended December 31,
1995, increased by $3,524,000 or 28.2 percent from the same period a year
ago. The increase is due primarily to the 1995 and 1994 acquisitions. On a
per site basis, monthly weighted average property operating and maintenance
expense increased from $70 in 1994 to $74 in 1995, or 5.9 percent. The
increase on a per site basis is due principally to certain of the communities
acquired in 1994 having a higher per site operating cost, an increase in
advertising and other costs incurred to fill sites and utility rate
increases. The higher per site operating cost in certain of the acquired
communities is due, in part, to the costs associated with the other operating
revenues generated by these communities. The increase in advertising
spending resulted in the net filling of 381 sites for 1995, while only 170
sites were filled for the year ended December 31, 1994.
Real estate taxes for the year ended December 31, 1995, increased by
$688,000, or 17.9 percent, from the year ended December 31, 1994. The
increase is due primarily to acquisitions and expansions of communities. On
a per site basis, monthly weighted average real estate taxes were $20.90 in
1995 compared to $21.40 in 1994, a decrease of 2.6 percent. The decrease was
due primarily to a change in real estate taxation in Michigan and
acquisitions which had a lower per site real estate tax cost, offset by
general tax increases. The change in real estate taxation decreased real
estate taxes beginning in the third and fourth quarter of 1994, and first and
second quarter of 1995. 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, 1995, increased
$254,000, or 7.0 percent, from the year ended December 31, 1994.
Administrative expense in 1995 was 6.3 percent of revenues as compared to 7.5
percent in 1994.
14
Interest and related amortization costs increased for the year ended December
31, 1995, by $6,456,000, as compared with the year ended December 31, 1994.
The increase is attributable to the indebtedness incurred to finance the 1995
and 1994 acquisitions of 10 communities. Interest expense as a percentage of
average debt outstanding decreased to approximately 8.9 percent in 1995 from
approximately 9.4 percent in 1994 due to debt refinancing that occurred in
the first quarter of 1995.
Depreciation expense for the year ended December 31, 1995, increased
$3,784,000 from the same period a year ago. The increase is due to the 1995
and 1994 acquisitions of 10 communities for a combined purchase price of
approximately $117 million. Depreciation expense as a percentage of average
depreciable rental property in 1995 remained relatively unchanged from 1994.
PRO FORMA RESULTS OF OPERATIONS
PRO FORMA YEAR ENDED DECEMBER 31, 1996 COMPARED TO PRO FORMA YEAR ENDED
DECEMBER 31,1995
Rental revenue increased $7,200,000 or 6 percent in 1996 over 1995 due to
increased occupancy and rental increases in communities owned by the Company
on January 1, 1995. Other revenues increased approximately $800,000 or 20
percent for the year ended December 31, 1996 over 1995 due primarily to golf
course and marina operations which were consolidated in 1996 and recorded as
net lease income in 1995 as discussed above.
Property, operating, maintenance and administrative expense increased
$4,100,000 or 8.3 percent in 1996 as compared to 1995. Excluding the
expenses of the golf course and marina operations discussed above, the
increase would have been $3,000,000 or 6.1 percent. This increase is due to
the increased number of occupied sites, as well as general increases.
LIQUIDITY AND CAPITAL RESOURCES
HISTORICAL LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $29,755,000 for the year ended
December 31, 1996, compared to $28,097,000 for the year ended December 31,
1995. The increase in cash provided by operating activities was due primarily
to the increase in net operating income.
Net cash used in financing activities for the year ended December 31, 1996,
was $595,000. Use of cash included distributions made to shareholders/OP
Unit holders of $24,065,000; the payment of $932,000 to reacquire 43,333 OP
units at $21.50 per Unit and the payment of $11,239,000 to repurchase and
retire 450,000 shares of the Company's common stock in connection with the
Merger. The shares were repurchased in October 1996 at an average price of
approximately $25.00 per share. This use of cash was offset partially by net
borrowings under the Company's line of credit of $36,750,000.
Net cash used in investing activities for the year ended December 31, 1996
was $29,518,000. This amount represented the acquisition of three
communities, joint venture investments, capital expenditures and construction
and development costs. The acquisition of the three communities for an
aggregate purchase price of $9,200,000 were financed by $8,200,000 borrowed
on the Company's line of credit and $1,000,000 through the issuance of 43,884
OP units. The investment in the joint venture with ROC of $10,300,000 was
financed by a borrowing on the Company's line of credit. The Company also
invested approximately
15
$3,200,000 in cash in other joint ventures. For the year ended December 31,
1996, construction and development costs approximated $3,700,000, while
recurring property capital expenditures, other than construction and
development costs, were approximately $635,000. Recurring property capital
expenditures in 1996 increased $94,000, or 17 percent, over the same period
in 1995, due to the increased number of communities in the Company's
portfolio. Capital expenditures have historically been financed with funds
from operations and it is the Company's intention that such future
expenditures will be financed with funds from operations.
Future acquisitions of communities and land for development of sites will be
financed through borrowings on the line of credit, the issuance of additional
equity or debt securities, assumption of existing secured or unsecured
indebtedness or the issuance of OP units. The development of expansion sites
will be financed primarily by cash flow from operations and borrowings on the
line of credit. Huntington National Bank, as lead agent, along with Bank of
America and First Chicago NBD, have agreed, until January, 1999, to lend the
Company up to $50 million which, subject to customary conditions, is
available to finance the development of expansion sites, the acquisition of
additional properties and general business obligations. This line of credit
is unsecured and bears interest at 150 basis points over LIBOR. At December
31, 1996, there was $36,750,000 outstanding under the line of credit.
The Company expects to meet its short-term liquidity requirements through
cash flow from operations and, if necessary, borrowings under its line of
credit.
The Company anticipates meeting its long-term liquidity requirements from
borrowings under its line of credit, from the issuance of additional debt or
equity securities and cash flows from operations.
The Company, as an owner of real estate, is subject to various environmental
laws. Compliance by the Company with existing laws has not had a material
adverse financial effect on results of operations or financial position
during the three year period ended December 31, 1996, nor does management
believe it will have a material impact in the future.
PRO FORMA INDEBTEDNESS
On a pro forma basis as of December 31, 1996, the Company had the following
debt outstanding (in thousands):
Fixed rate mortgages $113,979
Fixed rate unsecured debt 145,000
Unsecured lines of credit 66,993
Other debt 2,124
--------
$328,096
--------
--------
The weighted average interest rate and remaining term of the fixed rate debt
was approximately 8.1 percent and 4.3 years, respectively. The only variable
rate debt outstanding is drawn on lines of credit. After the Merger, the
Company has two available credit facilities aggregating $100 million, each of
which is unsecured and bears interest at 150 basis points over LIBOR.
16
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.
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 REIT's which provides
a relevant basis for comparison among REITs. For all periods presented,
depreciation of rental property is the only non-cash adjustment. 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:
For the year
ended December 31,
---------------------------------
1996 1995 1994
------- ------- -------
Income before extraordinary item $16,100 $13,979 $14,897
Depreciation of rental property 11,360 10,919 7,118
------- ------- -------
Funds from operations $27,460 $24,898 $22,015
On a pro forma basis, FFO is calculated as follows:
For the year
ended December 31,
--------------------
1996 1995
------- -------
Income before minority interest $18,000 $13,100
Depreciation of rental property 34,300 34,200
Amortization of other intangibles 400 500
------- -------
Funds from operations $52,700 $47,800
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Chateau Properties, Inc.:
We have audited the accompanying consolidated balance sheets of Chateau
Properties, Inc. (the "Company") as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity and cash
flows for the three years in the period ended December 31, 1996. We have
also audited the financial statement schedule as identified in item 14(a) (2)
of this Form 10-K. These financial statements and the financial statement
schedule are the responsibility of the management of Chateau Properties, Inc.
Our responsibility is to express an opinion on these financial statements
and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chateau Properties, Inc. as
of December 31, 1996 and 1995, and the results of operations and cash flows
for the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
Detroit, Michigan
February 12, 1997
18
CHATEAU PROPERTIES, INC.
STATEMENTS OF INCOME
FOR THE YEAR ENDED
PRO FORMA DECEMBER 31, DECEMBER 31, DECEMBER 31,
In thousands, except per share data 1996* 1996 1995 1994
----------- ------------ ------------ ------------
(Unaudited)
Revenues:
Rental income $64,695 $59,912 $47,318
Interest and other income 2,689 1,943 749
------- ------- -------
$132,800 67,384 61,855 48,067
Expenses:
Property operating and maintenance 18,201 16,021 12,497
Real estate taxes 4,856 4,523 3,835
Depreciation 11,452 11,014 7,230
Administrative 3,813 3,866 3,612
Interest and related amortization 12,962 12,452 5,996
------- ------- -------
114,800 51,284 47,876 33,170
-------- ------- ------- -------
Income before extraordinary
item and majority interest 18,000 16,100 13,979 14,897
Extraordinary charge from early
extinguishment of debt - - (829) -
-------- ------- ------- -------
Income before majority interest 18,000 16,100 13,150 14,897
Minority/majority interest in
income of Operating Partnership (1,800) (9,566) (7,847) (8,860)
-------- ------- ------- -------
Net income $ 16,200 $ 6,534 $ 5,303 $ 6,037
-------- ------- ------- -------
-------- ------- ------- -------
Earnings per share:
Income before extraordinary item $ .64 $ 1.09 $ .95 $ 1.05
Extraordinary item - - (.06) -
-------- ------- ------- -------
Net income $ .64 $ 1.09 $ .89 $ 1.05
-------- ------- ------- -------
-------- ------- ------- -------
Dividends/distributions declared per
common share/OP unit outstanding $ 1.62 $ 1.525 $ 1.425
------- ------- -------
------- ------- -------
Tax status of dividends, return
of capital portion $ .65 $ .53 $ .41
------- ------- -------
------- ------- -------
Weighted average common shares
outstanding 25,125 6,022 5,959 5,750
-------- ------- ------- -------
-------- ------- ------- -------
Weighted average common
shares and OP Units outstanding 27,873 14,837 14,779 14,189
-------- ------- ------- -------
-------- ------- ------- -------
- -----------------------
*See Note 12
The accompanying notes are an integral part of the financial statements.
19
CHATEAU PROPERTIES, INC.
BALANCE SHEETS
PRO FORMA
DECEMBER 31 DECEMBER 31,
In thousands, except per share data 1996* 1996 1995
----------- -------- -------
(Unaudited)
ASSETS
Rental property:
Land $ 33,821 $ 32,891
Land and improvements for
expansion sites 1,988 2,434
Manufactured home community
improvements 239,514 216,591
Community buildings 17,607 17,231
Furniture and other equipment 7,701 7,276
-------- -------
Total rental property $796,000 300,631 276,423
Less accumulated depreciation 81,000 81,293 69,868
-------- -------- -------
Net rental property 715,000 219,338 206,555
--------
--------
Cash and cash equivalents 586 944
Rent and other receivables 5,403 2,142
Prepaid expenses and other assets 6,739 2,393
-------- --------
Total assets $736,000 $232,066 $212,034
-------- -------- --------
-------- -------- --------
LIABILITIES
Debt $ 168,315 $132,700
Accrued interest payable 2,796 2,447
Accounts payable and other accrued
expenses 7,489 5,997
Rents received in advance and
security deposits 4,852 4,364
Distributions payable 5,871 5,954
-------- --------
Total liabilities 363,000 189,323 151,462
Minority/majority interest in
Operating Partnership 37,000 26,552 36,264
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value,
2 million shares authorized; no
shares issued or outstanding
Common stock, $.01 par value,
30 million shares authorized:
25,137,000 shares on a pro forma
basis and 5,660,960 and 6,095,960
shares issued and outstanding at
December 31, 1996 and 1995,
respectively 57 61
Additional paid-in capital 28,187 33,152
Dividends in excess of accumulated
earnings (11,233) (8,064)
Notes receivable, officers, 43,125
shares outstanding at December 31,
1996 and 1995 (820) (841)
-------- --------
Total shareholders' equity 336,000 16,191 24,308
-------- -------- --------
Total liabilities and
shareholders' equity $736,000 $232,066 $212,034
-------- -------- --------
-------- -------- --------
*See Note 12
The accompanying notes are an integral part of the financial statements.
20
CHATEAU PROPERTIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
Dollars in thousands, except per share data 1996 1995 1994
------------ ------------ ------------
Common stock:
Balance at beginning of period $ 61 $ 58 $ 58
Issuance of 15,000 and 10,500
shares from awards and exercise of
options in 1996 and 1995, respectively - - -
Issuance of 335,460 shares of common
stock in exchange for units in
Operating Partnership - 3 -
Repurchase and retirement of 450,000
shares (4) - -
-------- ------- -------
Balance at end of period $ 57 $ 61 $ 58
-------- ------- -------
-------- ------- -------
Additional paid-in capital:
Balance at beginning of period $ 33,152 $30,678 $26,412
Exercise of common stock options,
11,250 and 7,500 shares 239 150 -
Issuance of 335,460 shares - 1,544 -
Repurchase and retirement of 450,000
shares (11,235) - -
Transfer from majority interest
ownership in Operating Partnership 6,031 780 4,266
-------- ------- -------
Balance at end of period $ 28,187 $33,152 $30,678
-------- ------- -------
-------- ------- -------
Dividends in excess of accumulated earnings:
Balance at beginning of period $ (8,064) $(4,203) $(2,046)
Net income 6,534 5,303 6,037
Dividends declared, $1.62, $1.525 and
$1.425 per share (9,703) (9,164) (8,194)
-------- ------- -------
Balance at end of period $(11,233) $(8,064) $(4,203)
-------- ------- -------
-------- ------- -------
Notes receivable, officers:
Balance at beginning of period $ (841) $ (991) $(1,000)
Payments received 21 150 9
-------- ------- -------
Balance at end of period $ (820) $ (841) $ (991)
-------- ------- -------
-------- ------- -------
Total shareholders' equity, end of period $ 16,191 $24,308 $25,542
-------- ------- -------
-------- ------- -------
The accompanying notes are an integral part of the financial statements.
21
CHATEAU PROPERTIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
In thousands, except per share data 1996 1995 1994
------------ ------------ ------------
Cash flows from operating activities:
Net income $ 6,534 $ 5,303 $ 6,037
Adjustments to reconcile to net
cash provided by operating activities:
Income attributable to majority interest 9,566 7,847 8,860
Extraordinary item - 829
Depreciation 11,452 11,014 7,230
Amortization of debt issuance costs 437 538 436
Increase in operating assets (562) (77) (1,280)
Increase in operating liabilities 2,328 2,643 1,301
-------- -------- --------
Net cash provided by operating activities 29,755 28,097 22,584
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of 8 3/4% Senior Notes - 74,866
Net borrowings (payments) on line of credit 36,750 (30,000) 30,000
Principal payments on mortgages (1,135) (45,066) (6,055)
Prepayment penalties - (667)
Payment of debt issuance costs (234) (954)
Distributions to shareholders/OP
Unit holders (24,065) (21,982) (16,898)
Shares/OP Units repurchased (12,171) (882)
Exercise of common stock options and other 260 320 9
-------- -------- --------
Net cash provided by (used in)
financing activities (595) (24,365) 7,056
-------- -------- --------
Cash flows from investing activities:
Acquisition of rental properties (21,727) (2,766) (42,947)
Additions to rental properties (4,731) (3,392) (3,267)
Merger costs (3,060)
-------- -------- --------
Net cash used in investing activities (29,518) (6,158) (46,214)
-------- -------- --------
Decrease in cash and cash equivalents (358) (2,426) (16,574)
-------- -------- --------
Cash and cash equivalents, beginning of period 944 3,370 19,944
-------- -------- --------
Cash and cash equivalents, end of period $ 586 $ 944 $ 3,370
-------- -------- --------
-------- -------- --------
Supplemental information:
Cash paid for interest $ 12,176 $ 9,987 $ 5,148
-------- -------- --------
-------- -------- --------
OP units issued for rental property $ 1,964 $ 3,434 $ 13,521
-------- -------- --------
-------- -------- --------
Liabilities assumed for rental property $ 57,685
--------
--------
The accompanying notes are an integral part of the financial statements.
22
CHATEAU PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS
---------------------
1. BASIS OF PRESENTATION AND FORMATION OF COMPANY:
The accompanying financial statements consist of the consolidated financial
statements of Chateau Properties, Inc. (the "Company"), a Real Estate
Investment Trust (REIT). The Company is engaged in the business of owning
and operating 47 manufactured housing community properties in Michigan,
Illinois, Florida, Minnesota and North Dakota. In addition the Company
owns 6 properties through a joint venture with ROC Communities, Inc. 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.
On November 23, 1993, the Company completed a public offering of 5,700,000
shares of $.01 par value common stock (the "Offering"). Simultaneous with
the Offering, the Company contributed the net proceeds from the Offering
and was admitted as the sole general partner, with an approximate 41
percent interest, in an operating partnership (the "Operating Partnership")
representing the successor owner of 33 manufactured housing community
properties. These properties were contributed by the owners of Chateau
Properties Group (the "Predecessor") to the Operating Partnership in
exchange for limited partnership interests (OP units) which, subject to
certain limitations, are exchangeable at any time at the option of the
holders for common stock of the Company on a one-for-one basis. The
Predecessor consisted of the manufactured housing community properties of
Chateau Estates, a Michigan co-partnership, of InterCoastal Communities,
Inc. and its affiliates and of six co-partnerships affiliated with Leonard
Maas (the "Contributing Parties"). This business combination was accounted
for as a reorganization of entities under common control, and accordingly,
there were no changes in the basis of assets and liabilities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
As the sole general partner, the Company has unilateral control and
complete responsibility for management of the Operating Partnership
including the right and power to make all decisions and actions with
respect to the acquisition, mortgage and sale of properties and the other
business affairs of the Operating Partnership. Accordingly, these
financial statements include the accounts of Chateau Properties, Inc. and
the Operating Partnership. All significant inter-entity balances and
transactions have been eliminated in consolidation.
Continued
23
CHATEAU PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
---------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED:
Majority Interest
Income before majority interest is ascribed to the limited partners of the
Operating Partnership (the "Majority Interest") based on their respective
weighted average ownership percentage of the Operating Partnership. The
ownership percentage is determined by dividing the number of OP units held
by the Majority interest by total OP units outstanding including the units
held by the Company. Issuance of additional shares of common stock or OP
units changes the percentage ownership of both the Majority Interest and
the Company. Since an OP unit is equivalent to a common share (due to,
among other things, its exchange ability for a common share), such
transactions are treated as capital transactions and result in an equity
transfer adjustment among shareholders' equity and Majority Interest in
the Company's balance sheet to account for the change in the respective
ownership in the underlying equity of the Operating Partnership.
Estimates
The preparation of these financial statements involves the use of certain
management estimates and assumptions that affect reported amounts and
disclosures, such as the useful lives of rental properties. Actual results
could differ from 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 renewable upon the consent of both parties or,
in some instances, as provided by statute.
Rental Property
Rental property is carried at the lower of cost, less accumulated
depreciation, or fair value. Management evaluates the recoverability of
its investment in rental property in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for Impairment of Long-
Lived Assets and Long-Lived Assets To Be Disposed Of". This statement
requires that long-lived assets be reviewed for impairment whenever events
or changes in circumstances indicate that full asset recoverability is
questionable. Management's assessment of recoverability of its rental
property under this statement includes, but is not limited to, recent
operating results, expected net operating cash flow and management's plans
for future operations. The Company adopted SFAS No. 121 in 1995 and the
adoption had no effect on the results of operations or financial condition
of the Company.
Continued
24
CHATEAU PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
---------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED:
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 4 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
property assets, net of accumulated depreciation compared to the sale
proceeds, are recognized in income as gains or losses on disposition.
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.
Per Share Data
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. Common stock equivalents for outstanding stock options are not
materially dilutive for any period presented. SFAS No. 128, "Earnings per
Share" when adopted in 1997 will not have an impact on reported earnings
per share.
Continued
25
CHATEAU PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
---------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED:
Stock-Based Compensation
During 1996 the Company adopted SFAS No. 123 for "Accounting for Stock-
Based Compensation." The Company has elected to continue to account for
employee stock based compensation under Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and therefore
the disclosure method as permitted and required by SFAS No. 123 is
presented in Note 6.
Cash Equivalents
All highly liquid investments with an initial maturity of three months or
less are considered to be cash equivalents.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments"
requires disclosures about the fair value of financial instruments whether
or not such instruments are recognized in the balance sheet. Due to the
short-term nature of the Company's financial instruments, other than debt,
fair values are not materially different from their carrying values.
Based on the borrowing rates available to the Company, the carrying value
of debt approximates fair value.
Debt Issuance Costs
Costs incurred related to obtaining financing such as service and
commitment fees are deferred and are amortized over the term of the related
commitment/loans. These costs net of accumulated amortization are included
in prepaid expenses and other assets in the accompanying balance sheets.
Financial Statement Reclassifications
Certain amounts in prior year financial statements have been reclassified
to conform with presentations adopted in the current year.
Continued
26
CHATEAU PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
---------------------
3. ACQUISITIONS OF RENTAL PROPERTY
Amount
Allocated OP
Acquisition Property Name to Assets Units
Date and Location Acquired Issued Cash
----------- ------------- --------- ------ -------
Acquisitions - 1996:
March, 1996 Chestnut Creek Farm-
Davison, MI $ 3,400 $ 3,400
May, 1996 Maple Valley and Maple Ridge-
Manteno, IL $ 5,800 $1,000 $ 4,800
September, 1996 Joint venture with ROC
purchase of six
communities in six states (1) $10,300 $10,300
Various Other joint ventures (2) $ 4,200 $1,000 $ 3,200
- -------------------------------------------------------------------------------------------
Acquisitions - 1995:
September, 1995 Hidden Valley
Lake Buena Vista, FL $ 6,200 $3,400 $ 2,800
- -------------------------------------------------------------------------------------------
Acquisitions - 1994:
January, 1994 Forest Lake Estates
Spring Lake Twp, MI $ 2,400 - $ 2,400
July, 1994 Lake in the Hills
Auburn Hills, MI $ 7,300 - $ 7,300
November, 1994 (3) NHD portfolio purchase
of seven communities in
two states $49,000 $9,200 $18,200
Del Tura
North Ft. Myers, FL $55,400 $4,300 $16,700
Continued
27
CHATEAU PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
---------------------
3. ACQUISITIONS OF RENTAL PROPERTY CONTINUED
(1) Represents a 50 percent interest in a joint venture with ROC accounted
for as a property acquisition and included in rental properties.
(2) In connection with a joint venture, the Company may guarantee up to $8
million of debt in return for a guarantee fee.
(3) In connection with these two acquisitions, the Company assumed
approximately $56 million in debt.
4. FINANCING:
At December 31, 1996, the Company had a $50 million line of credit
arrangement with Huntington National Bank as lead agent for a bank group
to provide financing for future construction, acquisitions and general
business obligations. The line of credit is unsecured, bears interest at
the prime rate of interest or, at the Company's option, LIBOR plus 150
basis points. At December 31, 1996, there was $36.7 million in borrowings
outstanding on the line of credit. The commitment contains 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. The line is renewable annually
through January 1999. The terms of the line of credit provide for the
payment of a fee of up to 12.5 basis points on the average daily unused
amount of the line of credit.
On March 2, 1995, the Company received approximately $74.3 million in net
proceeds from the issuance of $75 million of unsecured Senior Notes (the
"Notes") by the Operating Partnership. The Notes have semi-annual interest
payments, an effective fixed interest rate of 8.79 percent per annum and
mature on March 2, 2000. The Notes contain certain covenants including a
restriction on the incurrence of collateralized indebtedness subject to
certain provisions.
The following table sets forth certain information regarding debt at
December 31:
Principal Balance
Maturity ---------------------
Interest Rate Date 1996 1995
------------- --------- --------- --------
(in thousands)
Fixed rate mortgages 8.0-9.82% 1998-2000 $ 54,441 $ 55,425
Other notes payable Various 1997-2020 2,124 2,275
Unsecured Senior Notes 8.75% 3/00 75,000 75,000
Unsecured line of credit 1/99 36,750
-------- --------
$168,315 $132,700
-------- --------
-------- --------
Continued
28
CHATEAU PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS
---------------------
4. FINANCING CONTINUED:
The aggregate amount of principal maturities on the fixed rate mortgages
and $75 million Senior Notes payable subsequent to December 31, 1996 (in
thousands) is as follows:
YEARS ENDING
DECEMBER 31,
------------
1997 $ 1,074
1998 2,347
1999 19,582
2000 106,438
--------
$129,441
--------
--------
5. MAJORITY INTEREST IN OPERATING PARTNERSHIP:
Majority interest in the accompanying balance sheets represents the
ownership interest in the Operating Partnership held by other than the
Company. As of December 31, 1996 and December 31, 1995, the majority
interest was approximately 61 percent and 59 percent, respectively.
After the February 1997 merger with ROC, the majority interest will
become a minority interest of approximately 10 percent.
During 1996 and 1995 the Company, through the Operating Partnership,
purchased and retired 43,334 and 44,085 OP units, respectively, at
approximately $21.50 and $20.00 per unit, respectively.
On May 23, 1995, certain Operating Partnership unit holders exercised their
right to exchange their OP units into 335,460 shares of common stock of the
Company at a one for one exchange rate. This transaction resulted in an
increase to outstanding common shares, and a corresponding decrease in
outstanding OP units. In connection with this transaction, there were no
proceeds received nor expenses incurred by the Company.
The following is a summary of activity of the majority interest in the
Operating Partnership for the periods presented including the transfer
adjustment among the majority interest and shareholders' equity in the
balance sheet to account for the change in the respective ownership in
the underlying equity of the Operating Partnership.
Continued
29
CHATEAU PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
---------------------
5. MAJORITY INTEREST IN OPERATING PARTNERSHIP CONTINUED:
OPERATING
PARTNERSHIP MAJORITY
UNITS INTEREST
----------- --------
(IN THOUSANDS)
Majority interest in Operating
Partnership, January 1, 1994 8,331 $ 35,441
Majority interest in income - 8,860
Distributions declared, $1.425 per unit - (11,987)
Issuance of OP units at fair value in connection 677 13,521
with acquisitions
Transfer to shareholders' equity - (4,266)
----- --------
Majority interest in Operating Partnership
at December 31, 1994 9,008 41,569
Majority interest in income - 7,847
Distributions declared, $1.525 per unit - (13,377)
Issuance of OP units at fair value in connection
with acquisitions 162 3,434
Exchange of OP units for shares of common
stock (336) (1,547)
OP units reacquired and retired by Operating
Partnership (44) (882)
Transfer to for shareholders' equity - (780)
----- --------
Majority interest in Operating Partnership
at December 31, 1995 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
----- --------
----- --------
Continued
30
CHATEAU PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
---------------------
6. STOCK OPTION PLAN:
The Company adopted the disclosure requirements of SFAS No. 123, "Accounting
for Stock-Based Compensation," effective with the 1996 financial statements.
The Company, however, has elected to measure compensation cost using the
intrinsic value method, in accordance with APB Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees."
The Company's 1993 Long Term Incentive Stock Plan, as amended on May 18,
1995, (the "Plan") provides for up to 1,000,000 shares of common stock that
may be granted to directors, executive officers and other key employees.
Options granted under the Plan generally vest at a rate of 25 percent per
year and expire in 10 years. The Plan provides for the grant of options at
"fair market value" per share, which represents the quoted market price of
the Company's common stock on the date of grant. The Plan also provides for
the grant of restricted stock awards and stock appreciation rights.
Information concerning stock options is as follows:
1996 1995 1994
------------------ ------------------ ------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Price Shares Price Shares Price
------- -------- ------- -------- ------- ---------
Shares subject to option
Outstanding at beginning of year 454,150 $ 20.08 193,000 $20.43 163,000 $20.00
Granted 308,150 23.99 315,550 19.82 30,000 22.75
Exercised (11,250) 21.21 (7,500) 20.00 - -
Forfeited (15,750) 22.11 (46,900) 19.74 - -
------- ------- ------- ------ ------- ------
Outstanding at end of year 735,300 $*21.66 454,150 $20.08 193,000 $20.43
Options exercisable at year-end 176,287 74,000 40,750
Options available for grant at year-end 238,900 535,350 307,000
* Ranging in price from $19.50 - $24.25
The fair value of each option grant was estimated as of date of grant
using an option-pricing model with the following assumptions used for
options granted in:
1996 1995
----- -----
Estimated fair value per share of
options granted during the year $3.39 $2.72
Continued
31
CHATEAU PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
---------------------
6. STOCK OPTION PLAN CONTINUED:
1996 1995
---- ----
Assumptions:
Annualized dividend yield 6.7% 7.6%
Common Stock price volatility 20.0% 20.0%
Risk-free rate of return 6.56% 7.57%
Expected option term (in years) 10 10
If compensation cost for stock option grants had been recognized based on
the fair value at the grant dates for 1996 and 1995 consistent with the
method prescribed by SFAS 123, net income and net income per share would
have been $6,457,000 and $1.07 for the year ended December 31, 1996 and
$5,268,000 and $.88 for the year ended December 31, 1995.
7. 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 the
employees of the Company 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 $300,000 and $275,000
to the 401(k) Plan for the Plan years ended December 31, 1996 and 1995,
respectively.
8. RELATED PARTY TRANSACTIONS:
In order to permit the Company's qualification as a REIT under the Internal
Revenue Code, the operations of four golf courses and a marina were
previously conducted by GC Properties, Inc. ("GCI"), a corporation wholly
owned by an equity owner of the Company. Prior to 1996, the Company
recognized net lease income from GCI which was classified as other income.
In early 1996, the Company received a ruling from the Internal Revenue
Service allowing it to conduct these operations. Effective January 1,
1996, as a result of acquiring the operations of GCI, the Company has
consolidated these operations. For the year ended December 31, 1996 the
Company has included approximately $1.7 million in revenues and $1.0
million in operating expenses for these operations. For the years ended
December 31, 1995 and 1994 net lease income of approximately $695,000 and
$100,000, respectively was recognized. 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 lease expires November
2001.
Continued
32
CHATEAU PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
---------
9. EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT:
The extraordinary charge in the accompanying statements of income represent
prepayment penalties and certain other related costs incurred in connection
with the early extinguishment of debt.
10. CONTINGENCIES:
The Company, as an owner of real estate, is subject to various environmental
laws. Compliance by the Company with existing laws has not had a material
adverse financial effect during the three year period ended December 31,
1996, nor does management believe it will have a material impact in the
future. However, management cannot predict the impact of new or changed
laws or regulations on its current properties or properties that it may
acquire.
Several claims and legal actions arising from the normal course of business,
none of which are environmental related matters, have been asserted against
the Company, and are pending final resolution. Although the amount of
liability at December 31, 1996, if any, with respect to these matters is not
determinable, in the opinion of management, none of these matters will
result in material liability.
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The following is quarterly financial information for the years ended
December 31, 1996 and 1995; (Amounts in thousands except per share data.)
First Second Third Fourth
Quarter Quarter Quarter Quarter
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
1996
Total revenues $16,391 $16,829 $16,983 $17,181
------- ------- ------- -------
------- ------- ------- -------
Operating income (a) $10,132 $ 9,685 $ 9,992 $10,705
------- ------- ------- -------
------- ------- ------- -------
Income before majority interest $ 4,321 $ 3,599 $ 3,955 $ 4,225
Majority interest in income of
Operating Partnership 2,551 2,126 2,340 2,549
------- ------- ------- -------
Net income $ 1,770 $ 1,473 $ 1,615 $ 1,676
------- ------- ------- -------
------- ------- ------- -------
Weighted average common shares
outstanding 6,097 6,099 6,100 5,793
------- ------- ------- -------
------- ------- ------- -------
Weighted average common shares
and OP units outstanding 14,887 14,896 14,936 14,630
------- ------- ------- -------
------- ------- ------- -------
Net income per share (b) $ .29 $ .24 $ .26 $ .29
------- ------- ------- -------
------- ------- ------- -------
Continued
33
CHATEAU PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
---------
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) CONTINUED:
First Second Third Fourth
Quarter Quarter Quarter Quarter
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
Total revenues $15,238 $15,271 $15,479 $15,867
------- ------- ------- -------
------- ------- ------- -------
Operating income (a) $ 9,568 $ 9,063 $ 8,936 $ 9,878
------- ------- ------- -------
------- ------- ------- -------
Extraordinary charge from early
extinguishment of debt $ 829 - - -
------- ------- ------- -------
------- ------- ------- -------
Income before majority interest $ 2,890 $ 3,247 $ 3,103 $ 3,910
Majority interest in income of
Operating Partnership 1,764 1,948 1,822 2,313
------- ------- ------- -------
Net income $ 1,126 $ 1,299 $ 1,281 $ 1,597
------- ------- ------- -------
------- ------- ------- -------
Weighted average common shares
outstanding 5,752 5,897 6,089 6,095
------- ------- ------- -------
------- ------- ------- -------
Weighted average common shares
and OP units outstanding 14,760 14,724 14,747 14,885
------- ------- ------- -------
------- ------- ------- -------
Income before extraordinary
charge per share (b) $ .25 $ .22 $ .21 $ .26
------- ------- ------- -------
------- ------- ------- -------
Net income per share (b) $ .20 $ .22 $ .21 $ .26
------- ------- ------- -------
------- ------- ------- -------
(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.
12. SUBSEQUENT EVENT - MERGER WITH ROC COMMUNITIES, INC.
On February 11, 1997, the Company completed its merger with ROC
Communities, Inc. (the "Merger"). The Merger and related transactions will
be accounted for using the purchase method of accounting in accordance with
generally accepted accounting principles. Accordingly, the assets and
liabilities of ROC will be adjusted to fair value for financial accounting
purposes and the results of operations of ROC will be included in the
results of operations of the Company in 1997.
Continued
34
CHATEAU PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
---------
12. SUBSEQUENT EVENT - MERGER WITH ROC COMMUNITIES, INC. CONTINUED
In connection with the Merger, the related transactions occurred
- The Company repurchased and retired 1,200,000 shares of its common
stock, of which 450,000 were repurchased in 1996
- ROC purchased 350,000 shares of Chateau common stock, 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 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.
Following the Merger, the Company owns 128 communities with an aggregate 42,986
residential homesites. In addition, it fee manages 6,953 residential homesites
in 34 communities.
Continued
35
CHATEAU PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
---------
12. SUBSEQUENT EVENT - 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, 1995. In
addition, the pro forma information is presented as if the acquisitions of 14
properties made in 1996 and 1995 by the Company and ROC had occurred on January
1, 1995. 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, 1995.
(In thousands, except per share data)
1996 1995
-------- --------
Revenues $132,800 $124,800
Expenses:
Property, operating, maintenance and administrative 53,700 49,700
Depreciation 34,900 34,900
Interest and related amortization 26,200 27,100
-------- --------
Total expenses 114,800 111,700
-------- --------
Income before minority interest $ 18,000 $ 13,100
-------- --------
Per share* $ .64 $ .47
-------- --------
Weighted average common shares and OP Units outstanding 27,873 27,879
-------- --------
*Assumes all OP Units are exchanged for common stock.
The pro forma balance sheet has been prepared as if the Merger had occurred on
December 31, 1996.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
36
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 22,
1997.
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 22,
1997.
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 22,
1997
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 22,
1997.
37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Report of Independent Accountants
Statements of Income for the years ended December 31, 1996,
December 31, 1995 and December 31, 1994
Balance Sheets as of December 31, 1996 and 1995
for the Company
Statements of Shareholders' Equity for
the years ended December 31, 1996, December 31, 1995 and
December 31, 1994
Statements of Cash Flows for the years ended December 31, 1996,
December 31, 1995 and December 31, 1994
Notes to Financial Statements
2. FINANCIAL STATEMENT SCHEDULE
III - Real Estate and Accumulated Depreciation
38
3. Exhibits
Exhibit Number
(Referenced to Item 601 of
Regulation S-K)
Exhibit Description
3(i) (a) Chateau Properties, Inc. Articles of Amendment and Restatement
3(ii) (b) Chateau Properties, Inc. Bylaws
4.1 (b) Form of Stock Certificate
4.2* (c) Note and Mortgage on Del Tura Community
4.3(i) (c) $75,000,000 8-3/4% Global Note dated March 2, 1995 of CP
Limited Partnership
4.3(ii) (c) Indenture Agreement dated as of February 1, 1995 between
CP Limited Partnership and The First National Bank of Chicago
4.4 (d) Amended and Restated Loan Agreement dated as of January 8, 1996
between The Huntington National Bank and CP Limited Partnership
10.1 (b) Agreement of Limited Partnership of CP Limited Partnership
10.2 (b) Lease of 19500 Hall Road
10.3 (b) Form of Noncompetition Agreement (Boll and Allen)
10.4 (b) Employment Agreement (Kellogg)
10.5 (b) Form of Registration Rights Agreement
10.6 (b) Long-Term Incentive Stock Plan
10.7 (b) Profit Sharing Plan
10.8 (b) Form of Ground Lease
10.9 (d) Management Compensation Plan
10.10 (c) Consulting Agreement dated as of November 1, 1994 between Newman,
Herfurth and Durand, Inc. and CP Limited Partnership
10.11 (c) Deferred Compensation Agreement dated as of November 1, 1994 for
the benefit of Graydon K. Newman, Jr.
21 (d) List of Subsidiaries of Chateau Properties, Inc.
23 Consent of Coopers & Lybrand L.L.P.
99 (e) Company's Schedule 14D-9
* 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 Securities and Exchange
Commission on November 10, 1993 (Commission File No. 33-69150).
39
(c) 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).
(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 Schedule 14D-9 filed with the
Commission on September 19, 1996.
b. Reports on Form 8-K
No reports were filed on Form 8-K during the last quarter of 1996.
40
CHATEAU PROPERTIES, 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, 1996
CHATEAU PROPERTIES, 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 financial
statements or notes thereto.
F-1
CHATEAU PROPERTIES, INC.
SCHEDULE III, REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
Cost Capitalized
Subsequent to Gross Amount
Initial Acquisition Carried at Close of
Cost to Company (Improvements) Period 12/31/96
------------------ ------------------ -------------------
Description Building & Building & Building &
Community Location Land Fixtures Land Fixtures Land Fixtures Total
--------- -------- ----- ---------- ---- ---------- ---- ---------- -----
Algoma Algoma Township, MI $ 60 $ 19 $ 1,783 $ 79 $ 1,783 $ 1,862
Anchor Bay Ira Township, MI 432 $ 80 2,841 13,414 3,273 13,494 16,767
Avon Rochester Hills, MI 621 484 640 6,878 1,261 7,362 8,623
Central Office Clinton Township, MI - 938 - 938 938
Chesterfield Chesterfield Township, MI 405 262 1,995 667 1,995 2,662
Chestnut Creek Davison, MI 274 7 3,198 281 3,198 3,479
Clinton Clinton Township, MI 989 430 5,355 1,419 5,355 6,774
Colonial Kalamazoo, MI 816 195 4 7,499 820 7,694 8,514
Country Estates Spring Lake Township, MI 30 - 1,806 30 1,806 1,836
Cranberry Lake White Lake Township, MI 432 220 - 2,785 432 3,005 3,437
Ferrand Estates Wyoming, MI 257 1,579 - 210 257 1,789 2,046
Forest Lake Estates Spring Lake Township, MI 414 2,293 9 14 423 2,307 2,730
Grand Blanc Grand Blanc, MI 1,749 219 7,239 1,968 7,239 9,207
Holiday Estates Byron Township, MI 93 - 1,689 93 1,689 1,782
Howell Howell,MI 345 151 2,679 496 2,679 3,175
Lake in the Hills Auburn Hills, MI 952 6,389 - (13) 952 6,376 7,328
Leonard Gardens Walker, MI 94 139 2,870 233 2,870 3,103
Macomb Macomb Township, MI 1,459 2,137 15,848 3,596 15,848 19,444
Maintenance Clinton Township, MI - 218 - 218 218
Norton Shores Norton Shores, MI 103 118 4,707 221 4,707 4,928
Novi Novi, MI 896 393 4,689 1,289 4,689 5,978
Oak Hill Groveland Township, MI 115 2,165 - 3,960 115 6,125 6,240
Old Orchard Davison, MI 211 182 - 2,608 211 2,790 3,001
Orion Orion Township, MI 423 198 - 4,457 423 4,655 5,078
Torrey Hills Flint, MI 346 205 1 4,230 347 4,435 4,782
Villa Flint, MI 135 332 (6) 2,684 129 3,016 3,145
------- ------- ------ -------- ------- -------- --------
Michigan Subtotal 11,651 14,322 7,364 103,740 19,015 118,062 137,077
Date of
Accumulated Construction (C)
Community Depreciation Acquisition (A)
--------- ------------ ----------------
Algoma $ 686 1974(C)
Anchor Bay 5,897 1968(C)
Avon 4,416 1988(A)
Central Office 768
Chesterfield 1,478 1969(C)
Chestnut Creek 80 1996(A)
Clinton 4,195 1969(C)
Colonial 4,374 1985(A)
Country Estates 1,131 1974(C)
Cranberry Lake 1,506 1986(A)
Ferrand Estates 1,398 1989(A)
Forest Lake Estates 304 1994(A)
Grand Blanc 1,459 1990(C)
Holiday Estates 1,027 1984(C)
Howell 2,049 1972(C)
Lake in the Hills 799 1994(A)
Leonard Gardens 976 1987(C)
Macomb 7,193 1973(C)
Maintenance 159
Norton Shores 2,319 1978(C)
Novi 4,381 1973(C)
Oak Hill 2,710 1983(A)
Old Orchard 1,203 1988(A)
Orion 2,466 1986(A)
Torrey Hills 2,162 1987(A)
Villa 1,885 1984(A)
-------
Michigan Subtotal 57,021
F-2
CHATEAU PROPERTIES, INC.
SCHEDULE III, REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
Cost Capitalized
Subsequent to Gross Amount
Initial Acquisition Carried at Close of
Cost to Company (Improvements) Period 12/31/96
------------------ ------------------ -------------------
Description Building & Building & Building &
Community Location Land Fixtures Land Fixtures Land Fixtures Total
--------- -------- ----- ---------- ---- ---------- ---- ---------- -----
Audubon Orlando, FL 281 296 2 2,902 283 3,198 3,481
Del Tura Fort Meyers, FL 4,360 50,508 77 1,095 4,437 51,603 56,040
Emerald Lake Punta Gorda, FL 399 1,150 - 220 399 1,370 1,769
Fairways Country Club Orlando, FL 955 5,823 8 1,435 963 7,258 8,221
Hidden Valley Orlando, FL 492 5,714 - 7 492 5,721 6,213
Lakeland Harbor Lakeland, FL 875 - 3,251 875 3,251 4,126
Lakeland Junction Lakeland, FL 471 972 1 92 472 1,064 1,536
Lakes at Leesburg Leesburg, FL 1,178 39 3,379 1,217 3,379 4,596
Oak Springs Sorrento, FL 206 1,461 2 263 208 1,724 1,932
Orange Lake Clermont, FL 246 85 1 1,974 247 2,059 2,306
Palm Beach Colony West Palm Beach, FL 691 1,962 - 64 691 2,026 2,717
Pedaler's Pond Lake Wales, FL 350 285 - 2,293 350 2,578 2,928
Winter Haven Oaks Winter Haven, FL 490 705 362 1,303 852 2,008 2,860
------- -------- ------ -------- ------- -------- --------
Florida Subtotal 10,994 68,961 492 18,278 11,486 87,239 98,725
Maple Valley Manteno, IL 338 - 3,887 338 3,887 4,225
Maple Ridge Manteno, IL 126 - 1,450 126 1,450 1,576
------- -------- ------ -------- ------- -------- --------
Illinois Subtotal 464 - - 5,337 464 5,337 5,801
Cimarron Park St. Paul, MN 1,424 12,882 - 23 1,424 12,905 14,329
Cedar Knolls Minneapolis, MN 1,217 11,006 - 23 1,217 11,029 12,246
Rosemount Woods Minneapolis/St. Paul, MN 475 4,297 - 6 475 4,303 4,778
Twenty-Nine Pines St. Paul, MN 317 2,871 - 13 317 2,884 3,201
------- -------- ------ -------- ------- -------- --------
Minnesota Subtotal 3,433 31,056 - 65 3,433 31,121 34,554
Buena Vista Fargo, ND 713 6,248 - 55 713 6,303 7,016
Meadow Park Fargo, ND 133 1,183 - 2 133 1,185 1,318
Columbia Heights Grand Forks, ND 588 5,282 - - 588 5,282 5,870
------- -------- ------ -------- ------- -------- --------
North Dakota Subtotal 1,434 12,713 - 57 1,434 12,770 14,204
------- -------- ------ -------- ------- -------- --------
Joint Venture Properties with ROC - 10,270 - - - 10,270 10,270
------- -------- ------ -------- ------- -------- --------
Joint Venture Subtotal - 10,270 - - - 10,270 10,270
------- -------- ------ -------- ------- -------- --------
Total $27,976 $137,322 $7,856 $127,477 $35,832 $264,799 $300,631
------- -------- ------ -------- ------- -------- --------
------- -------- ------ -------- ------- -------- --------
Date of
Accumulated Construction (C)
Community Depreciation Acquisition (A)
--------- ------------ ----------------
Audubon 1,367 1988(A)
Del Tura 4,711 1994(A)
Emerald Lake 533 1988(A)
Fairways Country Club 4,433 1979(A)(C)
Hidden Valley 293 1995(A)
Lakeland Harbor 1,993 1983(C)
Lakeland Junction 721 1981(C)
Lakes at Leesburg 1,744 1984(C)
Oak Springs 1,172 1981(A)
Orange Lake 805 1988(A)
Palm Beach Colony 584 1983(A)
Pedaler's Pond 930 1990(A)
Winter Haven Oaks 780 1988(A)(C)
-------
Florida Subtotal 20,066
Maple Valley 96 1996(A)
Maple Ridge 36 1996(A)
-------
Illinois Subtotal 132
Cimarron Park 1,208 1994(A)
Cedar Knolls 1,035 1994(A)
Rosemount Woods 393 1994(A)
Twenty-Nine Pines 268 1994(A)
-------
Minnesota Subtotal 2,904
Buena Vista 577 1994(A)
Meadow Park 109 1994(A)
Columbia Heights 484 1994(A)
-------
North Dakota Subtotal 1,170
-------
Joint Venture Properties -
-------
Joint Venture Subtotal -
-------
Total $81,293
-------
-------
F-3
SCHEDULE III
CONTINUED
CHATEAU PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued
---------------------
The changes in total real estate for the years ended December 31, 1996 and 1995
and 1994 are as follows:
1996 1995 1994
-------- -------- --------
Balance, beginning of year $276,423 $266,833 $151,069
Acquisitions 19,531 6,922 113,214
Improvements 4,731 2,670 3,070
Dispositions and other (54) (2) (520)
-------- -------- --------
Balance, end of year $300,631 $276,423 $266,833
-------- -------- --------
-------- -------- --------
The change in accumulated depreciation for the years ended December 31, 1996,
1995 and 1994 are as follows:
1996 1995 1994
-------- -------- --------
Balance, beginning of year $ 69,868 $ 58,856 $ 53,314
Depreciation for the period 11,452 11,014 7,230
Disposition and other (27) (2) (1,688)
-------- -------- --------
Balance, end of year $ 81,293 $ 69,868 $ 58,856
-------- -------- --------
-------- -------- --------
F-4
EXHIBIT
INDEX
Exhibit Number
(Referenced to Item 601 of
Regulation S-K)
Sequential
Page
Exhibit Description Number
------------------- ------
3(i) (a) Chateau Properties, Inc. Articles of
Amendment and Restatement
3(ii) (b) Chateau Properties, Inc. Bylaws
4.1 (b) Form of Stock Certificate
4.2* (c) Note and Mortgage on Del Tura Community
4.3(i) (c) $75,000,000 8-3/4% Global Note dated March 2,
1995 of CP Limited Partnership
4.3(ii) (c) Indenture Agreement dated as of February 1,
1995 between CP Limited Partnership and The First
National Bank of Chicago
4.4 (d) Amended and Restated Loan Agreement dated as
of January 8, 1996 between The Huntington National
Bank and CP Limited Partnership
10.1 (b) Agreement of Limited Partnership of CP Limited
Partnership
10.2 (b) Lease of 19500 Hall Road
10.3 (b) Form of Noncompetition Agreement (Boll and
Allen)
10.4 (b) Employment Agreement (Kellogg)
10.5 (b) Form of Registration Rights Agreement
10.6 (b) Long-Term Incentive Stock Plan
10.7 (b) Profit Sharing Plan
10.8 (b) Form of Ground Lease
10.9 (d) Management Compensation Plan
10.10 (c) Consulting Agreement dated as of November 1,
1994 between Newman, Herfurth and Durand, Inc. and
CP Limited Partnership
10.11 (c) Deferred Compensation Agreement dated as of
November 1, 1994 for the benefit of Graydon K.
Newman, Jr.
21 (d)List of Subsidiaries of Chateau Properties, Inc.
23 Consent of Coopers & Lybrand L.L.P.
99 (e) Company's Schedule 14D-9
41
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 Securities and Exchange
Commission on November 10, 1993 (Commission File No. 33-69150).
(c) 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).
(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 Schedule 14D-9 filed with the
Commission on September 19, 1996.
b. Reports on Form 8-K
No reports were filed on Form 8-K during the last quarter of 1996.
42
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 28th day of March, 1997.
CHATEAU PROPERTIES, 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 27, 1997.
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.
43
/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/ James M. Lane Director
- -------------------------
James M. Lane
/s/ Donald E. Miller Director
- -------------------------
Donald E. Miller
44