UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 33-98136
CHELSEA GCA REALTY PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) | 22-3258100 (I.R.S. employer identification No.) |
103 Eisenhower Parkway, Roseland, New Jersey 07068
(Address of principal executive offices - zip code)
(973) 228-6111
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if the 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 the 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. [x]
There are no outstanding shares of Common Stock or voting securities.
Documents incorporated by reference:
Portions of the definitive Proxy Statement of Chelsea GCA Realty, Inc. relating to its 2000 Annual Meeting of Shareholders are incorporated by reference into Part III as set forth herein.
PART I
Item 1. Business
The Operating Partnership
Chelsea GCA Realty Partnership, L.P., a Delaware limited partnership (the “Operating Partnership” or “OP”), is 82.6% owned and managed by its sole general partner, Chelsea GCA Realty, Inc. (“Chelsea GCA” or the “Company”), a self-administered and self-managed real estate investment trust (“REIT”). The Operating Partnership owns, develops, redevelops, leases, markets and manages upscale and fashion-oriented manufacturers’ outlet centers. At the end of 1999, the OP owned and operated 19 centers (the “Properties”) with approximately 5.2 million square feet of gross leasable area (“GLA”) in 11 states. At December 31, 1999, the Company had approximately 424,000 square feet of wholly-owned new GLA under construction, comprising the 232,000 square foot first phase of Allen Premium Outlets (Allen, Texas – located on US Highway 75 approximately 30 miles north of Dallas), the 104,000 square-foot third phase of Leesburg Corner and expansions totaling 88,000 square feet at two centers; these openings and expansions are part of a total of approximately 550,000 square feet of wholly-owned new space scheduled for completion in 2000. Additionally, construction is underway on Orlando Premium Outlets (“OPO”), a 430,000 square-foot upscale outlet center located on Interstate 4 midway between Walt Disney World/EPCOT and Sea World in Orlando, Florida and phase one of Gotemba Premium Outlets (“GPO”) a 220,000 square foot center located in Gotemba, outside of Tokyo, Japan. OPO is a joint venture project between the Company and Simon Property Group, Inc. (“Simon”) and is scheduled to open as a single phase in mid-2000. GPO is a joint venture project 40% owned by the Company and 30% each by Mitsubishi Estate Co., Ltd. and Nissho Iwai Corporation, and is scheduled to open mid-2000. The Company’s existing portfolio includes properties in or near New York City, Los Angeles, San Francisco, Sacramento, Boston, Portland (Oregon), Atlanta, Washington DC, Cleveland, Honolulu, Napa Valley, Palm Springs and the Monterey Peninsula.
The Operating Partnership’s executive offices are located at 103 Eisenhower Parkway, Roseland, New Jersey 07068 (telephone 973-228-6111).
Recent Developments
Between January 1, 1999 and December 31, 1999, the OP added 340,000 square feet of GLA to its portfolio as a result of four expansions.
A summary of expansion activity from January 1, 1999 through December 31, 1999 is contained below:
Opening GLA Number
Property Date(s) (Sq. Ft.) of Stores Tenants(1)
- -------- ------------ -------------- -----------
As of January 1, 1999 4,876,000 1,282
Expansions:
Wrentham Village 5/99 120,000 35 Banana Republic, Guess,
Eddie Bauer, Zales
North Georgia 9-12/99 103,000 26 Banana Republic, Lego, Nike, Zales
Leesburg Corner 11/99 55,000 15 Adidas, Bose, Cole-Haan, Movado,
Williams-Sonoma
Camarillo Premium
Outlets 11/99 45,000 9 Banana Republic, Coach, Polo Ralph
Lauren, Tommy Hilfiger
Other (net) 17,000 (3)
-------------- -----------
Total expansions 340,000 82
-------------- -----------
As of December 31, 1999 5,216,000 1,364
============== ===========
(1) consists of the largest tenants who lease more than 5,000 square feet of GLA
and have estimated sales of more than $377 per square foot, which was the
weighted average sales generated by the Company's tenants in 1999. Most tenants
pay a fixed base rent based on the square feet leased by them and also pay a
percentage rent based on sales
The most recent newly developed or expanded centers are discussed below:
Wrentham Village Premium Outlets, Wrentham, Massachusetts. Wrentham Village Premium Outlets, a 473,000 square foot center containing 125 stores, opened in three phases in October 1997, May 1998 and May 1999. The center is located near the junction of Interstates 95 and 495 between Boston and Providence. The populations within a 30-mile, 60-mile and 100-mile radius are approximately 3.9 million, 6.9 million and 10.3 million, respectively. Average household income within a 30-mile radius is approximately $52,000.
North Georgia Premium Outlets, Dawsonville, Georgia. North Georgia Premium Outlets, a 537,000 square foot center containing 135 stores, opened in four phases, in May 1996, May 1997, October 1998 and September 1999. The center is located 40 miles north of Atlanta on Georgia State Highway 400 bordering Lake Lanier, at the gateway to the North Georgia mountains. The populations within a 30-mile, 60-mile and 100-mile radius are approximately 700,000, 3.6 million and 5.8 million, respectively. Average household income within a 30-mile radius is approximately $55,000.
Leesburg Corner Premium Outlets, Leesburg, Virginia.Leesburg Corner Premium Outlets, a 325,000 square foot center containing 73 stores, opened in two phases, in October 1998 and November 1999. The center is located 35 miles northwest of Washington, DC at the intersection of Routes 7 and 15. The populations within a 30-mile, 60-mile and 100-mile radius are approximately 2.4 million, 7.1 million and 9.8 million, respectively. Average household income within a 30-mile radius is approximately $78,000.
Camarillo Premium Outlets, Camarillo, California. Camarillo Premium Outlets, a 454,000 square foot center containing 124 stores, opened in eight phases, from March 1995 through November 1999. The center is located 48 miles north of Los Angeles, about 55 miles south of Santa Barbara on Highway 101. The populations within a 30-mile, 60-mile and 100-mile radius are approximately 1.1 million, 8.3 million and 14.6 million, respectively. Average household income within a 30-mile radius is approximately $66,000.
The OP has started construction on approximately 424,000 square feet of wholly-owned new GLA scheduled for completion in 2000, including the 232,000 square foot first phase of Allen Premium Outlets, the 104,000 square foot third phase of Leesburg Corner and expansions totaling 88,000 square feet at two centers. In addition construction is well underway on two joint venture projects, Orlando Premium Outlets, a 430,000 square foot center located in Orlando, Florida and the 220,000 square foot first phase of Gotemba Premium Outlets, located outside Tokyo, Japan. These projects, and others, are in various stages of development and there can be no assurance they will be completed or opened, or that there will not be delays in opening or completion.
Strategic Alliance and Joint Ventures
In June 1999, the OP signed a definitive agreement with Mitsubishi Estate Co., Ltd. and Nissho Iwai Corporation to jointly develop, own and operate premium outlet centers in Japan. The joint venture, known as Chelsea Japan Co., Ltd. (“Chelsea Japan”) is developing its initial project in the city of Gotemba. In conjunction with the agreement, the OP contributed $1.7 million in equity. In addition, an equity investee of the OP entered into a 4 billion yen (US $40 million) line of credit guaranteed by the Company and OP to fund its share of construction costs. At December 31, 1999, no amounts were outstanding under the loan. In December 1999, construction began on the 220,000 square-foot first phase of Gotemba Premium Outlets with opening scheduled for mid-2000. Gotemba is located on the Tomei Expressway, approximately 60 miles west of Tokyo and midway between Mt. Fuji and the Hakone resort area. Subject to governmental and other approvals, Chelsea Japan also expects to announce during the next quarter a project outside Osaka, the second-largest city in Japan, to open in late 2000.
In May 1997, the OP announced the formation of a strategic alliance with Simon to develop and acquire high-end outlet centers with GLA of 500,000 square feet or more in the United States. The OP and Simon are co-managing general partners, each with 50% ownership of the joint venture and any entities formed with respect to specific projects; the OP will have primary responsibility for the day-to-day activities of each project. In conjunction with the alliance, on June 16, 1997, the OP completed the sale of 1.4 million shares of common stock to Simon for an aggregate price of $50 million. Proceeds from the sale were used to repay borrowings under the Credit Facilities. Simon is one of the largest publicly traded real estate companies in North America as measured by market capitalization, and at February 2000 owned, had an interest in and/or managed approximately 184 million square feet of retail and mixed-use properties in 36 states.
The OP announced in October 1998 that it sold its interest in and terminated the development of Houston Premium Outlets, a joint venture project with Simon. Under the terms of the agreement, the OP will receive non-compete payments totaling $21.4 million from The Mills Corporation; $3.0 million was received at closing, and four annual installments of $4.6 million are to be received on each January 2, through 2002. The OP has also been reimbursed for its share of land costs, development costs and fees related to the project.
Construction is underway on Orlando Premium Outlets (“OPO”), a 430,000 square-foot upscale outlet center located on Interstate 4 midway between Walt Disney World/EPCOT and Sea World in Orlando, Florida. OPO is a joint venture project between the OP and Simon and is scheduled to open as a single phase in mid-2000. In February 1999, the joint venture entered into a $82.5 million construction loan agreement that is expected to fund approximately 75% of the project costs. The loan is 50% guaranteed by each of the OP and Simon and as of December 31, 1999, $20.8 million was outstanding.
Organization of the Operating Partnership
The Operating Partnership was formed through the merger in 1993 of The Chelsea Group (“Chelsea”) and Ginsburg Craig Associates (“GCA”), two leading outlet center development companies, providing for greater access to the public and private capital markets. Virtually all of the Properties are held by and all of its business activities conducted through the Operating Partnership. The Company (which owned 82.6% in the Operating Partnership as of December 31, 1999) is the sole general partner of the Operating Partnership and has full and complete control over the management of the Operating Partnership and each of the Properties, excluding joint ventures.
The Manufacturers’ Outlet Business
Manufacturers’ outlets are manufacturer-operated retail stores that sell primarily first-quality, branded goods at significant discounts from regular department and specialty store prices. Manufacturers’ outlet centers offer numerous advantages to both consumer and manufacturer: by eliminating the third party retailer, manufacturers are often able to charge customers lower prices for brand name and designer merchandise; manufacturers benefit by being able to sell first quality in-season, as well as out-of-season, overstocked or discontinued merchandise without compromising their relationships with department stores or hampering the manufacturers’ brand name. In addition, outlet stores enable manufacturers to optimize the size of production runs while maintaining control of their distribution channels.
Business of the Operating Partnership
The OP believes its strong tenant relationships, high-quality property portfolio and managerial expertise give it significant advantages in the manufacturers’ outlet business.
Strong Tenant Relationships. The OP maintains strong tenant relationships with high-fashion, upscale manufacturers that have a selective presence in the outlet industry, such as Armani, Brooks Brothers, Cole Haan, Donna Karan, Gap/Banana Republic, Gucci, Jones New York, Nautica, Polo Ralph Lauren, Tommy Hilfiger and Versace, as well as with national brand-name manufacturers such as Adidas, Carter’s, Nike, Phillips-Van Heusen (Bass, Izod, Gant, Van Heusen), Timberland and Sara Lee (Champion, Hanes, Coach Leather). The OP believes that its ability to draw from both groups is an important factor in providing broad customer appeal and higher tenant sales.
High Quality Property Portfolio. The Properties generated weighted average reported tenant sales during 1999 of $377 per square foot, among the three publicly traded outlet companies . As a result, the OP has been successful in attracting some of the world’s most sought-after brand-name designers, manufacturers and retailers and each year has added new names to the outlet business and its centers. The OP believes that the quality of its centers gives it significant advantages in attracting customers and negotiating multi-lease transactions with tenants.
Management Expertise. The OP believes it has a competitive advantage in the manufacturers’ outlet business as a result of its experience in the business, long-standing relationships with tenants and expertise in the development and operation of manufacturers’ outlet centers. Management developed a number of the earliest and most successful outlet centers in the industry, including Liberty Village (one of the first manufacturers’ outlet centers in the U.S.) in 1981, Woodbury Common in 1985, and Desert Hills and Aurora Farms in 1990. Since the IPO, the OP has added significantly to its senior management in the areas of development, leasing and property management without increasing general and administrative expenses as a percentage of total revenues; additionally, the OP intends to continue to invest in systems and controls to support the planning, coordination and monitoring of its activities.
Growth Strategy
The OP seeks growth through increasing rents in its existing centers; developing new centers and expanding existing centers; and acquiring and re-developing centers.
Increasing Rents at Existing Centers. The OP’s leasing strategy includes aggressively marketing available space and maintaining a high level of occupancy; providing for inflation-based contractual rent increases or periodic fixed contractual rent increases in substantially all leases; renewing leases at higher base rents per square foot; re-tenanting space occupied by underperforming tenants; and continuing to sign leases that provide for percentage rents.
Developing New Centers and Expanding Existing Centers. The OP believes that there continue to be significant opportunities to develop manufacturers’ outlet centers across the United States. The OP intends to undertake such development selectively, and believes that it will have a competitive advantage in doing so as a result of its development expertise, tenant relationships and access to capital. The OP expects that the development of new centers and the expansion of existing centers will continue to be a substantial part of its growth strategy. The OP believes that its development experience and strong tenant relationships enable it to determine site viability on a timely and cost-effective basis. However, there can be no assurance that any development or expansion projects will be commenced or completed as scheduled.
Acquiring and Redeveloping Centers. The OP intends to selectively acquire individual properties and portfolios of properties that meet its strategic investment criteria as suitable opportunities arise. The OP believes that its extensive experience in the outlet center business, access to capital markets, familiarity with real estate markets and advanced management systems will allow it to evaluate and execute acquisitions competitively. Furthermore, management believes that the OP will be able to enhance the operation of acquired properties as a result of its (i) strong tenant relationships with both national and upscale fashion retailers; and (ii) development, marketing and management expertise as a full-service real estate organization. Additionally, the OP may be able to acquire properties on a tax-advantaged basis through the issuance of Operating Partnership units. However, there can be no assurance that any acquisitions will be consummated or, if consummated, will result in an advantageous return on investment for the OP.
International Development.The OP intends to develop, own and operate premium outlet centers in Japan through its joint venture OP, Chelsea Japan Co., Ltd. Chelsea Japan is currently developing its first outlet center in Gotemba, located outside Tokyo, and is seeking governmental approval on another site outside Osaka, Japan. The OP believes that there are significant opportunities to develop manufacturers’ outlet centers in Japan and intends to pursue these opportunities as viable sites are identified.
The OP has minority interests ranging from 5 to 15% in several outlet centers and outlet development projects in Europe. Two outlet centers, Bicester Village outside of London, England and La Roca Company Stores outside of Barcelona, Spain, are currently open and operated by Value Retail PLC and its affiliates. Three new European projects and expansions of the two existing centers are in various stages of development and are expected to open within the next two years. The OP’s total investment in Europe as of February 2000 is approximately $4.5 million. The OP has also agreed to provide up to $22 million in limited debt service guarantees under a standby facility for loans arranged by Value Retail PLC to construct outlet centers in Europe. The term of the standby facility is three years and guarantees shall not be outstanding for longer than five years after project completion. As of February 2000, the OP has provided limited debt service guarantees of approximately $20 million for three projects.
Operating Strategy
The OP’s primary business objective is to enhance the value of its properties and operations by increasing cash flow. The OP plans to achieve these objectives through continuing efforts to improve tenant sales and profitability, and to enhance the opportunity for higher base and percentage rents.
Leasing. The OP pursues an active leasing strategy through long-standing relationships with a broad range of tenants including manufacturers of men’s, women’s and children’s ready-to-wear, lifestyle apparel, footwear, accessories, tableware, housewares, linens and domestic goods. Key tenants are placed in strategic locations to draw customers into each center and to encourage shopping at more than one store. The OP continually monitors tenant mix, store size, store location and sales performance, and works with tenants to improve each center through re-sizing, re-location and joint promotion.
Market and Site Selection. To ensure a sound long-term customer base, the OP generally seeks to develop sites near densely-populated, high-income metropolitan areas, and/or at or near major tourist destinations. While these areas typically impose numerous restrictions on development and require compliance with complex entitlement and regulatory processes, the OP believes that these areas provide the most attractive long-term demographic characteristics. The OP generally seeks to develop sites that can support at least 400,000 square feet of GLA and that offer the long-term opportunity to dominate their respective markets through a critical mass of tenants.
Marketing. The OP pursues an active, property-specific marketing strategy using a variety of media including newspapers, television, radio, billboards, regional magazines, guide books and direct mailings. The centers are marketed to tour groups, conventions and corporations; additionally, each property participates in joint destination marketing efforts with other area attractions and accommodations. Virtually all consumer marketing expenses incurred by the OP are reimbursable by tenants.
Property Design and Management. The OP believes that effective property design and management are significant factors in the success of its properties and works continually to maintain or enhance each center’s physical plant, original architectural theme and high level of on-site services. Each property is designed to be compatible with its environment and is maintained to high standards of aesthetics, ambiance and cleanliness in order to promote longer visits and repeat visits by shoppers. Of the OP’s 388 full-time and 99 part-time employees, 286 full-time and 97 part-time employees are involved in on-site maintenance, security, administration and marketing. Centers are generally managed by an on-site property manager with oversight from a regional operations director.
Financing
The OP seeks to maintain a strong, flexible financial position by: (i) maintaining a conservative level of leverage, (ii) extending and sequencing debt maturity dates, (iii) managing floating interest rate exposure and (iv) maintaining liquidity. Management believes these strategies will enable the OP to access a broad array of capital sources, including bank or institutional borrowings, secured and unsecured debt and equity offerings.
On September 3, 1999, the OP completed a private sale of $65 million of Series B Cumulative Redeemable Preferred Units (“Preferred Units”) to an institutional investor. The private placement took the form of 1.3 million Preferred Units at a stated value of $50 each. The Preferred Units may be called at par on or after September 3, 2004, have no stated maturity or mandatory redemption and pay a cumulative quarterly dividend at an annualized rate of 9.0%. The Preferred Units are exchangeable into Series B Cumulative Redeemable Preferred Stock of the Company after ten years. Proceeds from the sale were used to pay down borrowings under the Senior Credit Facility.
In November 1998, the OP obtained a $60 million term loan that expires April 2000 and bears interest at a rate of London Interbank Offered Rate (LIBOR) plus 1.40% (7.53% at December 31, 1999). Proceeds from the loan were used to pay down borrowings under the Senior Credit Facility. The OP is currently exploring several refinancing alternatives including an extension or payoff of this loan.
On March 30, 1998, the OP replaced its two unsecured bank revolving lines of credit, totaling $150 million (the “Credit Facilities”), with a $160 million senior unsecured bank line of credit (the “Senior Credit Facility”). The Senior Credit Facility expires on March 30, 2002 and the OP has an annual right to request a one-year extension of the Senior Credit Facility which may be granted at the option of the lenders. The OP has requested and expects approval to extend the Facility until March 30, 2003. The Facility bears interest on the outstanding balance, payable monthly, at a rate equal of LIBOR plus 1.05% (7.24% at December 31, 1999) or the prime rate, at the OP’s option. The LIBOR rate spread ranges from 0.85% to 1.25% depending on the OP’s Senior Debt rating. A fee on the unused portion of the Senior Credit Facility is payable quarterly at rates ranging from 0.15% to 0.25% depending on the balance outstanding. At December 31, 1999, $94 million was available under the Senior Credit Facility.
Also on March 30, 1998, the OP entered into a $5 million term loan (the “Term Loan”) which carries the same interest rate and maturity as the Senior Credit Facility. The Lender has credit committee approval to extend the Term Loan to March 30, 2003.
In October 1997, the OP completed a $125 million offering of 7.25% unsecured term notes due October 2007 (the “7.25% Notes”). The 7.25% Notes were priced to yield 7.29% to investors. Net proceeds from the offering were used to repay substantially all borrowings under the OP’s Credit Facilities, redeem $40 million of Reset Notes and for general corporate purposes.
In October 1997, the Company issued 1.0 million shares of non-voting 8.375% Series A Cumulative Redeemable Preferred Stock (the “Preferred Stock”), par value $0.01 per share, with a liquidation preference of $50.00 per share. The Preferred Stock has no stated maturity and is not convertible into any other securities of the OP. The Preferred Stock is redeemable on or after October 15, 2027 at the OP’s option. Net proceeds from the offering were used to repay borrowings under the OP’s Credit Facilities.
In January 1996, the OP completed a $100 million offering of 7.75% unsecured term notes due January 2001 (the “7.75% Notes”), which are guaranteed by the OP. The five-year non-callable 7.75% Notes were priced to yield 7.85% to investors.
Competition
The Properties compete for retail consumer spending on the basis of the diverse mix of retail merchandising and value oriented pricing. Manufacturers’ outlet centers have established a niche capitalizing on consumers’ desire for value-priced goods. The Properties compete for customer spending with other outlet locations, traditional shopping malls, off-price retailers, and other retail distribution channels. The OP believes that the Properties generally are the leading manufacturers’ outlet centers in each market. The OP carefully considers the degree of existing and planned competition in each proposed market before deciding to build a new center.
Environmental Matters
The OP is not aware of any environmental liabilities relating to the Properties that would have a material impact on the OP’s financial position and results of operations.
Personnel
As of December 31, 1999, the OP had 388 full-time and 99 part-time employees. None of the employees are subject to any collective bargaining agreements, and the OP believes it has good relations with its employees.
Item 2. Properties
The Properties are upscale, fashion-oriented manufacturers’ outlet centers located near large metropolitan areas, including New York City, Los Angeles, San Francisco, Boston, Washington DC, Atlanta, Sacramento, Portland (Oregon), and Cleveland, or at or near tourists destinations, including Honolulu, Napa Valley, Palm Springs and the Monterey Peninsula. The Properties were 99% leased as of December 31, 1999 and contained approximately 1,400 stores with approximately 450 different tenants. During 1999 and 1998, the Properties generated weighted average tenant sales of $377 and $360 per square foot, respectively. As of December 31, 1999, the OP had 19 operating outlet centers. Of the 19 operating centers, 18 are owned 100% in fee; and one, American Tin Cannery Premium Outlets, is held under a long-term lease expiring December 2004. The OP manages all of its Properties.
Approximately 34% and 35% of the OP’s revenues for the years ended December 31, 1999 and 1998, respectively, were derived from the OP’s two centers with the highest revenues, Woodbury Common Premium Outlets and Desert Hills Premium Outlets. The loss of either center or a material decrease in revenues from either center for any reason might have a material adverse effect on the OP. In addition, approximately 30% and 34% of the OP’s revenues for the years ended December 31, 1999 and 1998, respectively, were derived from the OP’s centers in California, including Desert Hills.
Additionally, Woodbury Common Premium Outlets and Desert Hills Premium Outlets either contributed 10% or more of the OP’s aggregate gross revenues during 1999 or had a book value equal to 10% or more of the total assets of the OP at year-end 1999. No tenant at these centers leases more than 10% of such center’s GLA. The following chart shows certain information for these centers.
Woodbury Common Desert Hills
Premium Outlets Premium Outlets
Average Avg. Annual Average Avg. Annual
Fiscal Occupancy Rent Occupancy Rent
Year Rate Per sq.ft. Rate Per sq.ft.
- ----
--------------- --------------- --------------- ---------------
1995........................ 99.7% $25.97 99.0% $21.48
1996........................ 100.0 27.74 100.0 22.16
1997........................ 98.8 31.42 100.0 23.37
1998........................ 100.0 33.16 100.0 24.74
1999........................ 99.5 35.61 100.0 26.26
Woodbury Common Premium Outlets opened in four phases in 1985, 1993, 1995 and 1998 and contains 841,000 square feet of GLA. As of June 30, 2000, the center was leased to 214 tenants. Woodbury Common is located approximately 50 miles north of New York City at the Harriman exit of the New York State Thruway. The populations within a 30-mile, 60-mile and 100-mile radius are approximately 2.5 million, 17.3 million and 25.2 million, respectively. Average household income within the 30-mile radius is approximately $83,000.
Desert Hills Premium Outlets is located on Interstate 10, 16 miles west of Palm Springs, and 75 miles east of Los Angeles. The property opened in three phases in 1990, 1995 and 1997 and contains 475,000 square feet of GLA. As of June 30, 2000, the center was leased to 121 tenants. The center serves the population of southern California as well as tourists. The populations within a 30-mile, 60-mile and 100-mile radius total approximately 1.0 million, 4.8 million and 17.5 million, respectively. Average annual household income within the 30-mile radius is approximately $50,000.
The following tables show lease expiration data as of June 30, 2000 for Woodbury Common Premium Outlets and Desert Hills Premium Outlets for the next ten years (assuming that none of the tenants exercise renewal options).
Woodbury Common Premium Outlets
% of Annual
Contractual No. of "CBR"
Base Rents ("CBR") Leases Represented by
Expiration Year GLA Per Sq. Ft. Total Expiring Expiring Leases
------------ ------------ -------------- ----------- -------------------
2000................. 42,608 $21.85 $931,153 11 3.6%
2001................. 43,673 34.90 1,524,284 13 5.9
2002................. 45,280 25.50 1,154,555 13 4.4
2003................. 293,989 31.22 9,178,313 70 35.4
2004................. 39,589 32.58 1,289,768 12 5.0
2005................. 102,511 35.06 3,593,710 26 13.8
2006................. 17,066 37.50 639,930 8 2.5
2007................. 32,997 39.36 1,298,868 11 5.0
2008................. 111,795 34.00 3,801,135 23 14.6
2009................. 41,956 40.09 1,682,110 14 6.5
Desert Hills Premium Outlets
% of Annual
Contractual No. of "CBR"
Base Rents ("CBR") Leases Represented by
Expiration Year GLA Per Sq. Ft. Total Expiring Expiring Leases
------------ -------------- -------------- --------- ---------------
2000................. 44,344 $21.29 $944,079 17 9.1%
2001................. 40,159 23.13 928,731 10 8.9
2002................. 94,326 24.37 2,298,613 27 22.1
2003................. 38,468 23.33 897,357 11 8.6
2004................. 55,314 19.28 1,066,648 8 10.3
2005................. 105,263 22.24 2,341,108 28 22.5
2006................. 20,985 24.77 519,786 4 5.0
2007................. 18,790 20.12 378,138 5 3.6
2008................. 7,724 33.82 261,238 3 2.5
2009................. 12,057 45.15 544,361 5 5.2
Depreciation on Woodbury Common Premium Outlets and Desert Hills Premium Outlets is calculated using the straight line method over the estimated useful life of the real property and land improvements which ranges from 10 to 40 years. At December 31, 1999, the Federal tax basis in these centers was as follows: Woodbury Common Premium Outlets - $129,508,887 and Desert Hills Premium Outlets - $55,340,210.
The realty tax rate on the above centers is approximately $4.73 per $100 of assessed value for Woodbury Common Premium Outlets and $1.16 per $100 of assessed value for Desert Hills Premium Outlets. Estimated 2000 taxes for these centers are as follows: $3,270,000 for Woodbury Common Premium Outlets and $907,000 for Desert Hills Premium Outlets.
The OP believes the Properties are adequately covered by insurance.
The OP does not consider any single store lease to be material; no individual tenant, combining all of its store concepts, accounts for more than 5% of the OP’s gross revenues or total GLA; and only two tenants occupy more than 4% of the OP’s total GLA. As a result, and considering the OP’s past success in re-leasing available space, the OP believes the loss of any individual tenant would not have a significant effect on future operations.
Set forth in the table below is certain property information as of December 31,1999:
Year GLA No. of
Name/Location Opened (Sq. Ft.) Stores Tenants
--------- ---------- --------- --------------------------------------------
Woodbury Common 1985 841,000 213 Brooks Brothers, Calvin Klein, Coach
Central Valley, NY Leather, Gap, Gucci, Last Call Neiman
(New York City Marcus, Polo Ralph Lauren
metro area)
North Georgia 1996 537,000 135 Brooks Brothers, Donna Karan, Gap,
Dawsonville, GA (Atlanta Nautica, Off 5th-Saks Fifth Avenue,
metro area) Williams-Sonoma
Desert Hills 1990 475,000 120 Burberry, Coach Leather, Giorgio
Cabazon, CA (Palm Springs- Armani, Gucci, Nautica, Polo Ralph
Los Angeles area) Lauren, Tommy Hilfiger
Wrentham Village 1997 473,000 125 Brooks Brothers, Calvin Klein, Donna
Wrentham, MA (Boston/ Karan, Gap, Polo Jeans Co., Sony,
Providence metro Versace
area)
Camarillo Premium Outlets 1995 454,000 124 Ann Taylor, Barneys New York, Bose,
Camarillo, CA (Los Angeles Cole-Haan, Donna Karan, Jones NY,
metro area) Off 5th-Saks Fifth Avenue
Leesburg Corner 1998 325,000 73 Banana Republic, Brooks Brothers,
Leesburg, VA (Washington Gap, Donna Karan, Off 5th-Saks Fifth
DC area) Avenue
Aurora Premium Outlets 1987 297,000 69 Ann Taylor, Bose, Brooks Brothers,
Aurora, OH (Cleveland Carters, Liz Claiborne, Nautica, Off
metro area) 5th-Saks Fifth Avenue
Clinton Crossing 1996 272,000 67 Coach Leather, Crate & Barrel, Donna
Clinton, CT (I-95/NY-New Karan, Gap, Off 5th-Saks Fifth Avenue,
England corridor) Polo Ralph Lauren
Folsom Premium Outlets 1990 246,000 68 Bass, Donna Karan, Gap, Liz Claiborne,
Folsom, CA (Sacramento Nike, Off 5th-Saks Fifth Avenue
metro area)
Waikele Premium Outlets (1) 1997 214,000 52 Barneys New York, Bose, Donna Karan, Guess,
Waipahu, HI (Honolulu area) Polo Jeans Co., Off 5th-Saks Fifth Avenue
Petaluma Village 1994 196,000 51 Ann Taylor, Bose, Brooks Brothers, Donna
Petaluma, CA (San Francisco Karan, Off 5th-Saks Fifth Avenue
metro area)
Napa Premium Outlets 1994 171,000 48 Cole-Haan, Dansk, Ellen Tracy, Esprit, J.
Napa, CA (Napa Valley) Crew, Nautica, Timberland, TSE Cashmere
Columbia Gorge 1991 164,000 44 Adidas, Carter's, Gap, Harry & David,
Troutdale, OR (Portland Mikasa
metro area)
Liberty Village 1981 157,000 56 Calvin Klein, Donna Karan, Ellen Tracy,
Flemington, NJ (New York- Polo Ralph Lauren, Tommy Hilfiger
Phila. metro area)
American Tin Cannery 1987 135,000 48 Anne Klein, Bass, Carole Little, Nine West,
Pacific Grove, CA (Monterey Reebok, Totes
Peninsula)
Santa Fe Premium Outlets 1993 125,000 40 Brooks Brothers, Coach Leather, Donna
Santa Fe, NM Karan, Liz Claiborne, Nine West
Patriot Plaza 1986 76,000 11 Lenox, Polo Ralph Lauren, WestPoint Stevens
Williamsburg, VA (Norfolk-
Richmond area)
Mammoth Premium Outlets 1990 35,000 11 Bass, Polo Ralph Lauren
Mammoth Lakes, CA (Yosemite
National Park)
St. Helena Premium Outlets 1992 23,000 9 Brooks Brothers, Coach Leather, Donna
St. Helena, CA (Napa Valley) Karan, Joan & David
---------- ---------
Total 5,216,000 1,364
========== =========
(1) Acquired in March 1997
The OP rents approximately 27,000 square feet of office space in its headquarters facility in Roseland, New Jersey and approximately 4,000 square feet of office space for its west coast regional development office in Newport Beach, California.
Item 3. Legal Proceedings
The OP is not presently involved in any material litigation other than routine litigation arising in the ordinary course of business and that is either expected to be covered by liability insurance or to have no material impact on the OP’s financial position and results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant’s Common Stock and Related Security Matters
None.
Item 6: Selected Financial Data
Chelsea GCA Realty Partnership, L.P.
(In thousands except per unit, and number of centers)
Year Ended
December 31,
-------------------------------------------------
Operating Data: 1999 1998 1997 1996 1995
-------- --------- -------- ------- --------
Rental revenue..................................... $114,485 $99,976 $81,531 $63,792 $51,361
Total revenues..................................... 162,926 139,315 113,417 91,356 72,515
Loss on writedown of assets........................ 694 15,713 - - -
Total expenses..................................... 115,370 113,879 78,262 59,996 41,814
Income before minority interest
and extraordinary item......................... 47,556 25,436 35,155 31,360 29,650
Minority interest.................................. - - (127) (257) (285)
Income before extraordinary item................... 47,556 25,436 35,028 31,103 29,365
Extraordinary item - loss on retirement of debt.... - (345) (252) (902) -
Net income......................................... 47,556 25,091 34,776 30,201 29,365
Preferred distribution............................. (6,137) (4,188) (907) - -
Net income to common unitholders................... $41,419 $20,903 $33,869 $30,201 $29,365
Net income per common unit:
General partner (including $0.02 and $0.01 net
loss per unit from extraordinary item
in 1998 and 1997, respectively)................ $2.17 $1.11 $1.88 $1.77 $1.75
Limited partner (including $0.02 and $0.01 net
loss per unit from extraordinary item
in 1998 and 1997, respectively)................ $2.16 $1.09 $1.87 $1.76 $1.75
Ownership Interest:
General partner.................................... 15,742 15,440 14,605 11,802 11,188
Limited partners................................... 3,389 3,431 3,435 5,316 5,601
-------- --------- -------- ------- -------
Weighted average units outstanding................. 19,131 18,871 18,040 17,118 16,789
Balance Sheet Data:
Rental properties before accumulated
depreciation................................... $848,813 $792,726 $708,933 $512,354 $415,983
Total assets....................................... 806,055 773,352 688,029 502,212 408,053
Total liabilities ................................ 426,198 450,410 342,106 240,878 141,577
Minority interest.................................. - - - 5,698 5,441
Partners' capital.................................. 379,857 322,942 345,923 255,636 261,035
Distributions declared per common unit............. $2.88 $2.76 $2.58 $2.355 $2.135
Other Data:
Funds from operations to common unitholders (1) $79,980 $67,994 $57,417 $48,616 $41,870
Cash flows from:
Operating activities............................ $87,590 $78,731 $56,594 $53,510 $36,797
Investing activities............................ (77,578) (119,807) (199,250) (99,568) (82,393)
Financing activities............................ (10,781) 36,169 143,308 55,957 40,474
GLA at end of period............................... 5,216 4,876 4,308 3,610 2,934
Weighted average GLA (2)........................... 4,995 4,614 3,935 3,255 2,680
Centers at end of the period....................... 19 19 20 18 16
New centers opened................................. - 1 1 2 1
Centers expanded................................... 4 7 5 5 7
Center sold........................................ 1 - - - 1
Centers held for sale.............................. 1 2 - - -
Center acquired.................................... - - 1 - -
Notes to Selected Financial Data:
| (1) | The OP believes that FFO is helpful to investors as a measure of the performance of an equity REIT because, along with cash flow from operating activities, financing activities and investing activities, it provides investors with an indication of the ability of the OP to incur and service debt, to make capital expenditures and to fund other cash needs. The OP computes FFO in accordance with the current standards established by NAREIT which may not be comparable to FFO reported by other REIT's that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than the OP. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of the OP's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the OP's liquidity, nor is it indicative of funds available to fund the OP's cash needs, including its ability to make cash distributions. See Management's Discussion and Analysis for definition of FFO. |
| (2) | GLA weighted by months in operation. |
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in connection with the financial statements and notes thereto appearing elsewhere in this annual report.
Certain comparisons between periods have been made on a percentage or weighted average per square foot basis. The latter technique adjusts for square footage changes at different times during the year.
General Overview
At December 31, 1999 and 1998, the OP operated 19 manufacturers’ outlet centers, compared to 20 at the end of 1997. The OP’s operating gross leasable area (“GLA”) at December 31, 1999 was 5.2 million square feet compared to 4.9 million square feet and 4.3 million square feet at December 31, 1998 and 1997, respectively.
From January 1, 1997 to December 31, 1999, the OP grew by increasing rents at its operating centers, opening two new centers, acquiring one center and expanding nine centers. Increasing rents at operating centers resulted in base and percentage rent revenue growth of $13.8 million. The opening of two new centers, acquisition of one center and expansion of nine centers increased base and percentage rent revenues by $10.6 million, $6.3 million and $20.0 million, respectively during the three year period ended December 31, 1999. The 1.6 million square feet (“sf”) of net GLA added during the period is detailed as follows:
Since
January 1,
1997 1999 1998 1997
----- ----- ---- ----
Changes in GLA (sf in 000's):
New centers developed:
Leesburg Corner 270 - 270 -
Wrentham Village 227 - - 227
-------- -------- -------- -------
Total new centers 497 - 270 227
Centers expanded:
Wrentham Village 246 120 126 -
North Georgia 245 103 31 111
Leesburg Corner 55 55 - -
Camarillo Premium Outlets 175 45 45 85
Woodbury Common 268 - 268 -
Folsom Premium Outlets 34 - 19 15
Columbia Gorge 16 - 16 -
Desert Hills 42 - 6 36
Liberty Village 12 - - 12
Other - 17 (15) (2)
-------- -------- -------- -------
Total centers expanded 1,093 340 496 257
Centers held for sale:
Solvang Designer Outlets (52) - (52) -
Lawrence Riverfront (146) - (146) -
-------- -------- -------- -------
(198) - (198) -
Center acquired:
Waikele Premium Outlets 214 - - 214
-------- -------- -------- -------
Net GLA added during the period 1,606 340 568 698
Other Data:
GLA at end of period 5,216 4,876 4,308
Weighted average GLA (1) 4,995 4,614 3,935
Centers in operation at end
of period 19 19 20
New centers opened - 1 1
Centers expanded 4 7 5
Centers sold 1 - -
Centers held for sale 1 2 -
Center acquired - - 1
Note: (1) Average GLA weighted by months in operation
The OP's centers produced weighted average reported tenant sales of approximately $377 per square foot in 1999 and $360 per square foot in 1998 and 1997. Weighted average sales is a measure of tenant performance that has a direct effect on base and percentage rents that can be charged to tenants over time.
Two of the OP's centers, Woodbury Common and Desert Hills, generated approximately 34%, 35% and 34% of the OP's total revenue for the years 1999, 1998 and 1997, respectively. In addition, approximately 30%, 34%, and 38% of the OP's revenues for the years ended December 31, 1999, 1998 and 1997, respectively, were derived from the OP's centers in California, including Desert Hills.
The OP does not consider any single store lease to be material; no individual tenant, combining all of its store concepts, accounts for more than 5% of the OP's gross revenues or total GLA; and only two tenants occupy more than 4% of the OP's total GLA. In view of these statistics and the OP's past success in re-leasing available space, the OP believes the loss of any individual tenant would not have a significant effect on future operations.
The discussion below is based upon operating income before minority interest and extraordinary item. The minority interest in net income varies from period to period as a result of changes in the OP's 50% investment in Solvang prior to June 30, 1997.
Comparison of year ended December 31, 1999 to year ended December 31, 1998
Operating income before interest, depreciation and amortization increased $18.6 million, or 19.8%, to $112.2 million in 1999 from $93.6 million in 1998. This increase was primarily the result of expansions and a new center opening during 1999 and 1998. Income from operations increased $7.1 million or 17.3% to $48.3 million in 1999 from $41.2 million in 1998. Increased revenues from expansions and a new center opening during 1999 and 1998 were offset by higher interest costs.
Base rentals increased $12.2 million, or 14.1%, to $98.8 million in 1999 from $86.6 million in 1998 due to expansions, a new center opening in 1998 and higher average rents. Base rental revenue per weighted average square foot increased to $19.79 in 1999 from $18.77 in 1998 as a result of higher rental rates on new leases and renewals.
Percentage rents increased $2.3 million, or 16.9%, to $15.7 million in 1999 from $13.4 million in 1998. The increase was primarily due to a new center opening in 1998, expansions of existing centers and increase in tenants contributing percentage rents.
Expense reimbursements, representing contractual recoveries from tenants of certain common area maintenance, operating, real estate tax, promotional and management expenses, increased $4.4 million, or 12.5%, to $39.7 million in 1999 from $35.3 million in 1998, due to the recovery of operating and maintenance costs from increased GLA. On a weighted average square foot basis, expense reimbursements increased 3.9% to $7.96 in 1999 from $7.66 in 1998. The average recovery of reimbursable expenses was 90.8% in 1999 compared to 91.3% in 1998.
Other income increased $4.7 million to $8.7 million in 1999 from $4.0 million in 1998. The increase was primarily due to income from the agreement not to compete with the Mills Corporation in the Houston, Texas area.
Interest, in excess of amounts capitalized, increased $4.2 million to $24.2 million in 1999 from $20.0 million in 1998, due to higher debt balances from increased GLA in operation.
Operating and maintenance expenses increased $5.1 million, or 13.1%, to $43.8 million in 1999 from $38.7 million in 1998. The increase was primarily due to costs related to increased GLA. On a weighted average square foot basis, operating and maintenance expenses increased 4.4% to $8.76 in 1999 from $8.39 in 1998 as a result of increased real estate tax and promotion costs.
General and administrative expenses were $4.8 million during 1999 and 1998 due to stabilized overhead costs during 1999.
Depreciation and amortization expense increased $7.2 million to $39.7 million in 1999 from $32.5 million in 1998. The increase was due to depreciation of expansions and a new center opened in 1998.
The loss on writedown of assets of $0.7 million in 1999 and $15.7 million in 1998 was attributable to the re-valuation of two centers held for sale at their estimated fair values and the write-off of pre-development costs of an abandoned site.
Other expenses remained stable at $2.1 million during 1999 and 1998.
Comparison of year ended December 31, 1998 to year ended December 31, 1997
Operating income before interest, depreciation and amortization increased $18.2 million, or 24.2%, to $93.6 million in 1998 from $75.4 million in 1997. This increase was primarily the result of expansions and new center openings during 1997 and 1998. Income from operations increased $6.0 million, or 17.1%, to $41.2 million in 1998 from $35.2 million in 1997. Increased revenues from expansions and new center openings in 1997 and 1998 were offset by increased interest costs.
Base rentals increased $15.9 million, or 22.5%, to $86.6 million in 1998 from $70.7 million in 1997 due to expansions, new center openings in 1997 and 1998, one acquired center and higher average rents. Base rental revenue per weighted average square foot increased to $18.77 in 1998 from $17.97 in 1997 as a result of higher rental rates on new leases and renewals.
Percentage rents increased $2.6 million, or 23.5%, to $13.4 million in 1998 from $10.8 million in 1997. The increase was primarily due to a new center opening in 1997, increased tenant sales and a higher number of tenants contributing percentage rents.
Expense reimbursements, representing contractual recoveries from tenants of certain common area maintenance, operating, real estate tax, promotional and management expenses, increased $6.3 million, or 21.9%, to $35.3 million in 1998 from $29.0 million in 1997, due to the recovery of operating and maintenance costs from increased GLA. On a weighted average square foot basis, expense reimbursements increased 4.1% to $7.66 in 1998 from $7.36 in 1997. The average recovery of reimbursable expenses was 91.3% in 1998 compared to 92.2% in 1997.
Other income increased $1.1 million to $4.0 million in 1998 from $2.9 million in 1997. The increase was due to income from the agreement not to compete with the Mills Corporation in the Houston, Texas area and a $0.3 million increase in outparcel income during 1998.
Interest, in excess of amounts capitalized, increased $4.6 million to $20.0 million in 1998 from $15.4 million in 1997, due to higher debt balances from increased GLA in operation.
Operating and maintenance expenses increased $7.3 million, or 23.2%, to $38.7 million in 1998 from $31.4 million in 1997. The increase was primarily due to costs related to increased GLA. On a weighted average square foot basis, operating and maintenance expenses increased 5.0% to $8.39 in 1998 from $7.99 in 1997 as a result of increased real estate tax and promotion costs.
Depreciation and amortization expense increased $7.5 million to $32.5 million in 1998 from $25.0 million in 1997. The increase was due to depreciation of expansions and new centers opened in 1997 and 1998.
General and administrative expenses increased $1.0 million to $4.8 million in 1998 from $3.8 million in 1997. On a weighted average square foot basis, general and administrative expenses increased 8.2% to $1.05 in 1998 from $0.97 in 1997 primarily due to increased personnel, overhead costs and accrual for deferred compensation.
The loss on writedown of assets of $15.7 million in 1998 was attributable to the re-valuation of two centers held for sale at their estimated fair values and the write-off of pre-development costs of an abandoned site.
Other expenses decreased $0.4 million to $2.2 million in 1998 from $2.6 million in 1997. The decrease was primarily due to recoveries of bad debts previously written off.
Liquidity and Capital Resources
The OP believes it has adequate financial resources to fund operating expenses, distributions, and planned development and construction activities over the short-term, which is less than 12 months and the long-term, which is 12 months or more. Operating cash flow in 1999 of $87.6 million is expected to increase with a full year of operations of the 340,000 square feet of GLA added during 1999 and scheduled openings of approximately 853,000 square feet in 2000, which includes the OP's 50% ownership share in Orlando Premium Outlets and 40% ownership share in Gotemba Premium Outlets. The OP has adequate funding sources to complete and open all of its current development projects through the use of available cash of $8.9 million; construction loans for the Orlando and Allen projects up to a maximum borrowing of $82.5 million and $40.0 million, respectively; a yen-denominated line of credit totaling 4 billion yen (US $40 million) for the OP's share of projects in Japan; and approximately $90 million available under its Senior Credit Facility. Chelsea also has the ability to access the public markets through its $175 million debt shelf registration and if current market conditions become favorable through its $200 million equity shelf registration.
Operating cash flow is expected to provide sufficient funds for distributions. In addition, the OP anticipates retaining sufficient operating cash to fund re-tenanting and lease renewal tenant improvement costs, as well as capital expenditures to maintain the quality of its centers.
Common distributions declared and recorded in 1999 were $55.2 million or $2.88 per unit. The OP's 1999 distribution payout ratio as a percentage of net income before minority interest, loss on writedown of assets and depreciation and amortization, exclusive of amortization of deferred financing costs, ("FFO") was 69%. The Senior Credit Facility limits aggregate dividends and distributions to the lesser of (i) 90% of FFO on an annual basis or (ii) 100% of FFO for any two consecutive quarters.
The OP's ratio of earnings to fixed charges for each of the three years ended December 31, 1999, 1998 and 1997 was 2.5, 2.3 and 2.4, respectively. For purposes of computing the ratio, earnings consist of income from continuing operations after depreciation and before fixed charges, exclusive of interest capitalized and amortization of loan costs capitalized. Fixed charges consist of interest expense, including interest costs capitalized, the portion of rent expense representative of interest and total amortization of debt issuance costs expensed and capitalized.
On September 3, 1999, the OP completed a private sale of $65 million of Series B Cumulative Redeemable Preferred Units ("Preferred Units") to an institutional investor. The private placement took the form of 1.3 million Preferred Units at a stated value of $50 each. The Preferred Units may be called at par on or after September 3, 2004, have no stated maturity or mandatory redemption and pay a cumulative quarterly dividend at an annualized rate of 9.0%. The Preferred Units are not convertible to any other securities of the OP or Company. Proceeds from the sale were used to pay down borrowings under the Senior Credit Facility.
On March 30, 1998, the OP replaced its two unsecured bank revolving lines of credit, totaling $150 million (the "Credit Facilities"), with a new $160 million senior unsecured bank line of credit (the "Senior Credit Facility"). The Senior Credit Facility expires on March 30, 2001 and the OP has an annual right to request a one-year extension of the Senior Credit Facility which may be granted at the option of the lenders. The OP has requested and expects approval to extend the Facility until March 30, 2003. The Facility bears interest on the outstanding balance, payable monthly, at a rate equal to the London Interbank Offered Rate ("LIBOR") plus 1.05% (7.24% at December 31, 1999) or the prime rate, at the OP's option. The LIBOR spread ranges from 0.85% to 1.25% depending on the Operating Partnership's Senior Debt rating. A fee on the unused portion of the Senior Credit Facility is payable quarterly at rates ranging from 0.15% to 0.25% depending on the balance outstanding.
In November 1998, the OP obtained a $60 million term loan which expires April 2000 and bears interest on the outstanding balance at a rate equal to LIBOR plus 1.40% (7.53% at December 31, 1999). Proceeds from the loan were used to pay down borrowings under the Senior Credit Facility. The OP is currently exploring several refinancing alternatives including extension and payoff of this loan.
The OP is in the process of planning development for 2000 and beyond. At December 31, 1999, approximately 424,000 square feet of the OP's planned 2000 development was under construction, including of the 232,000 square foot first phase of Allen Premium Outlets (Allen, Texas - located on US Highway 75 approximately 30 miles north of Dallas), the 104,000 square foot third phase of Leesburg Corner and expansions totaling 88,000 square feet at two other centers. These projects are under development and there can be no assurance that they will be completed or opened, or that there will not be delays in opening or completion. Excluding separately financed joint venture projects, the OP anticipates 2000 development and construction costs of $40 million to $50 million. Funding is currently expected from borrowings under the Senior Credit Facility, additional debt offerings, and/or equity offerings, except Allen Premium Outlets. In February 2000, Chelsea Allen Development L.P., a subsidiary of the OP entered into a $40 million construction loan agreement that is expected to fund approximately 75% of the costs of the Allen project. The loan, guaranteed by the OP, matures February 2003 and bears interest at LIBOR plus 1.625% .
Construction is also underway on Orlando Premium Outlets ("OPO"), a 430,000 square-foot upscale outlet center located on Interstate 4 midway between Walt Disney World/EPCOT and Sea World in Orlando, Florida. OPO is a joint venture project between the OP and Simon and is scheduled to open as a single phase in mid-2000. In February 1999, the joint venture entered into a $82.5 million construction loan agreement that is expected to fund approximately 75% of the costs of the project and as of December 31, 1999, $20.8 million was outstanding. The loan which matures March 2002 and bears interest at LIBOR plus 1.50% is 50% guaranteed by each of the OP and Simon.
In June 1999, the OP signed a definitive agreement with Mitsubishi Estate Co., Ltd. and Nissho Iwai Corporation to jointly develop, own and operate premium outlet centers in Japan. The joint venture, known as Chelsea Japan Co., Ltd. ("Chelsea Japan") intends to develop its initial project in the city of Gotemba. In conjunction with the agreement, the OP contributed $1.7 million in equity. In addition, Chelsea International Operating Corp., a subsidiary of the OP entered into a 4 billion yen (US $40 million) line of credit guaranteed by the Company and OP to fund its share of construction costs. The line of credit bears interest at yen LIBOR plus 1.35% and matures April 2002. At December 31, 1999, no amounts were outstanding under the loan. In December 1999, construction began on the 220,000 square-foot first phase of Gotemba Premium Outlets with opening scheduled for mid-2000. Gotemba is located on the Tomei Expressway, approximately 60 miles west of Tokyo and midway between Mt. Fuji and the Hakone resort area. Subject to governmental and other approvals, Chelsea Japan also expects to announce a project outside Osaka, the second-largest city in Japan, to open in late 2000.
The OP has minority interests ranging from 5 to 15% in several outlet centers and outlet development projects in Europe. Two outlet centers, Bicester Village outside of London, England and La Roca Company Stores outside of Barcelona, Spain, are currently open and operated by Value Retail PLC and its affiliates. Three new European projects and expansions of the two existing centers are in various stages of development and are expected to open within the next two years. The OP's total investment in Europe as of February 2000 is approximately $4.5 million. The OP has also agreed to provide up to $22 million in limited debt service guarantees under a standby facility for loans arranged by Value Retail PLC to construct outlet centers in Europe. The term of the standby facility is three years and guarantees shall not be outstanding for longer than five years after project completion. As of February 2000, the OP has provided limited debt service guarantees of approximately $20 million for three projects.
The OP announced in October 1998 that it sold its interest in and terminated the development of Houston Premium Outlets, a joint venture project with Simon. Under the terms of the agreement, the OP will receive non-compete payments totaling $21.4 million from The Mills Corporation; $3.0 million was received at closing, and four annual installments of $4.6 million will be received on each January 2, 1999 through 2002. The OP has also been reimbursed for its share of land costs, development costs and fees related to the project.
To achieve planned growth and favorable returns in both the short and long-term, the OP's financing strategy is to maintain a strong, flexible financial position by: (i) maintaining a conservative level of leverage; (ii) extending and sequencing debt maturity dates; (iii) managing exposure to floating interest rates; and (iv) maintaining liquidity. Management believes these strategies will enable the OP to access a broad array of capital sources, including bank or institutional borrowings and secured and unsecured debt and equity offerings, subject to market conditions.
Net cash provided by operating activities was $87.6 million and $78.7 million for the years ended December 31, 1999 and 1998, respectively. The increase was primarily due to the growth of the OP's GLA to 5.2 million square feet in 1999 from 4.9 million square feet in 1998 and receipt of payment on a non-compete receivable. Net cash used in investing activities decreased $42.2 million for the year ended December 31, 1999 compared to the corresponding 1998 period, as a result of decreased construction activity, proceeds from sale of a center and receipt of payment on a note receivable. For the year ended December 31, 1999, net cash provided by financing activities decreased by $47.0 million primarily due to higher borrowings during 1998 offset in part by the sale of preferred units in September 1999. Proceeds from the sale were used to repay borrowings under the OP's Senior Credit Facility.
Net cash provided by operating activities was $78.7 million and $56.6 million for the years ended December 31, 1998 and 1997, respectively. The increase was primarily due to the growth of the OP's GLA to 4.9 million square feet in 1998 from 4.3 million square feet in 1997. Net cash used in investing activities decreased $79.4 million for the year ended December 31, 1998 compared to the corresponding 1997 period, primarily as a result of the Waikele Factory Outlets acquisition in March 1997. For the year ended December 31, 1998, net cash provided by financing activities decreased by $107.1 million primarily due to borrowings for the Waikele Factory Outlets acquisition and excess capital raised for development during 1997.
Year 2000 Compliance
In prior years, the OP discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, the OP completed its remediation and testing of systems. As a result of those planning and implementation efforts, the OP experienced no significant disruptions in mission-critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The OP expensed less than $100,000 during 1999 in connection with remediating its systems. The OP is not aware of any material problems resulting from Year 2000 issues, either with its internal systems, or the products and services of third parties. The OP will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly.
Funds from Operations
Management believes that funds from operations ("FFO") should be considered in conjunction with net income, as presented in the statements of income included elsewhere herein, to facilitate a clearer understanding of the operating results of the Company. The White Paper on Funds from Operations ("FFO") approved by the Board of Governors of NAREIT in October 1999 defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from debt restructuring and sales of properties, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. The OP believes that FFO is helpful to investors as a measure of the performance of an equity REIT because, along with cash flow from operating activities, financing activities and investing activities, it provides investors with an indication of the ability of the OP to incur and service debt, to make capital expenditures and to fund other cash needs. The OP computes FFO in accordance with the current standards established by NAREIT which may not be comparable to FFO reported by other REIT's that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than the OP. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of the OP's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the OP's liquidity, nor is it indicative of funds available to fund the OP's cash needs, including its ability to make cash distributions.
Year Ended December 31,
1999 1998
----------- -------------
Income to common unitholders before extraordinary item......... $41,419 $21,248
Add:
Depreciation and amortization.................................. 39,716 32,486
Loss on writedown of assets.................................... 694 15,713
Amortization of deferred financing costs and depreciation
of non-rental real estate assets........................... (1,849) (1,453)
------------- ------------
FFO............................................................ $79,980 $67,994
============= ============
Average units outstanding...................................... 19,131 18,871
Distributions declared per unit................................ $2.88 $2.76
Economic Conditions
Substantially all leases contain provisions, including escalations of base rents and percentage rentals calculated on gross sales, to mitigate the impact of inflation. Inflationary increases in common area maintenance and real estate tax expenses are substantially all reimbursed by tenants.
Virtually all tenants have met their lease obligations and the OP continues to attract and retain quality tenants. The OP intends to reduce operating and leasing risks by continually improving its tenant mix, rental rates and lease terms, and by pursuing contracts with creditworthy upscale and national brand-name tenants.
Item 7-A. Quantitative and Qualitative Disclosures about Market Risk
The OP is exposed to changes in interest rates primarily from its floating rate debt arrangements. Under its current policies, the OP does not use interest rate derivative instruments to manage exposure to interest rate changes. A hypothetical 100 basis point adverse move (increase) in US Treasury and LIBOR rates would adversely affect the OP’s annual interest cost by approximately $1.3 million annually.
Following is a summary of the OP's debt obligations at December 31, 1999 (in thousands):
Expected Maturity Date
----------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
Fixed Rate Debt: - $99,905 - - - $124,744 $224,649 $212,905
Average Interest Rate: - 7.75% - - - 7.25% 7.47%
Variable Rate Debt: $60,000 - - $71,035 - - $131,035 $131,035
Average Interest Rate: 7.53% - - 7.24% - - 7.37%
Item 8. Financial Statements and Supplementary Data
The financial statements and financial information of the OP for the years ended December 31, 1999, 1998 and 1997 and the Report of the Independent Auditors thereon are included elsewhere herein. Reference is made to the financial statements and schedules in Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Items 10, 11, 12 and 13.
The Operating Partnership does not have any directors, executive officers or stock authorized, issued or outstanding. If the information was required it would be identical to the information contained in Items 10, 11, 12 and 13 of the Company’s Form 10-K, that will appear in the Company’s Proxy Statement furnished to shareholders in connection with the Company’s 2000 Annual Meeting. Such information is incorporated by reference in this Form 10-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1 and 2. The response to this portion of Item 14 is submitted as a separate section of this report.
| 3. | Exhibits |
| 3.1 | Articles of Incorporation of the Company, as amended, including Articles Supplementary relating to 8 3/8% Series A Cumulative Redeemable Preferred Stock and Articles Supplementary relating to 9% Series B Cumulative Redeemable Preferred Stock. |
| 3.2 | By-laws of the Company. Incorporated by reference to Exhibit 3.2 to Registration Statement filed by the Company on Form S-11 under the Securities Act of 1933 (file No. 33-67870) (S-11). |
| 3.3 | Agreement of Limited Partnership for the Operating Partnership. Incorporated by reference to Exhibit 3.3 to S-11. |
| 3.4 | Amendments No. 1 and No. 2 to Partnership Agreement dated March 31, 1997 and October 7, 1997. Incorporated by reference to Exhibit 3.4 to Form 10K for the year ended December 31, 1997. |
| 3.5 | Amendment No. 3 to Partnership Agreement dated September 3, 1999. |
| 4.1 | Form of Indenture among the Company, Chelsea GCA Realty Partnership, L.P., and State Street Bank and Trust Company, as Trustee. Incorporated by reference to Exhibit 4.4 to Registration Statement filed by the Company on Form S-3 under the Securities Act of 1933 (File No. 33-98136). |
| 10.1 | Registration Rights Agreement among the Company and recipients of Units. Incorporated by reference to Exhibit 4.1 to S-11. |
| 10.2 | Term Loan Agreement dated November 3, 1998 among Chelsea GCA Realty Partnership, L.P., BankBoston, N.A., individually and as an agent, and other Lending Institutions listed therein. Incorporated by reference to Exhibit 10.2 to Form 10K for the year ended December 31, 1998 ("1998 10K"). |
| 10.3 | Credit Agreement dated March 30, 1998 among Chelsea GCA Realty Partnership, L.P., BankBoston, N.A, individually and as an agent, and other Lending Institutions listed therein. Incorporated by reference to Exhibit 10.3 to 1998 10K. |
| 10.4 | Agreement dated October 23, 1998, among Chelsea GCA Realty Partnership, L.P., Chelsea GCA Realty, Inc., Simon Property Group, L.P., the Mills Corporation and related parties. Incorporated by reference to Exhibit 10.4 to 1998 10K. |
| 10.5 | Limited Liability Company Agreement of Simon/Chelsea Development Co., L.L.C. dated May 16, 1997 between Simon DeBartolo Group, L.P. and Chelsea GCA Realty Partnership, L.P. Incorporated by reference to Exhibit 10.3 to Form 10K for the year ended December 31, 1997. |
| 10.6 | Subscription Agreement dated as of March 31, 1997 by and among Chelsea GCA Realty Partnership, L.P., WCC Associates and KM Halawa Partners. Incorporated by reference to Exhibit 1 to current report on Form 8-K reporting on an event which occurred March 31, 1997. |
| 10.7 | Stock Subscription Agreement dated May 16, 1997 between Chelsea GCA Realty, Inc. and Simon DeBartolo Group, L.P. Incorporated by reference to Exhibit 10.5 to Form 10K for the year ended December 31, 1997. |
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued)
| 10.8 | Contribution Agreement by and among an institutional investor and Chelsea GCA Realty Partnership, L.P. and Chelsea GCA Realty, Inc. dated September 3, 1999. |
| 10.9 | Joint Venture Agreement among Chelsea GCA Realty Partnership, L.P., Mitsubishi Estate Co., Ltd. and Nissho Iwai Corporation dated June 16, 1999. |
| 23.1 | Consent of Ernst & Young LLP. |
| (b) | Reports on Form 8-K. None |
| (c) | Exhibits See (a) 3 |
| (d) | Financial Statement Schedules - The response to this portion of Item 14 is submitted as a separate schedule of this report. |
Item 8, Item 14(a)(1) and (2) and Item 14(d)
(a)1. Financial Statements
| Form 10-K Report Page |
| Consolidated Financial Statements-Chelsea GCA Realty Partnership, L.P. |
| Report of Independent Auditors | F-1 |
| Consolidated Balance Sheets as of December 31, 1999 and 1998 | F-2 |
| Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 | F-3 |
| Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997 | F-4 |
| Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 | F-5 |
| Notes to Consolidated Financial Statements | F-6 |
(a)2 and (d) Financial Statement Schedule
| Schedule III-Consolidated Real Estate and Accumulated Depreciation | F-20 and F-21 |
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.
Report of Independent Auditors
To the Owners
Chelsea GCA Realty Partnership, L.P.
We have audited the accompanying consolidated balance sheets of Chelsea GCA Realty Partnership, L.P. as of December 31, 1999 and 1998, and the related consolidated statements of income, partners’ capital and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in the Index as Item 14(a). These financial statements and schedule are the responsibility of the management of Chelsea GCA Realty, Partnership, L.P. Our responsibility is to express an opinion on the financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 consolidated financial position of Chelsea GCA Realty Partnership, L.P. as of December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
New York, New York
February 2, 2000
Chelsea GCA Realty Partnership, L.P.
Consolidated Balance Sheets
(In thousands)
December 31,
1999 1998
Assets
Rental properties:
Land............................................................. $ 118,494 $ 109,318
Depreciable property............................................. 730,319 683,408
------------ ------------
Total rental property................................................. 848,813 792,726
Accumulated depreciation.............................................. (138,221) (102,851)
------------ ------------
Rental properties, net................................................ 710,592 689,875
Cash and equivalents.................................................. 8,862 9,631
Notes receivable-related parties...................................... 2,213 4,500
Deferred costs, net................................................... 14,290 17,766
Properties held for sale.............................................. 3,388 8,733
Other assets.......................................................... 66,710 42,847
------------ ------------
Total assets.......................................................... $ 806,055 $ 773,352
============ ============
Liabilities and partners' capital
Liabilities:
Unsecured bank debt.............................................. $ 131,035 $ 151,035
7.75% Unsecured Notes due 2001................................... 99,905 99,824
7.25% Unsecured Notes due 2007................................... 124,744 124,712
Construction payables............................................ 9,277 12,927
Accounts payable and accrued expenses............................ 27,127 19,769
Obligation under capital lease................................... 3,233 9,612
Accrued distribution payable..................................... 3,813 3,274
Other liabilities................................................ 27,064 29,257
------------ ------------
Total liabilities..................................................... 426,198 450,410
Commitments and contingencies
Partners' capital:
General partner units outstanding, 15,932 in 1999 and 15,608 in 1998.. 277,296 280,391
Limited partners units outstanding, 3,357 in 1999 and 3,429 in 1998... 39,246 42,551
Preferred partners units outstanding, 1,300 in 1999................... 63,315 -
------------ ------------
Total partners' capital............................................... 379,857 322,942
------------ ------------
Total liabilities and partners' capital............................... $ 806,055 $ 773,352
============ ============
The accompanying notes are an integral part of the financial statements.
Chelsea GCA Realty Partnership, L.P.
Consolidated Statements of Income
(In thousands, except per unit data)
Year ended December 31,
1999 1998 1997
Revenues:
Base rental................................... $98,838 $86,592 $70,693
Percentage rentals............................ 15,647 13,384 10,838
Expense reimbursements........................ 39,748 35,342 28,981
Other income.................................. 8,693 3,997 2,905
------------------ ----------------- ------------------
Total revenues..................................... 162,926 139,315 113,417
Expenses:
Interest....................................... 24,208 19,978 15,447
Operating and maintenance...................... 43,771 38,704 31,423
Depreciation and amortization.................. 39,716 32,486 24,995
General and administrative..................... 4,853 4,849 3,815
Other.......................................... 2,128 2,149 2,582
------------------ ----------------- ------------------
Total operating expenses............................ 114,676 98,166 78,262
Income from operations.............................. 48,250 41,149 35,155
Loss on writedown of assets........................ 694 15,713 -
------------------ ----------------- ------------------
Income before minority interest and
extraordinary item............................. 47,556 25,436 35,155
Minority interest................................... - - (127)
------------------ ----------------- ------------------
Income before extraordinary item.................... 47,556 25,436 35,028
Extraordinary item-loss on early
extinguishment of debt......................... - (345) (252)
------------------------------------ ------------------
Net income.......................................... 47,556 25,091 34,776
Preferred unit requirement.......................... (6,137) (4,188) (907)
------------------ ----------------- ------------------
Net income to common unitholders.................... $41,419 $20,903 $33,869
================== ================= ==================
Net income to common unitholders:
General partner................................ $34,093 $17,162 $27,449
Limited partners............................... 7,326 3,741 6,420
------------------ ----------------- ------------------
Total............................................... $41,419 $20,903 $33,869
================== ================= ==================
Net income per common unit:
General partner (including $0.02 and $0.01
net loss per unit from extraordinary item in
1998 and 1997, respectively)................... $2.17 $1.11 $1.88
Limited partners (including $0.02 and $0.01
net loss per unit from extraordinary item in
1998 and 1997, respectively)................... $2.16 $1.09 $1.87
Weighted average units outstanding:
General partner................................ 15,742 15,440 14,605
Limited partners............................... 3,389 3,431 3,435
------------------ ----------------- ------------------
Total............................................... 19,131 18,871 18,040
The accompanying notes are an integral part of the financial statements.
Chelsea GCA Realty Partnership, L.P.
Consolidated Statements of Partners’ Capital
(In thousands)
General Limited Preferred Total
Partner's Partners' Partner's Partners'
Capital Capital Capital Capital
---------------- ---------------- -------------- ----------------
Balance December 31, 1996.................. $185,340 $70,296 $ - $255,636
Contributions.............................. 103,357 389 - 103,746
Net income................................. 28,356 6,420 - 34,776
Common distributions....................... (38,475) (8,853) - (47,328)
Preferred distribution..................... (907) - - (907)
Transfer of a limited partners' interest... 19,999 (19,999) - -
---------------- ---------------- ------------- ----------------
Balance December 31, 1997.................. 297,670 48,253 - 345,923
Contributions.............................. 8,266 - - 8,266
Net income................................. 21,350 3,741 - 25,091
Common distributions....................... (42,707) (9,407) - (52,114)
Preferred distribution..................... (4,188) - - (4,188)
Transfer of a limited partners' interest... - (36) - (36)
---------------- ---------------- ------------- ----------------
Balance December 31, 1998.................. 280,391 42,551 - 322,942
Contributions (net of costs)............... 7,335 - 63,315 70,650
Net income................................. 38,281 9,275 - 47,556
Common distributions....................... (45,426) (9,728) - (55,154)
Preferred distribution..................... (4,188) (1,949) - (6,137)
Transfer of a limited partners' interest... 903 (903) - -
---------------- ---------------- ------------- ----------------
Balance December 31, 1999.................. $277,296 $39,246 $63,315 $379,857
================ ================ ============= ================
The accompanying notes are an integral part of the financial statements.
Chelsea GCA Realty Partnership, L.P.
Consolidated Statements of Cash Flows
(In thousands)
Year ended December 31,
1999 1998 1997
Cash flows from operating activities
Net income............................................... $47,556 $25,091 $34,776
Adjustments to reconcile net income to
net cash provided by operating activities:
net cash provided by operating activities:
Depreciation and amortization....................... 39,716 32,486 24,995
Minority interest in net income..................... - - 127
Loss on writedown of assets......................... 694 15,713 -
Proceeds from non-compete receivable................ 4,600 - -
Amortization of non-compete revenue................. (5,136) - -
Extraordinary loss on early extinguishment of debt.. - 345 252
Additions to deferred lease costs................... (2,771) (3,178) (6,629)
Other operating activities.......................... 511 522 319
Changes in assets and liabilities:
Straight-line rent receivable...................... (1,554) (1,900) (1,523)
Other assets....................................... (3,076) 1,094 287
Accounts payable and accrued expenses.............. 7,050 8,558 3,990
----------------- ------------- ----------------
Net cash provided by operating activities................ 87,590 78,731 56,594
Cash flows from investing activities
Additions to rental properties........................... (62,119) (116,339) (195,058)
Additions to deferred development costs.................. (753) (3,468) (2,237)
Proceeds from sale of center............................. 4,483 - -
Loans to related parties................................. (2,213) - -
Payments from related parties............................ 4,500 - -
Additions to investments in joint ventures............... (21,476) - -
Other investing activities............................... - - (1,955)
------------------ ------------ ----------------
Net cash used in investing activities.................... (77,578) (119,807) (199,250)
Cash flows from financing activities
Net proceeds from sale of preferred units................ 63,315 - -
Net proceeds from sale of common units................... 7,335 8,287 54,951
Net proceeds from sale of preferred stock................ - - 48,406
Distributions............................................ (60,752) (56,366) (48,791)
Debt proceeds ........................................... 49,000 154,000 261,710
Repayments of debt....................................... (69,000) (68,000) (172,000)
Additions to deferred financing costs.................... (679) (1,695) (855)
Other financing activities............................... - (57) (113)
------------------ ------------ ----------------
Net cash (used in) provided by financing activities...... (10,781) 36,169 143,308
Net (decrease) increase in cash and cash equivalents..... (769) (4,907) 652
Cash and cash equivalents, beginning of period........... 9,631 14,538 13,886
------------------ ------------ ----------------
Cash and cash equivalents, end of period................. $8,862 $9,631 $14,538
================== ============ ================
The accompanying notes are an integral part of the financial statements.
Notes to Financial Statements
1. Organization and Basis of Presentation
Organization
Chelsea GCA Realty Partnership, L.P. (the “Operating Partnership” or “OP”), which commenced operations on November 2, 1993, is engaged in the development, ownership, acquisition and operation of manufacturers’ outlet centers. As of December 31, 1999, the Operating Partnership operated 19 manufacturers’ outlet centers in 11 states. The sole general partner in the Operating Partnership, Chelsea GCA Realty, Inc. (the “Company”) is a self-administered and self-managed Real Estate Investment Trust.
Basis of Presentation
The financial statements contain the accounts of the Operating Partnership and its majority owned subsidiaries. Such subsidiaries represent partnerships in which the OP has a greater than 50% ownership interest and the ability to maintain operational control. All significant intercompany transactions and accounts have been eliminated in consolidation. The OP accounts for its non-controlling investments under the equity method. Such investments are included in other assets in the financial statements.
Disclosure about fair value of financial instruments is based on pertinent information available to management as of December 31, 1999 and 1998 using available market information and appropriate valuation methodologies. Although management is not aware of any factors that would significantly affect the reasonable fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.
2. Summary of Significant Accounting Principles
Rental Properties
Rental properties are presented at cost net of accumulated depreciation. Depreciation is computed on the straight-line basis over the estimated useful lives of the assets. The OP uses 25-40 year estimated lives for buildings, and 15- and 5-7 year estimated lives for improvements and equipment, respectively. Expenditures for ordinary maintenance and repairs are charged to operations as incurred, while significant renovations and enhancements that improve and/or extend the useful life of an asset are capitalized and depreciated over the estimated useful life. Statement of Financial Accounting Standards No. 121 (“SFAS No. 121”), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, requires that the OP review real estate assets for impairment wherever events or changes in circumstances indicate that the carrying value of assets to be held and used may not be recoverable. Impaired assets are reported at the lower of cost or fair value. Assets to be disposed of are reported at the lower of cost or fair value less cost to sell.
Gains and losses from sales of real estate are recorded when title is conveyed to the buyer, subject to the buyer's financial commitment being sufficient to provide economic substance to the sale.
Cash and Equivalents
All demand and money market accounts and certificates of deposit with original terms of three months or less from the date of purchase are considered cash equivalents. At December 31, 1999 and 1998 cash equivalents consisted of repurchase agreements which were held by one financial institution, commercial paper and “U.S.” Government agency securities which matured in January of the following year. The carrying amount of such investments approximated fair value.
Development Costs
Development costs, including interest, taxes, insurance and other costs incurred in developing new properties, are capitalized. Upon completion of construction, development costs are amortized on a straight-line basis over the useful lives of the respective assets.
Capitalized Interest
Interest, including the amortization of deferred financing costs for borrowings used to fund development and construction, is capitalized as construction in progress and allocated to individual property costs.
Foreign Currency Translation
The OP conforms to the requirements of the Statement of Financial Accounting Standards No. 52 (SFAS 52) entitled “Foreign Currency Translation.” Accordingly, assets and liabilities of foreign equity investees are translated at prevailing year-end rates of exchange. Gains and losses related to foreign currency were not material for the three year period ending December 31, 1999.
Rental Expense
Rental expense is recognized on a straight-line basis over the initial term of the lease.
Deferred Lease Costs
Deferred lease costs consist of fees and direct costs incurred to initiate and renew operating leases, and are amortized on a straight-line basis over the initial lease term or renewal period as appropriate.
Deferred Financing Costs
Deferred financing costs are amortized as interest costs on a straight-line basis over the terms of the respective agreements. Unamortized deferred financing costs are expensed when the associated debt is retired before maturity.
Revenue Recognition
Leases with tenants are accounted for as operating leases. Base rent revenue is recognized on a straight-line basis over the lease term according to the provisions of the lease. Due and unpaid rents are included in other assets in the accompanying balance sheet. Certain lease agreements contain provisions for rents which are calculated on a percentage of sales and recorded on the accrual basis. These rents are accrued monthly once the required thresholds per the lease agreement are exceeded. Virtually all lease agreements contain provisions for additional rents representing reimbursement of real estate taxes, insurance, advertising and common area maintenance costs.
Bad Debt Expense
Bad debt expense included in other expense totaled $0.8 million, $0.6 million and $0.8 million for the years ended December 31, 1999, 1998 and 1997, respectively. The allowance for doubtful accounts included in other assets totaled $1.0 million and $1.1 million at December 31, 1999 and 1998, respectively.
Income Taxes
No provision has been made for income taxes in the accompanying consolidated financial statements since such taxes, if any, are the responsibility of the individual partners.
Net Income Per Partnership Unit
Net income per partnership unit is determined by allocating net income to the general partner (including the general partner’s preferred unit allocation) and the limited partners based on their weighted average partnership units outstanding during the respective periods presented.
Concentration of Operating Partnership’s Revenue and Credit Risk
Approximately 34%, 35% and 34% of the Company’s revenues for the years ended December 31, 1999, 1998 and 1997, respectively, were derived from the Company’s two centers with the highest revenues, Woodbury Common and Desert Hills. The loss of either center or a material decrease in revenues from either center for any reason may have a material adverse effect on the Company. In addition, approximately 30%, 34% and 38% of the Company’s revenues for the years ended December 31, 1999, 1998 and 1997, respectively, were derived from the Company’s centers in California, which includes Desert Hills.
Management of the OP performs ongoing credit evaluations of its tenants and requires certain tenants to provide security deposits. Although the Company’s tenants operate principally in the retail industry, there is no dependence upon any single tenant.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Minority Interest
Through June 30, 1997, the Operating Partnership was the sole general partner and had a 50% interest in Solvang Designer Outlets (“Solvang”), a limited partnership. Accordingly, the accounts of Solvang were included in the consolidated financial statements of the Operating Partnership. On June 30, 1997, the Operating Partnership acquired the remaining 50% interest in Solvang. Solvang is not material to the operations or financial position.
Segment Information
Effective January 1, 1998, the OP adopted the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (“Statement 131”). Statement 131 superseded FASB Statement No. 14, Financial Reporting for Segments of a Business Enterprise. Statement 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. Statement 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers. The adoption of Statement 131 did not affect results of operations, financial position or disclosure of segment information as the OP is engaged in the development, ownership, acquisition and operation of manufacturers’ outlet centers and has one reportable segment, retail real estate. The OP evaluates real estate performance and allocates resources based on net operating income and weighted average sales per square foot. The primary sources of revenue are generated from tenant base rents, percentage rents and reimbursement revenue. Operating expenses primarily consist of common area maintenance, real estate taxes and promotional expenses. The retail real estate business segment meets the quantitative threshold for determining reportable segments. The OP’s investment in foreign operations is not material to the consolidated financial statements.
Comprehensive Income
In 1997, the FASB issued Statement No. 130, “Reporting Comprehensive Income” (“Statement 130”) which is effective of fiscal years beginning after December 15, 1997. Statement 130 established standards for reporting comprehensive income and its components in a full set of general-purpose financial statements. Statement 130 requires that all components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The adoption of this standard had no impact on the OP’s financial position or results of operations.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (as amended by FASB Statement No. 137), which is required to be adopted in years beginning after June 15, 2000. Statement 133 permits early adoption as of the beginning of any fiscal quarter after its issuance. The OP expects to adopt the new Statement effective January 1, 2001. The Statement will require the OP to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value will be immediately recognized in earnings. The OP does not anticipate that the adoption of the Statement will have a significant effect on its results of operations or financial position.
In December 1999, the SEC staff issued Staff Accounting Bulletin 101 (“SAB 101”), Revenue Recognition. SAB 101 discusses the SEC staff views on certain revenue recognition transactions. The OP is required to adopt SAB 101 no later than the second quarter of 2000 and any change in accounting would be recognized as a cumulative effect of a change in accounting principle as of January 1, 2000.The OP does not anticipate that the adoption of the SAB will have a material effect of its results of operations or financial position.
3. Rental Properties
The following summarizes the carrying values of rental properties as of December 31 (in thousands):
1999 1998
--------------- --------------
Land and improvements........................ $266,441 $245,814
Buildings and improvements................... 552,240 512,080
Construction-in-process...................... 19,288 25,534
Equipment and furniture...................... 10,844 9,298
--------------- --------------
Total rental property........................ 848,813 792,726
Accumulated depreciation and amortization.... (138,221) (102,851)
--------------- --------------
Total rental property, net................... $710,592 $689,875
=============== ==============
Interest costs capitalized as part of buildings and improvements were $3.1 million, $5.2 million and $4.8 million for the years ended December 31, 1999, 1998 and 1997, respectively.
Commitments for land, new construction, development, and acquisitions, excluding separately financed joint venture activity, totaled approximately $6.2 million at December 31, 1999.
Depreciation expense (including amortization of the capital lease) amounted to $35.6 million, $29.2 million and $22.3 million for the years ended December 31, 1999, 1998 and 1997, respectively.
4. Waikele Acquisition
Pursuant to a Subscription Agreement dated as of March 31, 1997, the OP acquired Waikele Factory Outlets, a manufacturers’ outlet shopping center located in Hawaii. The consideration paid by the OP consisted of the assumption of $70.7 million of indebtedness outstanding with respect to the property (which indebtedness was repaid in full by the OP immediately after the closing) and the issuance of special partnership units in the Operating Partnership, having a fair market value of $0.5 million. Immediately after the closing, the OP paid a special cash distribution of $5.0 million on the special units. The cash used by the OP in the transaction was obtained through borrowings under the OP’s Credit Facilities.
The following condensed pro forma (unaudited) information assumes the acquisition had occurred on January 1, 1997:
1997
Total revenue................................................. $115,802
Income to common unitholders before extraordinary items....... 34,718
Net income to common unitholders:
General partner............................................ 27,933
Limited partners........................................... 6,533
-----------
Total......................................................... 34,466
Net income per unit:
General partner (including $0.01 net loss per unit
from extraordinary item in 1997)........................ $1.91
Limited partners (including $0.01 net loss per unit
from extraordinary item in 1997)........................ $1.89
5. Deferred Costs
The following summarizes the carrying amounts for deferred costs as of December 31 (in thousands):
1999 1998
------------ ------------
Lease costs................................. $19,838 $17,601
Financing costs............................. 11,557 10,879
Development costs........................... 967 3,675
Other....................................... 1,172 1,172
------------
------------
Total deferred costs........................ 33,534 33,327
Accumulated amortization.................... (19,244) (15,561)
------------ ------------
Total deferred costs, net................... $14,290 $17,766
============ ============
6. Properties Held for Sale
As of December 31, 1999, properties held for sale represented the fair value, less estimated costs to sell, of Solvang Designer Outlets (“Solvang”). As of December 31, 1998, Lawrence Riverfront Plaza was also included in properties held for sale; the property was sold on March 26, 1999.
During the second quarter of 1998, the OP accepted an offer to purchase Solvang, a 51,000 square foot center in Solvang, California, for a net selling price of $5.6 million. The center had a book value of $10.5 million, resulting in a writedown of $4.9 million in the second quarter of 1998. During the fourth quarter of 1998, the initial purchase offer was withdrawn and the OP received another offer for a net selling price of $4.0 million, requiring a further writedown of $1.6 million. In January 2000, the center was sold for a net selling price of $3.3 million resulting in an additional writedown of $0.7 million recognized in the fourth quarter of 1999. For the years ended December 31, 1999 and 1998, Solvang accounted for less than 1% of the OP’s revenues and net operating income.
Management decided to sell these two properties during 1998 as part of the OP’s long-term objective of devoting resources to and focusing on productive properties. Management determined that the time and effort necessary to support these two underperforming centers was not worth the economic benefit to the OP. Management also concluded that these centers would be more useful as office and/or residential space, which are outside the OP’s area of expertise.
7. Non-Compete Agreement
In October 1998, the OP signed a definitive agreement to terminate the development of Houston Premium Outlets, a joint venture project with Simon Property Group, Inc. (“Simon”). Under the terms of the agreement, the OP withdrew from the Houston development partnership and agreed to certain restrictions on competing in the Houston market through 2002. The OP will receive non-compete payments totaling $21.4 million from The Mills Corporation; $3.0 million was received at closing, the first of four annual installments of $4.6 million was received in January 1999 and the remaining installments are to be received on each January 2, through 2002. The OP has also been reimbursed for its share of land costs, development costs and fees related to the project. The revenue is being recognized on a straight-line basis over the term of the non-compete agreement and the OP recognized income of $5.1 million and $0.9 million during the years ended December 31, 1999 and 1998, respectively. Such amounts are included in other income.
8. Debt
On March 30, 1998, the OP replaced its two unsecured bank revolving lines of credit, totaling $150 million (the “Credit Facilities”), with a $160 million senior unsecured bank line of credit (the “Senior Credit Facility”). The Senior Credit Facility expires on March 30, 2001 and the OP has an annual right to request a one-year extension of the Senior Credit Facility which may be granted at the option of the lenders. The OP has requested and expects approval to extend the Facility until March 30, 2003. The Facility bears interest on the outstanding balance, payable monthly, at a rate equal to the London Interbank Offered Rate (“LIBOR”) plus 1.05% (7.24% at December 31, 1999) or the prime rate, at the OP’s option. The LIBOR rate spread ranges from 0.85% to 1.25% depending on the OP’s Senior Debt rating. A fee on the unused portion of the Senior Credit Facility is payable quarterly at rates ranging from 0.15% to 0.25% depending on the balance outstanding. At December 31, 1999, $94 million was available under the Senior Credit Facility.
Also on March 30, 1998, the OP entered into a $5 million term loan (the “Term Loan”) that carries the same interest rate and maturity as the Senior Credit Facility. The Lender has credit committee approval to extend the Term Loan to March 30, 2003.
In November 1998, the OP obtained a $60 million term loan that expires April 2000 and bears interest on the outstanding balance at a rate equal to LIBOR plus 1.40% (7.53% at December 31, 1999). Proceeds from the loan were used to pay down borrowings under the Senior Credit Facility. The OP is currently exploring several alternatives regarding refinancing or payoff of this loan.
In January 1996, the OP completed a $100 million offering of 7.75% unsecured term notes due January 2001 (the "7.75% Notes"), which are guaranteed by the Company. The five-year non-callable 7.75% Notes were priced to yield 7.85% to investors. At December 31, 1999, in the opinion of management, the 7.75% Notes approximated fair value.
In October 1997, the OP completed a $125 million offering of 7.25% unsecured term notes due October 2007 (the “7.25% Notes”). The 7.25% Notes were priced to yield 7.29% to investors, 120 basis points over the 10-year U.S. Treasury rate. At December 31, 1999, in the opinion of management, the fair value of the 7.25% Notes was approximately $113 million.
Interest paid, excluding amounts capitalized, was $24.1 million, $19.8 million and $14.1 million for the years ended December 31, 1999, 1998 and 1997, respectively.
9. Preferred Units
On September 3, 1999, the OP completed a private sale of $65 million of Series B Cumulative Redeemable Preferred Units (“Preferred Units”) to an institutional investor. The private placement took the form of 1.3 million Preferred Units at a stated value of $50 each. The Preferred Units may be called at par on or after September 3, 2004, have no stated maturity or mandatory redemption and pay a cumulative quarterly dividend at an annualized rate of 9.0%. The Preferred Units are exchangeable into Series B Cumulative Redeemable Preferred Stock of the Company after ten years. The proceeds from the sale were used to pay down borrowings under the Senior Credit Facility.
10. Preferred Stock
In October 1997, the Company issued 1.0 million shares of nonvoting 8.375% Series A Cumulative Redeemable Preferred Stock (the “Preferred Stock”), par value $0.01 per share, having a liquidation preference of $50.00 per share. The Preferred Stock has no stated maturity and is not convertible into any other securities of the Company. The Preferred Stock is redeemable on or after October 15, 2027 at the Company’s option. Net proceeds from the offering were used to repay borrowings under the Company’s Credit Facilities.
11. Lease Agreements
The OP is the lessor and sub-lessor of retail stores under operating leases with term expiration dates ranging from 2000 to 2018. Most leases are renewable for five years after expiration of the initial term at the lessee’s option. Future minimum lease receipts under non-cancelable operating leases as of December 31, 1999, exclusive of renewal option periods, were as follows (in thousands):
2000............ $99,382
2001............ 92,716
2002............ 81,106
2003............ 64,251
2004............ 45,936
Thereafter...... 89,907
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$473,298
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In 1987, a Predecessor partnership entered into a lease agreement for property in California. Land was estimated to be approximately 37% of the fair market value of the property, and accordingly the portion of the lease attributed to land is classified as an operating lease. The portion attributed to building is classified as a capital lease as the present value of payments related to the building exceeded 90% of its fair value at inception of the lease. The initial lease term is 25 years with two options of 5 and 4 1/2 years, respectively. The lease provides for additional rent based on specific levels of income generated by the property. No additional rental payments were incurred during 1999, 1998 or 1997. The OP has the option to cancel the lease upon six months written notice and six months advance payment of the then fixed monthly rent. If the lease is canceled, the building and leasehold improvements revert to the lessor. In August 1999, the OP amended its capital lease resulting in a writedown of the asset and obligation of $2.7 million and $6.0 million, respectively. The difference of $3.3 million will be recognized on a straight-line basis over the remaining term of the amended lease which ends December 2004.
Operating Leases
Future minimum rental payments under operating leases for land and administrative offices as of December 31, 1999 were as follows (in thousands):
2000........... $1,021
2001........... 1,121
2002........... 1,068
2003........... 1,058
2004........... 1,058
Thereafter..... 529
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$5,855
===========
Rental expense amounted to $0.9 million for the year ended December 31, 1999 and $1.0 million for the years ended December 31, 1998 and 1997.
Capital Lease
A leased property included in rental properties at December 31 consists of the following (in thousands):
1999 1998
--------------- ---------------
Building.................................... $6,796 $8,621
Less accumulated amortization............... (4,830) (3,937)
---------------
---------------
Leased property, net........................ $1,966 $4,684
=============== ===============
Future minimum payments under the capitalized building lease, including the present value of net minimum lease payments as of December 31, 1999 are as follows (in thousands):
2000.................................... $819
2001.................................... 819
2002.................................... 819
2003.................................... 819
2004.................................... 819
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Total minimum lease payments............ 4,095
Amount representing interest............ (862)
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Present value of net minimum capital
lease payments......................... $3,233
==============
12. Commitments and Contingencies
The OP has agreed under a standby facility to provide up to $22 million in limited debt service guarantees for loans provided to Value Retail PLC, an affiliate, to construct outlet centers in Europe. The term of the standby facility is three years and guarantees shall not be outstanding for longer than five years after project completion. As of December 31, 1999, the OP has provided guarantees of approximately $20 million for three projects.
In June 1999, the OP signed a definitive agreement with Mitsubishi Estate Co., Ltd. and Nissho Iwai Corporation to jointly develop, own and operate premium outlet centers in Japan. The joint venture, known as Chelsea Japan Co., Ltd. (“Chelsea Japan”) intends to develop its initial project in the city of Gotemba, approximately 60 miles west of Tokyo. Groundbreaking for the 220,000 square-foot first phase took place in November 1999, with opening scheduled for mid-2000. In conjunction with the agreement, the OP contributed $1.7 million in equity. In addition, an equity investee of the OP entered into a 4 billion yen (US $40 million) line of credit guaranteed by the OP and OP to fund its share of construction costs. At December 31, 1999, no amounts were outstanding under the loan.
Construction is underway on Orlando Premium Outlets (“OPO”), a 430,000 square foot 50/50 joint venture project between the OP and Simon. OPO is located on Interstate 4, midway between Walt Disney World/EPCOT and Sea World in Orlando, Florida and is scheduled to open mid-2000. In February 1999, the joint venture entered into a $82.5 million construction loan agreement that is expected to fund approximately 75% of the costs of the project. The loan is 50% guaranteed by each of the OP and Simon and as of December 31, 1999, $20.8 million was outstanding.
The OP is not presently involved in any material litigation nor, to its knowledge, is any material litigation threatened against the OP or its properties, other than routine litigation arising in the ordinary course of business. Management believes the costs, if any, incurred by the OP related to any of this litigation will not materially affect the financial position, operating results or liquidity of the OP.
13. Related Party Information
During the second quarter of 1999, the OP established a $6 million secured loan facility for the benefit of certain unitholders. At December 31, 1999, loans made to two unitholders totaled $2.2 million. Each unitholder issued a note that is secured by OP units, bears interest at a rate of LIBOR plus 200 basis points per annum, payable quarterly, and is due June 2004. The carrying amount of such loans approximated fair value at December 31, 1999.
In September 1995, the OP transferred property with a book value of $4.8 million to its former President (a current unitholder) in exchange for a $4.0 million note secured by units in the Operating Partnership (the “Secured Note”) and an $0.8 million unsecured note receivable (the “Unsecured Note”). In January 1999, the OP received $4.5 million as payment in full for the two notes. The remaining $0.3 million write-off was recognized in December 1998.
On June 30, 1997 the OP forgave a $3.3 million related party note and paid $2.4 million in cash to acquire the remaining 50% interest in Solvang. The OP also collected $0.8 million in accrued interest on the note.
The OP had space leased to related parties of approximately 56,000 square feet during the years ended December 31, 1999 and 1998 and 61,000 square feet during the year ended December 31, 1997. Rental income from those tenants, including reimbursement for taxes, common area maintenance and advertising, totaled $1.8 million during the years ended December 31, 1999 and 1998 and $1.5 million during the year ended December 31 1997.
At December 31, 1999 the OP had a receivable from an equity investee of $4.0 million that is included in other assets. In January 2000 the OP received payment of $3.0 million on this receivable.
The OP had a consulting agreement with one of its directors from August 1998 through December 31, 1999. The agreement called for monthly payments of $10,000.
Certain Directors and unitholders guarantee OP obligations, which existed prior to the formation of the OP, under leases for one of the properties. The OP has indemnified these parties from and against any liability which they may incur pursuant to these guarantees.
14. Employee Stock Purchase Plan
The Company’s Board of Directors and shareholders approved an Employee Stock Purchase Plan (the “Purchase Plan”), effective July 1, 1998. The Purchase Plan covers an aggregate of 500,000 shares of the Company’s common stock. Eligible employees have been in the employ of the OP or a participating subsidiary for five months or more and customarily work more than 20 hours per week. The Purchase Plan excludes employees who are “highly compensated employees” or own 5% or more of the voting power of the Company’s stock. Eligible employees will purchase shares of the Company through automatic payroll deductions up to a maximum of 10% of weekly base pay. The Purchase Plan will be implemented by consecutive three-month offerings (each an “Option Period”). The price at which shares may be purchased shall be the lower of (a) 85% of the fair market value of the stock on the first day of the Option Period or (b) 85% of the fair market value of the stock on the last day of the Option Period. As of December 31, 1999, 48 employees were enrolled in the Purchase Plan and $1,300 expense has been incurred and is included in the financial statements. The Purchase Plan will terminate after five years unless terminated earlier by the Company’s Board of Directors.
15. 401(k) Plan
The OP maintains a defined contribution 401(k) savings plan (the “Plan”), which was established to allow eligible employees to make tax-deferred contributions through voluntary payroll withholdings. All employees of the OP are eligible to participate in the Plan after completing one year of service and attaining age 21. Employees who elect to enroll in the Plan may elect to have from 1% to 15% of their pre-tax gross pay contributed to their account each pay period. As of January 1, 1998 the Plan was amended to include an employer discretionary matching contribution in an amount not to exceed 100% of each participant’s first 6% of yearly compensation to the Plan. Matching contributions of approximately $97,000 in 1999 and $150,000 in 1998 are included in the OP’s general and administrative expense.
16. Extraordinary Item
Deferred financing costs of $0.3 million for the years ended December 31, 1998 and 1997, were expensed as a result of early debt extinguishments, and are reflected in the accompanying financial statements as an extraordinary item.
17. Quarterly Financial Information (Unaudited)
The following summary represents the results of operations, expressed in thousands except per share amounts, for each quarter during 1999 and 1998:
March 31 June 30 September 30 December 31
--------------------------- --------------- ----------------
1999
Base rental revenue............................ $24,555 $24,580 $24,687 $25,016
Total revenues................................. 36,963 38,880 40,384 46,699
Income before extraordinary item to
common unitholders........................ 9,001 9,336 10,359 12,723
Net income to common unitholders............... 9,001 9,336 10,359 12,723
Income before extraordinary item per
weighted average partnership unit......... $0.47 $0.49 $0.54 $0.66
Net income per weighted average
partnership unit.......................... $0.47 $0.49 $0.54 $0.66
1998
Base rental revenue............................ $19,266 $20,815 $22,561 $23,950
Total revenues................................. 28,506 32,068 34,921 43,820
Income before extraordinary item to
common unitholders........................ 6,952 2,582 9,902 1,812
Net income to common unitholders............... 6,952 2,582 9,902 1,467
Income before extraordinary item per
weighted average partnership unit......... $0.37 $0.14 $0.52 $0.10
Net income per weighted average
partnership unit.......................... $0.37 $0.14 $0.52 $0.08
18. Non-Cash Financing and Investing Activities
In December 1999, 1998 and 1997, the OP declared distributions per unit of $0.72, $0.69 and $0.69 for each year, respectively. The limited partners' distributions were paid in January of each subsequent year.
In June 1997, the OP forgave a $3.3 million related party note receivable as partial consideration to acquire the remaining 50% interest in Solvang.
Other assets and other liabilities each include $6.2 million and $6.6 million in 1999 and 1998, respectively, related to a deferred unit incentive program with certain key officers to be paid in 2002. Also included is $12.0 million in 1999 and $16.6 million in 1998 related to the present value of future payments to be received from The Mills Corporation under the Houston non-compete agreement.
During 1997, the Operating Partnership issued units with an aggregate fair market value of $0.5 million to acquire properties.
During 1997, 1.4 million Operating Partnership units were converted to common shares.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to the Report to be signed on its behalf by the undersigned thereunto duly authorized.
| CHELSEA GCA REALTY, INC. By: /s/ Michael J. Clarke Michael J. Clarke Chief Financial Officer |
Date: September 20, 2000