UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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 22-3258100
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
103 Eisenhower Parkway, Roseland, New Jersey 07068
(Address of principal executive offices - zip code)
(201) 228-6111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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.
There are no outstanding shares of Common Stock or voting securities.
Chelsea GCA Realty Partnership, L.P.
Index
Part I. Financial Information
Item 1. Financial Statements (Unaudited) Page
Condensed Consolidated Balance Sheets
as of March 31, 1996 and December 31, 1995 ..........................2
Condensed Consolidated Statements of Income
for the three months ended March 31, 1996 and 1995...................3
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1996 and 1995...................4
Notes to Condensed Consolidated Financial Statements.................. 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K .............................12
Signatures ........................................................... 13
Item 1. Financial Statements
Chelsea GCA Realty Partnership, L.P.
Condensed Consolidated Balance Sheets
(In thousands, except per unit data)
March 31, December 31,
1996 1995
Assets
Rental properties:
Land........................................................ $78,940 $75,224
Depreciable property........................................ 363,479 340,759
-------- ------------
Total rental property ........................................... 442,419 415,983
Accumulated depreciation ........................................ (44,444) (41,373)
-------- ------------
Rental properties, net .......................................... 397,975 374,610
Cash and equivalents ............................................ 4,774 3,987
Notes receivable-related parties ................................ 8,196 8,129
Deferred costs, net ............................................. 11,245 7,731
Other assets .................................................... 12,912 13,596
--------- -----------
Total assets $435,102 $408,053
======== ============
Liabilities and partners' capital
Liabilities:
Unsecured bank line of credit............................... $25,000 -
Secured bank line of credit................................. - $96,000
Notes payable............................................... 99,607 -
Construction payables....................................... 18,270 18,617
Accounts payable and accrued expenses....................... 5,892 5,730
Obligation under capital lease.............................. 9,855 9,845
Distribution payable to unitholders......................... 9,834 9,790
Rent payable................................................ 1,606 1,595
------------ -------------
Total liabilities ............................................... 170,064 141,577
Commitments and contingencies
Minority interest ............................................... 5,506 5,441
Partners' capital:
General partner units outstanding, 11,507 in 1996
and 11,485 in 1995........................................ 174,835 176,758
Limited partner units outstanding, 5,597 in 1996
and 5,541 in 1995......................................... 84,697 84,277
------------- -----------
Total partners' capital ......................................... 259,532 261,035
------------- ------------
Total liabilities and partners' capital $435,102 $408,053
============= ============
The accompanying notes are an integral part of the financial statements.
Chelsea GCA Realty Partnership, L.P.
Condensed Consolidated Statements of Income
for the three months ended March 31, 1996 and 1995
(Unaudited)
(In thousands, except per unit data)
1996 1995
------------ ------------
Revenues:
Base rent....................................................... $12,677 $10,337
Percentage rent................................................. 798 334
Expense reimbursements.......................................... 5,145 4,059
Other income.................................................... 435 345
----------- ----------
Total revenues..................................................... 19,055 15,075
----------- ----------
Expenses:
Interest........................................................ 1,578 252
Operating and maintenance....................................... 5,523 4,208
Depreciation and amortization................................... 3,639 2,584
General and administrative...................................... 641 637
Other........................................................... 538 261
------------ ----------
Total expenses..................................................... 11,919 7,942
------------ ------------
Income before minority interest and extraordinary item............. 7,136 7,133
Minority interest.................................................. (65) (68)
------------ ------------
Net income before extraordinary item............................... 7,071 7,065
Extraordinary item-loss on early extinguishment of debt............ (902) -
------------ ------------
Net income......................................................... $6,169 $7,065
============ ============
Net income:
General partner................................................. $4,154 $4,693
Limited partners................................................ 2,015 2,372
------------ ------------
Total.............................................................. $6,169 $7,065
============ ============
Net income per unit
General partner (including $0.05 net loss per unit from
extraordinary item in 1996)................................... $0.36 $0.42
Limited partners (including $0.05 net loss per unit from
extraordinary item in 1996)................................... $0.36 $0.42
Weighted average units outstanding:
General partner................................................. 11,648 11,125
Limited partners................................................ 5,574 5,588
----------- ------------
Total.............................................................. 17,222 16,713
The accompanying notes are an integral part of the financial statements.
Chelsea GCA Realty Partnership, L.P.
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1996 and 1995
(Unaudited)
(In thousands)
1996 1995
Cash flows from operating activities -------- --------
Net income...................................... $6,169 $7,065
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 3,639 2,584
Minority interest in net income................. 65 68
Loss on early extinguishment of debt............ 902 -
Amortization of debt discount................... 25 -
Other operating activities ..................... 24 -
Additions to deferred lease costs .............. (174) (491)
Changes in assets and liabilities:
Straight line rent receivable ................ (430) (351)
Other assets ................................. 1,114 1,597
Accounts payable and accrued expenses ........ 183 (1,294)
--------- --------
Net cash provided by operating activities ......... 11,517 9,178
-------- --------
Cash flows from investing activities
Additions to rental properties .................(24,993) (22,368)
Additions to deferred development costs ........ (1,891) -
Advances to related parties .................... (67) -
Payments from related parties .................. - 105
--------- ----------
Net cash used in investing activities ............. (26,951) (22,263)
Cash flows from financing activities
Proceeds from bank line of credit ............. 18,000 24,000
Proceeds from issuance of notes payable ....... 99,582 -
Repayments of debt ............................ (89,000) -
Additions to deferred financing costs ......... (3,110) (38)
Distributions ................................. (9,791) (8,653)
Net proceeds from sale of units ............... 540 -
Other financing activities .................... - (19)
--------- -----------
Net cash provided by financing activities ..... 16,221 15,290
-------- -----------
Net increase in cash and equivalents .......... 787 2,205
Cash and equivalents, beginning of period ..... 3,987 9,109
-------- ----------
Cash and equivalents, end of period ........... $4,774 $11,314
======== ===========
Supplemental schedule of Non-Cash Investing and Financing Activities:
During 1996, the Operating Partnership acquired property valued at $1.6 million
through the issuance of units.
The accompanying notes are an integral part of the financial statements.
Chelsea GCA Realty Partnership, L.P.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Basis of Presentation
Chelsea GCA Realty Partnership, L.P. (the "Operating Partnership"), which
commenced operations on November 2, 1993, is engaged in the development,
ownership, acquisition, leasing and operation of manufacturers' outlet centers.
As of March 31, 1996, the Operating Partnership operated 16 centers in 8 states
(the "Properties") containing approximately 2.9 million square feet of gross
leasable area ("GLA"). The Operating Partnership also has a number of properties
under development. The Properties are located near large metropolitan areas
including New York, Los Angeles, San Francisco, Sacramento, Portland (Oregon),
Kansas City and Cleveland, or at or near tourist destinations including the Napa
Valley, Palm Springs and the Monterey Peninsula. 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.
Ownership of the Operating Partnership as of March 31, 1996 was as follows:
General partner 67.3% 11,506,900 units
Limited partners 32.7% 5,597,300 units
----------- ------------------
Total 100.0% 17,104,200
The condensed consolidated financial statements of the Operating Partnership
include the accounts of Solvang Designer Outlets ("Solvang"), a limited
partnership in which the Operating Partnership has a 50% interest and is the
sole general partner. As the sole general partner, the Operating Partnership has
the ability to exercise both financial and operational control over the
partnership. Solvang is not material to the operations or financial position of
the Operating Partnership.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for fair presentation have
been included. Operating results for the three month period ended March 31, 1996
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. These financial statements should be read in
conjunction with the consolidated financial statements and accompanying notes
included in the Operating Partnership's Annual Report on Form 10-K for the year
ended December 31, 1995.
Certain prior period balances have been reclassified to conform with current
period presentation.
2. Bank Line of Credit
On March 29, 1996, the Operating Partnership replaced its secured revolving
credit facility (the "Secured Facility") with a new, unsecured $100 million line
of credit (the "Unsecured Facility"). The Unsecured Facility expires March 29,
1998. Interest on the outstanding balance is payable monthly at the London
Interbank Offered Rate plus 1.75%, or the prime rate, at the Operating
Partnership's option. A fee on the unused portion of the Unsecured Facility is
payable quarterly at a rate of 0.25% per annum. The outstanding balance at March
31, 1996 was $25.0 million, which approximates fair value. An additional $1.0
million of the Unsecured Facility was reserved for letters of credit issued to
secure commitments to fund a traffic mitigation plan at a new center.
The Unsecured Facility requires compliance with certain financial loan covenants
relating to debt service coverage, tangible net worth, cash flow, earnings,
occupancy rate, new development and dividends. The Operating Partnership has
remained in compliance with these covenants since inception of the facility.
Interest and loan costs of approximately $1.1 million were capitalized as
development costs during the three months ended March 31, 1996.
3. Notes Payable
In January 1996, the Operating Partnership completed a $100 million public
debt offering of 7.75% unsecured notes due January 2001 (the "Notes"), which are
guaranteed by the Company. The five-year non-callable Notes were priced at a
discount of 99.952 to yield 7.85% to investors. Net proceeds from the offering
were used to pay down substantially all of the borrowings under the Secured
Facility.
4. Distributions
On March 14, 1996, the Board of Directors of the Company declared a $0.575
per unit cash distibution to unitholders of record on March 29, 1996. The
distribution, totaling $9.8 million, was paid on April 22, 1996.
5. Income Taxes
No provision has been made for income taxes in the accompanying
consolidated condensed financial statements since such taxes, if any, are the
responsibility of the individual partners.
6. Net Income Per Partnership Unit
Net income per partnership unit is determined by allocating net income to the
general partner and the limited partners based on their weighted average
partnership units outstanding during the respective periods presented.
7. Commitments and Contingencies
Management has determined that the foundation slab at one of its manufacturers'
outlet centers was installed improperly and will require corrective action, the
cost of which management estimated will be in excess of $1 million. Management
believes such costs may be recoverable from the original contractor and/or
engineers, and that any costs incurred by the Operating Partnership will not
materially affect the financial position, operating results or liquidity of the
Operating Partnership.
The Operating Partnership is not presently involved in any material litigation
nor, to its knowledge, is any material litigation threatened against the
Operating Partnership or its properties, other than routine litigation arising
in the ordinary course of business. Management believes the costs, if any,
incurred by the Operating Partnership related to this litigation will not
materially affect the financial position, operating results or liquidity of the
Operating Partnership.
8. Related Party Information
The Operating Partnership recognized lease settlement income of
approximately $99,000 from a related party during the three months ended March
31, 1996. This amount is included in other income in the accompanying condensed
consolidated financial statements.
9. Extraordinary Item
Deferred financing cost of $0.9 million related to the Secured Facility
replaced in March 1996 have been written off and reflected in the accompanying
financial statements as an extraordinary item.
Chelsea GCA Realty Partnership, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with the accompanying
unaudited condensed consolidated financial statements and notes thereto. These
financial statements include all adjustments which, in the opinion of
management, are necessary to reflect a fair statement of results for the interim
periods presented, and all such adjustments are of a normal recurring nature.
General Overview
The Operating Partnership has grown by increasing rent at its existing
centers, expanding its existing centers, developing new centers and acquiring
and redeveloping centers. At March 31, 1996, the Operating Partnership operated
16 manufacturers' outlet centers, compared to 17 at the end of the same quarter
in the prior year. The Operating Partnership sold its smallest center, Page
Factory Stores, in December, 1995. The Operating Partnership's operating gross
leasable area (GLA) at March 31, 1996, incresed 16.3% to 2.9 million square feet
from 2.5 million square feet at March 31, 1995. The GLA added during 1995
and the first quarter of 1996 is detailed in the schedule that follows:
12 Months Ended 3 Months Ended 9 Months Ended
March 31, 1996 March 31, 1996 December 31, 1995
----------------- ------------ ------------
GLA added(in 000's):
New centers opened:
Camarillo Factory Stores 15 - 15
------ -------- -------
Total new centers......................... 15 - 15
Centers expanded:
Desert Hills ......................... 196 2 194
Aurora Farms ......................... 27 - 27
Woodbury Common ...................... 20 1 19
Napa Factory Stores .................. 59 - 59
Camarillo Factory Stores ............. 77 - 77
Patriot Plaza ........................ 22 - 22
Other ................................ 12 3 9
------- ------- --------
Total centers expanded.................... 413 6 407
Center sold:
Page Factory Stores (14) - (14)
------------ ------------
GLA added during the period............... 414 6 408
GLA at end of period..................... 2,940 2,940 2,934
Results of Operations
Comparison of the three months ended March 31, 1996 to the three months ended
March 31, 1995.
Net income before minority interest and extraordinary item remained flat at
$7.1 million for the three months ended March 31, 1996 and 1995 principally as a
result of increases in revenues offset by interest on borrowings and increases
in depreciation and amortization.
Base rentals increased $2.3 million, or 22.6% to $12.7 million for the three
months ended March 31, 1996 from $10.3 million for the three months ended March
31, 1995 due to expansions, new center openings and higher average rents.
Percentage rents increased $0.5 million to $0.8 million for the three
months ended March 31, 1996 from $0.3 million for the three months ended March
31, 1995. The increase was primarily due to an increase in tenants contributing
percentage rents, increases in tenant sales and expansions at the Operating
Partnership's larger centers.
Expense reimbursements, representing contractual recoveries from tenants of
certain common area maintenance, operating, real estate tax, promotional and
management expenses, increased $1.1 million, or 26.8%, to $5.1 million for the
three months ended March 31, 1996 from $4.1 million for the three months ended
March 31, 1995, due to the recovery of operating and maintenance costs at new
and expanded centers. The average recovery of reimbursable expenses was 93.2% in
1996 compared to 96.5% in 1995.
Other income increased $0.1 million to $0.4 million for the three months
ended March 31, 1996 from $0.3 million for the three months ended March 31, 1995
primarily as a result of a lease termination settlement in the 1996 period.
Interest in excess of amounts capitalized increased $1.3 million to $1.6
million for the three months ended March 31, 1996 from $0.3 million for the
three months ended March 31, 1995, due to the opening of centers and expansions
financed during 1995.
Operating and maintenance expenses increased $1.3 million, or 31.3%, to $5.5
million for the three months ended March 31, 1996 from $4.2 million for the
three months ended March 31, 1995. The increase was primarily due to costs
related to expansions and new centers.
Depreciation and amortization expense increased $1.0 million, or 40.8%,to $3.6
million for the three months ended March 31, 1996 from $2.6 million for the
three months ended March 31, 1995. The increase was primarily due to costs
related to expansions and new centers.
General and administrative expenses remained flat at $0.6 million for the
three months ended March 31, 1996 and 1995. Increased personnel and overhead
costs were absorbed by additions to operating GLA.
Other expenses increased $0.3 million to $0.5 million for the three months ended
March 31, 1996 from $0.2 million for the three months ended March 31, 1995. The
increase included additional reserves for bad debts, legal fees and tenant
improvement write-offs.
In March 1996, the Operating Partnership replaced its Secured Facility.
Deferred financing costs of $0.9 million were expensed in connection with the
early retirement of the Secured Facility.
Liquidity and Capital Resources
The Operating Partnership believes it has adequate financial resources to
fund operating expenses, distributions, and planned development and construction
activities. Operating cash flow during 1996 is expected to increase with a full
year of operations of the 606,000 square feet of GLA added during 1995 and
scheduled openings of 600,000 square feet including two new centers and
expansions in 1996. In addition, at March 31, 1996 the Operating Partnership had
$74.0 million available under its Unsecured Facility, access to the public
markets through its debt ($100 million) and the Company's ($200 million) equity
shelf registrations, and cash equivalents of $4.8 million.
Operating cash flow is expected to provide sufficient funds for distributions.
In addition, the Operating Partnership 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.
Distributions declared and recorded during the first quarter of 1996 were
$9.8 million or $0.575 per unit. The Operating Partnership's 1996 first quarter
distribution payout ratio as a percentage of net income before depreciation and
amortization, minority interest and extraordinary item ("FFO") was 95.8%. The
Unsecured Facility limits aggregate distributions to the lesser of (i) 90% of
FFO on an annual basis or (ii) 100% of FFO for any two consecutive quarters.
In January 1996, the Operating Partnership completed a $100 million public
offering of 7.75% unsecured notes due January 2001 (the "Notes), which are
guaranteed by the Company. The five-year non-callable Notes were priced at a
discount of 99.592 to yield 7.85% to investors. Net proceeds from the offering
were used to repay substantially all borrowings under the Secured Facility.
In March 1996, the Operating Partnership replaced its Secured Facility with
the new $100 million Unsecured Facility. The Operating Partnership had $74.0
million available for growth and liquidity at March 31, 1996. Interest on the
outstanding balance is payable monthly at a rate equal to the London Interbank
Offered Rate ("LIBOR") plus 1.75%, or the prime rate, at the Operating
Partnership's option. A fee on the unused portion of the Unsecured Facility is
payable quarterly at a rate of 0.25% per annum.
The Operating Partnership is in the process of planning development for 1996,
1997 and beyond. At March 31, 1996, approximately 575,000 square feet of the
Operating Partnership's planned 1996 development was under construction. The
Operating Partnership anticipates 1996 development and construction costs of $80
million to $100 million. Funding is currently expected from Unsecured Facility
borrowings and other available capital sources.
To achieve planned growth and favorable returns in both the short and long-term,
the Operating Partnership'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 Operating Partnership to access a broad array
of capital sources, including bank or institutional borrowings and secured and
unsecured debt and equity offerings.
It is the Operating Partnership's policy to limit its borrowings to less
than 40% of total market capitalization (defined as the value of outstanding
shares of common stock of the Company on a fully diluted basis including
conversion of Operating Partnership units to common stock, plus total debt).
Using a March 31, 1996 closing price of $29.50 per share of common stock of the
Company, the Operating Partnership's ratio of debt to total market
capitalization was approximately 20%.
Net cash provided by operating activities was $11.5 million and $9.2 million for
the three months ended March 31, 1996 and 1995, respectively. The increase was
primarily due to the growth of the Operating Partnership's GLA from 2.5 million
square feet in 1995 to 2.9 million square feet in 1996. Net cash used in
investing activities increased $4.7 million for the three months ended March 31,
1996 compared to 1995, primarily as a result of increased construction activity.
Net cash provided by financing activities increased $0.9 million primarily due
to increased borrowings for development and construction activity during 1996.
Funds from Operations
Management believes that, to facilitate a clear understanding of the operating
results of the Operating Partnership, FFO should be considered in conjunction
with net income as presented in the condensed consolidated financial statements.
Analysts generally consider FFO an appropriate measure of performance of an
equity real estate investment trust. FFO is generally defined by the National
Association of Real Estate Investment Trusts ("NAREIT") as net income or loss
plus certain non-cash items, primarily depreciation and amortization. FFO should
not be considered an alternative to net income as an indicator of operating
performance or to cash from operations under generally accepted accounting
principles, and is not necessarily indicative of cash available to fund cash
needs.
In March 1995, NAREIT issued a clarification of its definition of FFO. For
illustrative purposes, the following table presents the Operating Partnerhip's
FFO under both methods of calculation for the three months ended March 31, 1996
and 1995.
New Method Old Method
1996 1995 1996 1995
-------------- -------------- -------------- ----------
Net income before extraordinary
item ............................. $7,071 $7,065 $7,071 $7,065
Add back:
Depreciation and amortization(1) 3,587 2,553 3,587 2,553
Amortization of deferred financing
costs and depreciation of non-real
estate assets (387) (77) - -
-------------- -------------- -------------- --------------
FFO ................................ $10,271 $9,541 $10,658 $9,618
============== ============== ============== ==============
Weighted average units
outstanding ...................... 17,222 16,713 17,222 16,713
- ----------------
(1) Excludes depreciation of $52 and $31 and minority interest of $65 and $68
attributed to a third-party limited partner's interest in a partnership during
the three months ended March 31, 1996 and 1995, respectively.
Chelsea GCA Realty Partnership, L.P.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
Exhibits
10.1 Credit Agreement dated March 29, 1996 among Chelsea GCA Realty Partnership,
L.P., Chelsea GCA Realty, Inc., The First National Bank of Boston,
individually and as an agent, and other Lending Institutions listed therein.
Chelsea GCA Realty Partnership, L.P.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Chelsea GCA Realty Partnsership, L.P.
By: /s/ Leslie T. Chao
Leslie T. Chao
Executive Vice President and
Chief Financial Officer
Date: May 13, 1996
Exhibit Index
Exhibit Description Page No.
10.1 Credit Agreement dated
March 29, 1996 among Chelsea
GCA Realty Partnership, L.P.,
Chelsea GCA Realty, Inc.,
The First National Bank of
Boston, individually and as an
agent, and other Lending Institutions
listed therein