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, 2003
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
CPG PARTNERS, 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]
Indicate by check mark whether the registrant is an accelerated filer.
Yes No X
There are no outstanding shares of Common Stock or voting securities.
Documents incorporated by reference:
Portions of the definitive Proxy Statement of Chelsea Property Group, Inc. relating to its 2004 Annual Meeting of Shareholders are incorporated by reference into Part III as set forth herein.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1 and 2. The response to this portion of Item 15 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. Incorporated by reference to Exhibit 3.1 to Form 10-K for the year ended December 31, 2002. |
| 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 10-K for the year ended December 31, 1997. ("1997 10-K") |
| 3.5 | Amendment No. 3 to Partnership Agreement dated September 3, 1999. Incorporated by reference to Exhibit 3.5 to 1999 10-K. |
| 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 | Amended and Restated Credit Agreement dated July 31, 2002 among CPG Partners, L.P. and Fleet National Bank, individually and as an agent, and other Lending Institutions listed therein. Incorporated by reference to Exhibit 10.1 to Form 10-Q for the period ending September 30, 2002. |
| 10.3 | Joint Venture Agreement between Chelsea GCA Realty Partnership, L.P., Mitsubishi Estate Co., Ltd. and Nissho Iwai Corporation dated June 16, 1999. Incorporated by reference to Exhibit 10.9 to 1999 10-K. |
| 10.4 | Agreement for Purchase and Sale of Assets dated July 12, 2001. Incorporated by reference to Exhibit 2 to current report on Form 8-K reporting on an event, which occurred on September 25, 2001. |
| 10.5 | Purchase Agreement dated November 11, 2002. Incorporated by reference to Exhibit 2 to current report on Form 8-K reporting on an event which occurred December 19, 2002. |
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued)
| 10.8 | 2002-2006 Long-Term Executive Incentive Plan. Incorporated by reference to Exhibit 10.8 to Form 10-K for the year ended December 31, 2002. |
| 10.9 | Agreement for Purchase and Sale dated May 8, 2003, as amended. Incorporated by reference to Exhibit 2 to current report on Form 8-K reporting on an event which occurred August 1, 2003 (“2003 8-K”). |
| 10.10 | Term Loan Agreement dated July 31, 2003 between CPG Partners, L.P. and Wachovia Bank, National Association. Incorporated by reference to Exhibit 10 to 2003 8-K. |
| 21 | List of Subsidiaries |
| 23.1 | Consent of Ernst & Young LLP. |
| 31.1 | Section 302 Chief Executive Officer Certificate |
| 31.2 | Section 302 Chief Financial Officer Certificate |
| 32.1 | Secton 906 Chief Executive Officer Certificate |
| 32.2 | Section 906 Chief Financial Officer Certificate |
| (b) | Reports on Form 8-K. None |
| (c) | Exhibits See (a) 3 |
| (d) | Financial Statement Schedules - The response to this portion of Item 15 is submitted as a separate schedule of this report. |
Item 8, Item 15(a)(1) and (2) and Item 15(d)
(a)1. Financial Statements
| Form 10-K Report Page |
Consolidated Financial Statements–CPG Partners, L.P.
| Report of Independent Auditors Consolidated Balance Sheets as of December 31, 2003 and 2002 Consolidated Statements of Income for the years ended December 31, 2003, 2002 and 2001 Consolidated Statements of Partners' Capital for the years ended December 31, 2003, 2002 and 2001 Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001 Notes to Consolidated Financial Statements (a)2 and (d) Financial Statement Schedule Schedule III-Consolidated Real Estate and Accumulated Depreciation |
F-1 F-2 F-3 F-4 F-5 F-6 F-34 |
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
CPG Partners, L.P.
We have audited the accompanying consolidated balance sheets of CPG Partners, L.P. as of December 31, 2003 and 2002, and the related consolidated statements of income, partners’ capital and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed in the Index as Item 15 (a)(2). These financial statements and schedule are the responsibility of the management of CPG Partners, L.P. Our responsibility is to express an opinion on these 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 CPG Partners, L.P. as of December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, 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.
New York, New York February 24, 2004 |
/s/Ernst & Young LLP |
CPG Partners, L.P.
Consolidated
Balance Sheets
(In thousands)
December 31,
2003 2002
----------------- --------------
Assets:
Rental properties:
Land..................................................... $ 299,176 $ 266,461
Depreciable property..................................... 1,773,607 1,570,713
---------- ----------
Total rental property......................................... 2,072,783 1,837,174
Accumulated depreciation...................................... (332,406) (284,239)
---------- ---------
Rental properties, net........................................ 1,740,377 1,552,935
Cash and cash equivalents..................................... 18,476 22,551
Restricted cash - escrows..................................... 6,456 3,455
Tenant accounts receivable (net of allowance for doubtful
accounts of $1,615 in 2003 and $2,593 in 2002)............ 11,631 7,762
Deferred rent receivable...................................... 25,018 18,778
Property held for sale........................................ 3,500 -
Investments in unconsolidated affiliates...................... 107,068 47,997
Notes receivable-related parties.............................. 2,151 2,746
Deferred costs, net........................................... 22,989 16,706
Other assets.................................................. 32,748 30,100
---------- ---------
Total assets.................................................. $1,970,414 $1,703,030
========== ==========
Liabilities and partners' capital:
Liabilities:
Unsecured bank debt...................................... $ 204,035 $ 103,035
Unsecured notes.......................................... 621,803 621,330
Mortgage debt............................................ 385,634 306,455
Construction payables.................................... 7,668 8,046
Accounts payable and accrued expenses.................... 59,738 45,077
Accrued distribution payable............................. 5,131 4,927
Other liabilities........................................ 20,871 18,886
---------- ---------
Total liabilities............................................. 1,304,880 1,107,756
Commitments and contingencies
Partners' capital:
General partner units outstanding, 43,592 in 2003 and 41,485
in 2002....................................................... 524,295 462,127
Limited partners units outstanding 7,356 in 2003 and 7,563
in 2002....................................................... 81,934 77,094
Preferred partners units outstanding, 1,300 in 2003
and 2002...................................................... 63,315 63,315
Officer loan.................................................. - (488)
Accumulated other comprehensive loss ......................... (4,010) (6,774)
------------ -----------
Total partners' capital....................................... 665,534 595,274
------------ -----------
Total liabilities and partners' capital....................... $1,970,414 $1,703,030
============ ============
The accompanying notes are an integral part of the financial statements.
CPG Partners, L.P.
Consolidated Statements of Income
(In thousands, except per unit data)
Year ended December 31,
2003 2002 2001
---------------- --------------- ----------------
Revenues:
Base rent...................................... $247,894 $178,298 $124,645
Percentage rent................................ 29,134 23,723 17,853
Expense reimbursements......................... 86,499 64,875 49,496
Other income................................... 8,738 11,593 10,888
------- ------- -------
Total revenues...................................... 372,265 278,489 202,882
------- ------- -------
Expenses:
Operating and maintenance...................... 102,951 77,863 56,256
Depreciation and amortization.................. 70,830 56,870 46,768
General and administrative..................... 12,396 7,074 4,620
Other.......................................... 4,984 3,962 2,535
------- ------- -------
Total expenses...................................... 191,161 145,769 110,179
------- ------- -------
Income before unconsolidated investments
and interest expense ............................. 181,104 132,720 92,703
Income from unconsolidated investments.............. 11,006 9,802 15,025
Loss from and impairment of
Chelsea Interactive.............................. (2,518) (47,756) (5,337)
Interest expense....................................... (69,779) (49,189) (37,271)
Gain on sale, net of write-down of assets........... - 10,911 617
------- ------- -------
Income from continuing operations...................... 119,813 56,488 65,737
(Loss) income from discontinued operations.......... (980) 1,366 783
Gain on sale of discontinued operations............. 5,625 - -
------- ------- -------
Net income.......................................... 124,458 57,854 66,520
Preferred unit requirement.......................... (9,184) (9,270) (10,036)
------- ------- -------
Net income available to common unitholders.......... $115,274 $48,584 $56,484
======== ======= =======
Net income to common unitholders:
General partner................................ $98,192 $41,714 $47,626
Limited partners............................... 17,082 6,870 8,858
------- ------- -------
Total............................................... $115,274 $48,584 $56,484
======== ======= =======
Net income per common unit:
General partner (including $0.09, $0.03 and
$0.02 income from discontinued operations
in 2003, 2002 and 2001, respectively) .......... $2.30 $1.09 $1.41
Limited partners (including $0.09, $0.03 and
$0.02 income from discontinued operations
in 2003, 2002 and 2001, respectively) ........ $2.30 $1.07 $1.39
Weighted average units outstanding:
General partner................................ 42,613 38,245 33,678
Limited partners............................... 7,442 6,426 6,358
------- ------- -------
Total............................................... 50,055 44,671 40,036
======== ======= =======
The accompanying notes are an integral part of the financial statements.
CPG Partners, L.P.
Consolidated Statements of Partners’ Capital
(In thousands)
Accum.
General Limited Preferred Other Total
Partner's Partners' Partner's Officer Comp. Partners'
Capital Capital Capital Loan Loss Capital
--------- --------- --------- ------- ------ --------
Balance December 31, 2000.................... $271,482 $37,888 $63,315 $ - $ (123) $372,562
Net income................................... 51,814 14,706 - - - 66,520
Other comprehensive income
Foreign currency translation................. - - - - (252) (252)
Interest rate swap........................... - - - - (3,105) (3,105)
--------
Total comprehensive income................... 63,163
--------
Common distributions......................... (52,939) (9,839) - - - (62,778)
Preferred distribution....................... (4,188) (5,848) - - - (10,036)
Contributions (net of costs)................. 112,151 - - - - 112,151
Revaluation of limited partners' interests... (18,209) 18,209 - - - -
Transfer of a limited partners' interest..... 2,291 (2,291) - - - -
------- ------ ------ ------ ------ -------
Balance December 31, 2001.................... 362,402 52,825 63,315 - (3,480) 475,062
Net income................................... 45,136 12,718 - - - 57,854
Other comprehensive income
Foreign currency translation................. - - - - 320 320
Interest rate swap........................... - - - - (3,614) (3,614)
-------
Total comprehensive income................... 54,560
-------
Issuance of limited partnership units........ - 44,593 - - - 44,593
Common distributions......................... (72,220) (12,304) - - - (84,524)
Preferred distribution....................... (3,422) (5,848) - - - (9,270)
Contributions (net of costs)................. 124,995 - - - - 124,995
Redemption of preferred units
(net of costs).......................... (9,654) - - - - (9,654)
Officer loan................................. - - - (488) - (488)
Revaluation of limited partners' interests... 14,651 (14,651) - - - -
Transfer of a limited partners' interest..... 239 (239) - - - -
------- ------- ------ ----- ------ -------
Balance December 31, 2002.................... 462,127 77,094 63,315 (488) (6,774) 595,274
Net income................................... 101,528 22,930 - - - 124,458
Other comprehensive income
Foreign currency translation................. - - - - 503 503
Interest rate swap........................... - - - - 2,261 2,261
-------
Total comprehensive income................... 127,222
-------
Common distributions......................... (91,947) (15,897) - - - (107,844)
Preferred distribution....................... (3,336) (5,848) - - (9,184)
Contributions (net of costs)................. 59,578 - - - - 59,578
Repayment of officer loan - - - 488 - 488
Revaluation of limited partners interests.... (5,736) 5,736 - - - -
Transfer of a limited partners' interest..... 2,081 (2,081) - - - -
------- ------- ------ ----- ------ -------
Balance December 31, 2003.................... $524,295 $81,934 $63,315 $ - $(4,010) $665,534
======== ======= ======= ======== ======== ========
The accompanying notes are an integral part of the financial statements.
CPG Partners, L.P.
Consolidated Statements of Partners’ Capital
(In thousands)
Year ended December 31,
2003 2002 2001
---------------- ---------------- ---------------
Cash flows from operating activities
Net income................................................. $124,458 $57,854 $66,520
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization............................ 73,651 58,275 48,554
Equity in earnings of unconsolidated investments
in excess of distributions received................... (5,491) (2,407) (2,215)
Loss from and impairment of Chelsea Interactive.......... - 47,756 5,337
Loss from interest rate swap............................. 514 - -
Gain on sale of assets................................... - (11,514) (333)
Gain on sale of discontinued operations.................. (5,625) - -
Proceeds from non-compete receivable..................... - 4,300 4,600
Amortization of non-compete revenue...................... - (5,136) (5,136)
Additions to deferred lease costs........................ (2,642) (1,153) (1,869)
Other operating activities............................... (1,487) (845) (570)
Changes in assets and liabilities:
Straight-line rent receivable........................ (7,285) (3,872) (1,761)
Other assets......................................... (467) (3,211) 965
Deferred compensation pay out........................ - (14,401)
Due from affiliates.................................. (5,742) (284) (1,924)
Accounts payable and other liabilities............... 11,750 2,860 9,555
------ ----- -----
Net cash provided by operating activities................... 181,634 128,222 121,723
Cash flows from investing activities
Additions to rental properties.............................. (171,685) (385,519) (103,521)
Proceeds from sale of centers............................... 13,853 7,929 7,100
Additions to investments in unconsolidated affiliates....... (46,688) (37,855) (14,763)
Distributions from investments in unconsolidated
affiliates in excess of earnings........................ - 337 5,079
Proceeds from sale of investment in unconsolidated
affiliates ............................................. - 11,293 2,839
Additions to deferred lease costs from acquisitions........ (8,536) - -
Loans to related parties.................................... - (550) (2,750)
Payments from related parties............................... 1,083 1,085 1,685
Additions to deferred development costs..................... (1,630) (898) (8,220)
------ ---- ------
Net cash used in investing activities....................... (213,603) (404,178) (112,551)
Cash flows from financing activities
Debt proceeds............................................... 124,000 503,958 177,538
Repayments of debt.......................................... (38,078) (249,540) (217,318)
Net proceeds from sale of common stock...................... 59,577 124,990 112,151
Distributions............................................... (116,828) (92,717) (72,873)
Redemption of preferred units............................... - (9,654) -
Additions to deferred financing costs....................... (777) (3,134) (2,102)
------ ------ ------
Net cash provided by (used in) financing activities......... 27,894 273,903 (2,604)
Net (decrease) increase in cash and cash equivalents........ (4,075) (2,053) 6,568
Cash and cash equivalents, beginning of period.............. 22,551 24,604 18,036
------ ------ ------
Cash and cash equivalents, end of period.................... $18,476 $22,551 $24,604
======= ======= =======
The accompanying notes are an integral part of the financial statements
CPG Partners, L.P.
Notes to Consolidated Financial Statements
1. Organization and Basis of Presentation
Organization
CPG Partners, L.P., (the “Operating Partnership” or “OP”), which commenced operations on November 2, 1993 specializes in owning, developing, leasing, marketing and managing upscale and fashion-oriented manufacturers’ outlet centers. As of December 31, 2003, the OP wholly or partially owned 60 centers in 31 states and Japan containing approximately 16.1 million square feet of gross leasable area (“GLA”). The OP’s portfolio is comprised of 30 Premium Outlet centers containing 10.6 million square feet of GLA (the “Premium Properties”) and 30 other retail centers containing approximately 5.5 million square feet of GLA (“Other Properties”) (collectively the “Properties”). The OP’s Premium Properties generated approximately 75% and 86% of the OP’s real estate net operating income for the years ended December 31, 2003, and 2002, respectively. The Premium Properties generally are located near metropolitan areas including New York City, Los Angeles, Chicago, Boston, Washington, D.C., San Francisco, Sacramento, Atlanta, Dallas, Tokyo and Osaka, Japan. Some Premium Properties are also located within 20 miles of major tourist destinations including Palm Springs, Napa Valley, Orlando, Las Vegas and Honolulu.
The sole general partner of the OP, Chelsea Property Group, Inc. (the “Company”) is a self-administered and self-managed Real Estate Investment Trust (REIT).
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 greater than a 50% ownership interest and the ability to maintain operational control. All significant intercompany transactions and accounts have been eliminated in consolidation.
On May 1, 2002, the Company declared a 2-for-1 stock split of the Company’s common shares. The stock dividend was paid May 28, 2002, to stockholders of record on May 14, 2002. The Operating Partnership simultaneously declared a 2-for-1 split of its limited units. All applicable unit and per unit information in the accompanying financial statements have been adjusted to reflect the split.
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. The OP reviews 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. No impairment write-downs of rental properties were required for the three years ended December 31, 2003. At December 31, 2003, the Lakeland Factory Outlet Mall was held for sale. The Lakeland property was purchased in August 2003 in conjunction with the Las Vegas Outlet Center. The OP anticipates selling the Lakeland property during 2004. At December 31, 2002, no assets were held for sale.
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.
CPG Partners, L.P.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Principles (continued)
Rental Properties (continued)
In accordance with Statement of Financial Accounting Standards No.141, or SFAS 141, “Business Combinations,” the OP allocates the purchase price of real estate to land, building, tenant improvements and if determined to be material, intangibles, such as the value of above, below and at market leases and origination cost associated with in-place leases. The OP depreciates the amount allocated to building and other intangible assets over their estimated useful lives, which generally range from five to forty years. The values of the above and below market leases are amortized and recorded as either an increase (in the case of below market leases) or a decrease (in the case of above market leases) to rental income over the remaining term of the associated lease. The value associated with in-place leases are amortized over the term of the lease. If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related intangible will be written off. The tenant improvements and origination costs are amortized as an expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to contractual expiration date). The OP assesses fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rate and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends and market/ economic conditions that may affect the property.
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. The OP places its cash investments in excess of insured amounts with high quality financial institutions. At December 31, 2003 and 2002, cash equivalents consisted of repurchase agreements, commercial paper, U.S. Government agency securities, domestic bank obligations and other corporate and municipal obligations that mature between January and March of the following year. The carrying amount of such investments approximated fair value.
Investment in Unconsolidated Joint Ventures
The OP accounts for its investments in unconsolidated joint ventures under the equity method of accounting as the OP exercises significant influence, but does not control these entities. In all the joint ventures, the rights of the minority investor are both protective as well as participating. These rights preclude the OP from consolidating these investments. These investments are recorded initially at cost, as investments in unconsolidated joint ventures, and subsequently adjusted for equity in earnings (loss) and cash contributions and distributions. Any difference between the carrying amount of these investments on the balance sheet of the OP and the underlying equity in net assets is amortized as an adjustment to equity in earnings (loss) of unconsolidated joint ventures over the associated rental property’s useful life.
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. Development costs related to inactive projects are expensed at such time as the project is deemed abandoned.
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.
CPG Partners, L.P.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Principles (continued)
Foreign Currency Translation
The OP conforms to the requirements of the Statement of Financial Accounting Standards No. 52 entitled “Foreign Currency Translation.” Accordingly, assets and liabilities of foreign equity investees are translated at prevailing year-end rates of exchange. Translation gain or loss is recognized as a component of other comprehensive income.
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 internal 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 represent commitment fees, legal and other third party costs associated with obtaining commitments for financing which result in a closing of such financing. Deferred financing costs are amortized as interest costs over the terms of the respective agreements. Unamortized deferred financing costs are expensed when the associated debt is retired before maturity. Costs incurred in seeking financial transactions which do not close are expensed in the period it is determined the financing will not be closing.
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. The excess of rents recognized over amounts contractually due and unpaid rents are included in deferred rent receivable in the accompanying financial statements. Certain lease agreements contain provisions for rents that 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 $2.2 million, $2.0 million and $1.2 million for the years ended December 31, 2003, 2002 and 2001, respectively. The OP maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its tenants to make required rent payments.
CPG Partners, L.P.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Principles (continued)
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.
The following summarizes the tax components of the OP’s common distributions declared for the years ended December 31, 2003, 2002 and 2001:
2003 2002 2001
---------- -------- ---------
Distributions per unit.............. $2.14 $1.86 $1.56
Capital gain (a).................... (0.13) (0.21) -
Unrecaptured Section 1250 gain ..... - (0.01) -
---------- -------- ---------
Ordinary income..................... $2.01 $1.64 $1.56
========== ======== =========
(a) Capital rates were 15% and 20% in 2003 and 2002, respectively.
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.
CPG Partners, L.P.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Principles (continued)
Concentration of OP’s Revenue and Credit Risk
For the years ended December 31, 2003, 2002 and 2001, respectively, 13%, 16% and 21% of the OP’s revenues were derived from Woodbury Common Premium Outlets. The loss of this center or a material decrease in revenues from the center for any reason may have a material adverse effect on the OP. In addition, for the years ended December 31, 2003, 2002 and 2001, respectively, 23%, 25% and 28% of the OP’s revenues were derived from the OP’s centers in California.
Management of the OP performs ongoing credit evaluations of its tenants and requires certain tenants to provide security deposits. Although the OP’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.
Accumulated Other Comprehensive Loss
At December 31, 2003 and 2002, other comprehensive loss was comprised of the following (in thousands):
2003 2002
---- ----
Interest rate swap $4,458 $6,719
Foreign currency translation (448) 55
---- ----
Total $4,010 $6,774
====== ======
Derivative and Financial Instruments
In the normal course of business, the OP uses a variety of derivative and financial instruments to manage, or hedge, interest rate and foreign currency risk. The OP requires that hedging derivative instruments are effective in reducing the interest rate or foreign currency risk exposure as they are designated. This effectiveness is an essential for hedge accounting under accounting principles generally accepted in the United States. Derivative instruments may be associated with the hedge of an anticipated transaction. In those cases, hedge effectiveness criteria also require that it be probable that the underlying transaction occurs. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract and recorded on the balance sheet at their fair values with the changes in fair value reflected in accumulated other comprehensive income (loss). When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, all changes in the fair value of the instrument are marked-to-market with changes in value included in net income each period until the instrument matures or is terminated or assigned. Any derivative instrument used for risk management that does not meet the hedging criteria is marked-to-market each period in net income.
CPG Partners, L.P.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Principles (continued)
Derivative and Financial Instruments (continued)
To determine the fair values of derivative and financial instruments, the OP uses a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. For the majority of financial instruments including most derivatives, long-term investments and long-term debt, standard market conventions and techniques such as discounted cash flow analysis, option pricing models, replacement cost, and termination cost are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.
Recently Issued Accounting Pronouncements
In October 2001, the FASB issued Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”) which was effective and adopted by the OP on January 1, 2002. SFAS 144 provides accounting guidance for financial accounting and reporting for impairment or disposal of long-lived assets. SFAS 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” SFAS 144 retains fundamental provisions of SFAS 121 related to the recognition and measurement of the impairment of long-lived assets to be held and used. In addition, SFAS 144 superseded APB Opinion 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”. SFAS 144 extended the reporting of a discontinued operation to a “component of an entity”. Thus, the operations of assets sold or held for sale are presented as discontinued operations in the OP’s statement of income.
In June 2002, FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”) which was effective for exit or disposal activities initiated after December 31, 2002. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value, only when the liability is incurred. See note 6 to financial statements for discussion related to the estimated future costs to be incurred in connection with the future operations of Chelsea Interactive.
In November 2002, the FASB issued No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires certain guarantees to be recorded at fair value, instead of recording a liability only when a loss is probable and reasonably estimable, as those terms are defined in FASB Statement No. 5, Accounting for Contingencies. FIN 45 also requires a guarantor to make significant new disclosures, even when the likelihood of making any payments under the guarantee is remote. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The OP adopted the disclosure provisions of FIN 45 effective December 31, 2002. FIN 45’s initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of FIN 45 did not have a material impact on the OP’s financial position or the results of operations.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”). FIN 46 clarifies the application of existing accounting pronouncements to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The provisions of FIN 46 will be immediately effective for all variable interests in variable interest entities created after January 31, 2003. The OP has not created any variable interest entities subsequent to January 31, 2003. In December 2003, FASB issued a revision to Interpretation 46 (“FIN 46-R”) to clarify the provisions of FIN 46. The application of FIN 46-R is effective for public companies, other than small business issuers, after March 15, 2004. The OP does not believe that FIN 46-R will have a significant impact on the OP’s financial statements.
CPG Partners, L.P.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Principles (continued)
Recently Issued Accounting Pronouncements (continued)
April 30, 2003, FASB issued SFAS No.149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS 149”). SFAS 149 amends and clarifies the accounting guidance on (1) derivative instruments (including certain derivative instruments embedded in other contracts) and (2) hedging activities that fall within the scope of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities “(“SFAS 133”). SFAS 149 also amends certain other existing pronouncements, which will result in more consistent reporting of contracts that are derivatives in the entirety or that contain embedded derivatives that warrant separate accounting. SFAS 149 is effective (1) for contracts entered into or modified after June 30, 2003, with certain exceptions, and (2) for hedging relationships designed after June 30, 2003. The guidance is to be applied prospectively. The adoption of SFAS 149 did not have a material impact on the OP’s financial condition, results of operations or cash flows.
In May 2003, FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in accounting principle for financial instruments created before the issuance date of the statement and still existing at the beginning of the interim period of adoption. The implementation of SFAS 150 did not have a material impact on the OP’s financial condition, results of operations or cash flows.
Reclassifications
Certain amounts in the 2002 and 2001 financial statements have been reclassified to conform to the 2003 presentation.
3. Acquisitions and Dispositions
Acquisitions
In June 2003, the OP purchased The Crossings Factory Stores (“The Crossings”), a 390,000 square-foot outlet center located in Tannersville, Pennsylvania, for $111.3 million, including closing costs, and assumed a $60.7 million 5.85% mortgage loan due 2013. The stated interest rate was greater than that available to the OP for comparable debt. Consequently, the OP recognized a $3.4 million debt premium that will be amortized over the period of the loan, which reduces the effective rate to 5.1%. An additional $5.0 million will be due to the sellers upon the completion of a 21,000 square-foot expansion scheduled to open in late 2004, subject to permits. In accordance with the provisions of SFAS 141, the OP allocated the purchase price between land, building and in-place leases. Tenant origination costs of $4.0 million are included in deferred costs on the balance sheet and a net intangible lease liability of $3.1 million is included in other liabilities. The tenant origination costs and intangible lease liability are being amortized over the respective lease terms. For the period ended December 31, 2003, the OP recognized rental income of $0.5 million related to the amortization of in-place leases.
CPG Partners, L.P.
Notes to Consolidated Financial Statements
3. Acquisitions and Dispositions (continued)
Acquisitions (continued)
In August 2003, the OP acquired Las Vegas Outlet Center (“Las Vegas”), a 477,000 square-foot outlet center in Las Vegas, Nevada, for $104.0 million including the assumption of a $24.4 million 8.12% mortgage loan due 2012. The stated interest rate was greater than that available to the OP for comparable debt. Consequently, the OP recognized a $1.9 million debt premium that will be amortized over the period of the loan, which reduces the effective rate to 6.29%. As part of the transaction, the OP also acquired Lakeland Factory Outlet Mall (“Lakeland”), a 319,000 square-foot outlet center near Memphis, Tennessee, for an additional $3.5 million. The Lakeland property is being marketed for sale. In accordance with the provisions of SFAS 141, the OP allocated the purchase price between land, building and in-place leases. Tenant origination costs of $4.5 million are included in deferred costs on the balance sheet and a net intangible lease liability of $0.4 million is included in other liabilities. The tenant origination costs and intangible lease liability are being amortized over the respective lease terms. For the period ending December 31, 2003, the OP recognized a charge against rental income of $0.3 million related to the amortization of in-place leases.
On April 1, 2002, the OP became the sole owner of the Orlando Premium Outlets (“Simon-Orlando”) by acquiring Simon Property Group, Inc.’s (“Simon”) 50% undivided ownership interest for $46.6 million in cash and the assumption of $29.7 million of existing mortgage debt and the guarantee related thereto. On June 16, 2002, the OP repaid the outstanding balance of $59.4 million and extinguished the mortgage. After closing the transaction the operating results and balance sheet of Simon-Orlando were consolidated in the accompanying financial statements.
On April 1, 2002, the OP purchased a 305,000 square foot outlet center located in Edinburgh, Indiana for $27.0 million in cash.
On August 20, 2002, the OP became the sole owner of four Premium Outlet centers by acquiring Fortress Registered Investment Trust’s (“Fortress”) 51% undivided ownership interest in the F/C Acquisition Holdings, LLC joint venture (“F/C Acquisition”). The OP paid $58.9 million in cash and assumed $86.5 million of existing mortgage debt on the properties. After closing the transaction the operating results and balance sheet of the four Premium Outlet centers including $169.6 million of existing nonrecourse mortgage debt, were consolidated in the accompanying financial statements.
On November 22, 2002, the OP purchased two outlet centers from JMJ Properties, Inc. (“JMJ”); a 305,000 square-foot center located in Albertville, Minnesota and a 278,000 square foot center located in Johnson Creek, Wisconsin for a total purchase price of $89.5 million. The OP paid $44.9 million in cash and issued 1.3 million limited partnership units with an assigned value of $44.6 million.
On December 19, 2002 the OP acquired four outlet centers for an all cash price of $193.0 million from New Plan Excel Realty Trust, Inc. (“NPXL”). The four properties consist of a 292,000 square foot outlet center located in Jackson, New Jersey; a 391,000 square foot outlet center located in Osage Beach, Missouri; a 329,000 square foot outlet center located in St. Augustine, Florida; and a 300,000 square foot outlet center located in Branson, Missouri.
CPG Partners, L.P.
Notes to Consolidated Financial Statements
3. Acquisitions and Dispositions (continued)
Acquisitions (continued)
The aggregate condensed balance sheet (unaudited) on the date of acquisition of the acquired properties is as follows (in thousands):
2003 2002
---------- ------------
Land $ 33,660 $100,540
Depreciable property 190,716 591,018
Accumulated depreciation - (15,977)
Other assets 945 19,487
-------- --------
Total assets $225,321 $695,068
======== ========
Mortgage debt $ 90,491 $228,025
Other liabilities 383 9,884
-------- --------
Total liabilities 90,874 237,909
-------- --------
Net equity $134,447 $457,159
======== ========
The following condensed pro forma (unaudited) information assumes that the acquisitions of The Crossings Factory Stores, Las Vegas Outlet Center and Lakeland Factory Outlet Mall had occurred on January 1, 2002. Additionally, it assumes that the effect of the sale of 1.2 million shares of the Company’s common stock in conjunction with The Crossings acquisition and the $100.0 million term loan in conjunction with the Las Vegas acquisition occurred on January 1, 2002 (in thousands)
:
Year Ended December 31,
2003 2002
------------ -----------
Total revenue $386,407 $307,284
Net income to common unitholders 119,004 54,772
Earnings per unit:
Net income to common unitholders $2.33 $1.19
Weighted average common units
outstanding 51,169 45,871
CPG Partners, L.P.
Notes to Consolidated Financial Statements
3. Acquisitions and Dispositions (continued)
Dispositions
In June 2003, the OP sold a 23,000 square-foot Premium Outlet center located in St. Helena, California for $7.4 million, resulting in a gain of approximately $4.7 million. The center partially secured a mortgage note due April 2010 and $5.0 million of the sales proceeds were used to pay down the mortgage loan. Revenues and expenses related to the St. Helena property have been reclassified to discontinued operations in the period of sale and comparable periods in the accompanying financial statements.
In September 2003, the OP realized a gain of approximately $0.9 million from the sale of one of its non-core properties, the former Factory Stores of America at Mesa, Arizona (“Mesa property”). Revenues and expenses connected with the Mesa property have been reclassified to discontinued operations in the period of sale and comparable periods in the accompanying financial statements.
The OP terminated its long-term lease on American Tin Cannery Premium Outlets. Revenues and expenses connected with the ATC property have been reclassified to discontinued operations in the period of termination and comparable periods in the accompanying financial statements.
During June and July 2002, the OP sold four Other Properties centers and two outparcels generating net proceeds of approximately $6.8 million, which approximated the net book value of these properties. Accordingly, no gain or loss on the sales was recognized. The aggregate revenues and net income of the sold properties were $1.2 million and $0.3 million for the year ended December 31, 2002, respectively, and $0.6 million and $0.2 million for the year ended December 31, 2001, respectively.
In November 2002, the OP sold an additional Other Properties center and an outparcel that generated net proceeds of approximately $1.1 million, which resulted in a gain of approximately $0.6 million which is included in other income in the accompanying financial statements. The aggregate revenues and net income of the sold property were $0.6 million and $0.4 million for the year ended December 31, 2002, respectively and $0.1 million and $40,000 for the year ended December 31, 2001, respectively.
In October 2001, the OP sold a Premium Properties center and recognized a loss of approximately $0.3 million that is included as a charge in other income in the accompanying financial statements. The aggregate revenues and net income of the sold property were immaterial to the operations of the OP for the years ended December 31, 2001 and 2000.
4. Rental Properties
The following summarizes the carrying values of rental properties as of December 31 (in thousands):
2003 2002
------------ -------------
Land and improvements.............................. $ 495,819 $ 460,227
Buildings and improvements......................... 1,536,998 1,351,183
Construction-in-progress........................... 16,838 6,708
Equipment and furniture............................ 23,128 19,056
---------- ----------
Total rental property.............................. 2,072,783 1,837,174
---------- ----------
Accumulated depreciation and amortization.......... (332,406) (284,239)
---------- ----------
Total rental property, net......................... $1,740,377 $1,552,935
=========== ===========
CPG Partners, L.P.
Notes to Consolidated Financial Statements
4. Rental Properties (continued)
Interest costs capitalized as part of buildings and improvements were $4.3 million, $2.9 million and $2.0 million for the years ended December 31, 2003, 2002 and 2001, respectively.
Commitments for land, new construction, development and acquisitions including the OP’s 50% share of joint venture activity, totaled approximately $49.7 million and $19.1 million at December 31, 2003 and 2002, respectively.
Depreciation expense (including amortization of the capital lease) amounted to $67.3 million, $53.1 million and $42.9 million for the years ended December 31, 2003, 2002 and 2001, respectively.
5. Restricted Cash-Escrows
Restricted cash escrows include $6.5 million and $3.5 million at December 31, 2003 and 2002, respectively, of escrows and reserve funds for real estate taxes, property insurance, capital and tenant improvements and leasing costs established pursuant to certain mortgage loan agreements.
6. Investments in Affiliates
The OP holds interests in several domestic and international joint ventures. Non-controlling investments are accounted for under the equity method. Equity in earnings or losses of these affiliates, and related management advisory, license, leasing and guarantee fees earned are included in income from unconsolidated investments and loss from impairment of Chelsea Interactive in the accompanying financial statements.
As of December 31, 2003 and 2002, the OP’s interests in joint ventures included: a 50% interest in Las Vegas Premium Outlets (“Simon-Las Vegas”) and a 50% interest in Chicago Premium Outlets (“Simon-Chicago”) with Simon (collectively “Simon-Ventures”); a 40% interest in Chelsea Japan Co., Ltd. (“Chelsea Japan”); a 50% interest in a strategic alliance with Sordo Madaleno y Asociados and affiliates; minority interests in various outlet centers and development projects in Europe operated by Value Retail PLC (“Value Retail”); and 100% of the non-voting preferred stock of Chelsea Interactive and 50% of the non-voting common stock representing 40% of the total common stock. As of December 31, 2001, the OP’s investment in joint ventures also included a 50% interest in Simon-Orlando and a 49% interest in F/C Acquisition.
CPG Partners, L.P.
Notes to Consolidated Financial Statements
6. Investments in Affiliates (continued)
In June 2002, the OP and Simon entered into a 50/50 joint venture to develop and operate Las Vegas Premium Outlets, a 435,000 square-foot single-phase outlet center located in Las Vegas, Nevada, which opened on August 1, 2003. The OP is responsible for financing its 50% share of development costs, or approximately $48.0 million. As of December 31, 2003, the OP had contributed $44.7 million and capitalized interest and other costs of $2.3 million.
In August 2002, the OP and Simon entered into a new 50/50 joint venture to develop and operate Simon-Chicago, a 438,000 square-foot single-phase premium outlet center located in Aurora, Illinois, near Chicago. The center is scheduled to open in mid-2004. On September 23, 2002, Simon-Chicago purchased a 140-acre site, including 80 acres of conservation area, and commenced construction. The OP is responsible for financing its 50% share of the development costs, which are expected to be approximately $46.0 million. As of December 31, 2003, the OP had contributed $26.7 million and capitalized interest and other costs of $1.5 million.
In June 1999, the OP entered into an agreement with Mitsubishi Estate Co., Ltd. and Nissho Iwai Corporation to jointly develop, own and operate Premium Outlet centers in Japan. The OP has a 40% interest in Chelsea Japan. In conjunction with the agreement, the OP contributed $1.7 million in equity and provides its share of construction financing and/or loan guarantees. Chelsea Japan opened its initial project, the 220,000 square-foot first phase of Gotemba Premium Outlets, on July 13, 2000. Gotemba has grown to 390,000 square feet with the completion of its 170,000 square-foot second phase that opened in July 2003. Gotemba is located on the Tomei Expressway, approximately 60 miles west of Tokyo and midway between Mt. Fuji and the Hakone resort area. Chelsea Japan opened its second project, located outside Osaka, the second-largest city in Japan, the 180,000 square-foot first phase of Rinku Premium Outlets on November 23, 2000. Rinku increased to 250,000 square feet in March 2002, upon opening its 70,000 square-foot second phase. Rinku’s 70,000 square-foot third phase is scheduled to open in late 2004. Chelsea Japan’s third project, the 180,000 square foot first phase of Sano Premium Outlets opened in March 2003 and in Fall 2004, Sano is scheduled to open its 55,000 square foot second phase. Sano is located 40 miles north of Tokyo off Tohoku Expressway.
In May 2002, the OP entered into a 50/50 joint venture agreement with Sordo Madaleno y Asociados and affiliates to jointly develop Premium Outlet centers in Mexico. Construction on the 230,000 square-foot first phase of Punta Norte Premium Outlets commenced in July 2003 and the center is scheduled to open in late 2004. The OP is responsible for financing its 50% share of project costs of approximately $15.0 million. As of December 31, 2003, the OP contributed $2.5 million. In January 2004, an affiliate of the OP entered into a 180.0 million Peso denominated credit facility which is guaranteed by the OP to fund its share of construction costs.
At December 31, 2003 and 2002, the OP had minority interests ranging from 3% to 8% and 5% to 15% at December 31, 2001, in several outlet centers and outlet development projects in Europe. Five outlet centers, containing approximately 900,000 square feet of GLA, including Bicester Village, outside London, England, La Roca OP Stores outside of Barcelona, Spain, Las Rozas Village outside Madrid, Spain, La Vallee near Disneyland Paris and Maasmechelen Village in Belgium are currently open and operated by Value Retail PLC and its affiliates. In July 2002, the OP sold approximately 40% of its holdings in Value Retail to a third party for $11.4 million, resulting in a gain of approximately $10.9 million which was recorded as a gain on sale of unconsolidated investments in the accompanying financial statements. In 2001, the OP sold a portion of its Bicester Village holding resulting in a gain of $1.8 million, which was included in gain on sale of unconsolidated investments, net of write-down in the accompanying financial statements.
CPG Partners, L.P.
Notes to Condensed Consolidated Financial Statements
6. Investments in Affiliates (continued)
The OP and Simon entered into a 50/50 joint venture agreement to develop and operate Simon-Orlando a 428,000 square foot center that was completed in May 2000 and is located on Interstate 4, midway between Walt Disney World/EPCOT and Sea World in Orlando. In April 2002, the OP purchased Simon’s 50% undivided ownership interest in the center for $46.6 million in cash and assumed Simon’s $29.7 million pro-rata share of existing mortgage debt. The operations and balance sheet of the center are consolidated in the accompanying financial statements from the buyout date.
In December 2000, the OP and Fortress acquired four outlet centers from a competitor, through F/C Acquisition in which the OP had a 49% interest. The total purchase price was $240.0 million, including the assumption of approximately $174.0 million of 6.99% fixed-rate non-recourse mortgage debt due in 2008. In July 2002, Fortress exercised its option under the F/C Limited Liability Company Agreement to invoke the “Buy/Sell Right” which gave the OP the option to sell its 49% ownership interest in F/C Acquisition or buy the partner’s 51% ownership interest. On August 20, 2002, the OP exercised its right to buy the 51% interest for cash of $58.9 million and assumed $86.5 million of existing mortgage debt on the properties. The operations and balance sheet of the four F/C Acquisition Premium Outlet centers have been consolidated in the accompanying financial statements from the buyout date.
In December 2001, the OP had a 15% minority interest in a partnership that owns an outlet center located in Guam. The center had been generating operating losses and the OP did not anticipate recovering its investment. Therefore, in December 2001, the OP wrote off its investment in Guam and recognized a loss of $1.2 million which is included in gain on sale of unconsolidated investments, net of write-down in 2001 in the accompanying financial statements. During the year ended December 31, 2002, the OP withdrew as a partner in the Guam outlet center.
Chelsea Interactive
At December 31, 2002, the OP recognized an impairment loss equal to the net book value of its investment in Chelsea Interactive. The OP believes that it will not be able to recover the net book value of its investment in Chelsea Interactive through future cash flows. A $2.5 million funding loss was reported for the year ended December 31, 2003. Future funding by the OP will be reported as a loss in the period funding is required. Through December 31, 2003, the OP had funded $54.9 million and anticipates that funding to Chelsea Interactive will not reach the OP’s funding limit of $60.0 million. On February 17, 2004, the OP announced a joint venture between Chelsea Interactive and a publicly traded third party, GSI Commerce, Inc. Under the terms of the agreement, Chelsea Interactive will no longer operate its e-commerce technology, but will retain a minority interest in GSI-Chelsea Solutions. Chelsea Interactive’s largest clients have entered into service agreements with GSI-Chelsea Solutions and will transition e-commerce activities to the GSI-Chelsea platform by the second quarter of 2004.
CPG Partners, L.P.
Notes to Consolidated Financial Statements
The following is a summary of investments in and amounts due from affiliates at December 31, 2003 and 2002 (in thousands):
Chelsea Simon- Simon- Chelsea
F/C Japan Orlando Ventures Interactive Other Total
-------- -------- ------- ----------- ----------- ------- ------
Balance December 31, 2001........ $36,118 $9,296 $9,723 $ - $34,856 $3,696 $93,689
Additional
investment....................... - 655 - 31,281 13,508 303 45,747
Income (loss) from
unconsolidated
investments.................. 4,331 4,136 1,310 - (13,386) 25 (3,584)
Distributions and fees........... (2,841) (2,528) (250) - - - (5,619)
Buyout reclassifications......... (36,531) - (9,199) - - - (45,730)
Impairment loss.................. - - - - (34,370) - (34,370)
Disposition...................... - - - - - (382) (382)
Advances (net)................... (1,077) 912 (1,584) 638 (608) (35) (1,754)
-------- ------- -------- ------- -------- ------ --------
Balance December 31, 2002........ $ - $12,471 $ - $31,919 $ - $3,607 $47,997
======== ======= ======== ======= ======== ====== =======
Chelsea Simon- Simon- Chelsea Chelsea
F/C Japan Orlando Ventures Interactive Mexico Other Total
-------- -------- ------- -------- ----------- ------- ------ -----
Balance December 31, 2002...... $ - $12,471 $ - $31,919 $ - $ - $3,607 $47,997
Additional
Investment................... - 1,591 - 43,965 - 6,212 26 51,794
Income (loss) from
unconsolidated
investments................ - 8,574 - 2,432 - - - 11,006
Distributions and fees......... (5,102) - (2,754) - - - (7,856)
Foreign exchange............... - 503 - - - - - 503
Advances (net)................. - 1,424 - 2,177 - - 23 3,624
-------- -------- -------- -------- -------- -------- -------- ---------
Balance December 31, 2003...... $ - $19,461 $ - $77,739 $ - $6,212 $3,656 $107,068
======== ======== ======== ======== ======== ======== ======== ========
CPG Partners, L.P.
Notes to Condensed Consolidated Financial Statements
The OP’s share of income before depreciation, depreciation expense and income from unconsolidated investments for the years ended December 31, 2003, 2002 and 2001 is as follows (in thousands):
Chelsea Simon- Simon
For the Year Ended: F/C Japan Orlando Ventures
--------- --------- --------- -----------
December 31, 2003
Income (loss) before depreciation......... $ - $11,923 $ - $ 3,152
Depreciation.............................. - 3,349 - 720
--------- --------- --------- -----------
Income(loss) from unconsol. investment.... $ - $ 8,574 $ - $ 2,432
========= ========= ========= ===========
December 31, 2002
Income (loss) before depreciation......... $6,178 $ 5,932 $1,833 $ -
Depreciation.............................. 1,847 1,796 523 -
Impairment loss........................... - - - -
--------- --------- --------- -----------
Income (loss) from unconsol. investment... $4,331 $4,136 $1,310 $ -
========= ========= ========= ===========
December 31, 2001
Income (loss) before depreciation.......... $9,214 $4,676 $7,374 $ -
Depreciation............................... 2,692 1,390 1,882 -
--------- --------- --------- -----------
Income (loss) from unconsol. investment.. $6,522 $3,286 $5,492 $ -
========= ========= ========= ===========
Chelsea
For the Year Ended: Other Total Interactive
-------- ---------- -------------
December 31, 2003
Income (loss) before depreciation......... $ - $15,075 $ (1)
Depreciation.............................. - 4,069 -
-------- ---------- -------------
Income(loss) from unconsol. investment.... $ - $11,006 $ -
======== ========== =============
December 31, 2002
Income (loss) before depreciation......... $ 25 $13,968 $(5,115)
Depreciation.............................. - 4,166 8,271
Impairment loss........................... - - (34,370)
-------- ---------- -------------
Income (loss) from unconsol. investment... $ 25 $ 9,802 $(47,756)
======== ========== =============
December 31, 2001
Income (loss) before depreciation......... $ (275) $20,989 $ (2,449)
Depreciation.............................. - 5,964 2,888
-------- ---------- -------------
Income (loss) from unconsol. investment.. $ (275) $15,025 $ (5,337)
======== ========== =============
(1) A $2.5 million funding loss was reported for the year ended December 31, 2003.
CPG Partners, L.P.
Notes to Consolidated Financial Statements
Condensed financial information as of December 31, 2003 and 2002, and for the years then ended for Chelsea Japan and Simon-Ventures (which are included in “Real Estate”) and Chelsea Interactive is as follows (in thousands):
Chelsea
Real Estate Interactive
-------------- -------------
Property, plant and equipment (net)
December 31, 2003......................................... $288,780 $ -
December 31, 2002......................................... 140,057 -
Total assets
December 31, 2003......................................... 380,426 -
December 31, 2002......................................... 190,157 1,887
Long term debt (1)
December 31, 2003......................................... 129,731 -
December 31, 2002......................................... 75,139 -
Total liabilities
December 31, 2003......................................... 220,238 1,352
December 31, 2002......................................... 119,886 1,548
Net income (loss)
December 31, 2003......................................... 12,717 (2,518)
December 31, 2002......................................... 12,594 (14,247)
OP's share of net income (loss)
December 31, 2003......................................... 5,488 (2,518)
December 31, 2002......................................... 5,795 (13,386)
Fee income
December 31, 2003......................................... 5,518 -
December 31, 2002......................................... 3,982 -
(1) Long-term debt in 2003 and 2002 consists of borrowings related to Chelsea Japan.
7. Deferred Costs
The following summarizes the carrying amounts for deferred costs at December 31, 2003 and 2002 (in thousands):
2003 2002
------------ ------------
Lease costs.................................................... $29,609 $28,074
FAS 141 lease adjustment....................................... 8,536 -
Financing costs................................................ 10,506 9,200
Development costs.............................................. 2,311 1,572
Other.......................................................... 371 871
------------ ------------
Total deferred costs........................................... 51,333 39,717
Accumulated amortization....................................... (28,344) (23,011)
------------ ------------
Total deferred costs, net...................................... $22,989 $16,706
============ ============
CPG Partners, L.P.
Notes to Consolidated Financial Statements
8. Non-Compete Agreement
In October 1998 the OP 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 received non-compete payments totaling $21.4 million from The Mills Corporation; $3.0 million at closing and four annual installments of $4.6 million, terminating in January 2002. The January 2002 payment had a $0.3 million legal escrow reserve withheld. 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 during the years ended December 31, 2002 and 2001. Such amounts are included in other income in the accompanying financial statements.
9. Other Assets
The following summarizes the components of other assets at December 31 (in thousands):
2003 2002
------------ -----------
Sales tax receivable............................ $10,728 $11,708
Prepaid expenses................................ 10,680 9,902
Deferred compensation........................... 8,800 6,400
Non-compete receivable.......................... 300 300
Due from equity investees....................... - 136
Other........................................... 2,240 1,654
------------ ----------
Total other assets............................. $32,748 $30,100
============ ==========
CPG Partners, L.P.
Notes to Consolidated Financial Statements
10. Debt
Unsecured Bank Debt
The OP has a $200.0 million senior unsecured bank line of credit (the “Senior Credit Facility”) with an expiration date of March 31, 2005, which the OP has the right to extend until March 31, 2006. The Senior Credit Facility bears interest on the outstanding balance, payable monthly, at a rate equal to the London Interbank Offered Rate (“LIBOR”) plus 0.95% (2.09% at December 31, 2003) or the prime rate, at the OP’s option. The LIBOR rate spread ranges from 0.85% to 1.50% depending on the OP’s Senior Debt rating. The OP received a debt rating upgrade in July 2003, resulting in a reduction of the LIBOR rate spread to 0.95% from 1.05%. At December 31, 2003, $99.0 million was outstanding under the Senior Credit Facility.
The OP also has a $5.0 million term loan that carries the same interest rate and maturity as the Senior Credit Facility.
The OP has a one-year $100.0 million unsecured bridge loan (the “Bridge Loan Facility”) due July 31, 2004 and has the right to extend the loan until January 31, 2005. The Bridge Loan Facility bears interest on the outstanding balance, payable monthly, at a rate equal to LIBOR plus 0.80% (1.96% at December 31, 2003). The LIBOR rate spread ranges from 0.70% to 1.35% depending on the OP’s Senior Debt rating.
Unsecured Notes
A summary of the terms of the unsecured notes outstanding at December 31, 2003 and December 31, 2002, is as follows (in thousands):
December 31, December 31, Effective
2003 2002 Yield (1)
------------------ - -------------- --------------
8.375% Unsecured Notes due August 2005.............. $ 49,952 $ 49,922 8.44%
7.250% Unsecured Notes due October 2007............. 124,874 124,841 7.39%
8.625% Unsecured Notes due August 2009.............. 49,943 49,933 8.76%
8.250% Unsecured Notes due February 2011............ 148,963 148,817 8.40%
6.875% Unsecured Notes due June 2012................ 99,878 99,825 6.90%
6.000% Unsecured Notes due January 2013............. 148,193 147,992 6.18%
------------------- --------------
Total unsecured notes $ 621,803 $ 621,330
=================== ==============
(1) Including discount on the notes
CPG Partners, L.P.
Notes to Consolidated Financial Statements
10. Debt (continued)
Mortgage Debt
A summary of the terms of the mortgage debt outstanding at December 31, 2003 and 2002, and the related interest rate and Net Book Value (“NBV”) of the associated collateral as of December 31, 2003, is as follows (in thousands):
Effective
December 31, December 31, Interest
2003 2002 Rate NBV
---------------- --------------- ------------ -----------
Due July 2008 (1) ............. $164,727 $167,723 7.26% $252,972
Due April 2010 (2) ............ 61,475 67,250 7.26% 67,978
Due December 2012 (3) ......... 25,477 - 6.29% 101,341
Due December 2012 (4) ......... 70,460 71,482 7.67% 74,416
Due March 2013 (5) ............ 63,495 - 5.10% 112,650
--------- ----------- -----------
$385,634 $306,455 $609,357
============ =========== ===========
| (1) | The F/C mortgage loan was consolidated as part of the August 20, 2002 buyout of Fortress' 51% interest in the F/C Acquisition joint venture. The mortgage bears interest at 6.99% per annum through July 11, 2008, (the "Optional Prepayment Date") and thereafter at a rate equal to the greater of 8.4% plus 5% or the Treasury Rate, as defined, plus 6.5% until the earlier of the date the mortgage is paid in full or its maturity date of July 11, 2028. The mortgage may be prepaid in whole or in part at any time after the Optional Prepayment Date without a prepayment penalty. The mortgage calls for a $1.2 million fixed monthly interest plus principal payment based on a 26-year amortization schedule. The F/C Mortgage Loan had a face value of $169.6 million and a carrying amount fair value of $168.7 million on the buyout date. During the year ended December 31, 2003, the OP recognized $135,000 in debt discount amortization that is included in interest expense in the accompanying financial statements. |
| (2) | In April 2000, Chelsea Financing entered into a $70.0 million mortgage loan due April 2010 originally secured by its four properties. On June 2, 2003 the OP sold one of the encumbered properties for $7.4 million with an NBV of $2.5 million. Proceeds of $5.0 million were used to pay down the mortgage loan. In February 2004, the OP amended the mortgage loan to unsecure the properties and reduced the interest rate to LIBOR plus 1.25% from LIBOR plus 1.50% (2.62% at December 31, 2003). The loan calls for quarterly principal amortization of $0.25 million through April 2005 and thereafter $0.45 million per quarter until maturity. In December 2000, the OP entered into an interest rate swap agreement to hedge against unfavorable fluctuations in LIBOR rates by fixing the interest rate at 7.26% until January 2006. During the years ended December 31, 2003 and 2002, the OP recognized interest expense of $3.1 million and $2.7 million, respectively on the hedge that is included in interest expense in the accompanying financial statements. |
| (3) | The mortgage loan due December 2012 was assumed as part of an August 2003 acquisition. The stated interest rate of 8.12% was greater than that available to the OP for comparable debt. Consequently, the OP recognized a $1.9 million debt premium that will be amortized over the period of the loan, which reduces the effective interest rate to 6.29%. The mortgage loan calls for a $0.3 million fixed monthly debt service payment on a 17-year amortization schedule. During the year ended December 31, 2003, the OP recognized approximately $120,000 in debt premium amortization that is included in interest expense in the accompanying financial statements. |
| (4) | The mortgage loan was assumed as part of a September 2001 acquisition. The stated interest rate of 9.1% was greater than that available to the OP in the public debt markets. Accordingly, the OP recorded a $6.9 million debt premium that will be amortized over the period of the loan which reduces the effective interest rate to 7.67%. The loan calls for fixed monthly debt service payments of $0.5 million for interest plus principal based on a 26-year amortization schedule. The mortgage loan matures in March 2028 but can be prepaid beginning December 2012. During the years ended December 31, 2003 and 2002, the OP recognized $0.5 million and $0.4 million, respectively, in debt premium amortization that is included in interest expense in the accompanying financial statements. |
| (5) | The mortgage loan due March 2013 was assumed as part of a June 2003 acquisition. The stated interest rate of 5.85% was greater than that available to the OP for comparable debt. Accordingly, the OP recorded a $3.4 million debt premium that will be amortized over the period of the loan, which reduces the effective interest rate to 5.10%. The loan calls for a $0.4 million fixed monthly debt service payment on a 25-year amortization schedule. During the year ended December 31, 2003, the OP recognized approximately $144,000 in debt premium amortization that is included in interest expense in the accompanying financial statements. |
CPG Partners, L.P.
Notes to Consolidated Financial Statements
10. Debt (continued)
Mortgage Debt (continued)
Following is a schedule of the estimated fair value of the OP’s debt using current broker quotations at December 31, 2003, (in thousands):
Carrying Principal Estimated
Description Value Balance Fair Value
-------------------------------- -------------- --------------- --------------
Fixed Rate Debt............... $945,962 $938,959 $1,043,232
Variable Rate Debt............ 265,510 265,510 265,510
Interest paid, excluding amounts capitalized, was $70.2 million, $47.5 million and $34.5 million for the years ended December 31, 2003, 2002 and 2001, respectively.
Following is a schedule of the OP’s debt maturities, including debt premium amortization, at December 31, 2003, (in thousands):
2004............ $ 107,873
2005............ 163,095
2006............ 9,829
2007............ 135,442
2008............ 157,145
Thereafter...... 638,088
-------------
$1,211,472
=============
11. Financial Instruments: Derivatives and Hedging
In the normal course of business, the OP is exposed to the effect of interest rate changes. The OP limits these risks by following established risk management policies and procedures including the use of derivatives. For interest rate exposures, derivatives are used primarily to align rate movements between interest rates associated with the OP’s financial assets with interest rates on related debt, and manage the cost of borrowing obligations. For foreign currency exposures, derivatives are used primarily to align movements between currency rates to protect forecasted returns of fees to the U.S.
The OP has a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to hedge, the OP has not sustained a material loss from those instruments nor does it anticipate any material adverse effect on its net income or financial position in the future from the use of derivatives.
To manage interest rate and foreign currency risk, the OP may employ options, forwards, interest rate swaps, caps and floors or a combination thereof depending on the underlying exposure. The OP undertakes a variety of borrowings: from lines of credit, to medium- and long-term financings. To reduce overall interest cost, the OP uses interest rate instruments, typically interest rate swaps, to convert a portion of variable rate debt to fixed rate debt, or a portion of its fixed-rate debt to variable rate. Interest rate differentials that arise under these swap contracts are recognized in interest expense over the life of the contracts.
CPG Partners, L.P.
Notes to Consolidated Financial Statements
11. Financial Instruments: Derivatives and Hedging (continued)
Interest rate swaps that are designated as cash flow hedges hedge the future cash outflows on debt. Interest rate swaps that convert variable payments to fixed payments, interest rate caps, floors, collars, and forwards are cash flow hedges. Unrealized gains and losses in the fair value of cash flow hedges are reported on the balance sheet with a corresponding adjustment to Accumulated Other Comprehensive Income to the extent they are offsetting and otherwise qualify in the period for cash flow hedge accounting. Over time, the unrealized gains and losses held in Accumulated Other Comprehensive Income will be reclassified to earnings through interest expense. This reclassification occurs over the same time period in which the hedged items affect earnings. The OP hedges its exposure to variability in future cash flows for forecasted transactions other than those associated with existing floating-rate debt over a maximum period of 12 months. During the forecast period, unrealized gains and losses in the hedging instrument will be reported in Accumulated Other Comprehensive Income. Once the hedged transaction takes place, the hedge gains and losses will be reported in earnings during the same period in which the hedged item is recognized in earnings. During 2003, the OP paid down approximately $5.0 million of hedged debt and reclassed approximately $0.5 million out of accumulated other comprehensive loss to other expenses. The ineffective portion of the hedge will be marked to market through earnings.
The notional value and fair value of the swap provide an indication of the extent of the OP’s involvement in financial derivative instruments at December 31, 2003. It does not represent exposure to credit, interest rate or market risks. At December 31, 2003, and 2002, the swap was reported at its fair value and classified as other liabilities in the accompanying financial statements of $4.8 million and $6.7 million, respectively. Within the next twelve months, the OP expects to reclassify to earnings approximately $2.7 million of the current balance held in accumulated other comprehensive loss related to the interest rate swap.
As of December 31, 2003
Hedge Type Notional Value Rate Maturity Fair Value
----------- ---------------- ----- -------- -----------
Swap, Cash Flow $66.5 mil 5.7625% 1/1/06 ($4.8 mil)
During 2002, the OP had Japanese yen forward contracts with a notional value of 255 million yen and a fair value of $10,000 as a hedge against its yen-denominated receivable due from Chelsea Japan. During the year ended December 31, 2002, the receivable and yen forward contracts were settled and the OP received $1.9 million and recognized a $0.1 million foreign exchange loss, which is included in income from unconsolidated investments in the accompanying financial statements.
During 2001, the OP entered into a yen forward contract with a notional value of $1.4 million and a fair value of $40,000 as a hedge against its yen-denominated receivable. During the year ended December 31, 2001 the receivable and yen forward contract were settled and the OP received $1.4 million.
12. Preferred Units
In September 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 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. Activity related to the Preferred Units is included in partner’s capital account.
CPG Partners, L.P.
Notes to Consolidated Financial Statements
13. Preferred Stock
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, having a liquidation preference of $50 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 OP’s option.
During the year ended December 31, 2002, the Company redeemed and retired 136,500 shares of Preferred Stock at a net price of $47 per share and 66,552 shares at a net share of $47.25 per share.
14. Common Stock
In June 2003, the Company sold 1.2 million shares of common stock at a price of $42.10 per share, yielding net proceeds after expenses of $49.4 million, which were used to fund the Crossings acquisition.
In November 2002, the Company sold 3.5 million shares of common stock at a price of $34.65 per share, yielding net proceeds after expenses of $118.8 million, which were used to fund the NPXL acquisition.
On May 1, 2002, the Company declared a 2-for-1 stock split on the Company’s common shares. The stock dividend was paid May 28, 2002, to stockholders of record on May 14, 2002.
15. Lease Agreements
The OP is the lessor and sub-lessor of retail stores under operating leases with term expiration dates ranging from 2004 to 2020. 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 at December 31, 2003, exclusive of renewal option periods, were as follows (in thousands):
2004................... $ 252,259
2005................... 230,216
2006................... 196,693
2007................... 162,283
2008................... 129,848
Thereafter............. 309,278
----------
$1,280,577
==========
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 was classified as an operating lease. The portion attributed to building was 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 was 25 years with two options of 5 and 4.5 years, respectively. The lease provided for additional rent based on specific levels of income generated by the property. No additional rental payments were incurred during 2003, 2002 or 2001. The OP terminated the lease agreement and recognized a $0.1 million gain on the termination.
CPG Partners, L.P.
Notes to Consolidated Financial Statements
15. Lease Agreements (continued)
Operating Leases
Future minimum rental payments under operating leases for administrative offices at December 31, 2003, are as follows (in thousands):
2004............. $1,480
2005............. 916
2006............. 52
-----------
$2,448
===========
Rental expense amounted to $1.4 million for the years ended December 31, 2003 and 2002, and $0.8 million for the year ended December 31, 2001.
Capital Lease
A leased property included in rental properties at December 31, 2002 consisted of the following (in thousands):
Building..................................... $6,796
Less accumulated amortization................ (5,865)
------------
Leased property, net......................... $ 931
============
Amortization expense on capital lease of $0.9 million for the year ended December 31, 2003 and $0.3 million for the years ended December 31, 2002 and 2001, is included in depreciation and amortization expense in the financial statements.
Ground Lease
In connection with the 2003 and 2002 property acquisitions, the OP acquired six properties subject to ground leases that were assumed by the OP. These ground leases have termination dates ranging from 2007 to 2087 and allow for renewal terms of 4 to 30 years.
Future minimum lease payments under ground leases at December 31, 2003, exclusive of renewal option periods were as follows (in thousands):
2004................. $ 819
2005................. 819
2006................. 822
2007................. 811
2008................. 1,547
Thereafter........... 17,368
--------------
$22,186
==============
CPG Partners, L.P.
Notes to Consolidated Financial Statements
16. Commitments and Contingencies
In connection with the Simon-Ventures, the OP has committed to provide 50% of the development costs or approximately $48.0 million to Simon-Las Vegas and $46.0 million to Simon-Chicago. As of December 31, 2003, the OP had contributed $44.7 million to Simon-Las Vegas and $26.7 million to Simon-Chicago.
Borrowings related to Chelsea Japan for which the Company and the OP have provided guarantees for repayment of debt as of December 31, 2003, are as follows (in thousands):
Total Facility Outstanding
---------------- -------------
Due Interest
Yen US $ Equivalent Yen US $ Equivalent US $ Guarantee Date Rate
-------------- ----------------- ----------- --------------- --------------- ----- --------
4.0 billion (1) $37.3 million 0.9 billion $8.4 million $ 8.4 million 2004 1.31%
3.8 billion (2) 35.4 million 3.2 billion 30.0 million 12.0 million 2015 2.20%
0.6 billion (2) 5.6 million 0.5 billion 4.7 million 1.9 million 2012 1.50%
(1) Facility entered into by an equity investee of the OP and has a one-year extension option; until April 1, 2005.
(2) Facilities entered into by Chelsea Japan, secured by Gotemba and Rinku and 40% severally guaranteed by the OP.
In May 2002, the OP entered into a 50/50 joint venture agreement with Sordo Madaleno y Asociados and affiliates to jointly develop Premium Outlet centers in Mexico. Construction on the 230,000 square-foot first phase of Punta Norte Premium Outlets commenced in July 2003 and the center is scheduled to open in late 2004. The OP is responsible for financing its share of project costs of approximately $15.0 million. As of December 31, 2003, the OP had contributed $2.5 million. In January 2004, an affiliate of the OP entered into a Peso denominated credit facility which is guaranteed by the OP to fund its share of construction costs.
As of December 31, 2003, the OP had provided limited debt service guarantees of approximately $17.1 million to Value Retail and affiliates, under a standby facility for loans provided to Value Retail and affiliates to construct outlet centers in Europe. The standby facility, which has a maximum limit of $22.0 million, expired in November 2001, and outstanding guarantees, shall not survive more than five years after project completion.
At December 31, 2003, other assets include $8.8 million and accrued expenses and other liabilities include $17.6 million related to the 2002 deferred unit incentive program which may be paid to certain key officers in 2007.
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 incurred by the OP related to any of its litigation will not be material and have been adequately provided for in the consolidated financial statements.
CPG Partners, L.P.
Notes to Consolidated Financial Statements
17. Related Party Information
In 1999, the OP established a $6.0 million secured loan facility that expires in June 2004 for the benefit of certain unitholders. Each borrower 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 by the facility expiration date. At December 31, 2003, the $2.2 million note receivable from related parties represents a loan made to a unitholder, who is also an officer and director of the OP. During the year ended December 31, 2003, the OP received $1.1 million from a unitholder in full repayment of his loan. Effective June 2002, the OP changed its policy to eliminate new loans to directors and officers.
The OP leased space to related parties of approximately 56,000 square feet during the year ended December 31, 2001. Rental income from those tenants, including reimbursement for taxes, common area maintenance and advertising, totaled $2.1 million during the year ended December 31, 2001.
In August 1997, the OP and one of its directors entered into a Consulting Agreement pursuant to which the director agreed to perform services for the OP in connection with the development and operation of manufacturer’s outlet centers in Japan and Hawaii. The agreement provided for payments to the director of $10,000 per month and was terminated by the OP in December 1999. During the term of the agreement and for four years after the termination, the director will be entitled to deferred compensation of 1% of the development costs, up to a maximum amount of $0.5 million per project, on all projects in which he was involved in Japan or Hawaii either directly or as a result of Mitsubishi and/or Nissho Iwai committing to develop such project with the OP in Japan during the previously mentioned four year period. Fees paid under this agreement totaled $0.3 million for the year ended December 31, 2003. These fees are included in investment in affiliates in the accompanying financial statements. The final payment under this agreement, related to the opening of Tosu Premium Outlets which was Board approved during 2003, is expected to be paid in 2004.
18. Employee Stock Purchase Plan
The Company’s Board of Directors and unitholders approved an Employee Stock Purchase Plan (the “Purchase Plan”), effective July 1, 1998. The Purchase Plan covers an aggregate of 1.0 million shares of 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”, as defined, or own 5% or more of the voting interest of the Company’s stock. Eligible employees will purchase shares 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, 2003, 118 employees were enrolled in the Purchase Plan and $10,000 in expenses has been incurred and is included in the OP’s general and administrative expense. The Purchase Plan will terminate in July 2008 unless terminated earlier by the Board of Directors.
CPG Partners, L.P. Notes to Consolidated Financial Statements
19. 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 six months 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 which currently excludes certain officers, in an amount not to exceed 100% of each participant’s first 6% of yearly compensation to the Plan. Matching contributions of approximately $156,000 in 2003, $96,000 in 2002 and $128,000 in 2001 are included in the OP’s general and administrative expense in the accompanying financial statements.
20. Quarterly Financial Information (Unaudited)
The following summary represents the results of operations, expressed in thousands except per share amounts, for each quarter during 2003 and 2002:
March 31 June 30 September 30 December 31
------------ ------------ ------------------ -----------------
2003
Base rental revenue............................ $59,159 $59,461 $63,645 $ 65,629
Total revenues................................. 83,282 86,609 92,203 110,171
Net income available to common
unitholders.................................. 21,762 29,079 29,272 35,161
Net income per weighted average
common unit................................. $0.44 $0.59 $0.58 $0.69
2002
Base rental revenue............................ $37,629 $42,458 $46,100 $ 52,111
Total revenues................................. 55,395 63,844 70,387 88,863
Net income (loss) available to common unitholders
13,880 15,631 28,228 (9,155)
Net income(loss) per weighted average
common unit................................. $0.32 $0.35 $0.64 $(0.20)
CPG Partners, L.P.
Notes to Consolidated Financial Statements
21. Segment Information
The OP is principally engaged in the development, ownership, acquisition and operation of manufacturers’ outlet centers and has determined that under SFAS No.131 “Disclosures About Segments of an Enterprise and Related Information” it has three reportable real estate segments: premium domestic, other domestic and international in 2003 and 2002. The OP evaluates real estate performance and allocates resources based on Net Operating Income (“NOI”) defined as total revenue less operating expenses. 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 real estate business segments meet the quantitative threshold for determining reportable segments:
For the years ended: Premium Other
(in thousands) Domestic Domestic International Other Total
- --------------------------------------------------------------------------------------------------------------------
(2) (3) (4)
Total revenues (1)
December 31, 2003............. $ 266,944 $104,797 $ - $ 524 $ 372,265
December 31, 2002............. 224,701 48,306 - 5,482 278,489
Interest income(1)
December 31, 2003............. 1,015 35 - 156 1,206
December 31, 2002............. 1,169 124 - 358 1,651
Income (loss) from unconsolidated
investments
December 31, 2003............. 2,432 - 8,574 (2,518) 8,488
December 31, 2002............. 5,641 - 15,072 (47,756) (27,043)
NOI
December 31, 2003............. 196,444 70,386 15,449 (12,985) 269,294
December 31, 2002............. 176,001 30,664 7,891 (12,216) 202,340
Fixed asset additions
December 31, 2003............. 17,404 239,519 - 1,006 257,929
December 31, 2002............. 398,933 309,540 - 795 709,268
Total assets
December 31, 2003............. 1,341,535 501,093 29,306 98,480 1,970,414
December 31, 2002............. 1,262,190 394,984 16,077 29,779 1,703,030
| (1) | Excludes revenue for St. Helena, Mesa and American Tin Cannery properties which are classified as discontinued operations. |
| (2) | Approximately 16% and 23% of the GLA is occupied by and approximately 9% and 12% of annual base rent is derived from one tenant during the 2003 and 2002 periods, respectively. |
| (3) | Principally comprised of the OP's interest in Chelsea Japan. |
| (4) | Includes corporate overhead assets and results from Chelsea Interactive. |
CPG Partners, L.P.
Notes to Consolidated Financial Statements
21. Segment Information (continued)
Following is a reconciliation of net operating income to net income for the years ended December 31, 2003 and 2002 (in thousands):
2003 2002
-------------- --------------
Segment NOI.................................................. $269,294 $202,340
Interest expense - consolidated.............................. (69,215) (48,693)
Interest expense - unconsolidated investments................ (886) (556)
Depreciation expense - consolidated.......................... (73,651) (58,275)
Depreciation expense - unconsolidated investments (4,069) (4,166)
Depreciation expense - Chelsea Interactive................... - (8,271)
Impairment loss- Chelsea Interactive......................... - (34,370)
Income tax - unconsolidated investments...................... (2,640) (1,378)
Gain/(loss) on sale of centers............................... 5,625 312
Gain on sale, net of writedown - International............... - 10,911
-------------- --------------
Net income................................................... $124,458 $ 57,854
============== ==============
22. Non-Cash Investing and Financing Activities
In December 2003, 2002 and 2001, the OP declared quarterly distributions per unit of $0.535, $0.485, and $0.390, respectively (assumes May 2002, 2-for-1 unit split occurred on January 1, 2001). The limited partners’ distributions were paid in January of each subsequent year.
In connection with the Crossings and Las Vegas acquisitions, the OP assumed approximately $64.1 million and $26.3 million, respectively, in mortgage loans payable.
In connection with the buyout of Simon’s 50% interest in Simon-Orlando in April 2002, the OP assumed additions of approximately $68.9 million in rental properties, $6.5 million in accumulated depreciation, $8.8 million in other assets, $3.2 million in other liabilities and $59.4 million in mortgage debt.
In connection with the buyout of Fortress’ 51% interest in F/C Acquisition in August 2002, the OP assumed additions of approximately $207.0 million in rental properties, $9.4 million in accumulated depreciation, $11.7 million in other assets and $5.3 million in other liabilities and $168.7 million in mortgage debt.
In connection with the purchase of the JMJ properties in November 2002, the OP issued 1.3 million units with an assigned value of $44.6 million.
In connection with the Konover acquisition in 2001, the OP assumed approximately $131.0 million in REMIC and mortgage loans payable.
CPG Partners, L.P.
Schedule III-Consolidated Real Estate and Accumulated Depreciation
for the year ended December 31, 2003 (in thousands)
Cost Capitalized Step-Up Related
(Disposed of) Subsequent to Acquisition
to Acquisition of Partnership
Initial Cost to Company (Improvements) Interest (1)
----------------------- -------------- ------------
Buildings, Buildings, Buildings,
Description Encum- Fixtures and Fixtures and Fixtures and
Outlet Center Name brances Land Equipment Land Equipment Land Equipment
- ------------------ ------- ---- --------- ---- --------- ---- ---------
Woodbury Common, NY - $4,448 $16,073 $4,967 $127,871 $ - $ -
Orlando, FL (6) - 9,946 65,711 300 1,151 7,957 31,829
Gilroy, CA (6) (4) 17,053 84,641 2 840 1,812 8,840
Wrentham, MA - 157 2,817 3,842 84,595 - -
Waikele, HI - 22,800 54,357 - 3,374 - -
Leesburg, VA - 6,296 - (811) 71,995 - -
Desert Hills, CA - 975 - 2,376 67,366 830 4,936
Michigan City, IN (6) (4) 7,264 60,107 - 885 772 6,243
Camarillo, CA - 4,000 - 10,696 58,254 - -
Osage Beach, MO (6) - 10,395 58,701 - 1,869 - -
Jackson, NJ (6) - 10,302 58,178 - 339 - -
Albertville, MN (6) - 15,794 45,977 2,851 12,029 - -
North Georgia, GA - 2,960 34,726 (223) 22,252 - -
Waterloo, NY (6) (4) 5,258 42,942 - 670 559 4,519
Clinton, CT - 4,124 43,656 202 1,674 - -
Allen, TX - 8,938 2,068 (834) 37,203 - -
Vacaville, CA - 9,683 38,850 18 1,921 - -
Folsom, CA (2) 4,169 10,465 2,692 27,140 - -
Carolina Outlet (I), NC - 6,220 24,860 (181) 794 - -
Carolina Outlet (II), NC (5) - 7,862 - 305 - -
Petaluma Village, CA - 3,735 - 2,959 32,370 - -
St. Augustine, FL (6) - 5,783 32,658 - 585 - -
Liberty Village, NJ - 345 405 1,499 23,159 11,015 2,195
Napa, CA (2) 3,456 2,113 7,908 19,756 - -
Kittery (I), ME (6) (4) (5) 2,143 23,985 6 289 228 2,354
Kittery (II), ME - 567 2,265 - 92 - -
Johnson Creek, WI (6) - 4,648 26,341 3 113 - -
Aurora, OH - 637 6,884 1,055 23,023 - -
Edinburgh, IN (6) - 5,415 21,659 - 2,118 - -
North Bend, WA - 4,735 18,925 (83) (283) - -
The Crossings, PA (7) 17,187 97,443 35 (597) - -
Las Vegas Outlet, NV (8) 15,930 90,270 19 (3,915) - -
Branson II (6) - 2,892 16,332 - 270 - -
Columbia Gorge, OR (2) 934 - 428 13,845 497 2,647
Santa Fe, NM - 74 - 1,300 12,188 491 1,772
American Tin Cannery, CA - - 8,621 - (8,621) - -
Patriot Plaza, VA - 789 1,854 976 4,081 - -
Corporate Offices, NJ, CA - - 60 - 7,542 - -
St. Helena, CA - 1,029 1,522 (1,067) (1,600) 38 78
Poconos, PA - 330 - - - - -
Tinton Falls, NJ - 110 - - - - -
Chicago, IL - 465 - (465) - - -
Las Vegas, NV - 405 - (405) - - -
Other retail (3) (5) 15,406 64,911 (2,885) (6,986) - -
-------------------------------------------------------------------------------------
(2)(3)(4) 385,634 $237,797 $1,068,239 $37,180 $639,955 $24,199 $65,413
-------------------------------------------------------------------------------------
Gross Amount Carried
at Close of Period Life Used to
December 31, 2003 Compute
----------------- Depreciation
Buildings, in Latest
Description Fixtures and Accumulated Date of Income
Outlet Center Name Land Equipment Total Depreciation Construction Statement
- ------------------ ---- --------- ----- ------------ ------------ ---------
Woodbury Common, NY $9,415 $143,944 $153,359 $57,875 '85, '93, '95, '98 40
Orlando, FL (6) 18,203 98,691 116,894 14,161 '00 40
Gilroy, CA (6) 18,867 94,321 113,188 7,270 '90,'91,'92,'94,'95 40
Wrentham, MA 3,999 87,412 91,411 23,735 '95, '00 40
Waikele, HI 22,800 57,731 80,531 13,190 '98 40
Leesburg, VA 5,485 71,995 77,480 19,090 '96-'00 40
Desert Hills, CA 4,181 72,302 76,483 31,164 '90, '94-'95, '97-'98 40
Michigan City, IN (6) 8,036 67,235 75,271 5,220 '87,'88,'89,'91,'94,'95,'97 40
Camarillo, CA 14,696 58,254 72,950 18,584 '94-'99 40
Osage Beach, MO (6) 10,395 60,570 70,965 1,543 '87-'90 40
Jackson, NJ (6) 10,302 58,517 68,819 1,463 '97,'98 40
Albertville, MN (6) 18,645 58,006 76,651 1,529 '00,'01 40
North Georgia, GA 2,737 56,978 59,715 19,816 '95-'99 40
Waterloo, NY (6) 5,817 48,131 53,948 3,716 '95,'96,'97 40
Clinton, CT 4,326 45,330 49,656 18,533 '95-'96 40
Allen, TX 8,104 39,271 47,375 6,520 '99-'01 40
Vacaville, CA 9,701 40,771 50,472 2,333 '88,'91,'92 40
Folsom, CA 6,861 37,605 44,466 13,425 '90, '92, '93, '96-'97,'00 40
Carolina Outlet (I), NC 6,039 25,654 31,693 1,528 '87,'95,'96,'99 40
Carolina Outlet (II), NC - 8,167 8,167 502 '87,'95,'96,'99 40
Petaluma Village, CA 6,694 32,370 39,064 11,742 '93, '95-'96 40
St. Augustine, FL (6) 5,783 33,243 39,026 846 '90-'92 40
Liberty Village, NJ 12,859 25,759 38,618 9,492 '81, '97-'98 30
Napa, CA 11,364 21,869 33,233 8,275 '62, '93, '95 40
Kittery (I), ME (6) 2,377 26,628 29,005 2,234 '86 40
Kittery (II), ME 567 2,357 2,924 139 '10,'84,'89,'95 40
Johnson Creek, WI (6) 4,651 26,454 31,105 873 '98,'99,'01 40
Aurora, OH 1,692 29,907 31,599 10,777 '90, '93, '94, '95 40
Edinburgh, IN (6) 5,415 23,777 29,192 1,020 '89,'95 40
North Bend, WA 4,652 18,642 23,294 1,088 '90,'95 40
The Crossings, PA 17,222 96,846 114,068 1,418 '03 40
Las Vegas Outlet, NV 15,949 86,355 102,304 964 '03 40
Branson II (6) 2,892 16,602 19,494 421 '88,'94 40
Columbia Gorge, OR 1,859 16,492 18,351 6,371 '91, '94 40
Santa Fe, NM 1,865 13,960 15,825 4,874 '93, '98 40
American Tin Cannery, CA - - - - '87, '98 0
Patriot Plaza, VA 1,765 5,935 7,700 2,638 '86, '93, '95 40
Corporate Offices, NJ, CA - 7,602 7,602 4,824 - 5
St. Helena, CA - - - - '83 40
Poconos, PA 330 - 330 - - 0
Tinton Falls, NJ 110 - 110 - - 0
Chicago, IL - - - - - 40
Las Vegas, NV - - - - - 40
Other retail 12,521 57,925 70,446 3,213 various 40
-----------------------------------------------
(2)(3)(4) $299,176 $1,773,607 $2,072,783 $332,406
-----------------------------------------------
The aggregate cost of the land, buildings, fixtures and equipment for federal tax purposes was approximately $1,754 million at December 31, 2003.
| (1) | As part of the formation transaction assets acquired for cash have been accounted for as a purchase. The step-up represents the amount of the purchase price that exceeds the net book value of the assets acquired. |
| (2) | Projects encumbered by mortgage totaling $61.5 million at December 31, 2003. |
| (3) | Projects encumbered by mortgage totaling $70.5 million at December 31, 2003. |
| (4) | Projects encumbered by mortgage totaling $164.7 million at December 31, 2003. |
| (5) | Project held under long term land lease. |
| (6) | Purchase price has been tentatively allocated. |
| (7) | Projects encumbered by mortgage totaling $63.5 million at December 31, 2003. |
| (8) | Projects encumbered by mortgage totaling $25.5 million at December 31, 2003. |
CPG Partners, L.P.
Schedule III–Consolidated Real Estate
and Accumulated Depreciation (continued)
(in thousands)
The changes in total real estate:
Year ended December 31,
2003 2002
------------------ -----------------
Balance, beginning of period...................... $1,837,174 $1,127,906
Additions......................................... 268,318 719,857
Dispositions and other............................ (32,709) (10,589)
------------------ -----------------
Balance, end of period............................ $2,072,783 $1,837,174
================== =================
The changes in accumulated depreciation:
Year ended December 31,
2003 2002
------------------ ----------------
Balance, beginning of period...................... $284,239 $217,462
Additions......................................... 67,023 53,065
Consolidation of properties previously held as
investments in unconsolidated affiliates.......... - 15,977
Dispositions and other............................ (18,856) (2,265)
------------------ ----------------
Balance, end of period............................ $332,406 $284,239
================== ================
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 18th of March, 2004.
| CPG Partners, L.P. By: /s/ Michael J. Clarke Michael J. Clarke, Chief Financial Officer |
CERTIFICATION
I, David C. Bloom, Chief Executive Officer of Chelsea Property Group, Inc., the sole general partner of CPG Partners, L.P. (the "OP"), certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of the OP; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Intentionally Omitted |
| (c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to material affect, the registrant's internal control over financial reporting; and |
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: March 18, 2004
|
/s/ David C. Bloom
David C. Bloom Chief Executive Officer |
CERTIFICATION
I, Michael J. Clarke, Chief Financial Officer of Chelsea Property Group, Inc., the sole general partner of CPG Partners, L.P. (the "OP"), certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of the OP; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Intentionally Omitted |
| (c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to material affect, the registrant's internal control over financial reporting; and |
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: March 18, 2004
|
/s/ Michael J. Clarke
Michael J. Clarke Chief Financial Officer |
CERTIFICATION
I, David C. Bloom, Chief Executive Officer of Chelsea Property Group, Inc., the sole general partner of CPG Partners, L.P. ("the OP"), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, do hereby certify as follows:
| 1. | The annual report on Form 10-K of the OP for the year ended December 31, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the OP. |
IN WITNESS WHEREOF, I have executed this Certification this 18th day of March, 2004.
|
/s/ David C. Bloom
David C. Bloom Chief Executive Officer |
A signed original of this written statement required by Section 906 has been provided to Chelsea Property Group, Inc. and will be retained by Chelsea Property Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION
I, Michael J. Clarke, Chief Financial Officer of Chelsea Property Group, Inc., the sole general partner of CPG Partners, L.P. ("the OP"), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, do hereby certify as follows:
| 1. | The annual report on Form 10-K of the OP for the year ended December 31, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the OP. |
IN WITNESS WHEREOF, I have executed this Certification this 18th day of March, 2004.
|
/s/ Michael J. Clarke
Michael J. Clarke Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to Chelsea Property Group, Inc. and will be retained by Chelsea Property Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.