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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________.
COMMISSION FILE NO. 33-98136
CHELSEA GCA REALTY PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3258100
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
103 EISENHOWER PARKWAY, ROSELAND, NEW JERSEY 07068
(Address of principal executive offices - zip code)
(201) 228-6111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes X No .
--- ---
There are no outstanding shares of Common Stock or voting securities.
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CHELSEA GCA REALTY PARTNERSHIP, L.P.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
Condensed Consolidated Balance Sheets
as of September 30, 1996 and December 31, 1995 .....................2
Condensed Consolidated Statements of Income
for the three and nine months ended September 30, 1996 and 1995 ....3
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1996 and 1995 ......................4
Notes to Condensed Consolidated Financial Statements ...............5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................8
Signatures.........................................................14
ITEM 1. FINANCIAL STATEMENTS
CHELSEA GCA REALTY PARTNERSHIP, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per unit data)
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------- --------
(UNAUDITED)
ASSETS
Rental properties:
Land............................... $80,289 $75,224
Depreciable property............... 417,271 340,759
------- -------
Total rental property................. 497,560 415,983
Accumulated depreciation.............. (51,536) (41,373)
------- -------
Rental properties, net................ 446,024 374,610
Cash and equivalents.................. 7,656 3,987
Notes receivable-related parties...... 8,023 8,129
Deferred costs, net................... 11,036 7,255
Other assets.......................... 14,867 14,072
======= =======
Total assets.......................... $487,606 $408,053
======= ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Unsecured bank line of credit...... $78,000 -
Secured bank line of credit........ - $96,000
Notes payable...................... 99,648 -
Construction payables.............. 17,123 18,617
Accounts payable and accrued expenses 9,223 5,730
Obligation under capital lease..... 9,815 9,845
Distribution payable to unitholders 9,854 9,790
Rent payable....................... 1,626 1,595
--------
-------
Total liabilities..................... 225,289 141,577
Commitments and contingencies
Minority interest..................... 5,636 5,441
Partners' capital:
General partner units outstanding,
12,061 in 1996
and 11,485 in 1995............... 180,783 176,758
Limited partner units outstanding,
5,077 in 1996
and 5,541 in 1995................ 75,898 84,277
------- --------
Total partners' capital............... 256,681 261,035
======= ========
Total liabilities and partners' capital $487,606 $408,053
======= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.
CHELSEA GCA REALTY PARTNERSHIP, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
(In thousands, except per unit data)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
----------------- ------------------
1996 1995 1996 1995
-------- -------- --------- --------
REVENUES:
Base rent..................... $14,737 $11,902 $41,160 $33,665
Percentage rent............... 2,028 1,359 3,707 2,456
Expense reimbursements........ 5,958 5,223 16,812 14,443
Other income.................. 600 302 1,628 972
-------- -------- --------- --------
Total revenues................... 23,323 18,786 63,307 51,536
-------- -------- --------- --------
EXPENSES:
Interest...................... 2,484 1,182 5,910 1,985
Operating and maintenance..... 6,718 5,622 18,314 15,321
Depreciation and amortization. 4,597 3,480 11,765 9,030
General and administrative.... 829 714 2,270 2,074
Other......................... 554 477 1,657 1,327
------- -------- ------- --------
Total expenses................... 15,182 11,475 39,916 29,737
-------- -------- ------- --------
Income before minority interest 8,141 7,311 23,391 21,799
and extraordinary item...........
Minority interest................ (56) (97) (195) (243)
-------- -------- --------- --------
Net income before extraordinary 8,085 7,214 23,196 21,556
item.............................
Extraordinary item-loss on early - - (902) -
extinguishment of debt...........
-------- -------- --------- --------
NET INCOME....................... $8,085 $7,214 $22,294 $21,556
======== ======== ========= ========
NET INCOME:
General partner............... $5,593 $4,793 $15,203 $14,322
Limited partners.............. 2,492 2,421 7,091 7,234
======== ======== ========= ========
Total............................ $8,085 $7,214 $22,294 $21,556
======== ======== ========= ========
NET INCOME PER UNIT:
General partner (including
$0.05 net loss per unit
from extraordinary item in
the nine months ended
September 30, 1996)......... $0.47 $0.43 $1.32 $1.29
Limited partners (including
$0.05 net loss per unit
from extraordinary item in
the nine months ended
September 30, 1996)......... $0.47 $0.43 $1.29 $1.29
WEIGHTED AVERAGE UNITS
OUTSTANDING:
General partner............... 11,834 11,187 11,539 11,106
Limited partners.............. 5,298 5,651 5,503 5,610
-------- -------- --------- --------
Total............................ 17,132 16,838 17,042 16,716
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.
CHELSEA GCA REALTY PARTNERSHIP, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
(In thousands)
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................ $22,294 $21,556
Adjustments to reconcile net income to
net cash
provided by operating activities:
Depreciation and amortization... 11,765 9,030
Minority interest in net income. 195 243
Loss on early extinguishment of debt 902 -
Amortization of debt discount... 56 -
Other operating activities..... (164) 146
Additions to deferred lease costs (1,274) (1,162)
Changes in assets and liabilities:
Straight line rent receivable. (1,184) (999)
Other assets.................. 389 (1,652)
Accounts payable and accrued expenses 3,494 (909)
-------- --------
Net cash provided by operating activities 36,473 26,253
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to rental properties.... (81,052) (61,192)
Additions to development costs.... (1,894) -
Advances to related parties....... (67) -
Payments from related parties..... 173 105
-------- --------
Net cash used in investing activities (82,840) (61,087)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank line of credit. 89,000 53,000
Proceeds from issuance of notes payable 99,592 -
Repayments of debt................ (107,000) -
Additions to deferred financing costs (3,349) (258)
Distributions..................... (29,472) (25,976)
Net proceeds from sale of units... 1,290 3,826
Other financing activities........ (25) 170
--------
--------
Net cash provided by financing activities 50,036 30,762
-------- --------
Net increase (decrease) in cash and 3,669 (4,077)
equivalents........................
Cash and equivalents, beginning of period 3,987 9,109
======== ========
Cash and equivalents, end of period $7,656 $5,032
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
During 1996, the Operating Partnership acquired property valued at $1.6 million
through the issuance of units. Additionally, approximately 520,000 units with a
book value of approximately $7.9 million were converted to common shares of the
Company.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.
CHELSEA GCA REALTY PARTNERSHIP, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Chelsea GCA Realty Partnership, L.P. (the "Operating Partnership"), which
commenced operations on November 2, 1993, is engaged in the development,
ownership, acquisition, leasing and operation of manufacturers' outlet
centers. As of September 30, 1996, the Operating Partnership operated 18
centers in 10 states (the "Properties") containing approximately 3.5
million square feet of gross leasable area ("GLA"). The Properties are
located near large metropolitan areas including New York, Los Angeles, San
Francisco, Sacramento, Atlanta, Portland (Oregon), Kansas City and
Cleveland, or at or near tourist destinations including the Napa Valley,
Palm Springs and the Monterey Peninsula. The Operating Partnership also
has a number of properties under development. The sole general partner in
the Operating Partnership, Chelsea GCA Realty, Inc. (the "Company"), is a
self-administered and self-managed Real Estate Investment Trust.
Ownership of the Operating Partnership as of September 30, 1996 was as
follows:
General partner 70.4% 12,060,800 units
Limited partners 29.6% 5,076,900 units
------ ---------
TOTAL 100.0% 17,137,700
The condensed consolidated financial statements of the Operating
Partnership include the accounts of Solvang Designer Outlets ("Solvang"),
a limited partnership in which the Operating Partnership has a 50%
interest and is the sole general partner. As the sole general partner, the
Operating Partnership has the ability to exercise both financial and
operational control over the partnership. Solvang is not material to the
operations or financial position of the Operating Partnership.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for fair presentation have been included. Operating
results for the three and nine month periods ended September 30, 1996 are
not necessarily indicative of the results that may be expected for the
year ended December 31, 1996. These financial statements should be read in
conjunction with the consolidated financial statements and accompanying
notes included in the Operating Partnership's Annual Report on Form 10-K
for the year ended December 31, 1995.
Certain prior period balances have been reclassified to conform with
current period presentation.
2. BANK LINE OF CREDIT
On March 29, 1996, the Operating Partnership replaced its secured
revolving credit facility (the "Secured Facility") with a new, unsecured
$100 million line of credit (the "Unsecured Facility"). The Unsecured
Facility expires March 29, 1998. Interest on the outstanding balance is
payable monthly at the London Interbank Offered Rate ("LIBOR") plus 1.75%,
or the prime rate, at the Operating Partnership's option. A fee on the
unused portion of the Unsecured Facility is payable quarterly at a rate of
0.25% per annum. The outstanding balance at September 30, 1996 was $78.0
million, which approximates fair value. An additional $1.0 million of the
Unsecured Facility was reserved for letters of credit issued to secure
commitments to fund a traffic mitigation plan at a new center.
The Unsecured Facility requires compliance with certain loan covenants
relating to debt service coverage, tangible net worth, cash flow,
earnings, occupancy rate, new development and dividends. The Operating
Partnership has remained in compliance with these covenants since
inception of the facility.
Interest and loan costs of approximately $1.1 million and $3.6 million
were capitalized as development costs during the three and nine months
ended September 30, 1996, respectively.
3. NOTES PAYABLE
In January 1996, the Operating Partnership completed a $100 million public
debt offering of 7.75% unsecured notes due January 2001 (the "Notes"),
which are guaranteed by the Company. The five-year non-callable Notes were
priced at a discount of 99.952 to yield 7.85% to investors. Net proceeds
from the offering were used to repay substantially all of the borrowings
under the Secured Facility.
4. DISTRIBUTIONS
On September 19, 1996, the Board of Directors of the Company declared a
$0.575 per unit cash distribution to unitholders of record on September
30, 1996. The distribution, totaling $9.8 million, was paid on October 21,
1996.
5. INCOME TAXES
No provision has been made for income taxes in the accompanying
consolidated condensed financial statements since such taxes, if any, are
the responsibility of the individual partners.
6. NET INCOME PER PARTNERSHIP UNIT
Net income per partnership unit is determined by allocating net income to
the general partner and the limited partners based on their weighted
average partnership units outstanding during the respective periods
presented.
7. COMMITMENTS AND CONTINGENCIES
Management has determined that the foundation slab at one of its outlet
centers was installed improperly and will require corrective action, the
cost of which management estimates will be in excess of $1 million.
Management believes such costs may be recoverable from the original
contractor and/or engineers, and that any costs incurred by the Operating
Partnership will not materially affect the financial position, operating
results or liquidity of the Operating Partnership.
The Operating Partnership is not presently involved in any material
litigation nor, to its knowledge, is any material litigation threatened
against the Operating Partnership or its properties, other than routine
litigation arising in the ordinary course of business. Management believes
the costs, if any, incurred by the Operating Partnership related to this
litigation will not materially affect the financial position, operating
results or liquidity of the Operating Partnership.
8. RELATED PARTY INFORMATION
The Operating Partnership recognized lease settlement income of
approximately $99,000 from a related party during the nine months ended
September 30, 1996. This amount is included in other income in the
accompanying condensed consolidated financial statements.
9. EXTRAORDINARY ITEM
Deferred financing costs of $0.9 million related to the Secured Facility
replaced in March 1996 have been written off and reflected in the
accompanying financial statements as an extraordinary item.
10. SUBSEQUENT EVENT
In October 1996, the Operating Partnership completed a $100 million
offering of Remarketed Floating Rate Reset Notes due October 2001 (the
"Reset Notes"), which are guaranteed by the Company. The interest rate
will reset quarterly and will equal LIBOR plus 75 basis points during the
first year. Net proceeds from the offering were used to repay all of the
borrowings under the Unsecured Facility and for working capital.
CHELSEA GCA REALTY PARTNERSHIP, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the accompanying
unaudited condensed consolidated financial statements and notes thereto. These
financial statements include all adjustments which, in the opinion of
management, are necessary to reflect a fair statement of results for the interim
periods presented, and all such adjustments are of a normal recurring nature.
GENERAL OVERVIEW
The Operating Partnership has grown by increasing rent at its existing centers,
expanding its existing centers, developing new centers and acquiring and
redeveloping centers. The Operating Partnership operated 18 manufacturers'
outlet centers at September 30, 1996 and 1995: the Operating Partnership sold
its smallest center, Page Factory Stores, in December 1995 and opened North
Georgia Premium Outlets in May 1996 and Clinton Crossing Premium Outlets in
September 1996. The Operating Partnership's operating gross leasable area (GLA)
at September 30, 1996, increased 25.0% to 3.5 million square feet from 2.8
million square feet at September 30, 1995. GLA added since October 1, 1995 is
detailed as follows:
12 MOS 9 MOS 3 MOS
ENDED ENDED ENDED
SEPTEMBER SEPTEMBER DECEMBER
30, 30, 31,
1996 1996 1995
---------- ---------- ----------
GLA ADDED (IN 000'S):
NEW CENTERS OPENED:
North Georgia.............. 292 292 -
Clinton Crossing........... 272 272 -
--------- -------- --------
TOTAL NEW CENTERS........... 564 564 -
CENTERS EXPANDED:
Aurora Farms............... 27 - 27
Woodbury Common............ 14 1 13
Camarillo Factory Stores... 77 - 77
Petaluma................... 45 30 15
Other...................... (6) 1 (7)
--------- -------- --------
TOTAL CENTERS EXPANDED....... 157 32 125
CENTER SOLD:
Page Factory Stores........ (14) - (14)
--------- -------- --------
Net GLA added during the period 707 596 111
GLA at end of period......... 3,530 3,530 2,934
RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 1996 to the three months
ended September 30, 1995.
Net income before minority interest and extraordinary item increased $0.8
million to $8.1 million for the three months ended September 30, 1996 from $7.3
million for the three months ended September 30, 1995. The increase was
primarily due to increases in revenues offset by interest on borrowings and
increases in depreciation and amortization.
Base rentals increased $2.8 million, or 23.8%, to $14.7 million for the three
months ended September 30, 1996 from $11.9 million for the three months ended
September 30, 1995 due to expansions, new center openings and higher average
rents.
Percentage rents increased $0.6 million to $2.0 million for the three months
ended September 30, 1996, from $1.4 million for the three months ended September
30, 1995. The increase was primarily due to increases in tenant sales at the
Operating Partnership's larger centers and an increase in tenants contributing
percentage rents.
Expense reimbursements, representing contractual recoveries from tenants of
certain common area maintenance, operating, real estate tax, promotional and
management expenses, increased $0.8 million, or 14.1%, to $6.0 million for the
three months ended September 30, 1996 from $5.2 million for the three months
ended September 30, 1995, due to the recovery of operating and maintenance costs
at new and expanded centers. The average recovery of reimbursable expenses was
92.2% in the third quarter of 1996, without adjustments of $0.2 million as a
result of the final computation of expense reimbursement billings in the third
quarter 1996, compared to 92.9% in the third quarter of 1995.
Other income increased $0.3 million to $0.6 million for the three months ended
September 30, 1996, from $0.3 million for the three months ended September 30,
1995, primarily as a result of increased interest and a lease termination
settlement in the 1996 period.
Interest in excess of amounts capitalized increased $1.3 million to $2.5 million
for the three months ended September 30, 1996 from $1.2 million for the three
months ended September 30, 1995 due to the opening of centers and expansions
financed during 1995 and 1996.
Operating and maintenance expenses increased $1.1 million, or 19.5%, to $6.7
million for the three months ended September 30, 1996 from $5.6 million for the
three months ended September 30, 1995. The increase was primarily due to costs
related to expansions and new centers.
Depreciation and amortization expense increased $1.1 million, or 32.1%, to $4.6
million for the three months ended September 30, 1996 from $3.5 million for the
three months ended September 30, 1995. The increase was primarily related to
expansions and new centers.
General and administrative expenses increased $0.1 million to $0.8 million for
the three months ended September 30, 1996 from $0.7 million for the three months
ended September 30, 1995. The increase was primarily due to increased personnel
and overhead costs.
Other expenses increased $0.1 million to $0.6 million for the three months ended
September 30, 1996 from $0.5 million for the three months ended September 30,
1995. The increase included additional reserves for bad debts and legal fees.
Comparison of the nine months ended September 30, 1996 to the nine months ended
September 30, 1995.
Net income before minority interest and extraordinary item increased $1.6
million to $23.4 million for the nine months ended September 30, 1996, from
$21.8 million for the nine months ended September 30, 1995. The increase was
primarily due to increases in revenues offset by interest on borrowings and
increases in depreciation and amortization.
Base rentals increased $7.5 million, or 22.3%, to $41.2 million for the nine
months ended September 30, 1996, from $33.7 million for the nine months ended
September 30, 1995, due to expansions, new center openings and higher average
rents.
Percentage rents increased $1.2 million to $3.7 million for the nine months
ended September 30, 1996 from $2.5 million for the nine months ended September
30, 1995. The increase was primarily due to increases in tenant sales,
expansions at the Operating Partnership's larger centers and increases in
tenants contributing percentage rents.
Expense reimbursements, representing contractual recoveries from tenants of
certain common area maintenance, operating, real estate tax, promotional and
management expenses, increased $2.4 million, or 16.4%, to $16.8 million for the
nine months ended September 30, 1996 from $14.4 million for the nine months
ended September 30, 1995, due to the recovery of operating and maintenance costs
at new and expanded centers. The average recovery of reimbursable expenses was
93.1% in 1996, without adjustments of $0.2 million as a result of the final
computation of expense reimbursement billings in the third quarter 1996,
compared to 94.3% in 1995.
Other income increased $0.6 million to $1.6 million for the nine months ended
September 30, 1996 from $1.0 million for the nine months ended September 30,
1995. The increase was primarily as a result of increased interest and lease
termination settlements in the 1996 period.
Interest in excess of amounts capitalized increased $3.9 million to $5.9 million
for the nine months ended September 30, 1996 from $2.0 million for the nine
months ended September 30, 1995 due to the opening of centers and expansions
financed during 1995 and 1996.
Operating and maintenance expenses increased $3.0 million, or 19.5%, to $18.3
million for the nine months ended September 30, 1996 from $15.3 million for the
nine months ended September 30, 1995. The increase was primarily due to costs
related to expansions and new centers.
Depreciation and amortization expense increased $2.8 million, or 30.3%, to $11.8
million for the nine months ended September 30, 1996 from $9.0 million for the
nine months ended September 30, 1995. The increase was primarily related to
expansions and new centers.
General and administrative expenses increased $0.2 million to $2.3 million for
the nine months ended September 30, 1996 from $2.1 million for the nine months
ended September 30, 1995. The increase was primarily due to increased personnel
and overhead costs in connection with increased GLA.
Other expenses increased $0.3 million to $1.6 million for the nine months ended
September 30, 1996 from $1.3 million for the nine months ended September 30,
1995. The increase included additional reserves for bad debts, legal fees and
tenant improvement write-offs.
In March 1996, the Operating Partnership replaced its Secured Facility. Deferred
financing costs of $0.9 million were expensed in connection with the early
retirement of the Secured Facility.
LIQUIDITY AND CAPITAL RESOURCES
The Operating Partnership believes it has adequate financial resources to fund
operating expenses, distributions and planned development and construction
activities. Operating cash flow during 1996 is expected to increase with a full
year of operations of the 606,000 square feet of GLA added during 1995 and
scheduled openings of approximately 671,000 square feet (including two new
centers and expansions) in 1996. In addition, at September 30, 1996 the
Operating Partnership had $21.0 million available under its Unsecured Facility,
access to the public markets through its debt ($100 million) and the Company's
($200 million) equity shelf registrations, and cash equivalents of $7.7 million.
Operating cash flow is expected to provide sufficient funds for distributions.
In addition, the Operating Partnership anticipates retaining sufficient
operating cash to fund re-tenanting and lease renewal tenant improvement costs,
as well as capital expenditures to maintain the quality of its
centers.
Distributions declared and recorded during the nine months ended September 30,
1996 were $29.5 million, or $1.725 per unit. The Operating Partnership's
distribution payout ratio as a percentage of net income before depreciation and
amortization, exclusive of amortization of deferred financing costs, minority
interest and extraordinary item ("FFO") was 87.2% during the nine months ended
September 30, 1996. The Unsecured Facility limits aggregate distributions to the
lesser of (i) 90% of FFO on an annual basis or (ii) 100% of FFO for any two
consecutive quarters.
In January 1996, the Operating Partnership completed a $100 million public
offering of 7.75% unsecured notes due January 2001 (the "Notes"), which are
guaranteed by the Company. The five-year non-callable Notes were priced at a
discount of 99.592 to yield 7.85% to investors. Net proceeds from the offering
were used to repay substantially all borrowings under the Secured Facility.
In March 1996, the Operating Partnership replaced its Secured Facility with the
$100 million Unsecured Facility. The Operating Partnership had $21.0 million
available for growth and liquidity at September 30, 1996. Interest on the
outstanding balance is payable monthly at a rate equal to LIBOR plus 1.75%, or
the prime rate, at the Operating Partnership's option. A fee on the unused
portion of the Unsecured Facility is payable quarterly at a rate of 0.25% per
annum. The Unsecured Facility can be increased at any time up to $200 million
with the approval of the bank group.
In October 1996, the Operating Partnership completed a $100 million offering of
Reset Notes, which are guaranteed by the Company. The interest rate will reset
quarterly and will equal LIBOR plus 75 basis points during the first year. Net
proceeds from the offering were used to repay all of the borrowings under the
Unsecured Facility.
The Operating Partnership is in the process of developing other expansions and
new centers for completion in 1997 and beyond. The projects include a 300,000
square foot expansion at Woodbury Common, and a new project in Wrentham,
Massachusetts (located near the junction of Interstates 95 and 495 between
Boston, MA and Providence, RI) with an expected initial phase of 200,000 square
feet of GLA. These projects are in various stages of development and there can
be no assurance that any of these projects will be completed or opened, or that
there will not be delays in the opening or completion of any of them. The
Company anticipates development and construction costs of $80 million to $100
million annually.
To achieve planned growth and favorable returns in both the short and long term,
the Operating Partnership's financing strategy is to maintain a strong, flexible
financial position by: (i) maintaining a conservative level of leverage; (ii)
extending and sequencing debt maturity dates; (iii) managing exposure to
floating interest rates; (iv) maintaining a significant level of unencumbered
assets; and (v) maintaining liquidity. Management believes these strategies will
enable the Operating Partnership to access a broad array of capital sources,
including bank or institutional borrowings and secured and unsecured debt and
equity offerings, subject to market conditions.
It is the Operating Partnership's policy to limit its borrowings to less than
40% of total market capitalization (defined as the value of outstanding shares
of common stock of the Company on a fully diluted basis including conversion of
Operating Partnership units to common stock, plus total debt). Using a September
30, 1996 closing price of $30.625 per share of common stock of the Company, the
Operating Partnership's ratio of debt to total market capitalization was
approximately 25%.
Net cash provided by operating activities was $36.5 million and $26.2 million
for the nine months ended September 30, 1996 and 1995, respectively. The
increase was primarily due to increased operations, decreases in accounts
receivable and increases in accrued interest on the Notes. Net cash used in
investing activities increased $21.8 million for the nine months ended September
30, 1996 compared to the corresponding 1995 period, primarily as a result of
increased development activity. Net cash provided by financing activities
increased $19.3 million primarily due to the issuance of the Notes, offset by
repayment of the Secured Facility.
FUNDS FROM OPERATIONS
Management believes that, to facilitate a clear understanding of the operating
results of the Operating Partnership, FFO should be considered in conjunction
with net income as presented in the condensed consolidated financial statements.
Analysts generally consider FFO an appropriate measure of performance for an
equity real estate investment trust. FFO is generally defined by the National
Association of Real Estate Investment Trusts ("NAREIT") as net income or loss
plus certain non-cash items, primarily depreciation and amortization. FFO should
not be considered an alternative to net income as an indicator of operating
performance or to cash from operations under generally accepted accounting
principles, and is not necessarily indicative of cash available to fund cash
needs.
In March 1995, NAREIT issued a clarification of its definition of FFO. For
illustrative purposes, the following table presents the Operating Partnership's
FFO under both methods of calculation for the nine months ended September 30,
1996 and 1995.
CURRENT METHOD OLD METHOD
---------------------------------- -------------------------------------
THREE NINE THREE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
--------------- ---------------- --------------- -------------
1996 1995 1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------ ------ ------
Net income before
extraordinary item......... $8,085 $7,214 $23,196 $21,556 $8,085 $7,214 $23,196 $21,556
Add back:
Depreciation and
amortization(1) ........... 4,539 3,449 11,604 8,936 4,539 3,449 11,604 8,936
Amortization of deferred
financing costs and
depreciation of non-real
estate assets............ (264) (433) (920) (708) - - - -
====== ======= ====== ====== ====== ======= ====== =======
FFO....................... $12,360 $10,230 $33,880 $29,784 $12,624 $10,663 $34,800 $30,492
======= ======= ======= ======= ======= ======= ====== =======
Weighted average
units outstanding. $17,132 16,838 17,042 16,716 17,132 16,838 17,042 16,716
- ---------------------------------------
(1) Excludes depreciation and minority interest attributed to a third-party
limited partner's interest in a partnership.
CHELSEA GCA REALTY PARTNERSHIP, L.P.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHELSEA GCA REALTY PARTNERSHIP, L.P.
By: /S/ LESLIE T. CHAO
---------------------
Leslie T. Chao
Executive Vice President and
Chief Financial Officer
Date: November 12, 1996