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Item 1. Financial Statements
Chelsea GCA Realty Partnership, L.P.
Condensed Consolidated Balance Sheets
(In thousands)
March 31, December 31,
2000 1999
------------------- -------------------
(Unaudited) (Note 1)
Assets
Rental properties:
Land.......................................................................... $ 119,040 $ 118,494
Depreciable property.......................................................... 741,442 730,319
------------------- -------------------
Total rental property.............................................................. 860,482 848,813
Accumulated depreciation........................................................... (147,166) (138,221)
------------------- -------------------
Rental properties, net............................................................. 713,316 710,592
Cash and equivalents............................................................... 20,806 8,862
Notes receivable-related party..................................................... 2,201 2,213
Deferred costs, net................................................................ 13,285 14,290
Properties held for sale........................................................... - 3,388
Other assets....................................................................... 59,229 66,710
------------------- -------------------
Total assets....................................................................... $ 808,837 $ 806,055
=================== ===================
Liabilities and partners' capital
Liabilities:
Unsecured bank debt........................................................... $ 131,035 $ 131,035
7.75% Unsecured Notes due 2001................................................ 99,925 99,905
Construction loan due 2003.................................................... 1,319 -
7.25% Unsecured Notes due 2007................................................ 124,752 124,744
Construction payables......................................................... 9,432 9,277
Accounts payable and accrued expenses......................................... 23,977 27,127
Obligation under capital lease................................................ 3,039 3,233
Accrued distribution payable.................................................. 15,862 3,813
Other liabilities............................................................. 24,631 27,064
------------------- -------------------
Total liabilities.................................................................. 433,972 426,198
Commitments and contingencies
Partners' capital:
General partner units outstanding, 15,935 in 2000 and 15,932 in 1999.......... 273,182 277,296
Limited partners units outstanding, 3,356 in 2000 and 3,357 in 1999........... 38,368 39,246
Preferred partners units outstanding, 1,300 in 2000 and 1999.................. 63,315 63,315
------------------- -------------------
Total partners' capital............................................................ 374,865 379,857
------------------- -------------------
Total liabilities and partners' capital............................................ $ 808,837 $ 806,055
=================== ===================
The accompanying notes are an integral part of the financial statements.
Chelsea GCA Realty Partnership, L.P.
Condensed Consolidated Statements of Income
for the Three Months Ended March 31, 2000 and 1999
(Unaudited)
(In thousands, except per unit data)
2000 1999
---------------- ----------------
Revenues:
Base rent..................................................... $26,251 $24,555
Percentage rent............................................... 2,566 2,371
Expense reimbursements........................................ 8,774 8,192
Other income.................................................. 2,003 1,845
---------------- ----------------
Total revenues................................................... 39,594 36,963
---------------- ----------------
Expenses:
Interest...................................................... 5,637 6,283
Operating and maintenance..................................... 9,855 9,151
Depreciation and amortization................................. 10,878 9,924
General and administrative.................................... 758 1,139
Other......................................................... 538 418
----------------
----------------
Total expenses................................................... 27,666 26,915
---------------- ----------------
Net income....................................................... 11,928 $10,048
Preferred unit requirement....................................... (2,509) (1,047)
---------------- ----------------
Net income to common unitholders................................. $9,419 $9,001
================ ================
Net income to common unitholders:
General partner............................................. $7,780 $7,380
Limited partners............................................ 1,639 1,621
---------------- ----------------
Total............................................................ $9,419 $9,001
================ ================
Net income per common unit:
General partner............................................. $0.49 $0.47
Limited partners............................................ $0.49 $0.47
Weighted average units outstanding:
General partner............................................. 15,935 15,608
Limited partners............................................ 3,356 3,429
---------------- ----------------
Total............................................................ 19,291 19,037
The accompanying notes are an integral part of the financial statements.
Chelsea GCA Realty Partnership, L.P.
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2000 and 1999
(Unaudited)
(In thousands)
2000 1999
-------------- -------------
Cash flows from operating activities
Net income....................................................... $11,928 $8,427
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................................ 10,878 9,924
Proceeds from non-compete receivable......................... 4,600 4,600
Amortization of non-compete revenue.......................... (1,284) (1,284)
Additions to deferred lease costs............................ - (101)
Other operating activities................................... 185 29
Changes in assets and liabilities:
Straight-line rent receivable.............................. (401) (335)
Other assets............................................... 4,582 6,142
Accounts payable and accrued expenses...................... (3,426) (2,936)
------------- -------------
Net cash provided by operating activities........................ 27,062 26,087
------------- -------------
Cash flows used in investing activities
Additions to rental properties................................... (12,433) (13,803)
Additions to deferred development costs.......................... 89 (359)
Proceeds from sale of center..................................... 3,372 4,483
Payments from related party...................................... 12 4,500
Additions to investments in joint ventures....................... (2,180) (13,153)
-------------- -------------
Net cash used in investing activities............................ (11,140) (18,332)
-------------- -------------
Cash flows from financing activities
Distributions.................................................... (4,928) (3,414)
Debt proceeds.................................................... 1,319 4,000
Additions to deferred financing costs............................ (426) (90)
Net proceeds from sale of common stock........................... 57 37
-------------- -------------
Net cash (used in) provided by financing activities.............. (3,978) 533
-------------- -------------
Net increase in cash and cash equivalents........................ 11,944 8,288
Cash and cash equivalents, beginning of period................... 8,862 9,631
-------------- -------------
Cash and cash equivalents, end of period......................... $20,806 $17,919
============== =============
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” or “OP”), which commenced operations on November 2,
1993, is engaged in the development, ownership, acquisition, leasing and
operation of manufacturers’ outlet centers. As of March 31, 2000, the
Operating Partnership operated 19 centers in 11 states (the
“Properties”) containing approximately 5.3 million square feet of
gross leasable area (“GLA”). The Properties are located near large
metropolitan areas including New York City, Los Angeles, San Francisco,
Sacramento, Boston, Atlanta, Washington DC, Portland (Oregon) and Cleveland, or
at or near tourist destinations including Honolulu, the Napa Valley, Palm
Springs and the Monterey Peninsula. The Operating Partnership also has a number
of properties under development and expansion. 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.
Common ownership of the OP as of March 31, 2000 was approximately as follows:
General Partner 82.6% 15,935,000 units
Limited Partners 17.4% 3,356,000 units
----------- ---------------
Total 100.0% 19,291,000
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and notes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for fair
presentation have been included. Operating results for the three month period
ended March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. The balance sheet at December
31, 1999 has been derived from the audited financial statements at that date but
does not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. These
financial statements should be read in conjunction with the consolidated
financial statements and accompanying notes included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 1999.
The OP is engaged in the development, ownership, acquisition and
operation of manufacturers’ outlet centers and has one reportable segment,
retail real estate. The OP evaluates real estate performance and allocates
resources based on net operating income and weighted average sales per square
foot. The primary sources of revenue are generated from tenant base rents,
percentage rents and reimbursement revenue. Operating expenses primarily consist
of common area maintenance, real estate taxes and promotional expenses. The
retail real estate business segment meets the quantitative threshold for
determining reportable segments. The Company’s investment in foreign
operations is not material to the consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
(as amended by FASB Statement No. 137), which is required to be adopted in years
beginning after June 15, 2000. Statement 133 permits early adoption as of the
beginning of any fiscal quarter after its issuance. The OP expects to adopt the
new Statement effective January 1, 2001. The Statement will require the OP to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If a derivative is
a hedge, depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value of the hedged
asset, liability, or firm commitment through earnings, or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative’s change in fair value will be
immediately recognized in earnings. The OP does not anticipate that the adoption
of the Statement will have a significant effect on its results of operations or
financial position.
2. Property Held for Sale
As of December 31, 1999, property held for sale represented the
fair value, less estimated costs to sell, of Solvang Designer Outlets
(“Solvang”). On January 4, 2000, Solvang was sold for a net selling
price of $3.3 million. For the quarter ended March 31, 2000, Solvang accounted
for less than 1% of the Company’s revenues and net operating income.
3. Non-Compete Agreement
In October 1998, the OP signed a definitive agreement to
terminate the development of Houston Premium Outlets, a joint venture project
with Simon Property Group, Inc. (“Simon”). Under the terms of the
agreement, the OP withdrew from the Houston development partnership and agreed
to certain restrictions on competing in the Houston market through 2002. The OP
will receive non-compete payments totaling $21.4 million from The Mills
Corporation; $3.0 million was received at closing, and four annual installments
of $4.6 million will be received on each January 2, 1999 through 2002. The OP
was reimbursed for its share of land costs, development costs and fees related
to the project. The revenue is being recognized on a straight-line basis over
the term of the non-compete agreement and $1.3 million has been recognized as
other income in each of the three month periods ended March 31, 2000 and 1999.
4. Debt
The OP has a $160 million senior unsecured bank line of credit
(the “Senior Credit Facility”) and has an annual right to request a
one-year extension which may be granted at the option of the lenders. The
Company’s lenders have agreed to extend the Facility until March 30, 2003.
The Facility bears interest on the outstanding balance, payable monthly, at a
rate equal to the London Interbank Offered Rate (“LIBOR”) plus 1.05%
(7.19% at March 31, 2000) or the prime rate, at the OP’s option. The LIBOR
rate spread ranges from 0.85% to 1.25% depending on the Company’s Senior
Debt rating. A fee on the unused portion of the Senior Credit Facility is
payable quarterly at rates ranging from 0.15% to 0.25% depending on the balance
outstanding. At March 31, 2000, $94 million was available under the Senior
Credit Facility.
The OP also has a $5 million term loan (the “Term
Loan”) which carries the same interest rate and maturity as the Senior
Credit Facility.
In November 1998, the OP obtained a $60 million term loan which
expired April 2000 and bore interest on the outstanding balance at a rate equal
to LIBOR plus 1.40% (7.59% at March 31, 2000).
In April 2000 a subsidiary of the OP entered into a $70 million
mortgage loan secured by four of its properties which matures April 2010 and
bears interest, payable quarterly, at a rate equal to LIBOR plus 1.50% or prime
rate plus 1.00%. Net proceeds were used to retire the $60 million term loan and
to repay borrowings under the OP’s Senior Credit Facility.
In February 2000, a subsidiary of the OP entered into a $40
million construction loan facility that will be used to fund the Allen Premium
Outlets project. The loan which matures February 2003 bears interest on the
outstanding balance at a rate equal to LIBOR plus 1.625% (7.70% at March 31,
2000) and is guaranteed by the Company and the OP. At March 31, 2000, $1.3
million was outstanding.
In January 1996, the OP completed a $100 million offering of
7.75% unsecured term notes due January 2001 (the “7.75% Notes”), which
are guaranteed by the Company. The five-year non-callable 7.75% Notes were
priced to yield 7.85% to investors.
In October 1997, the OP completed a $125 million debt offering
of 7.25% unsecured term notes due October 2007 (the “7.25% Notes”).
The 7.25% Notes were priced to yield 7.29% to investors, 120 basis points over
the 10-year U.S. Treasury rate.
Interest and loan costs of approximately $1.1 million and $0.6
million were capitalized as development costs during the three months ended
March 31, 2000 and 1999, respectively.
5. Preferred Units
On September 3, 1999, the OP completed a private sale of $65
million of Series B Cumulative Redeemable Preferred Units (“Preferred
Units”) to an institutional investor. The private placement took the form
of 1.3 million Preferred Units at a stated value of $50 each. The Preferred
Units may be called at par on or after September 3, 2004, have no stated
maturity or mandatory redemption and pay a cumulative quarterly dividend at an
annualized rate of 9.0%. The Preferred Units are exchangeable into Series B
Cumulative Redeemable Preferred Stock of the OP after ten years. Proceeds from
the sale were used to pay down borrowings under the Senior Credit Facility.
6. 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 Company’s option. Net
proceeds from the offering were used to repay borrowings under the
Company’s Credit Facilities.
7. Distributions
On March 9, 2000, the Board of Directors of the Company declared
a $0.75 per unit cash distribution to unitholders of record on March 31, 2000.
The distribution, totaling $14.5 million, was paid on April 17, 2000.
8. 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.
9. Net Income Per Common 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.
10. Commitments and Contingencies
The OP has minority interests ranging from 5% to 15% in several
outlet centers and outlet development projects in Europe. Two outlet centers,
Bicester Village outside of London, England and La Roca Company Stores outside
of Barcelona, Spain, are currently open and operated by Value Retail PLC and its
affiliates. Three new European projects and expansions of the two existing
centers are in various stages of development and are expected to open within the
next two years. The Company’s total investment in Europe as of March 31,
2000 was approximately $4.6 million. The OP has also agreed under a standby
facility to provide up to $22 million in limited debt service guarantees for
loans provided to Value Retail PLC, an affiliate, to construct outlet centers in
Europe. The term of the standby facility is three years and guarantees shall not
be outstanding for longer than five years after project completion. As of March
31, 2000, the OP has provided guarantees of approximately $20 million for three
projects.
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 joint venture, known as Chelsea Japan Co.,
Ltd. ("Chelsea Japan") is nearing completion of its initial project, in the city
of Gotemba. In conjunction with the agreement, the OP contributed $1.7 million
in equity. In addition, an equity investee of the OP entered into a 4 billion
yen (US $40 million) line of credit guaranteed by the Company and OP to fund its
share of construction costs. At March 31, 2000, no amounts were outstanding
under the loan. In March 2000, Chelsea Japan entered into a 3.6 billion yen (US
$36 million) loan with a Japanese bank to fund construction costs. As of March
31, 2000, 1.6 billion yen was outstanding. The loan is secured by the property
under construction and is 40% guaranteed by the Company and the OP. In December
1999, construction began on the 220,000 square-foot first phase of Gotemba
Premium Outlets with opening scheduled for mid-2000. Gotemba is located on the
Tomei Expressway, approximately 60 miles west of Tokyo and midway between Mt.
Fuji and the Hakone resort area. Chelsea Japan has also started construction on
a second project outside Osaka, the second-largest city in Japan, to open in
late 2000.
Construction is nearly complete on Orlando Premium Outlets
(“OPO”), a 430,000 square foot 50/50 joint venture project between the
OP and Simon. OPO is located on Interstate 4, midway between Walt Disney
World/EPCOT and Sea World in Orlando, Florida and is scheduled to open the end
of May 2000. In February 1999, the joint venture entered into an $82.5 million
construction loan agreement. The loan is 50% guaranteed by each of the OP and
Simon and as of March 31, 2000, $35.4 million was outstanding.
The OP is not presently involved in any material litigation nor,
to its knowledge, is any material litigation threatened against the OP or its
properties, other than routine litigation arising in the ordinary course of
business. Management believes the costs, if any, incurred by the OP related to
this litigation will not materially affect the financial position, operating
results or liquidity of the Company.
11. Related Party Information
During the second quarter of 1999, the OP established a $6
million secured loan facility for the benefit of certain unitholders. At March
31, 2000, loans made to two unitholders totaled $2.2 million. Each unitholder
issued a note that is secured by OP units, bears interest at a rate of LIBOR
plus 200 basis points per annum, payable quarterly and is due June 2004.
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 OP has grown by increasing rent at its existing centers,
expanding its existing centers, developing new centers and acquiring and
redeveloping centers. The OP operated 19 manufacturers’ outlet centers at
March 31, 2000 and March 31, 1999. The Company’s operating gross leasable
area (GLA) at March 31, 2000, increased 7.3% to 5.3 million square feet from 4.9
million square feet at March 31, 1999. Net GLA added since April 1, 1999 is
detailed as follows:
12 mos ended 3 mos ended 9 mos ended
March 31, March 31, December 31,
2000 2000 1999
------------- ------------- -------------
Changes in GLA (sf in 000's):
Centers expanded:
Wrentham Village............................. 120 - 120
North Georgia................................ 103 - 103
Leesburg Corner.............................. 89 34 55
Camarillo.................................... 45 - 45
Other (net).................................. 2 - 2
------------- ------------- -------------
Total centers expanded........................... 359 34 325
Net GLA added during the period.................. 359 34 325
GLA at end of period............................. 5,250 5,250 5,216
- ----------------------------------------------------------------------------------------------------------------
Results of Operations
Comparison of the three months ended March 31, 2000 to the three
months ended March 31, 1999.
Net income increased $1.9 million to $11.9 million for the three
months ended March 31, 2000 from $10.0 million for the three months ended March
31, 1999. Increases in revenues, primarily the result of expansions, were offset
by increased depreciation and amortization.
Base rentals increased $1.7 million, or 6.9%, to $26.3 million
for the three months ended March 31, 2000 from $24.6 million for the three
months ended March 31, 1999 due to expansions and higher average rents on new
leases and renewals.
Percentage rents increased $0.2 million to $2.6 million for the
three months ended March 31, 2000, from $2.4 million for the three months ended
March 31, 1999. The increase was primarily due to expansions.
Expense reimbursements, representing contractual recoveries from
tenants of certain common area maintenance, operating, real estate tax,
promotional and management expenses, increased $0.6 million, or 7.1%, to $8.8
million for the three months ended March 31, 2000 from $8.2 million for the
three months ended March 31, 1999, due to the recovery of operating and
maintenance costs from increased GLA. The average recovery of reimbursable
expenses was 89.0% in the first quarter of 2000, compared to 89.5% in the first
quarter of 1999. Other income increased $0.2 million to $2.0 million for the
three months ended March 31, 2000, from $1.8 million for the three months ended
March 31, 1999. The increase is primarily the result of income from center
ancillary operations including vending and kiosks.
Interest in excess of amounts capitalized decreased $0.7 million
to $5.6 million for the three months ended March 31, 2000 from $6.3 million for
the three months ended March 31, 1999 primarily due to lower debt balances in
the first quarter 2000.
Operating and maintenance expenses increased $0.7 million, or
7.7%, to $9.9 million for the three months ended March 31, 2000 from $9.2
million for the three months ended March 31, 1999. The increase was primarily
due to costs related to expansions.
Depreciation and amortization expense increased $1.0 million, or
9.6%, to $10.9 million for the three months ended March 31, 2000 from $9.9
million for the three months ended March 31, 1999. The increase was due to
depreciation of expansions.
General and administrative expense decreased $0.4 million to
$0.7 million for the three months ended March 31, 2000 from $1.1 million for the
three months ended March 31, 1999 primarily due to decreased accrual for
deferred incentive compensation.
Other expenses increased $0.1 million to $0.5 million for the
three months ended March 31, 2000 from $0.4 million for the three months ended
March 31, 1999. The increase was primarily due to the impact of legal fee
recoveries in 1999.
Liquidity and Capital Resources
The OP believes it has adequate financial resources to fund
operating expenses, distributions, and planned development and construction
activities. Operating cash flow of $87.6 million in 1999 is expected to increase
in 2000 with a full year of operations of the 340,000 square feet of GLA added
during 1999 and scheduled openings of approximately 1.3 million square feet in
2000, which includes the Company’s 50% ownership share in the 430,000
square foot Orlando Premium Outlets and 40% ownership share each in the 220,000
square foot Gotemba Premium Outlets, outside Tokyo, Japan and the 175,000 square
foot Rinku Premium Outlets, outside Osaka, Japan. The OP has adequate funding
sources to complete and open all of its current development projects through the
use of available cash of $20.8 million; construction loans for the Orlando and
Allen projects; a yen-denominated line of credit for the Company’s share of
project costs in Japan; and approximately $94 million available under its Senior
Credit Facility. Chelsea also has the ability to access the public markets, if
market conditions become favorable, through its $175 million debt shelf
registration and its $200 million equity shelf registration.
Operating cash flow is expected to provide sufficient funds for
dividends and distributions in accordance with REIT federal income tax
requirements. In addition, the OP anticipates retaining sufficient operating
cash to fund re-tenanting and lease renewal tenant improvement costs, as well as
capital expenditures to maintain the quality of its centers.
Common distributions declared and recorded during the three
months ended March 31, 2000 were $14.5 million, or $0.75 per share or unit. The
Company’s dividend payout ratio as a percentage of net income before
minority interest, depreciation and amortization (exclusive of amortization of
deferred financing costs (“FFO”)) was 73.1% for the three months
ended March 31, 2000. The Senior Credit Facility limits aggregate dividends and
distributions to the lesser of (i) 90% of FFO on an annual basis or (ii) 100% of
FFO for any two consecutive quarters.
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 3, 2004, have no stated
maturity or mandatory redemption and pay a cumulative quarterly dividend at an
annualized rate of 9.0%. The Preferred Units are not convertible to any other
securities of the OP or Company. Proceeds from the sale were used to pay down
borrowings under the Senior Credit Facility.
The OP has a $160 million senior unsecured bank line of credit
(the “Senior Credit Facility”) and has an annual right to request a
one-year extension of the Senior Credit Facility which may be granted at the
option of the lenders. The Company’s lenders have agreed to extend the
Facility until March 30, 2003. The Facility bears interest on the outstanding
balance, payable monthly, at a rate equal to the London Interbank Offered Rate
(“LIBOR”) plus 1.05% (7.19% at March 31, 2000) or the prime rate, at
the OP’s option. The LIBOR rate spread ranges from 0.85% to 1.25% depending
on the Company’s Senior Debt rating. A fee on the unused portion of the
Senior Credit Facility is payable quarterly at rates ranging from 0.15% to 0.25%
depending on the balance outstanding.
In November 1998, the OP obtained a $60 million term loan which
expired April 2000 and bore interest on the outstanding balance at a rate equal
to LIBOR plus 1.40% (7.59% at March 31, 2000). In April 2000 a subsidiary of the
OP entered into a $70 million mortgage loan secured by four of its properties
which matures April 2010 and bears interest, payable quarterly, at a rate equal
to LIBOR plus 1.50% or prime rate plus 1.00%. Net proceeds were used to retire
the $60 million term loan and to repay borrowings under the Company’s
Senior Credit Facility. This mortgage loan strengthened the Company's balance
sheet by extending and sequencing debt maturities.
In February 2000, a subsidiary of the OP entered into a $40
million construction loan facility that will be used to fund the costs of the
Allen Premium Outlets project. The loan which matures February 2003 bears
interest on the outstanding balance at a rate equal to LIBOR plus 1.625% (7.70%
at March 31, 2000) and is guaranteed by the Company and the OP. At March 31,
2000, $1.3 million was outstanding.
Development activity during the year includes the 430,000
square-foot Orlando Premium Outlets scheduled to open at the end of May 2000;
the 220,000 square-foot first phase of Gotemba Premium Outlets (outside Tokyo,
Japan), a Chelsea Japan Co. project scheduled to open in mid-July 2000; the
230,000 square-foot first phase of Allen Premium Outlets (Allen, Texas),
scheduled to open in the fourth quarter; and the 175,000 square-foot first phase
of Rinku Premium Outlets (near Osaka, Japan), Chelsea Japan’s second
project, also scheduled to open in the fourth quarter. Additionally, expansions
totaling approximately 285,000 square feet of GLA are under construction and
scheduled to open in the next 12 months, including 125,000 square feet at
Wrentham Village Premium Outlets (Wrentham, Massachusetts); 105,000 square feet
at Leesburg Corner Premium Outlets (Leesburg, Virginia); and 55,000 square feet
at Folsom Premium Outlets (Folsom, California). These projects are under
development and there can be no assurance that they will be completed or opened,
or that there will not be delays in opening or completion. All current
development activity is fully financed either through project specific secured
construction financing or through the Senior Credit Facility. The Company will
seek to obtain permanent financing once the projects are completed and income
has been stabilized.
Construction is nearly complete on Orlando Premium Outlets
(“OPO”), a 430,000 square-foot upscale outlet center located on
Interstate 4 midway between Walt Disney World/EPCOT and Sea World in Orlando,
Florida. OPO is a joint venture project between the OP and Simon and is
scheduled to open as a single phase in mid-2000. In February 1999, the joint
venture entered into a $82.5 million construction loan agreement. The loan is
50% guaranteed by each of the OP and Simon and as of March 31, 2000, $35.4
million was outstanding.
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 joint venture, known as Chelsea Japan Co.,
Ltd. ("Chelsea Japan") is nearing completion of its initial project, in the city
of Gotemba. In conjunction with the agreement, the OP contributed $1.7 million
in equity. In addition, an equity investee of the OP entered into a 4 billion
yen (US $40 million) line of credit guaranteed by the Company and OP to fund its
share of construction costs. At March 31, 2000, no amounts were outstanding
under the loan. In March 2000, Chelsea Japan entered into a 3.6 billion yen (US
$36 million) loan with a Japanese bank to fund construction costs. As of March
31, 2000, 1.6 billion yen was outstanding. The loan is secured by the property
under construction and is 40% guaranteed by the Company and the OP. In December
1999, construction began on the 220,000 square-foot first phase of Gotemba
Premium Outlets with opening scheduled for mid-2000. Gotemba is located on the
Tomei Expressway, approximately 60 miles west of Tokyo and midway between Mt.
Fuji and the Hakone resort area. Chelsea Japan has also started construction on
a second project outside Osaka, the second-largest city in Japan, to open in
late 2000.
The OP has minority interests ranging from 5% to 15% in several
outlet centers and outlet development projects in Europe. Two outlet centers,
Bicester Village outside of London, England and La Roca Company Stores outside
of Barcelona, Spain, are currently open and operated by Value Retail PLC and its
affiliates. Three new European projects and expansions of the two existing
centers are in various stages of development and are expected to open within the
next two years. The Company’s total investment in Europe as of March 31,
2000 was approximately $4.6 million. The OP has also agreed under a standby
facility to provide up to $22 million in limited debt service guarantees for
loans provided to Value Retail PLC, an affiliate, to construct outlet centers in
Europe. The term of the standby facility is three years and guarantees shall not
be outstanding for longer than five years after project completion. As of March
31, 2000, the OP has provided guarantees of approximately $20 million for three
projects.
The OP announced in October 1998 that it sold its interest in
and terminated the development of Houston Premium Outlets, a joint venture
project with Simon. Under the terms of the agreement, the OP will receive
non-compete payments totaling $21.4 million from The Mills Corporation; $3.0
million was received at closing, and four annual installments of $4.6 million
will be received on each January 2, 1999 through 2002. The OP has also been
reimbursed for its share of land costs, development costs and fees related to
the project.
To achieve planned growth and favorable returns in both the
short and long term, the Company’s financing strategy is to maintain a
strong, flexible financial position by: (i) maintaining a conservative level of
leverage; (ii) extending and sequencing debt maturity dates; (iii) managing
exposure to floating interest rates; and (iv) maintaining liquidity. Management
believes these strategies will enable the OP to access a broad array of capital
sources, including bank or institutional borrowings and secured and unsecured
debt and equity offerings, subject to market conditions.
Net cash provided by operating activities increased $1.0 million
for the three months ended March 31, 2000 compared to the corresponding 1999
period, primarily due to the growth of the Company’s GLA to 5.3 million
square feet in 2000 from 4.9 million square feet in 1999. Net cash used in
investing activities decreased $7.2 million for the three months ended March 31,
2000 compared to the corresponding 1999 period, as a result of decreased equity
requirements of joint venture activities offset by the receipt of payment on a
note receivable in 1999. At March 31, 2000, net cash used in financing
activities increased by $4.5 million primarily due to higher distributions paid
and lower borrowings during 2000.
Funds from Operations
Management believes that funds from operations (“FFO”)
should be considered in conjunction with net income, as presented in the
statements of operations included elsewhere herein, to facilitate a clearer
understanding of the operating results of the Company. Management considers FFO
an appropriate measure of performance for an equity real estate investment
trust. FFO, as defined by the National Association of Real Estate Investment
Trusts (“NAREIT”), is net income applicable to common shareholders
(computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales or writedowns of
property, exclusive of outparcel sales, plus real estate related depreciation
and amortization, and after adjustments for unconsolidated partnerships and
joint ventures. Adjustments for unconsolidated partnerships and joint ventures
are calculated to reflect FFO on the same basis. FFO does not represent net
income or cash flow from operations as defined by generally accepted accounting
principles and should not be considered an alternative to net income as an
indicator of operating performance or to cash from operations, and is not
necessarily indicative of cash flow available to fund cash needs.
Three Months Ended
March 31,
2000 1999
------------- ------------
Net income to common unitholders ................................... $9,419 $9,001
Add back:
Depreciation and amortization..................................... 10,878 9,924
Amortization of deferred financing costs and depreciation
of non-rental real estate assets................................ (508) (435)
------------- ------------
FFO................................................................. $19,789 $18,490
============= ============
Average units outstanding........................................... 19,291 19,037
Distributions declared per unit..................................... $0.75 $0.72
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The OP is exposed to changes in interest rates primarily from
its floating rate debt arrangements. The OP currently does not use interest rate
derivative instruments to manage exposure to interest rate changes. A
hypothetical 100-basis point adverse move (increase) in interest rates along the
entire rate curve would adversely affect the Company’s annual interest cost
by approximately $1.3 million annually.
Chelsea GCA Realty Partnership, L.P.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
The OP did not file any reports on Form 8-K during the three
months ended March 31, 2000.
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/ Michael J. Clarke
Michael J. Clarke
Chief Financial Officer |
Date: May 12, 2000
5
3-MOS
DEC-31-2000
JAN-1-2000
MAR-31-2000
20,806
0
0
0
0
0
860,482
147,166
808,837
0
224,677
0
0
0
374,865
808,837
0
39,594
0
27,666
538
0
5,637
11,928
0
11,928
0
0
0
11,928
.49
.49
