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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| Quarterly report pursuant to Section 13 of 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002.
OR
| | Transition pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
COMMISSION FILE NUMBER 333-2522-01
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in its Charter)
Michigan 38-3144240
(State of Organization) (I.R.S. Employer Identification No.)
31700 Middlebelt Road 48334
Suite 145
Farmington Hills, Michigan
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (248) 932-3100
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 [ ]
Page 1 of 22
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
INDEX
PAGES
-----
PART I
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 2002 and
December 31, 2001 3
Consolidated Statements of Income for the Periods
Ended June 30, 2002 and 2001 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2002 and 2001 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-20
PART II
Item 6.(a) Exhibits required by Item 601 of Regulation S-K 20
Item 6.(b) Reports on Form 8-K 20
Signatures 21
Certification 21
2
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001
(IN THOUSANDS)
ASSETS 2002 2001
----------- -----------
Investment in rental property, net $ 865,009 $ 813,334
Cash and cash equivalents 11,080 4,587
Notes and other receivables 84,790 93,972
Investment in and advances to affiliates 65,222 55,451
Other assets 33,657 29,705
----------- -----------
Total assets $ 1,059,758 $ 997,049
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Line of credit $ 48,000 $ 93,000
Debt 496,109 402,198
Accounts payable and accrued expenses 18,337 17,683
Deposits and other liabilities 8,495 8,929
----------- -----------
Total liabilities 570,941 521,810
----------- -----------
Series B Cumulative Preferred Operating Partnership
Units ("Series B Units"), mandatory redeemable,
182 and 82 issued and outstanding for 2002 and 2001,
respectively 12,675 8,175
Preferred Operating Partnership Units ("POP Units"),
convertible, redeemable, 1,326 issued and outstanding 35,783 35,783
Partners' Capital:
Series A Perpetual Preferred Operating Partnership Units
("Series A Units"), unlimited authorized,
2,000 issued and outstanding 50,000 50,000
Operating Partnership Units ("OP Units"), unlimited
authorized; 20,568 and 20,173 issued
and outstanding for 2002 and 2001, respectively
General partner 348,489 339,240
Limited partners 48,353 49,040
Unearned compensation (6,483) (6,999)
----------- -----------
Total partners' capital 440,359 431,281
----------- -----------
Total liabilities and partners' capital $ 1,059,758 $ 997,049
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
3
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
-------- -------- -------- --------
Revenues:
Income from property $ 37,733 $ 34,531 $ 76,130 $ 69,074
Equity in income (loss) from affiliates (960) (27) (1,182) 138
Other income 2,288 3,559 4,796 7,860
-------- -------- -------- --------
Total revenues 39,061 38,063 79,744 77,072
-------- -------- -------- --------
Expenses:
Property operating and maintenance 7,717 6,933 15,888 14,295
Real estate taxes 2,577 2,326 5,124 4,574
Property management 557 652 1,315 1,436
General and administrative 1,151 1,200 2,470 2,342
Depreciation and amortization 9,355 8,167 18,468 15,972
Interest 7,722 7,886 15,568 16,266
-------- -------- -------- --------
Total expenses 29,079 27,164 58,833 54,885
-------- -------- -------- --------
Income before gain from property
dispositions, net and distribution
to Preferred OP Units 9,982 10,899 20,911 22,187
Gain from property dispositions, net -- 758 -- 4,275
-------- -------- -------- --------
Income before distribution to Preferred OP Units 9,982 11,657 20,911 26,462
Less distribution to Preferred OP Units 1,947 2,041 3,866 4,017
-------- -------- -------- --------
Income from continuing operations 8,035 9,616 17,045 22,445
Income (loss) from discontinued operations -- (14) 322 (38)
-------- -------- -------- --------
Earnings attributed to OP Units $ 8,035 $ 9,602 $ 17,367 $ 22,407
======== ======== ======== ========
Earnings attributed to:
Continuing operations:
General Partner $ 7,002 $ 8,332 $ 14,836 $ 19,457
Limited Partners 1,033 1,284 2,209 2,988
Discontinued operations:
General Partner -- (12) 280 (33)
Limited Partners -- (2) 42 (5)
-------- -------- -------- --------
$ 8,035 $ 9,602 $ 17,367 $ 22,407
======== ======== ======== ========
Basic earnings per OP Units:
Continuing operations $ 0.40 $ 0.48 $ 0.85 $ 1.12
Discontinued operations -- -- 0.02 --
-------- -------- -------- --------
Net income $ 0.40 $ 0.48 $ 0.87 $ 1.12
======== ======== ======== ========
Diluted earnings per OP Unit outstanding:
Continuing operations $ 0.39 $ 0.48 $ 0.84 $ 1.11
Discontinued operations -- -- 0.02 --
-------- -------- -------- --------
Net income $ 0.39 $ 0.48 $ 0.86 $ 1.11
======== ======== ======== ========
Weighted average OP Units outstanding:
Basic 20,133 19,856 20,027 19,940
======== ======== ======== ========
Diluted 20,377 20,028 20,255 20,089
======== ======== ======== ========
The accompanying notes are an integral part of the
consolidated financial statements
4
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS)
2002 2001
------------- ------------
Cash flows from operating activities:
Earnings attributed to OP Units $ 17,367 $ 22,407
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain from property dispositions, net -- (4,275)
Operating income included in discontinued operations 11 60
Income (loss) from discontinued operations (322) 38
Depreciation and amortization 18,468 15,972
Amortization of deferred financing costs 554 524
(Increase) decrease in other assets (5,334) 857
Increase in accounts payable and other liabilities 220 3,751
------------- ------------
Net cash provided by operating activities 30,964 39,334
------------- ------------
Cash flows from investing activities:
Investment in rental properties (58,479) (41,376)
Proceeds related to property dispositions 3,288 17,331
Investment in and advances to affiliates (10,296) (3,300)
Repayments of notes receivable, net 9,120 19,582
------------- ------------
Net cash used in financing activities (56,367) (7,763)
------------- ------------
Cash flows from financing activities:
Borrowings (repayments) on line of credit, net (45,000) 61,000
Proceeds from notes payable and other debt 101,760 --
Repayments on notes payable and other debt (14,662) (75,514)
Payments for deferred financing costs (1,193) --
Capital contribution (withdrawals) 13,842 (6,066)
Distributions (22,851) (21,792)
-------------- -------------
Net cash provided by (used in) investing activities 31,896 (42,372)
------------- ------------
Net increase (decrease) in cash and cash equivalents 6,493 (10,801)
Cash and cash equivalents, beginning of period 4,587 18,466
------------- ------------
Cash and cash equivalents, end of period $ 11,080 $ 7,665
============= ============
Supplemental information:
Preferred OP Units issued for rental properties $ 4,500 $ 4,612
Debt assumed for rental properties $ 6,813 $ 12,500
Restricted common stock issued as unearned
compensation, net of cancellations $ -- $ 3,233
The accompanying notes are an integral part of the
consolidated financial statements
5
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
These unaudited condensed consolidated financial statements of Sun
Communities Operating Limited Partnership (the "Company"), have been
prepared pursuant to the Securities and Exchange Commission ("SEC")
rules and regulations and should be read in conjunction with the
financial statements and notes thereto of the Company as of December
31, 2001. The following notes to consolidated financial statements
present interim disclosures as required by the SEC. The accompanying
consolidated financial statements reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the
interim financial statements. All such adjustments are of a normal and
recurring nature.
Sun Communities, Inc. ("Sun"), a self-administered and self-managed
REIT with no independent operations of its own, is the sole general
partner of the Company. As general partner, Sun has unilateral control
and complete responsibility for management of the Company. The balance
sheet of Sun as of June 30, 2002 is identical to the accompanying
Company balance sheet, except as follows:
As Presented
Herein Sun Communities, Inc.
June 30, 2002 Adjustments June 30, 2002
--------------- ----------- --------------
(in thousands)
Notes and other receivables................$ 84,790 $ (2,600) $ 82,190
================= ============== ================
Total assets...............................$ 1,059,758 $ (2,600) $ 1,057,158
================= ============== ================
Minority interests......................... $ 146,811 $ 146,811
================
Series B Units.............................$ 12,675 (12,675)
POP Units.................................. 35,783 (35,783)
Series A Units............................. 50,000 (50,000)
General partner............................ 348,489 (348,489)
Limited partners........................... 48,353 (48,353)
Common stock............................... 182 $ 182
Additional paid-in capital................. 413,674 413,674
Distributions in excess of.................
accumulated earnings................... (50,737) (50,737)
Officers' notes............................ (10,846) (10,846)
Unearned compensation...................... (6,483) -- (6,483)
Treasury Stock............................. -- (6,384) (6,384)
----------------- -------------- ----------------
Partners' capital/Stockholders'........
equity.............................$ 440,359 $ (2,600) $ 339,406
================= ============== ================
Total liabilities and partners'
capital/Stockholders' equity...........$ 1,059,758 $ (2,600) $ 1,057,158
================= ============== ================
6
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO AFFILIATES:
Sun Home Services, Inc. ("SHS") provides home sales and other services
to current and prospective tenants. Through the Operating Partnership,
the Company owns 100 percent of the outstanding preferred stock of SHS
and is entitled to ninety-five percent (95%) of the operating cash
flow. The common stock is owned by one officer of the Company and the
estate of a former officer of the Company who collectively are entitled
to receive five percent (5%) of the operating cash flow.
Through SHS, the Company owns approximately a thirty percent (30%)
interest in Origen Financial LLC ("Origen"), which company holds all of
the operating assets of Bingham Financial Services ("BFSC") and its
subsidiaries. BFSC owns approximately a twenty percent (20%) interest
in Origen and the Company (together with the other investors in Origen)
has certain rights to purchase its pro-rata share of BFSC's interest in
Origen at fair value.
Additionally, in August 2002, the maximum availability under the
secured line of credit provided by Origen by the Company and another
unaffiliated lender was increased to $35 million until December 31,
2002, at which time the line of credit is due and payable in full.
Pursuant to the terms of the participation agreement between the
Company and the other lender, the Company is obligated to loan up to
$20 million to Origen under the line of credit and the other lender is
required to loan up to $15 million to Origen under the line of credit.
The Company and the other lender participate pari-passu in the first
$30 million advanced under the line of credit and any funds advanced to
Origen in excess of $30 million will be subordinate in all respect to
the first $30 million. As of August 22, 2002, approximately $13.5
million was advanced by the Company under its participation in the line
of credit.
As a result of the increased line of credit, the Company's aggregate
investment in, and maximum advances to, Origen is $35 million ($15
million equity investment in the initial $40 million capitalization and
up to $20 million of advances under the line of credit). For comparison
purposes, as of June 30, 2001, the Company was the sole provider of up
to $64 million of debt financing to BFSC, the predecessor to Origen.
Consequently, although the Company was the sole provider of up to $64
million of credit in June 2001, the Company is now committed to
contribute an aggregate of $35 million to Origen out of the total $75
million contributed to Origen in the form of equity investment ($40
million) and line of credit ($35 million).
Also included in investment in and advances to affiliates is the
Company's investment in and advances to SunChamp, a development entity
comprising eleven new communities. The Company owns approximately
seventeen percent (17%) of SunChamp at June 30, 2002.
All of these investments are accounted for utilizing the equity method
of accounting.
3. RENTAL PROPERTY:
The following summarizes rental property (in thousands):
June 30, December 31,
2002 2001
-------------- ----------------
Land $ 84,968 $ 82,326
Land improvements and buildings 866,127 818,043
Furniture, fixtures, equipment 22,564 20,700
Land held for future development 16,941 16,810
Property under development 29,007 15,777
------------- ---------------
1,019,607 953,656
Accumulated depreciation (154,598) (140,322)
------------- ---------------
Rental property, net $ 865,009 $ 813,334
============= ===============
During the six months ended June 30, 2002, the Company acquired two
communities totaling 889 sites for approximately $37 million.
In January 2002, in conjunction with a property acquisition, the
Company issued 100,000 Series B-2 Preferred OP Units that bear interest
at the rate of 6.0 percent per annum for the first five years and 7.0
percent per annum thereafter. The Series B-2 Preferred Units are
convertible into Common OP Units in January 2005 at $45 per unit and
redeemable at $45 per unit in January 2007 and, upon certain
circumstances, at times thereafter.
7
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RENTAL PROPERTY, CONTINUED:
In October 2001, the FASB issued FAS Statement No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. This statement
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement is effective for fiscal
years beginning after December 15, 2001 and interim periods within
those fiscal years. During the first quarter of 2002, the Company sold
one property with a net book value of approximately $2.9 million
resulting in a gain of approximately $0.4 million. The adoption of this
statement requires all dispositions of properties to be disclosed as
discontinued operations in the period in which they occur and prior
periods to be reclassified to conform with the current period
presentation. At December 31, 2001, this property was classified as
held for use.
4. NOTES AND OTHER RECEIVABLES (AMOUNTS IN THOUSANDS):
June 30, December 31,
2002 2001
----------- -----------
Mortgage and other notes receivable, primarily with minimum
monthly interest payments at LIBOR based floating rates
of approximately LIBOR + 3.0%, maturing at various
dates through June 2012, substantially
collateralized by manufactured home communities. $ 53,892 $ 63,403
Installment loans on manufactured homes with interest
payable monthly at a weighted average interest rate
and maturity of 8.3% and 19 years, respectively. 11,956 13,474
Other receivables 16,342 14,495
10 year note receivable from an officer of the general partner
bearing interest at LIBOR + 1.75%, with a minimum
and maximum interest rate of 6% and 9%, respectively,
collateralized by 80,000 shares of Sun's common
stock with personal liability up to $1.3 million 2,600 2,600
--------- -----------
$ 84,790 $ 93,972
========== ===========
At June 30, 2002 the maturities of mortgage and other notes receivables
are approximately as follows: 2002-$0.7 million; 2003-$1.5 million;
2004-$18.1 million; 2005 and after-$33.6 million.
8
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. DEBT:
The following table sets forth certain information regarding debt (in
thousands):
June 30, December 31,
2002 2001
------------- ---------------
Collateralized term loan, at variable interest rate
(2.5% at June 30, 2002), due May 2007,
convertible to a 5 to 10 year fixed rate loan $ 101,760 $ --
Collateralized term loan, interest at 7.01%,
due September 9, 2007 42,518 42,820
Senior notes, interest at 7.625%, due May 1, 2003 85,000 85,000
Senior notes, interest at 6.97%, due December 3, 2007 35,000 35,000
Senior notes, interest at 8.20%, due August 15, 2008 100,000 100,000
Callable/redeemable notes, interest at 6.77%,
due May 14, 2015, callable/redeemable
May 16, 2005 65,000 65,000
Capitalized lease obligations, interest at 6.1%
due through December 2003 25,735 26,045
Mortgage notes, other 41,096 48,333
------------- ---------------
$ 496,109 $ 402,198
============= ===============
On May 31, 2002, the Company closed on a $100.8 million collateralized
debt facility with the proceeds applied to the line of credit.
In July 2002, the Company refinanced its existing line of credit to an
$85 million facility. The Company had $37 million of this refinanced
facility available to borrow at June 30, 2002. Borrowings under the
refinanced line of credit bear interest at the rate of LIBOR plus 0.85%
and mature July 2, 2005 with a one-year optional extension.
6. OTHER INCOME:
The components of other income are as follows for the periods ended
June 30, 2002 and 2001 (in thousands):
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
---- ---- ---- ----
Interest income $1,571 $2,668 $3,418 $6,121
Other income 717 891 1,378 1,739
------ ------ ------ ------
$2,288 $3,559 $4,796 $7,860
====== ====== ====== ======
9
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. EARNINGS PER OP UNIT (IN THOUSANDS):
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Earnings used for basic and diluted earnings per
OP unit computation:
Continuing operations $ 8,035 $ 9,616 $ 17,045 $ 22,445
========== ========== ========== ==========
Discontinued operations $ 8,035 $ 9,602 $ 17,367 $ 22,407
========== ========== ========== ==========
Total units used for basic earnings per OP unit 20,133 19,856 20,027 19,940
Dilutive securities, principally Sun's stock options 244 172 228 149
---------- ---------- ---------- ----------
Total shares used for diluted earnings per OP unit
Computation 20,377 20,028 20,255 20,089
========== ========== ========== ==========
Diluted earnings per OP unit reflect the potential dilution that would
occur if securities were exercised or converted into OP units.
Sun issued 316,000 shares of common stock at an average price of $41
raising $12.5 million in capital contributions for the Company through
June 30, 2002.
8. NEW ACCOUNTING PRONOUNCEMENTS:
In May 2002, the FASB issued SFAS 145, Rescission of FAS Nos. 4, 44 and
64, Amendment of FAS 13, and Technical Corrections as of April 2002.
The provisions of this Statement related to the rescission of Statement
4 shall be applied in fiscal years beginning after May 15, 2002. The
provisions related to Statement 13 shall be effective for transactions
occurring after May 15, 2002, with early application encouraged. All
other provisions of this Statement shall be effective for financial
statements issued on or after May 15, 2002, with early application
encouraged. Adoption of this statement did not have a significant
impact on the financial position or results of operations of the
Company.
10
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis of the consolidated financial condition
and results of operations should be read in conjunction with the consolidated
financial statements and the notes thereto. Capitalized terms are used as
defined elsewhere in this Form 10-Q.
SIGNIFICANT ACCOUNTING POLICIES
The Company had identified significant accounting policies that, as a result of
the judgments, uncertainties, uniqueness and complexities of the underlying
accounting standards and operations involved, could result in material changes
to its financial condition or result of operations under different conditions or
using different assumptions. Details regarding the Company's significant
accounting policies are described fully in the Company's 2001 Annual Report
filed with the Securities and Exchange Commission on Form 10-K. During the three
and six months ended June 30, 2002, there have been no material changes to the
Company's significant accounting policies that impacted the Company's financial
condition or results of operations.
RESULTS OF OPERATIONS
Comparison of the three months ended June 30, 2002 and 2001
For the three months ended June 30, 2002, income before gain from property
dispositions, net and distribution to Preferred OP Units decreased by 8.4
percent from $10.9 million to $10.0 million, when compared to the three months
ended June 30, 2001. The decrease was due to increased revenues of $1.0 million
offset by increased expenses of $1.9 million as described in more detail below.
Income from property increased by $3.2 million from $34.5 million to $37.7
million, or 9.3 percent, due to acquisitions (1.7 million) and rent increases
and other community revenues ($1.5 million).
Income from affiliates decreased by $0.9 million to a loss of $0.9 million due
to losses at affiliates caused principally by reduced home sales and loan
originations. Other income decreased by $1.3 million from $3.6 million to $2.3
million due primarily to a decrease in interest income.
Property operating and maintenance expenses increased by $0.8 million from $6.9
million to $7.7 million, or 11.3 percent, primarily due to acquisitions ($0.5
million).
Real estate taxes increased by $0.2 million from $2.3 million to $2.5 million
due to acquisitions ($0.1 million) and changes in certain assessments.
11
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS, CONTINUED:
Property management expenses remained constant at $0.6 million representing 1.5
percent and 1.9 percent of income from property in 2002 and 2001, respectively.
General and administrative expenses remained constant at $1.2 million,
representing 2.9 percent and 3.2 percent of total revenues in 2002 and 2001,
respectively.
Earnings before interest, taxes, depreciation and amortization ("EBITDA", an
alternative financial performance measure that may not be comparable to
similarly titled measures reported by other companies, defined as total revenues
less property operating and maintenance, real estate taxes, property management,
and general and administrative expenses) increased by $0.1 million from $27.0
million to $27.1 million. EBITDA as a percent of revenues was 69.3 percent in
2002 compared to 70.8 percent in 2001.
Depreciation and amortization increased by $1.2 million from $8.2 million to
$9.4 million, or 14.5 percent, due primarily to the net additional investment in
rental properties.
Interest expense decreased by $0.2 million from $7.9 million to $7.7 million, or
2.1 percent, due primarily to decreasing rates on variable rate debt.
The three months ended June 30, 2001 also included a $0.8 million gain from
property disposition, net.
Comparison of the six months ended June 30, 2002 and 2001
For the six months ended June 30, 2002, income before gain from property
dispositions, net and distribution to Preferred OP Units decreased by 5.7
percent from $22.2 million to $20.9 million, when compared to the six months
ended June 30, 2001. The decrease was due to increased revenues of $2.7 million
offset by increased expenses of $4.0 million as described in more detail below.
Income from property increased by $7.0 million from $69.1 million to $76.1
million, or 10.2 percent, due to acquisitions (3.8 million) and rent increases
and other community revenues ($3.2 million).
Income from affiliates decreased from $0.1 million to a loss of $1.2 million due
to losses at affiliates caused principally by reduced new home sales and loan
originations. Other income decreased by $3.1 million from $7.9 million to $4.8
million due primarily to a decrease in interest income.
Property operating and maintenance expenses increased by $1.6 million from $14.3
million to $15.9 million, or 11.1 percent, primarily due to acquisitions ($1.0
million).
Real estate taxes increased by $0.5 million from $4.6 million to $5.1 million
due to acquisitions ($0.25 million) and changes in certain assessments.
Property management expenses decreased by $0.1 million form $1.4 million to $1.3
million representing 1.7 percent and 2.1 percent of income from property in 2002
and 2001, respectively.
12
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS, CONTINUED:
General and administrative expenses increased by $0.1 million from $2.4 million
to $2.5 million, representing 3.1 percent and 3.0 percent of total revenues in
2002 and 2001, respectively.
EBITDA decreased by $0.5 million from $54.9 million to $54.4 million. EBITDA as
a percent of revenues was 68.9 percent in 2002 compared to 70.6 percent in 2001.
Depreciation and amortization increased by $2.5 million from $16.0 million to
$18.5 million, or 15.6 percent, due primarily to the net additional investment
in rental properties.
Interest expense decreased by $0.7 million from $16.2 million to $15.5 million,
or 4.3 percent, due primarily to decreasing rates on variable rate debt.
The six months ended June 30, 2001 also included a $4.3 million gain from
property disposition, net.
13
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS, CONTINUED:
SAME PROPERTY INFORMATION
The following table reflects property-level financial information as of and for
the six months ended June 30, 2002 and 2001. The "Same Property" data represents
information regarding the operation of communities owned as of January 1, 2001
and June 30, 2002. Site, occupancy, and rent data for those communities is
presented as of the last day of each period presented. The "Total Portfolio"
column differentiates from the "Same Property" column by including financial
information for managed but not owned communities, new development and
acquisition communities.
SAME PROPERTY TOTAL PORTFOLIO
----------------------- -----------------------
2002 2001 2002 2001
------- ------- ------- -------
Income from property $64,779 $61,809 $76,130 $69,074
------- ------- ------- -------
Property operating expenses:
Property operating and maintenance 11,611 11,533 15,888 14,295
Real estate taxes 4,766 4,492 5,124 4,574
------- ------- ------- -------
Property operating expenses 16,377 16,025 21,012 18,869
------- ------- ------- -------
Property EBITDA $48,402 $45,784 $55,118 $50,205
======= ======= ======= =======
Number of operating properties 103 103 117 112
Developed sites 36,677 36,291 41,405 39,010
Occupied sites 33,687 33,812 37,816 36,087
Occupancy % 93.9%(1) 95.4%(1) 93.1%(1) 94.5%(1)
Weighted average monthly rent per site $ 312(1) $ 298(1) $ 310(1) $ 296(1)
Sites available for development 2,242 2,564 4,268 5,109
Sites planned for development in current year 78 345 433 753
(1) Occupancy % and weighted average rent relates to manufactured housing sites,
excluding recreational vehicle sites.
On a same property basis, property EBITDA increased by $2.6 million from $45.8
million to $48.4 million, or 5.7 percent. Property revenues increased by $3.0
million from $61.8 million to $64.8 million, or 4.8 percent, due primarily to
increases in rents including water and property tax pass through.
14
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity demands have historically been, and
are expected to continue to be, distributions to Sun's stockholders and the
Company's unitholders, property acquisitions, development and expansion of
properties, capital improvements of properties and debt repayment.
The Company expects to meet its short-term liquidity requirements
through its working capital provided by operating activities and its line of
credit, as described below. The Company considers its ability to generate cash
from operations (anticipated to be approximately $70 million annually) to be
adequate to meet all operating requirements, including recurring capital
improvements, routinely amortizing debt and other normally recurring
expenditures of a capital nature, pay distributions to Sun's stockholders to
maintain Sun's qualification as a REIT in accordance with the Internal Revenue
Code and make distributions to the Operating Partnership's unitholders.
The Company plans to invest approximately $25 to $30 million annually in
developments consisting of expansions to existing communities and the
development of new communities. The Company expects to finance these investments
by using net cash flows provided by operating activities and by drawing upon its
line of credit.
Furthermore, the Company expects to invest in the range of $40 to $60
million in the acquisition of properties in 2002, depending upon market
conditions. The Company plans to finance these investments by using net cash
flows provided by operating activities and by drawing upon its line of credit.
Cash and cash equivalents increased by $6.5 million to $11.1 million at
June 30, 2002 compared to $4.6 million at December 31, 2001 because cash
provided by operating activities and financing activities exceeded cash used in
investing activities. Net cash provided by operating activities decreased by
$8.4 million to $30.9 million for the six months ended June 30, 2002 compared to
$39.3 million for the six months ended June 30, 2001. This decrease was
primarily due to accounts payable and other liabilities decreasing by $3.5
million and other assets increasing by $6.2 million offset by an increase in
earnings attributed to OP Units before depreciation and amortization, gain from
property dispositions, net and discontinued operations increasing by $1.3
million.
The Company's net cash flows provided by operating activities may be
adversely impacted by, among other things: (a) the market and economic
conditions in the Company's current markets generally, and specifically in
metropolitan areas of the Company's current markets; (b) lower occupancy and
rental rates of the Properties; (c) increased operating costs, including
insurance premiums, real estate taxes and utilities, that cannot be passed on to
the Company's tenants; and (d) decreased sales of manufactured homes. See "Risk
Factors" in Sun's Registration Statement on S-3, Amendment No. 1 (Registration
No. 333-96769).
15
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED:
On May 31, 2002, the Company closed on a $100.8 million collateralized
five year variable rate (2.5% at June 30, 2002) debt facility which is
convertible to a five to ten year fixed rate loan with the proceeds applied to
the line of credit.
In July 2002, the Company refinanced its existing line of credit to an
$85 million facility which matures in July 2005, with a one year optional
extension. At June 30, 2002, the average interest rate of outstanding borrowings
under the line of credit was 2.84%, with $48 million outstanding and $37 million
available to be drawn under the refinanced facility. The line of credit facility
contains various leverage, debt service coverage, net worth maintenance and
other customary covenants all of which the Company was in compliance with at
June 30, 2002.
The Company's primary long-term liquidity needs are principal payments
on outstanding indebtedness. At June 30, 2002, the Company's outstanding
contractual obligations were as follows:
PAYMENTS DUE BY PERIOD
(IN THOUSANDS)
--------------------------------------------------------
CONTRACTUAL CASH OBLIGATIONS(1) TOTAL DUE 1 YEAR 2-3 YEARS 4-5 YEARS AFTER 5 YEARS
--------- ------ --------- --------- -------------
Line of credit $ 48,000 $ 48,000
Collateratized term loan 42,518 $ 636 $ 1,413 1,625 $ 38,844
Collateratized term loan 101,760 101,760
Senior notes 285,000 85,000 200,000 (2)
Mortgage notes, other 41,096 834 9,179 9,312 21,771
Capitalized lease obligations 25,735 15,996 9,739
Redeemable Preferred OP Units 48,458 8,064 40,394
-------- --------- ------- -------- --------
$592,567 $ 102,466 $20,331 $168,761 $301,009
======== ========= ======= ======== ========
(1) The Company is the guarantor of $22.9 million in personal bank loans
which is not reflected in the balance sheet, maturing in 2004, made to
Sun's and the Company's directors, employees and consultants for the
purpose of purchasing shares of Sun's common stock or the Company's OP
Units pursuant to Sun's Stock Purchase Plan. The Company is obligated
under the Guaranty only in the event that one or more of the borrowers
cannot repay their loan when due.
(2) The provisions of the callable/redeemable $65 million notes are such
that the maturity date will likely be 2015 if the 10 year Treasury rate
is less than 5.7% on May 16, 2005. The maturity is reflected in the
above table based on that assumption.
16
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED:
The Company anticipates meeting its long-term liquidity requirements,
such as scheduled debt maturities, large property acquisitions, Operating
Partnership unit redemptions, and potential additional capital contributions to
affiliates (see Footnote 2 INVESTMENTS IN AND ADVANCES TO AFFILIATES), through
the issuance of debt or equity securities, including equity units in the
Operating Partnership, or from selective asset sales. The Company has maintained
investment grade ratings with Fitch ICBA, Moody's Investor Service and Standard
& Poor's, which facilitates access to the senior unsecured debt market. Since
1993, the Company has raised, in the aggregate, $275.9 million from the sale of
shares of Sun's common stock (including 316,000 shares of common stock sold
during the six months ended June 30, 2002 at an average price of $41 raising
$12.5 million in capital contributions), $93.3 million from the sale of OP units
in the Company and $532 million from the issuance of secured and unsecured debt
securities. In addition, at June 30, 2002, eighty-six of the Properties were
unencumbered by debt, therefore, providing substantial financial flexibility.
The ability of the Company to finance its long-term liquidity requirements in
such manner will be affected by numerous economic factors affecting the
manufactured housing community industry at the time, including the availability
and cost of mortgage debt, the financial condition of the Company, the operating
history of the Properties, the state of the debt and equity markets, and the
general national, regional and local economic conditions. See "Risk Factors" in
Sun's Registration Statement on S-3, Amendment No. 1 (Registration No.
333-96769). If the Company is unable to obtain additional equity or debt
financing on acceptable terms, the Company's business, results of operations and
financial condition will be harmed.
At June 30, 2002, the Company's debt to total market capitalization
approximated 42.3 percent (assuming conversion of all Common OP Units to shares
of common stock). The debt has a weighted average maturity of approximately 6.0
years and a weighted average interest rate of 6.0 percent.
Capital expenditures for the six months ended June 30, 2002 and 2001
included recurring capital expenditures of $2.6 million and $1.9 million,
respectively.
Net cash used in investing activities increased by $48.6 million to
$56.4 million compared to $7.8 million provided by investing activities for the
six months ended June 30, 2001. This increase was due to a $17.1 million
increase in rental property, acquisition activities , repayments from financing
notes receivable, net decreasing by $10.5 million, a $14.0 million decrease in
proceeds related to property dispositions and an increase of $7.0 million in
investment in and advances to affiliates.
Net cash provided by financing activities increased by $74.3 million to
$8.6 million from $31.9 million used in financing activities for the six months
ended June 30, 2001. This increase was primarily due to proceeds from notes
payable, net of deferred financing costs, of $100.5 million, a $60.9 million
reduction of repayments on notes payable and other debt and proceeds from
capital contributions increasing by $19.9 million net of capital withdrawals.
17
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OTHER
Funds from operations ("FFO") is defined by the National Association of Real
Estate Investment Trusts ("NAREIT") as net income (computed in accordance with
generally accepted accounting principles) excluding gains (or losses) from sales
of property, plus rental property depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures. Industry
analysts consider FFO to be an appropriate supplemental measure of the operating
performance of an equity REIT primarily because the computation of FFO excludes
historical cost depreciation as an expense and thereby facilitates the
comparison of REITs which have different cost bases in their assets. Historical
cost accounting for real estate assets implicitly assumes that the value of real
estate assets diminishes predictably over time, whereas real estate values have
instead historically risen or fallen based upon market conditions. FFO does not
represent cash flow from operations as defined by generally accepted accounting
principles and is a supplemental measure of performance that does not replace
net income as a measure of performance or net cash provided by operating
activities as a measure of liquidity. In addition, FFO is not intended as a
measure of a REIT's ability to meet debt principal repayments and other cash
requirements, nor as a measure of working capital. The following table
calculates FFO for both basic and diluted purposes for the periods ended June
30, 2002 and 2001 (in thousands):
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
------------ ----------- ----------- -----------
Earnings attributed to OP Units
from continuing operations $ 8,035 $ 9,616 $ 17,045 $ 22,445
FFO contributed by discontinued operations -- 35 11 60
Deduct gain from property dispositions, net -- (758) -- (4,275)
Add:
Depreciation and amortization, net
of corporate office depreciation 9,283 8,092 18,324 15,822
------------ ----------- ----------- -----------
Funds from operations $ 17,318 $ 16,985 $ 35,380 $ 34,052
============ =========== =========== ===========
Weighted average OP Units outstanding
used for basic per OP Unit data 20,133 19,856 20,027 19,940
Dilutive securities:
Stock options and awards 244 172 228 149
------------ ----------- ----------- -----------
Weighted average OP Units
used for diluted per OP Unit data 20,377 20,028 20,255 20,089
============ =========== =========== ===========
OP Units at end of period 20,568 20,145 20,568 20,145
============ =========== =========== ===========
18
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OTHER, CONTINUED:
Special Note Regarding Forward-Looking Statements
This Form 10-Q contains various "forward-looking statements" within the meaning
of the Securities Act of 1933 and the Securities Exchange Act of 1934, and the
Company intends that such forward-looking statements be subject to the safe
harbors created thereby. The words "may", "will", "expect", "believe",
"anticipate", "should", "estimate", and similar expressions identify
forward-looking statements. These forward-looking statements reflect the
Company's current views with respect to future events and financial performance,
but are based upon current assumptions regarding the Company's operations,
future results and prospects, and are subject to many uncertainties and factors
relating to the Company's operations and business environment which may cause
the actual results of the Company to be materially different from any future
results expressed or implied by such forward-looking statements. Please see the
section entitled "Risk Factors" of Sun's S-3, Amendment No. 1 (Registration No.
333-96769) for a list of uncertainties and factors.
Such factors include, but are not limited to, the following: (i) changes in the
general economic climate; (ii) increased competition in the geographic areas in
which the Company owns and operates manufactured housing communities; (iii)
changes in government laws and regulations affecting manufactured housing
communities; and (iv) the ability of the Company to continue to identify,
negotiate and acquire manufactured housing communities and/or vacant land which
may be developed into manufactured housing communities on terms favorable to the
Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") approved
Statement of Financial Accounting Standards ("SFAS") 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141
requires, among other things, that the purchase method of accounting for
business combinations be used for all business combinations initiated after
September 30, 2001. SFAS 142 addresses the accounting for goodwill and other
intangible assets subsequent to their acquisition. SFAS 142 requires, among
other things, that goodwill and other indefinite-lived intangible assets no
longer be amortized and that such assets be tested for impairment at least
annually. SFAS 142 is effective for fiscal years beginning after December 15,
2001. The adoption of these statements did not have a significant impact on the
financial position or results of operations of the Company.
19
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OTHER, CONTINUED:
RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED:
In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This Statement supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, and the accounting and reporting provisions of APB Opinion No.
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, for the disposal of a segment of a business (as
previously defined in that Opinion).The provisions of this SFAS 144 are
effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years, with early
application encouraged. The provisions of this standard generally are to be
applied prospectively. The adoption of this statement requires all dispositions
of properties to be disclosed as discontinued operations in the period in which
they occur and prior periods to be reclassified to conform with the current
period presentation. The Company sold one property in the first quarter, which
has been presented accordingly. This implementation of the statement did not
have any other material effect on the Company.
In May 2002, the FASB issued SFAS 145, Rescission of FAS Nos. 4, 44 and 64,
Amendment of FAS 13, and Technical Corrections as of April 2002. The provisions
of this Statement related to the rescission of Statement 4 shall be applied in
fiscal years beginning after May 15, 2002. The other provisions related to
Statement 13 shall be effective for transactions occurring after May 15, 2002,
with early application encouraged, All provisions of this Statement shall be
effective for financial statements issued on or after May 15, 2002, with early
application encouraged. Adoption of this statement did not have a significant
impact on the financial position or results of operations of the Company.
PART II
ITEM 6.(a) - EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K.
See the attached Exhibit Index.
ITEM 6.(b) - REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the period covered by
this Form 10-Q.
20
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.
Dated: August 13, 2002
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
BY: Sun Communities, Inc., General Partner
BY: /s/ Jeffrey P. Jorissen
----------------------------------------------
Jeffrey P. Jorissen, Chief Financial
Officer and Secretary
(Duly authorized officer and
principal financial officer)
CERTIFICATION
The undersigned officers hereby certify that: (a) this Form 10-Q fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended; and (b) the information contained in this Form 10-Q fairly
presents, in all material respects, the financial condition and results of
operations of the issuer.
/s/ Gary A. Shiffman Dated: August 13, 2002
- ----------------------------------------------
Gary A. Shiffman, Chief Executive Officer
of Sun Communities, Inc., its General Partner
/s/ Jeffrey P. Jorissen Dated: August 13, 2002
- ----------------------------------------------
Jeffrey P. Jorissen, Chief Financial Officer
of Sun Communities, Inc., its General Partner
21
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
EXHIBIT INDEX
Exhibit Method of
Number Description Filing
- ------ ----------- -------------
10.1 Master Credit Facility Agreement, dated as of May 29, 2002, by and (1)
between Sun Secured Financing LLC, Aspen-Ft. Collins Limited
Partnership, Sun Secured Financing Houston Limited Partnership and
ARCS Commercial Mortgage Co., L.P.
10.2 Second Amendment to Amended and Restated Subordinated Loan (1)
Agreement, dated as of June 18, 2002, by and between Sun
Communities Operating Limited Partnership and Origin Financial
L.L.C.
10.3 Fourth Amended and Restated Promissory Note, dated as of June 18, (1)
2002, made by Origen Financial L.L.C. in favor or Sun Communities
Operating Limited Partnership
10.4 First Amendment to Amended and Restated Participation (1)
Agreement, dated as of June 18, 2002, by and between Sun
Communities Operating Limited Partnership and Woodward
Holdings, LLC
10.5 Credit Agreement, dated as of July 3, 2002, by and between Sun (1)
Communities Operating Limited Partnership, Sun Communities, Inc.,
Banc One Capital Markets, Inc., Bank One, N.A. and
other lenders which are signatories thereto
- --------------
(1) Incorporated by reference to Sun Communities, Inc.'s Report on Form 10-Q
for the period ended June 30, 2002, No. 1-12616.
22