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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, 2002.
OR
[ ] Transition pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
COMMISSION FILE NUMBER 1-12616
SUN COMMUNITIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Maryland 38-2730780
(State of Incorporation) (I.R.S. Employer Identification No.)
31700 Middlebelt Road
Suite 145
Farmington Hills, Michigan 48334
(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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of shares of Common Stock, $.01 par value per share, outstanding
as of October 31, 2002: 18,111,398
Page 1 of 27
SUN COMMUNITIES, INC.
INDEX
PAGES
-----
PART I
- ------
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 2002 and
December 31, 2001 3
Consolidated Statements of Income for the Periods
Ended September 30, 2002 and 2001 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 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 11-21
Item 3. Quantitative and Qualitative Disclosures about Market Risk 21-22
Item 4. Controls and Procedures 22
PART II
Item 6.(a) Exhibits required by Item 601 of Regulation S-K 23
Item 6.(b) Reports on Form 8-K 23
Signatures 24
Certifications 25-26
2
SUN COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(IN THOUSANDS)
ASSETS 2002 2001
--------------- -------------
Investment in rental property, net $ 872,094 $ 813,334
Cash and cash equivalents 1,948 4,587
Notes and other receivables 136,527 91,372
Investment in and advances to affiliates 75,635 55,451
Other assets 27,861 29,705
--------------- -------------
Total assets $ 1,114,065 $ 994,449
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Line of credit $ 75,000 $ 93,000
Debt 533,023 402,198
Accounts payable and accrued expenses 17,945 17,683
Deposits and other liabilities 7,206 8,929
--------------- -------------
Total liabilities 633,174 521,810
--------------- -------------
Minority interests 146,154 142,998
--------------- -------------
Stockholders' equity:
Preferred stock, $.01 par value, 10,000 shares
authorized; no shares issued and outstanding -- --
Common stock, $.01 par value, 100,000 shares
authorized; 18,281 and 17,707 issued and
outstanding for 2002 and 2001, respectively 183 178
Paid-in capital 417,367 399,789
Officers' notes (10,775) (11,004)
Unearned compensation (8,942) (6,999)
Unrealized (losses) on interest rate swaps (1,344) --
Distributions in excess of accumulated earnings (55,368) (45,939)
Treasury stock, at cost, 202 shares (6,384) (6,384)
--------------- -------------
Total stockholders' equity 334,737 329,641
--------------- -------------
Total liabilities and stockholders'
equity $ 1,114,065 $ 994,449
=============== =============
The accompanying notes are an integral part of the consolidated financial
statements.
3
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
------------ ----------- ----------- -----------
Revenues:
Income from property $ 38,152 $ 34,402 $ 114,282 $ 103,476
Equity in income (loss) from affiliates (1,457) 433 (2,639) 572
Other income 2,691 3,390 7,487 11,249
------------ ----------- ----------- -----------
Total revenues 39,386 38,225 119,130 115,297
------------ ----------- ----------- -----------
Expenses:
Property operating and maintenance 8,612 7,566 24,500 21,861
Real estate taxes 2,577 2,320 7,701 6,894
Property management 541 640 1,856 2,076
General and administrative 1,130 1,178 3,600 3,520
Depreciation and amortization 9,661 8,123 28,129 24,095
Interest 8,266 7,232 23,834 23,498
------------ ----------- ----------- -----------
Total expenses 30,787 27,059 89,620 81,944
------------ ----------- ----------- -----------
Income before gain from property dispositions,
net and minority interests 8,599 11,166 29,510 33,353
Gain from property dispositions, net -- -- -- 4,275
------------ ----------- ----------- -----------
Income before minority interest 8,599 11,166 29,510 37,628
Less income allocated to minority interests:
Preferred OP Units 1,951 2,057 5,817 6,074
Common OP Units 846 1,217 3,055 4,205
------------ ----------- ----------- -----------
Income from continuing operations 5,802 7,892 20,638 27,349
Income (loss) from discontinued operations -- (15) 280 (48)
------------ ----------- ----------- -----------
Net income $ 5,802 $ 7,877 $ 20,918 $ 27,301
============ =========== =========== ===========
Basic earnings per share:
Continuing operations $ 0.33 $ 0.46 $ 1.17 $ 1.58
Discontinued operations -- -- 0.02 --
------------ ----------- ----------- -----------
Net income $ 0.33 $ 0.46 $ 1.19 $ 1.58
============ =========== =========== ===========
Diluted earnings per share:
Continuing operations $ 0.32 $ 0.45 $ 1.16 $ 1.56
Discontinued operations -- -- 0.02 --
------------ ----------- ----------- -----------
Net income $ 0.32 $ 0.45 $ 1.18 $ 1.56
============ =========== =========== ===========
Weighted average common shares outstanding:
Basic 17,739 17,210 17,535 17,259
============ =========== =========== ===========
Diluted 17,921 17,516 17,740 17,515
============ =========== =========== ===========
Distributions declared per common
share outstanding $ 0.58 $ 0.55 $ 1.71 $ 1.63
============ =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
4
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS)
2002 2001
------------- ------------
Cash flows from operating activities:
Net income $ 20,918 $ 27,301
Adjustments to reconcile net income to net
cash provided by operating activities:
Income allocated to minority interests 3,055 4,201
Gain from property dispositions, net -- (4,275)
(Income) loss from discontinued operations (280) 48
Operating income included in discontinued operations 11 92
Depreciation and amortization 28,129 24,099
Amortization of deferred financing costs 882 801
Increase in other assets (1,389) (701)
Increase (decrease) in accounts payable and other liabilities (1,461) 3,850
--------- ---------
Net cash provided by operating activities 49,865 55,416
--------- ---------
Cash flows from investing activities:
Investment in rental properties (73,410) (53,215)
Proceeds related to property dispositions 3,288 17,331
Investment in and advances to affiliates (21,050) (5,054)
Repayments of (increases in) notes receivable, net (45,256) 8,580
--------- ---------
Net cash used in investing activities (136,428) (32,358)
--------- ---------
Cash flows from financing activities:
Borrowings (repayments) on line of credit, net (18,000) 77,000
Proceeds from notes payable and other debt 139,428 --
Repayments on notes payable and other debt (15,416) (76,120)
Payments for deferred financing costs (2,047) --
Proceeds from issuance of common stock 14,746 --
Treasury stock and operating partnership unit purchases, net -- (5,587)
Distributions (34,787) (32,872)
--------- ---------
Net cash provided by (used in) financing activities 83,924 (37,579)
--------- ---------
Net increase (decrease) in cash and cash equivalents (2,639) (14,521)
Cash and cash equivalents, beginning of period 4,587 18,466
--------- ---------
Cash and cash equivalents, end of period $ 1,948 $ 3,945
========= =========
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 $ 2,767 $ 3,202
The accompanying notes are an integral part of the consolidated financial
statements
5
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
These unaudited condensed consolidated financial statements of Sun
Communities, Inc., a Maryland corporation, (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.
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 Sun Communities
Operating Limited Partnership (the "Operating Partnership"), the
Company owns one hundred percent (100%) 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%)
(i.e., $15 million) interest in Origen Financial LLC ("Origen"), which
company holds all of the operating assets of Bingham Financial Services
Corporation ("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.
The Company and another unaffiliated lender provide a $35 million
secured line of credit to Origen. The line of credit matures December
31, 2002 and is fully drawn at September 30, 2002. Pursuant to the
terms of the participation agreement between the Company and the other
lender, the Company's commitment is to loan up to $20 million to Origen
under the line of credit and the other lender is committed to loan up
to $15 million to Origen under the line of credit. The parties
participate pari-passu in the first $30 million advanced under the line
of credit with additional fundings subordinated to the first $30
million.
Also included in Investment in and Advances to Affiliates is the
Company's investment in and advances to SunChamp LLC, a development
entity comprising eleven new communities. On October 15, 2002, the
Company entered into a preliminary agreement to acquire the ownership
interest of Champion Enterprises in SunChamp for approximately $5.5
million. Upon closing, the Company will own approximately 45% of
SunChamp. The Company owned 19.3% of SunChamp at September 30, 2002.
All of these investments are accounted for utilizing the equity method
of accounting.
6
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RENTAL PROPERTY:
The following summarizes rental property (in thousands):
September 30, December 31,
2002 2001
-------------- -----------------
Land $ 85,608 $ 82,326
Land improvements and buildings 878,381 818,043
Furniture, fixtures, equipment 23,513 20,700
Land held for future development 16,953 16,810
Property under development 30,041 15,777
------------- ---------------
1,034,496 953,656
Accumulated depreciation (162,402) (140,322)
------------- ---------------
Rental property, net $ 872,094 $ 813,334
============== ==============
During the nine months ended September 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.
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.
7
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. NOTES AND OTHER RECEIVABLES (AMOUNTS IN THOUSANDS):
September 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 $108,202 $ 63,403
Installment loans on manufactured homes with interest payable monthly
at a weighted average interest rate
and maturity of 8.2% and 19 years, respectively 11,098 13,474
Other receivables 17,227 14,495
-------- --------
$136,527 $ 91,372
======== ========
At September 30, 2002, the maturities of mortgages and other notes
receivables are approximately as follows: 2003-$1.5 million; 2004-$20.3
million; 2005-$52.8 million; 2006-$3.8 million; 2007 and after- $29.8
million.
Officers' notes, presented as a reduction to stockholders' equity in
the balance sheet, are LIBOR + 1.75% notes, due in approximate equal
amounts in 2008, 2009 and 2010, with a minimum and maximum interest
rate of 6% and 9%, respectively, collateralized by 362,206 shares of
the Company's common stock and 127,794 OP Units with substantial
personal recourse.
5. DEBT:
The following table sets forth certain information regarding debt (in
thousands):
September 30, December 31,
2002 2001
-------------- -------------
Collateralized term loan, due to FNMA, at variable
interest rate (2.5% at September 30, 2002) due
May 2007, convertible to a 5 to 10 year fixed rate loan $ 139,427 $ --
Collateralized term loan, interest at 7.01%,
due September 9, 2007 42,246 42,820
Senior notes, interest at 7.625%, due May 1, 2003 85,000 85,000
Callable/redeemable notes, interest at 6.77%, due
May 14, 2015, callable/redeemable May 16, 2005 65,000 65,000
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
Capitalized lease obligations, interest at 6.1%, due
through December 2003 25,575 26,045
Mortgage notes, other 40,775 48,333
--------------- --------------
$ 533,023 $ 402,198
=============== ==============
8
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. DEBT, CONTINUED:
The initial term of the variable rate FNMA debt is five years, the
Company has the option to extend such variable rate borrowings for an
additional five years and the Company has the option to convert such
variable rate borrowings to fixed rate borrowings with a term of five
or ten years, provided that in no event can the term of the borrowings
exceed fifteen years.
The Company has entered into three derivative contracts. The Company's
primary strategy in entering into derivative contracts is to minimize
the variability that changes in interest rates could have on its
future cash flows. The Company generally employs derivative
instruments that effectively convert a portion of its variable rate
debt to fixed rate debt. The Company does not enter into derivative
instruments for speculative purposes.
The Company has entered into three equal interest rate swap agreements
for an aggregate notional amount of $75 million. The agreements are
effective April 2003, and have the effect of fixing interest rates
relative to the FNMA debt. One swap matures in July 2009, with an
effective fixed rate of 4.93%. A second swap matures in July 2012, with
an effective fixed rate of 5.37%. The third swap matures in July 2007,
with an effective fixed rate of 3.97%. The third swap is effective as
long as LIBOR is 7% or lower.
The Company has designated the first two swaps as cash flow hedges for
accounting purposes. These two hedges were highly effective and had
minimal effect on income. The third swap does not qualify as a hedge
for accounting purposes and, accordingly, the entire change in
valuation of $0.486 million is reflected as a component of interest
expense in the statements of income.
All three interest rate swaps totaling a liability of $1.8 million are
recorded in notes and other receivables on the balance sheet as of
September 30, 2002.
These valuation adjustments will only be realized if the Company
terminates the swaps prior to maturity. This is not the intent of the
Company and, therefore, the net of valuation adjustments through the
various maturity dates will approximate zero.
In July 2002, the Company refinanced its existing line of credit to an
$85 million facility. The Company had $10 million of this refinanced
facility available to borrow at September 30, 2002. Borrowings under
the 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
September 30, 2002 and 2001 (in thousands):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
----------- --------- ---------- ----------
Interest income $ 1,962 $ 2,200 $ 5,380 $ 8,321
Other income 729 1,190 2,107 2,928
----------- --------- ---------- ----------
$ 2,691 $ 3,390 $ 7,487 $ 11,249
=========== ========= ========== ==========
9
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. EARNINGS PER SHARE (IN THOUSANDS):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
---- ---- ---- ----
Earnings (loss) used for basic and diluted
earnings per share computation:
Continuing operations $ 5,802 $ 7,892 $ 20,638 $27,349
========= ======== ========== ==========
Discontinued operations $ -- $ (15) $ 280 $ (48)
========= ======== ========== ==========
Total shares used for basic earnings
per share 17,739 17,210 17,535 17,259
Dilutive securities, principally
stock options 182 306 205 256
--------- ------- ---------- ----------
Total weighted average shares used for
diluted earnings per share computation 17,921 17,516 17,740 17,515
========= ======== ========== ==========
Diluted earnings per share reflect the potential dilution that would
occur if dilutive securities were exercised or converted into common
stock.
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.
In July 2002, the FASB issued FAS Statement No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. The statement
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by
the statement include lease termination costs and certain employee
severance costs that are associated a with restructuring, discontinued
operation, plant closing, or other exit or disposal activity. The
statement is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The adoption of this statement is
not expected to have a significant impact on the financial position
or results of operations of the Company.
10
SUN COMMUNITIES, INC.
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 nine months ended September 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 September 30, 2002 and 2001
For the three months ended September 30, 2002, income before gain from property
dispositions, net and minority interests decreased by 23.0 percent from $11.2
million to $8.6 million, when compared to the three months ended September 30,
2001. The decrease was due to increased revenues of $1.2 million offset by
increased expenses of $3.7 million as described in more detail below.
Income from property increased by $3.8 million from $34.4 million to $38.2
million, or 10.9 percent, due to acquisitions ($3.3 million) and rent increases
and other community revenues ($0.5 million).
Income from affiliates decreased by $1.9 million to a loss of $1.5 million due
to losses at affiliates caused principally by reduced new home sales at SHS and
reduced loan originations and loan loss provisions at Origen. Other income
decreased by $0.7 million from $3.4 million to $2.7 million due primarily to a
decrease in interest income.
Property operating and maintenance expenses increased by $1.0 million from $7.6
million to $8.6 million, or 13.8 percent, primarily due to acquisitions ($0.4
million).
Real estate taxes increased by $0.3 million from $2.3 million to $2.6 million
due to acquisitions ($0.1 million) and changes in certain assessments.
Property management expenses decreased by $0.1 million representing 1.4 percent
and 1.9 percent of income from property in 2002 and 2001, respectively.
11
SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS, CONTINUED:
General and administrative expenses decreased by $0.1 million from $1.2 million
to $1.1 million, representing 3.0 percent and 3.4 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) remained constant at $26.5 million.
EBITDA as a percent of revenues was 67.3 percent in 2002 compared to 69.4
percent in 2001.
Depreciation and amortization increased by $1.6 million from $8.1 million to
$9.7 million, or 18.9 percent, due primarily to the net additional investment in
rental properties.
Interest expense increased by $1.1 million from $7.2 million to $8.3 million, or
15.2 percent, due primarily to an increase in outstanding debt.
Comparison of the nine months ended September 30, 2002 and 2001
For the nine months ended September 30, 2002, income before gain from property
dispositions, net and minority interests decreased by 11.5 percent from $33.4
million to $29.5 million, when compared to the nine months ended September 30,
2001. The decrease was due to increased revenues of $3.8 million offset by
increased expenses of $7.7 million as described in more detail below.
Income from property increased by $10.8 million from $103.5 million to $114.3
million, or 10.4 percent, due to acquisitions ($5.3 million) and rent increases
and other community revenues ($5.5 million).
Income from affiliates decreased from $0.6 million to a loss of $2.6 million due
to losses at affiliates caused principally by reduced new home sales at SHS and
reduced loan originations and loan loss provisions at Origen. Other income
decreased by $3.8 million from $11.3 million to $7.5 million due primarily to a
decrease in interest income.
Property operating and maintenance expenses increased by $2.6 million from $21.9
million to $24.5 million, or 11.9 percent, primarily due to acquisitions ($1.5
million).
Real estate taxes increased by $0.8 million from $6.9 million to $7.7 million
due to acquisitions ($0.35 million) and changes in certain assessments.
Property management expenses decreased by $0.2 million from $2.1 million to $1.9
million representing 1.6 percent and 2.0 percent of income from property in 2002
and 2001, respectively.
12
SUN COMMUNITIES, INC.
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 $3.5 million
to $3.6 million, representing 3.0 percent and 3.0 percent of total revenues in
2002 and 2001, respectively.
EBITDA increased by $0.6 million from $80.9 million to $81.5 million. EBITDA as
a percent of revenues was 68.4 percent in 2002 compared to 70.2 percent in 2001.
Depreciation and amortization increased by $4.0 million from $24.1 million to
$28.1 million, or 16.6 percent, due primarily to the net additional investment
in rental properties.
Interest expense increased by $0.3 million from $23.5 million to $23.8 million,
or 1.4 percent.
The nine months ended September 30, 2001 also included a $4.3 million gain from
property dispositions, net.
13
SUN COMMUNITIES, INC.
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 nine months ended September 30, 2002 and 2001. The "Same Property" data
represents information regarding the operation of communities owned as of
January 1, 2001 and September 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 $ 96,385 $ 92,001 $114,282 $103,476
-------- -------- -------- --------
Property operating expenses:
Property operating and maintenance 17,800 17,466 24,500 21,861
Real estate taxes 7,149 6,738 7,701 6,894
-------- -------- -------- --------
Property operating expenses 24,949 24,204 32,201 28,755
-------- -------- -------- --------
Property EBITDA $ 71,436 $ 67,797 $ 82,081 $ 74,721
======== ======== ======== ========
Number of operating properties 103 103 117 113
Developed sites 36,667 36,321 41,394 39,107
Occupied sites 33,690 33,683 37,835 35,955
Occupancy % 93.8%(1) 94.9%(1) 93.2%(1) 93.9%(1)
Weighted average monthly rent per site $ 316(1) $ 301(1) $ 313(1) $ 299(1)
Sites available for development 2,232 2,545 4,258 4,674
Sites planned for development in current year 77 157 229 265
(1) Occupancy % and weighted average rent relates to manufactured housing sites,
excluding recreational vehicle sites.
On a same property basis, property EBITDA increased by $3.6 million from $67.8
million to $71.4 million, or 5.4 percent. Property revenues increased by $4.4
million from $92.0 million to $96.4 million, or 4.8 percent, due primarily to
increases in rents including water and property tax pass through. Property
operating expenses increased by $0.7 million from $24.2 million to $24.9 million
due primarily to increases in real estate taxes and payroll.
14
SUN COMMUNITIES, INC.
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 the Company's stockholders and the
Operating Partnership'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 dividends to its stockholders to maintain 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 decreased by $2.7 million to $1.9 million at September
30, 2002 compared to $4.6 million at December 31, 2001 because cash used in
investing activities exceeded cash provided by operating activities and
financing activities. Net cash provided by operating activities decreased by
$5.5 million to $49.9 million for the nine months ended September 30, 2002
compared to $55.4 million for the nine months ended September 30, 2001. This
decrease was primarily due to accounts payable and other liabilities decreasing
by $5.3 million and other assets increasing by $0.7 million offset by an
increase in income before minority interests, depreciation and amortization,
gain from property dispositions, net and discontinued operations of $0.5
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
Company's properties (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 the Company's Registration Statement on S-3,
Amendment No. 1 (Registration No. 333-96769).
15
SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED:
In 2002, the Company closed on a $139.4 million collateralized five year
variable rate (2.5% at September 30, 2002) debt facility with an option to
extend an additional five years at a variable rate debt facility, which is
convertible to a five to ten year fixed rate loan but not to exceed a total term
of fifteen years.
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 September 30, 2002, the average interest rate of outstanding
borrowings under the line of credit was 2.66% with $75 million outstanding and
$10 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 September 30, 2002.
In 1998, certain directors, employees and consultants of the Company purchased
approximately $25.5 million of newly issued shares of common stock of the
Company and common OP Units in Sun Communities Operating Limited Partnership in
accordance with the Company's 1998 Stock Purchase Plan (the "Purchase Plan").
The participants in the Purchase Plan financed these purchases by obtaining
personal loans from Bank One, N.A. (the "Bank") and the Company guaranteed the
repayment of all such loans. The participants have agreed to fully indemnify the
Company against all liabilities arising under such guaranty (the "Guaranty")
(the principal balance of which was approximately $22.7 million at September 30,
2002), which reimbursement obligations are secured by approximately 654,000 OP
Units valued at approximately $22.2 million (based on the closing sales price of
the Company's common stock on November 7, 2002).
The Guaranty contains, among other usual commercial provisions, financial
covenants in respect of the Company. These covenants were initially designed to
be identical in all material respects with the financial covenants imposed on
the Company under its line of credit facility. Since 1998, as the covenants in
the Company's then applicable line of credit facility changed, the Guaranty has
also been similarly amended to remain consistent. In July 2002, the Company
entered into a replacement line of credit facility; however, conforming
amendments to the Guaranty were not made, resulting in differing and
inconsistent financial covenants in the line of credit facility as compared to
the Guaranty. As a consequence, as of September 30, 2002, the Company was not in
compliance with certain of the financial covenants contained in the Guaranty
(the "Differing Financial Covenants"). Because this was not the intention of the
parties, the Bank has agreed in writing that it would not declare a default, or
accelerate the indebtedness due, under the Guaranty solely as a result of the
Company's non-compliance with the Differing Financial Covenants contained in the
Guaranty so long as the Company remains in compliance with all of the terms and
conditions of its line of credit facility.
16
SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED:
The Company's primary long-term liquidity needs are principal payments on
outstanding indebtedness. At September 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 $ 75,000 $ 75,000
Collateralized term loan 42,246 $ 647 $ 1,438 40,161
Collateralized term loan 139,428 $ 139,428
Senior notes 285,000 85,000 65,000(2) 135,000
Mortgage notes, other 40,774 658 9,204 9,306 21,606
Capitalized lease obligations 25,575 15,902 9,673
Redeemable Preferred OP Units 48,458 12,675 35,783
--------- --------- -------- -------- ---------
$ 656,481 $ 102,207 $ 85,315 $137,142 $ 331,817
========= ========= ======== ======== =========
(1) As noted above, the Company is the guarantor of $22.7 million in
personal bank loans, maturing in 2004, made to the Company's directors,
employees and consultants for the purpose of purchasing shares of
Company common stock or Operating Partnership OP Units pursuant to the
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. This contingent liability is not reflected on the Company's
balance sheet.
(2) The provisions of the callable/redeemable $65 million notes are such
that the maturity date will likely be 2005 if the 10 year Treasury rate
is greater than 5.7 % on May 16, 2005. The maturity is reflected in the
above table based on that assumption.
17
SUN COMMUNITIES, INC.
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, $276.6 million from the sale of
shares of its common stock (including 332,000 shares of common stock sold during
the nine months ended September 30, 2002 at an average price of $41 raising
$13.2 million in equity), $93.3 million from the sale of OP units in the
Operating Partnership and $569 million from the issuance of secured and
unsecured debt securities. In addition, at September 30, 2002, eighty-two 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 the Company'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 September 30, 2002, the Company's debt to total market capitalization
approximated 41.4 percent (assuming conversion of all Common OP Units to shares
of common stock). The debt has a weighted average maturity of approximately 5.1
years and a weighted average interest rate of 5.6 percent.
Capital expenditures for the nine months ended September 30, 2002 and 2001
included recurring capital expenditures of $4.9 million and $3.7 million,
respectively.
Net cash used in investing activities increased by $104.0 million to $136.4
million compared to $32.4 million provided by investing activities for the nine
months ended September 30, 2001. This increase was due to a $20.2 million
increase in rental property acquisition activities, repayments from financing
notes receivable, net decreasing by $53.8 million, a $14.0 million decrease in
proceeds related to property dispositions and an increase of $16.0 million in
investment in and advances to affiliates.
Net cash provided by financing activities increased by $121.5 million to $83.9
million from $37.6 million used in financing activities for the nine months
ended September 30, 2001. This increase was primarily due to proceeds from notes
payable, net of deferred financing costs, of $137.4 million, a $60.7 million
reduction of repayments on notes payable and other debt and proceeds from
issuance of common stock increasing by $20.3 million including reduced treasury
stock purchases, offset by a $95.0 million increase in repayments on line of
credit, net and a $1.9 million increase in distributions.
18
SUN COMMUNITIES, INC.
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
September 30, 2002 and 2001 (in thousands):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
------------ ----------- ----------- -----------
Income from continuing operations $ 5,802 $ 7,892 $ 20,638 $ 27,349
FFO contributed by discontinued operations -- 32 11 92
Deduct gain from property dispositions, net -- -- -- (4,275)
Add:
Minority interest in earnings to
common OP Unit holders 846 1,217 3,055 4,205
Valuation adjustment (1) 487 -- 487 --
Depreciation and amortization, net
of corporate office depreciation 9,589 8,048 27,913 23,870
------------ ----------- ----------- -----------
Funds from operations $ 16,724 $ 17,189 $ 52,104 $ 51,241
============ =========== =========== ===========
Weighted average common shares OP
Units outstanding used for basic per
share/unit data 20,323 19,863 20,126 19,935
Dilutive securities:
Stock options and awards 182 306 205 243
------------ ----------- ----------- -----------
Weighted average common shares and OP
Units used for diluted per share/unit data 20,505 20,169 20,331 20,178
============ =========== =========== ===========
Diluted common shares and OP Units at
end of period 20,510 20,179 20,533 20,116
============ =========== =========== ===========
19
SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OTHER, CONTINUED:
(1) The Company entered into interest rate swaps for an aggregate of $75
million, thereby substantially fixing for periods of 5 to 7 years rates which
were formerly floating. The valuation adjustment reflects the theoretical
noncash profit and loss were those swaps terminated at the balance sheet date.
As the Company has no expectation of terminating the swaps prior to maturity,
the net of these noncash valuation adjustments will be zero at the various
maturities. As any imperfections related to hedging correlation in these swaps
is reflected currently in cash as interest, the valuation adjustments are
excluded from Funds From Operations. The valuation adjustment is included in
interest expense.
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" in the Company'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. The Company undertakes no obligation to publicly update or revise any
forward-looking statements whether as a result of new information, future
events, or otherwise.
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.
20
SUN COMMUNITIES, INC.
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 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.
In July 2002, the FASB issued FAS Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. The statement requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the statement include lease termination costs and
certain employee severance costs that are associated a with restructuring,
discontinued operation, plant closing, or other exit or disposal activity. The
statement is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The adoption of this statement is not
expected to have a significant impact on the financial position or results of
operations of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's principal market risk exposure is interest rate risk. The Company
mitigates this risk by maintaining prudent amounts of leverage, minimizing
capital costs and interest expense while continuously evaluating all available
debt and equity resources and following established risk management policies and
procedures, which include the periodic use of derivatives. The Company's primary
strategy in entering into derivative contracts is to minimize the variability
that changes in interest rates could have on its future cash flows. The Company
generally employs derivative instruments that effectively convert a portion of
its variable rate debt to fixed rate debt. The Company does not enter into
derivative instruments for speculative purposes.
21
SUN COMMUNITIES, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK, CONTINUED:
The Company's variable rate debt totals $221.2 million as of September 30, 2002
which bears interest at various LIBOR/DMBS rates. If LIBOR/DMBS increased or
decreased by 1.0 percent during the nine months ended September 30, 2002 and
2001, the Company believes its interest expense would have increased or
decreased by approximately $1.4 million and $0.6 million based on the $143.6
million and $56.1 million average balance outstanding under the Company's
variable rate debt facilities for the nine months ended September 30, 2002 and
2001, respectively.
Additionally, the Company had $129.1 million and $90.2 million LIBOR based
variable rate mortgage and other notes receivables as of September 30, 2002 and
2001. If LIBOR increased or decreased by 1.0 percent during the nine months
ended September 2002 and 2001, the Company believes interest income would have
increased or decreased by approximately $0.7 million and $0.9 million based on
the $74.1 million and $90.6 million average balance outstanding on all variable
rate notes receivables for the nine months ended September 30, 2002 and 2001,
respectively.
In September 2002, the Company entered into three separate interest rate swap
agreements, effectively fixing, in the aggregate, $75 million of the Company's
variable rate borrowings for a period commencing April 2003. One of these swap
agreements fixes $25 million of variable rate borrowings at 4.93% for the period
April 2003 through July 2009, another of these swap agreements fixes $25 million
of variable rate borrowings at 5.37% for the period April 2003 through July 2012
and the third swap agreement, which is only effective for so long as LIBOR is 7%
or less, fixes $25 million of variable rate borrowings at 3.97% for the period
April 2003 through July 2007.
ITEM 4. CONTROLS AND PROCEDURES
(a) The Chief Executive Officer, Gary A. Shiffman, and Chief Financial Officer,
Jeffrey P. Jorissen, evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days of filing this quarterly
report (the "Evaluation Date"), and concluded that, as of the Evaluation Date,
the Company's disclosure controls and procedures were effective to ensure that
information the Company is required to disclose in its filings with the
Securities and Exchange Commission under the Securities Exchange Act of 1934
(the "Exchange Act") is recorded, processed, summarized and reported, within the
time periods specified in the Commission's rules and forms, and to ensure that
information required to be disclosed by the Company in the reports that it files
under the Exchange Act is accumulated and communicated to the Company's
management, including its principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
Evaluation Date, including any corrective actions with regard to significant
deficiencies and material weaknesses.
22
SUN COMMUNITIES, INC.
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.
23
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 19, 2002
SUN COMMUNITIES, INC.
BY: /s/ Jeffrey P. Jorissen
----------------------------------------------
Jeffrey P. Jorissen, Chief Financial
Officer and Secretary
(Duly authorized officer and principal
financial officer)
24
CERTIFICATIONS
(As Adopted Under Section 302 of the Sarbanes-Oxley Act of 2002)
I, Gary A. Shiffman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Sun Communities,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 19, 2002
/s/ Gary A. Shiffman
-----------------------------------------
Gary A. Shiffman, Chief Executive Officer
25
CERTIFICATIONS
(As Adopted Under Section 302 of the Sarbanes-Oxley Act of 2002)
I, Jeffrey P. Jorissen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Sun Communities,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 19, 2002
/s/ Jeffrey P. Jorissen
--------------------------------------
Jeffrey P. Jorissen,
Chief Financial Officer
26
SUN COMMUNITIES, INC.
EXHIBIT INDEX
Exhibit No. Description
10.1 First Amendment to Master Credit Facility Agreement, dated as of
August 29, 2002, by and 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 First Amendment to Employment Agreement, dated as of July 15,
2002, by and between Sun Communities, Inc. and Gary A. Shiffman
10.3 Second Amended and Restated Promissory Note (Secured), dated as
of July 15, 2002, made by Gary A. Shiffman in favor of Sun
Communities Operating Limited Partnership
10.4 First Amended and Restated Promissory Note (Unsecured), dated as
of July 15, 2002, made by Gary A. Shiffman in favor of Sun
Communities Operating Limited Partnership
10.5 First Amended and Restated Promissory Note (Secured), dated as of
July 15, 2002, made by Gary A. Shiffman in favor of Sun
Communities Operating Limited Partnership
10.6 Second Amended and Restated Promissory Note (Unsecured), dated as
of July 15, 2002, made by Gary A. Shiffman in favor of Sun
Communities Operating Limited Partnership
10.7 Second Amended and Restated Promissory Note (Secured), dated as
of July 15, 2002, made by Gary A. Shiffman in favor of Sun
Communities Operating Limited Partnership
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
27