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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 333-2522-01
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
STATE OF MICHIGAN 38-3144240
State of Organization I.R.S. Employer I.D. No.
31700 MIDDLEBELT ROAD, SUITE 145
FARMINGTON HILLS, MICHIGAN 48334
(248) 932-3100
(Address of principal executive offices and telephone number)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[X]
Indicate by check mark whether the Registrant (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 required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).
Yes No X
--- ---
As of March 3, 2003, the aggregate market value of the Registrant's
partnership Units held by non-affiliates of the Registrant was
approximately $98.4 million based on the closing sales price of one share
of Sun Communities, Inc. common stock (into which the partnership units are
convertible on a one-for-one basis) on such date.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive Proxy Statement to be filed by Sun
Communities, Inc. for its 2003 Annual Meeting of Shareholders are incorporated
by reference into Part III of this Report.
As used in this report, "Company", "Us", "We", "Our" and similar terms
means Sun Communities Operating Limited Partnership, a Michigan limited
partnership, and one or more of its Subsidiaries, (as defined below).
PART I
ITEM 1. BUSINESS
GENERAL
We own, operate, develop and finance manufactured housing communities
concentrated in the midwestern and southeastern United States. Sun Communities,
Inc., a Maryland corporation and our sole general partner ("General Partner"),
is a fully integrated real estate company which, together with its affiliates
and predecessors, has been in the business of acquiring, operating and expanding
manufactured housing communities since 1975. As of December 31, 2002, we owned
and operated a portfolio of 129 developed properties located in seventeen states
(the "Properties"), including 117 manufactured housing communities, five
recreational vehicle communities, and seven properties containing both
manufactured housing and recreational vehicle sites. As of December 31, 2002,
the Properties contained an aggregate of 43,959 developed sites comprised of
38,832 developed manufactured home sites and 5,127 recreational vehicle sites
and an additional 7,642 manufactured home sites suitable for development. In
order to enhance property performance and cash flow, the Company, through Sun
Home Services, Inc., a Michigan corporation ("SHS"), actively markets and sells
new and used manufactured homes for placement in the Properties.
Our executive and principal property management office is located at
31700 Middlebelt Road, Suite 145, Farmington Hills, Michigan 48334 and our
telephone number is (248) 932-3100. We have regional property management offices
located in Austin, Texas, Dayton, Ohio, Elkhart, Indiana, Grand Rapids,
Michigan, and Orlando, Florida, and we employed an aggregate of 564 people as of
December 31, 2002.
Our website address is www.suncommunities.com and we make available,
free of charge, on or through our website all of our periodic reports, including
our annual report on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K, as soon as reasonably practicable after we file such
reports with the Securities and Exchange Commission.
RECENT DEVELOPMENTS
Acquisitions. During 2002, we acquired three communities in Texas for
approximately $48.6 million in cash, Series B-2 Preferred Units and assumption
of debt. These communities currently comprise approximately 930 developed sites
and an additional 538 sites available for development.
SunChamp. In December 2002, we purchased the ownership interest of
Champion Enterprises in SunChamp LLC, a joint venture to develop eleven new
communities in Texas, North Carolina, Ohio and Indiana, for approximately $6.2
million, payable pursuant to a 7-year promissory note (a) bearing interest at
3.46% per annum, (b) requiring no principal or interest payments until maturity
(other than a one-time prepayment of interest in the amount of approximately
$270,000 at closing), and (c) providing that all payment obligations are
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subordinate in all respects to the return of the members' equity (including the
gross book value of the acquired equity) plus a preferred return. As a result of
this acquisition, we currently own approximately a 59% equity interest in
SunChamp. In addition, in September 2002, we acquired the senior lender's entire
right, title and interest in and to SunChamp's construction loan for a purchase
price equal to 89% of the outstanding indebtedness thereof, which constitutes a
discount of approximately $5.8 million.
Origen. We currently own approximately a 30% equity interest in Origen
Financial, L.L.C. ("Origen") (a financial services company that provides and
services loans used by consumers to finance the purchase of manufactured homes).
Origen's business has been negatively impacted by the current condition of the
manufactured housing finance industry, illustrated by the bankruptcy filings of
Oakwood Homes Corporation and Conseco, Inc. in late 2002. In particular,
Origen's business has suffered as a result of the general economic recession,
excessive amounts of repossession inventory, declining recovery rates in the
repossession market and the deteriorating asset-backed securitization market.
While we believe that Origen can still become a profitable national lender in
its industry, we wrote-off our remaining equity investment in Origen
(approximately $13.6 million) in the fourth quarter of 2002. We reached this
decision based on our assessment of Origen's existing market conditions and
prospects as well as a "worst-case" scenario prepared by Origen's management for
2003. We believe our equity investment in Origen is impaired from a financial
reporting perspective and should be written off.
We, along with two other participants, provide a secured credit
facility to Origen bearing interest at a per annum rate equal to LIBOR plus 700
basis points, with a minimum interest rate of 11% and a maximum interest rate of
15%. Although this credit facility was due in December 2002, Origen did not have
sufficient liquidity to repay this facility when due, primarily as a result of
its inability to sell its loan portfolio in the deteriorating asset-backed
securitization market. Accordingly, this credit facility was renewed and
extended in December 2002. The facility has been increased to $58.0 million,
consisting of a $48.0 million line of credit and a $10.0 million term loan, and
is due December 31, 2003, extendable automatically to December 31, 2004 upon the
occurrence of certain events. Our participation in this credit facility has
increased from $20.0 million to $35.5 million, of which $18.0 million is
subordinate in all respects to the first $40.0 million funded under the facility
by the three participants. We do not believe that our advances to Origen are
impaired at this time because Origen had substantial reserves and positive
equity at December 31, 2002. We will continually evaluate the realizability of
our advances to Origen in accordance with applicable accounting standards. See,
"Factors That May Affect Future Results -- Our advances to Origen subject us to
certain risks."
STRUCTURE OF THE COMPANY
Our General Partner is a self-administered and self-managed real estate
investment trust, or REIT. The Company is structured as an umbrella partnership
REIT, or UPREIT, and is the entity through which our General Partner conducts
substantially all of its operations, and which owns, either directly or
indirectly, through subsidiaries (the "Subsidiaries"), all of the General
Partner's assets. This UPREIT structure enables the General Partner to comply
with certain complex requirements under the Federal tax rules and regulations
applicable to REITs, and to acquire
3
manufactured housing communities in transactions that defer some or all of the
sellers' tax consequences. Our Subsidiaries include SHS, which provides
manufactured home sales and other services to current and prospective tenants of
the Properties. Along with several other subsidiaries, SHS wholly owns Sun Water
Oak Golf, Inc., which was organized to own and operate the golf course,
restaurant and related facilities located on the Water Oak Property that was
acquired in December 1993, and SUI TRS, Inc., which was organized to hold our
investment in Origen.
THE MANUFACTURED HOUSING COMMUNITY INDUSTRY
A manufactured housing community is a residential subdivision designed
and improved with sites for the placement of manufactured homes and related
improvements and amenities. Manufactured homes are detached, single-family homes
which are produced off-site by manufacturers and installed on sites within the
community. Manufactured homes are available in a wide array of designs,
providing owners with a level of customization generally unavailable in other
forms of multifamily housing.
Modern manufactured housing communities, such as the Properties,
contain improvements similar to other garden-style residential developments,
including centralized entrances, paved streets, curbs and gutters, and parkways.
In addition, these communities also often provide a number of amenities, such as
a clubhouse, a swimming pool, shuffleboard courts, tennis courts, laundry
facilities and cable television service.
The owner of each home on our Properties leases the site on which the
home is located. We own the underlying land, utility connections, streets,
lighting, driveways, common area amenities and other capital improvements and
are responsible for enforcement of community guidelines and maintenance. Some of
the Properties provide water and sewer service through public or private
utilities, while others provide these services to residents from on-site
facilities. Each owner within our Properties is responsible for the maintenance
of his or her home and leased site. As a result, capital expenditure needs tend
to be less significant, relative to multi-family rental apartment complexes.
PROPERTY MANAGEMENT
Our property management strategy emphasizes intensive, hands-on
management by dedicated, on-site district and community managers. We believe
that this on-site focus enables us to continually monitor and address tenant
concerns, the performance of competitive properties and local market conditions.
Of the 564 Company employees, 491 are located on-site as property managers,
support staff, or maintenance personnel.
Our community managers are overseen by Brian W. Fannon, our General
Partner's Chief Operating Officer, who has 33 years of property management
experience, four Vice Presidents of Operations and seventeen Regional Vice
Presidents. In addition, the Regional Vice Presidents are responsible for
semi-annual market surveys of competitive communities, interaction with local
manufactured home dealers and regular property inspections.
Each district or community manager performs regular inspections in
order to continually monitor the Property's physical condition and provides
managers with the opportunity to understand
4
and effectively address tenant concerns. In addition to a district or community
manager, each district or property has an on-site maintenance personnel and
management support staff. We hold periodic training sessions for all property
management personnel to ensure that management policies are implemented
effectively and professionally.
HOME SALES
SHS offers manufactured home sales services to tenants and prospective
tenants of our Properties. Since tenants often purchase a home already on-site
within a community, such services enhance occupancy and property performance.
Additionally, because many of the homes on the Properties are sold through SHS,
better control of home quality in our communities can be maintained than if
sales services were conducted solely through third-party brokers.
REGULATIONS AND INSURANCE
General. Manufactured housing community properties are subject to
various laws, ordinances and regulations, including regulations relating to
recreational facilities such as swimming pools, clubhouses and other common
areas. We believe that each Property has the necessary operating permits and
approvals.
Americans with Disabilities Act ("ADA"). The Properties and any newly
acquired manufactured housing communities must comply with the ADA. The ADA has
separate compliance requirements for "public accommodations" and "commercial
facilities," but generally requires that public facilities such as clubhouses,
pools and recreation areas be made accessible to people with disabilities.
Compliance with ADA requirements could require removal of access barriers and
other capital improvements at our Properties. Noncompliance could result in
imposition of fines or an award of damages to private litigants. We do not
believe the ADA will have a material adverse impact on our results of
operations. If required property improvements involve a greater expenditure than
we currently anticipate, or if the improvements must be made on a more
accelerated basis than we anticipate, our ability to make expected distributions
could be adversely affected. We believe that our competitors face similar costs
to comply with the requirements of the ADA.
Insurance. Our management believes that the Properties are covered by
adequate fire, flood, property and business interruption insurance provided by
reputable companies with commercially reasonable deductibles and limits. We
maintain a blanket policy that covers all of our Properties. We have obtained
title insurance insuring fee title to the Properties in an aggregate amount
which we believe to be adequate.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Our prospects are subject to certain uncertainties and risks. Our
future results could differ materially from our current results, and our actual
results could differ materially from those projected in forward-looking
statements as a result of certain risk factors. These risk factors include, but
are not limited to, the risk factors set forth in the General Partner's Annual
Report on Form 10-K for the fiscal year ended December 31, 2002 (which are
incorporated herein by reference), other one-time events and other important
factors disclosed previously and from time to time in the Company's or the
General Partner's other filings with the Securities and Exchange
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Commission. This report contains certain forward-looking statements.
ITEM 2. PROPERTIES
General. As of December 31, 2002, the Properties consisted of 117
manufactured housing communities, five recreational vehicle communities, and
seven properties containing both manufactured housing and recreational vehicle
sites located in seventeen states concentrated in the midwestern and
southeastern United States. As of December 31, 2002, the Properties contained
43,959 developed sites comprised of 38,832 developed manufactured home sites and
5,127 recreational vehicle sites and an additional 7,642 manufactured home sites
suitable for development. Most of the Properties include amenities oriented
towards family and retirement living. Of the 129 Properties, 60 have more than
300 developed manufactured home sites, with the largest having 913 developed
manufactured home sites.
As of December 31, 2002, the Properties had an occupancy rate of 92.4
percent in stabilized communities and 64.8 percent in development communities
and the aggregate occupancy rate was 90 percent excluding recreational vehicle
sites. Since January 1, 2002, the Properties have averaged an aggregate annual
turnover of homes (where the home is moved out of the community) of
approximately 3.8 percent and an average annual turnover of residents (where the
home is sold and remains within the community, typically without interruption of
rental income) of approximately 7.1 percent.
We believe that our Properties' high amenity levels contribute to low
turnover and generally high occupancy rates. All of the Properties provide
residents with attractive amenities with most offering a clubhouse, a swimming
pool, laundry facilities and cable television service. Many Properties offer
additional amenities such as sauna/whirlpool spas, tennis, shuffleboard and
basketball courts and/or exercise rooms.
We have tried to concentrate our communities within certain geographic
areas in order to achieve economies of scale in management and operation. The
Properties are principally concentrated in the midwestern and southeastern
United States. We believe that geographic diversification will help insulate the
portfolio from regional economic influences and we are interested in expanding
our operations in the western United States.
The following table sets forth certain information relating to the
Properties owned as of December 31, 2002:
DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/02 12/31/00(1) 12/31/01(1) 12/31/02(1)
--------------------- -------- ----------- ----------- -----------
MIDWEST
MICHIGAN
Academy/West Pointe 441 99% 98% 98%
Canton, MI
Allendale Meadows Mobile Village 352 98% 96% 93%
Allendale, MI
Alpine Meadows Mobile Village 403 99% 96% 96%
Grand Rapids, MI
Bedford Hills Mobile Village 339 98% 98% 95%
Battle Creek, MI
6
DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/02 12/31/00(1) 12/31/01(1) 12/31/02(1)
--------------------- -------- ----------- ----------- -----------
Brentwood Mobile Village 195 99% 99% 96%
Kentwood, MI
Byron Center Mobile Village 143 99% 98% 98%
Byron Center, MI
Candlewick Court Manufactured Housing Community 211 95% 97% 97%
Owosso, MI
College Park Estates Manufactured Housing 230 100% 95% 92%
Community
Canton, MI
Continental Estates Manufactured Housing Community 385 84% 84% 79%
Davison, MI
Continental North Manufactured Housing Community 474 88% 89% 84%
Davison, MI
Country Acres Mobile Village 182 96% 96% 95%
Cadillac, MI
Country Meadows Mobile Village 577 100% 99% 98%
Flat Rock, MI
Countryside Village Manufactured Housing Community 359 96% 98% 96%
Perry, MI
Creekwood Meadows Mobile Home Park 336 96% 88% 85%
Burton, MI
Cutler Estates Mobile Village 259 98% 97% 96%
Grand Rapids, MI
Davison East Manufactured Housing Community 190 89% 80% 88%
Davison, MI
Fisherman's Cove Manufactured Housing Community 162 99% 95% 94%
Flint, MI
Grand Mobile Estates 230 99% 93% 95%
Grand Rapids, MI
Hamlin Manufactured Housing Community (5) 170 100% 99% 85%(5)
Webberville, MI
Kensington Meadows Mobile Home Park 290 97% 98% 92%
Lansing, MI
Kings Court Mobile Village 639 98% 100% 98%
Traverse City, MI
Knollwood Estates 161 (3) 97% 94%
Allendale, MI
Lafayette Place 254 98% 97% 98%
Metro Detroit, MI
Lincoln Estates Mobile Home Park 191 99% 96%, 95%
Holland, MI
Maple Grove Estates Manufactured Housing Community 46 100% 100% 98%
Dorr, MI
Meadow Lake Estates Manufactured Housing Community 425 100% 100% 97%
White Lake, MI
Meadowbrook Estates Manufactured Housing Community 453 99% 98% 97%
Monroe, MI
Meadowstream Village Manufactured Housing 159 98% 97% 95%
Community
Sodus, MI
Parkwood Manufactured Housing Community 249 93% 90% 86%
Grand Blanc, MI
7
DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/02 12/31/00(1) 12/31/01(1) 12/31/02(1)
--------------------- -------- ----------- ----------- -----------
Presidential Estates Mobile Village 364 98% 99% 95%
Hudsonville, MI
Richmond Place 117 99% 97% 100%
Metro Detroit, MI
River Haven Village 721 (3) 78% 79%
Grand Haven, MI
Scio Farms Estates 913 100% 99% 99%
Ann Arbor, MI
Sherman Oaks Manufactured Housing Community 366 99% 97% 94%
Jackson, MI
St. Clair Place 100 99% 100% 99%
Metro Detroit, MI
Sunset Ridge (9) 144 (3) 13%(9) 45%(9)
Portland Township, MI
Timberline Estates Manufactured Housing Community 296 100% 96% 94%
Grand Rapids, MI
Town & Country Mobile Village 192 99% 99% 99%
Traverse City, MI
Village Trails 100 77% 77% 80%
Howard City, MI
White Lake Mobile Home Village (5) 315 100% 85%(5) 96%
White Lake, MI
White Oak Estates 480 85% 88% 86%
Mt. Morris, MI
Windham Hills Estates (5) 402 88% 91% 82%(5)
Jackson, MI
Woodhaven Place 220 99% 100% 98%
--- --- ---- ---
Metro Detroit, MI
MICHIGAN TOTAl 13,235 96% 94% 92%
====== === === ===
INDIANA
Brookside Mobile Home Village 570 93% 93% 88%
Goshen, IN
Carrington Pointe 320 89% 81% 81%
Ft. Wayne, IN
Clear Water Mobile Village 227 95% 90% 86%
South Bend, IN
Cobus Green Mobile Home Park 386 94% 87% 81%
Elkhart, IN
Deerfield Run Manufactured Home 175 75%(5) 60%(5) 73%(5)
Community (5)
Anderson, IN
Four Seasons Mobile Home Park 218 96% 98% 95%
Elkhart, IN
Holiday Mobile Home Village 326 99% 97% 95%
Elkhart, IN
Liberty Farms Communities 220 100% 98% 99%
Valparaiso, IN
Maplewood Mobile Home Park 207 94% 91% 97%
Lawrence, IN
Meadows Mobile Home Park 330 95% 89% 85%
Nappanee, IN
Pebble Creek(9) (10) 258 (10) (10) 76%(9)
Greenwood, IN
Pine Hills Mobile Home Subdivision 130 91% 96% 95%
Middlebury, IN
Roxbury Park 398 (3) 92% 94%
Goshen, IN
Timberbrook Mobile Home Park 567 90% 90% 84%
Bristol, IN
8
DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/02 12/31/00(1) 12/31/01(1) 12/31/02(1)
--------------------- -------- ----------- ----------- -----------
Valley Brook Mobile Home Park 799 95% 95% 88%
Indianapolis, IN
West Glen Village Mobile Home Park 552 99% 98% 96%
Indianapolis, IN
Woodlake Estates (5) 338 67% (5) 69%(5) 72%(5)
Ft. Wayne, IN
Woods Edge Mobile Village (5) 598 93%(5) 84%(5) 74%(5)
--- ------ ------ ------
West Lafayette, IN
INDIANA TOTAL 6,619 92% 90% 86%
===== === === ===
OTHER
Apple Creek Manufactured Home Community and Self 176 98% 91% 94%
Storage
Cincinnati, OH
Autumn Ridge Mobile Home Park 413 100% 99% 98%
Ankeny, IA
Bell Crossing Manufactured Home 239 84% 53%(5) 41%(5)
Community (5)
Clarksville, TN
Boulder Ridge (5) 527 98% 98% 85%(5)
Pflugerville, TX
Branch Creek Estates 392 99% 100% 98%
Austin, TX
Byrne Hill Village Manufactured Home 236 97% 97% 96%
Community
Toledo, OH
Candlelight Village Mobile Home Park 309 96% 98% 95%
Chicago Heights, IL
Casa del Valle (8) 408 100% 100% 100%
Alamo, TX
Catalina Mobile Home Park 462 90% 83% 83%
Middletown, OH
Chisholm Point Estates 416 99% 98% 94%
Pflugerville, TX
Comal Farms(9) (10) 349 (10) (10) 43%(9)
New Braunfels, TX
Creekside(9) (10) 47 (10) (10) 66%(9)
Reidsville, NC
Desert View Village (9) 93 6%(9) 25%(9) 40%(9)
West Wendover, NV
Eagle Crest (9) 151 (3) 84%(9) 97%(9)
Firestone, CO
East Fork(9) (10) 160 (10) (10) 88%(9)
Batavia, OH
Edwardsville Mobile Home Park 634 97% 97% 92%
Edwardsville, KS
Forest Meadows 76 88% 83% 92%
Philomath, OR
Glen Laurel(9) (10) 262 (10) (10) 18%(9)
Concord, NC
High Pointe 411 95% 93% 95%
Frederica, DE
Kenwood RV and Mobile Home Plaza (8) 289 100% 100% 100%
LaFeria, TX
Meadowbrook(9) (10) 177 (10) (10) 80%(9)
Charlotte, NC
North Point Estates (9) 108 (3) 38%(9) 50%(9)
Pueblo, CO
Oak Crest(9) 335 (4) (4) 84%(9)
Austin, TX
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DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/02 12/31/00(1) 12/31/01(1) 12/31/02(1)
--------------------- -------- ----------- ----------- -----------
Oakwood Village (5) 511 78%(5) 73%(5) 74%(5)
Dayton, OH
Orchard Lake Manufactured Home Community 147 98% 97% 97%
Cincinnati, OH
Paradise Park 277 99% 96% 91%
Chicago Heights, IL
Pecan Branch (9) 69 (3) 67%(9) 74%(9)
Williamson County, TX
Pheasant Ridge 553 (4) (4) 99%
Manor Township, PA
Pin Oak Parc Mobile Home Park 502 98% 99% 97%
O'Fallon, MO
Pine Ridge Mobile Home Park 245 98% 98% 95%
Petersburg, VA
River Ridge (9) 337 (4) (4) 89%(9)
Austin, TX
Saddle Brook (9) 258 (4) (4) 39%(9)
Austin, TX
Sea Air (8) 527 100% 99% 100%
Rehoboth Beach, DE
Snow to Sun (8) 493 99% 100% 99%
Weslaco, TX
Southfork Mobile Home Park 477 96% 95% 90%
Belton, MO
Stonebridge(9) (10) 206 (10) (10) 83%(9)
San Antonio, TX
Summit Ridge(9) (10) 127 (10) (10) 91%(9)
Converse, TX
Sunset Ridge(9) (10) 173 (10) (10) 71%(9)
Kyle TX
Sun Villa Estates 324 100% 100% 99%
Reno, NV
Timber Ridge Mobile Home Park 585 98% 99% 98%
Ft. Collins, CO
Westbrook Village (7) 344 98% 99% 97%
Toledo, OH
Westbrook Senior Village 112 (3) 94% 99%
Toledo, OH
Willowbrook Place (7) 266 99% 98% 98%
Toledo, OH
Woodlake Trails(9) (10) 133 (10) (10) 44%(9)
San Antonio, TX
Woodland Park Estates 399 99% 98% 94%
Eugene, OR
Woodside Terrace Manufactured Home 439 96% 98% 96%
Community
Holland, OH
Worthington Arms Mobile Home Park 224 99% 99% 96%
--- --- --- ---
Delaware, OH
OTHER TOTAL 14,398 95% 93% 86%
====== === === ===
SOUTHEAST
FLORIDA
Arbor Terrace RV Park 402 (6) (6) (6)
Bradenton, FL
Ariana Village Mobile Home Park 208 85% 86% 88%
Lakeland, FL
Bonita Lake Resort 167 (6) (6) (6)
Bonita Springs, FL
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DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/02 12/31/00(1) 12/31/01(1) 12/31/02(1)
--------------------- -------- ----------- ----------- -----------
Buttonwood Bay (8) 941 (3) 100% 100%
Sebring, FL
Gold Coaster Manufactured Home Community (8) 546 100% 100% 98%
Florida City, FL
Groves RV Resort 306 (6) (6) (6)
Lee County, FL
Holly Forest Estates 402 100% 100% 100%
Holly Hill, FL
Indian Creek Park (8) 1,546 100% 100% 100%
Ft. Myers Beach, Fl
Island Lakes Mobile Home Park 301 100% 100% 100%
Merritt Island, FL
Kings Lake Mobile Home Park 245 96% 99% 100%
Debary, FL.
Lake Juliana Landings Mobile Home Park 287 71% 74% 77%
Auburndale, FL
Lake San Marino RV Park 415 (6) (6) (6)
Naples, FL
Leesburg Landing 96 68% 68% 69%
Lake County, FL
Meadowbrook Village Mobile Home Park 257 98% 99% 99%
Tampa, Fl,
Orange Tree Village Mobile Home Park 246 99% 100% 100%
Orange City, FL
Royal Country Mobile Home Park 864 100% 99% 100%
Miami, FL
Saddle Oak Club Mobile Home Park 376 99% 100% 100%
Ocala Fl,
Siesta Bay RV Park 850 (6) (6) (6)
Ft. Myers Beach, FL
Silver Star Mobile Village 408 96% 98% 99%
Orlando, FL
Water Oak Country Club Estates/Water Oak Mobile 844 100% 100% 100%
--- ---- ---- ----
Home Park
Lady Lake, FL,
Florida Total 9,707 94% 96% 97%
===== === === ===
TOTAL/AVERAGE 43,959 95% 93% 90%
====== === === ===
TOTAL STABILIZED COMMUNITIES 40,407 95% 94% 92%
====== === === ===
TOTAL DEVELOPMENT COMMUNITIES 3,552 6% 45% 65%
====== == === ===
(1) Occupancy percentage relates to manufactured housing sites,
excluding recreational vehicle sites.
(2) Acquired in 2000.
(3) Acquired in 2001.
(4) Acquired in 2002.
(5) Occupancy in these properties reflects the fact that these
communities are in their initial lease-up phase following an
expansion.
(6) This Property contains only recreational vehicle sites.
(7) The Company leases this Property. The Company has the option
and intends to purchase the Property upon the expiration of
the lease. If the Company does not exercise its option to
purchase, the lessor has the right to cause the Company to
purchase the Property at the expiration of the lease at the
then outstanding lease obligation.
(8) This Property contains recreational vehicle sites.
11
(9) Occupancy in these properties reflects the fact that these
communities are newly developed from the ground up.
(10) This Property is owned by an affiliate of Sunchamp LLC, an
entity in which the Company owns approximately a 59% equity
interest as of December 31, 2002. Prior to 2002, the Company
held a minority interest in Sunchamp LLC and, therefore, did
not treat this Property as a Property owned by the Company. As
a result, the Company did not report any information in
respect of this Property for such periods.
Leases. The typical lease we enter into with a tenant for the rental of
a site is month-to-month or year-to-year, renewable upon the consent of both
parties, or, in some instances, as provided by statute. In some cases, leases
are for one-year terms, with up to ten renewal options exercisable by the
tenant, with rent adjusted for increases in the consumer price index. These
leases are cancelable for non-payment of rent, violation of community rules and
regulations or other specified defaults. During the past five years, on average
3.1 percent of the homes in our communities have been removed by their owners
and eight percent of the homes have been sold by their owners to a new owner who
then assumes rental obligations as a community resident. The small percentage of
homes removed from our communities is impacted by the $3,000 to $8,000 cost to
move a home. The above experience can be summarized as follows: the average
resident remains in our communities for approximately nine years, while the
average home, which gives rise to the rental stream, remains in our communities
for approximately thirty-two years. See "Regulations and Insurance."
ITEM 3. LEGAL PROCEEDINGS
On March 21, 2003, the Company received an unfiled complaint by T.J.
Holdings, LLC ("TJ Holdings"), a member of Sun/Forest, LLC ("Sun/Forest")
(which, in turn, owns an equity interest in SunChamp LLC), against the Company,
SunChamp LLC, certain other affiliates of the Company and two directors of Sun
Communities, Inc. The unfiled complaint alleges that the defendants wrongfully
deprived the plaintiff of economic opportunities that they took for themselves
in contravention of duties allegedly owed to the plaintiff and purports to claim
damages of $13.0 million plus an unspecified amount for punitive damages. We
believe the unfiled complaint and the claims threatened therein have no merit
and, if this complaint is ultimately filed, we intend to defend it vigorously.
We are involved in various other legal proceedings arising in the
ordinary course of business. All such proceedings, taken together, are not
expected to have a material adverse impact on our results of operations or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year covered by this report.
12
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
There is no established public market for any class of the Company's
equity securities. On March 3, 2003, partnership units of the Company were held
by approximately one hundred holders of record.
The General Partner's Common Stock has been listed on the New York
Stock Exchange ("NYSE") since December 8, 1993 under the symbol "SUI." On March
3, 2003, the closing sales price of the Common Stock was $34.73 and the Common
Stock was held by approximately 650 holders of record. The following table sets
forth the high and low closing sales prices per share for the Common Stock for
the periods indicated as reported by the NYSE and the distributions paid by the
General Partner with respect to each such period (we paid equivalent
distributions per common operating partnership unit to our limited partners
during such periods).
High Low Distribution
---- --- ------------
FISCAL YEAR ENDED DECEMBER 31, 2001
First Quarter of 2001.......................................... 34.69 30.80 .53
Second Quarter of 2001......................................... 35.50 31.60 .55
Third Quarter of 2001.......................................... 36.85 34.73 .55
Fourth Quarter of 2001......................................... 38.55 36.00 .55
FISCAL YEAR ENDED DECEMBER 31, 2002
First Quarter of 2002.......................................... 40.19 36.73 .55
Second Quarter of 2002......................................... 42.60 39.00 .58
Third Quarter of 2002.......................................... 41.93 33.50 .58
Fourth Quarter of 2002......................................... 37.00 32.25 .58
RECENT SALES OF UNREGISTERED SECURITIES
On January 2, 2002, we issued 100,000 Series B-2 Preferred Units at par
of $45.00 to Bay Area Limited Partnership and assumed approximately $6,812,500
of debt, in exchange for property with a net agreed upon value of $15,000,000
(the "Series B-2 Units"). Holders of the Series B-2 Units may require the
Company to redeem all of the outstanding Series B-2 Units within the ninety (90)
day period following the fifth anniversary of the Series B-2 Unit issuance date,
the death of Bay Area's president, or the occurrence of a change of control as
defined in our limited partnership agreement, but in no event may the Series B-2
Unit holders require the redemption of the Series B-2 Units prior to January 31,
2007. We will pay a redemption price of $45.00 per Series B-2 Unit redeemed. In
addition, holders of the Series B-2 Units may convert such units into Common OP
Units at a conversion price of $45 per unit within the ninety (90) day period
following the third anniversary of the Series B-2 Unit issuance date.
On December 1, 2002, the we issued 55,200 Series B-3 Preferred Units to
ten members of Woodside Terrace, LTD, paid approximately $1,000,000 in cash and
assumed approximately
13
$2,230,000 of debt, which was immediately retired, in exchange for property with
a net agreed upon value of $8,750,000. Holders of the Series B-3 Units may
redeem the Series B-3 Units (a) within the ninety (90) day period following each
of the fifth, sixth, seventh, eighth, ninth and tenth anniversaries of the
issuance date, (b) in the event of the death of a holder, and (c) at any time
after the tenth anniversary. The redemption price is $100 per Series B-3 Unit.
We have the right to redeem the Series B-3 Units at any time after the tenth
anniversary.
On January 2, 2003, we issued 41,700 Series B-3 Preferred Units to the members
of Willowbrook Co., Ltd, paid approximately $860,000 in cash and assumed
approximately $1,570,000 of debt, which was immediately retired, in exchange for
property with a net agreed upon value of $6,600,000. Holders of the Series B-3
Units may redeem the Series B-3 Units (a) within the ninety (90) day period
following each of the fifth, sixth, seventh, eighth, ninth and tenth
anniversaries of the issuance date, (b) in the event of the death of a holder,
and (c) at any time after the tenth anniversary. The redemption price is $100
per Series B-3 Unit. We have the right to redeem the Series B-3 Units at any
time after the tenth anniversary.
In 2002, our General Partner issued an aggregate of 83,892 shares of
its Common Stock upon conversion of an aggregate of 83,892 Common OP Units.
All of the above OP Units and shares of Common Stock were issued in
private placements in reliance on Section 4(2) of the Securities Act of 1933, as
amended, including Regulation D promulgated thereunder. No underwriters were
used in connection with any of such issuances.
EQUITY COMPENSATION PLAN INFORMATION
The following table reflects information about the securities
authorized for issuance under our General Partner's equity compensation plans as
of December 31, 2002.
(a) (b) (c)
NUMBER OF SECURITIES
REMAINING AVAILABLE
NUMBER OF SECURITIES FOR FUTURE ISSUANCE
TO BE ISSUED UPON WEIGHTED-AVERAGE UNDER EQUITY
EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (a))
- ---------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by shareholders 858,388 $27.92 150,519
Equity compensation plans
not approved by 117,379 $32.75 0
shareholders (1)
TOTAL 975,767 $28.50 150,519
14
(1) On May 29, 1997, our General Partner established a Long Term Incentive
Plan (the "LTIP") pursuant to which all full-time salaried and
full-time commission only employees of the General Partner and the
Company, excluding the General Partner's officers, were entitled to
receive options to purchase shares of the General Partner's common
stock at $32.75 per share (i.e., the average of the highest and lowest
selling prices for the common stock on May 29, 1997), on January 31,
2002. In accordance with the terms of the LTIP, (a) the General Partner
granted the eligible participants options to purchase 167,918 shares of
its common stock; and (b) each eligible participant received an option
to purchase a number of shares of the General Partner's common stock
equal to the product of 167,918 and the quotient derived by dividing
such participant's total compensation during the period beginning on
January 1, 1997 and ending on December 31, 2001 (the "Award Period") by
the aggregate compensation of all of the eligible participants during
the Award Period.
15
ITEM 6. SELECTED FINANCIAL DATA
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2002 2001(c) 2000(c) 1999(c) 1998(c)
--------- --------- --------- --------- ---------
(In thousands except for per share and other data)
OPERATING DATA:
Revenues:
Income from property .................... $ 151,612 $ 138,687 $ 132,129 $ 125,137 $ 114,077
Other income ............................ 10,684 14,401 13,498 7,804 3,837
--------- --------- --------- --------- ---------
Total revenues ............... 162,296 153,088 145,627 132,941 117,914
--------- --------- --------- --------- ---------
Expenses:
Property operating and maintenance ...... 33,387 28,972 28,408 27,122 25,484
Real estate taxes ....................... 10,542 9,492 9,083 8,850 8,699
Property management ..................... 2,502 2,746 2,934 2,638 2,269
General and administrative .............. 5,220 4,627 4,079 3,682 3,339
Depreciation and amortization ........... 38,525 33,320 30,487 28,388 24,819
Interest ................................ 32,375 31,016 29,651 27,289 23,987
--------- --------- --------- --------- ---------
Total expenses ............... 122,551 110,173 104,642 97,969 88,597
--------- --------- --------- --------- ---------
Income before equity income (loss) from
affiliates, distributions to Preferred OP
units, discontinued operations, and gain
from property dispositions, net ......... 39,745 42,915 40,985 34,972 29,317
Equity income (loss) from affiliates ......... (16,627) (a) 131 607 1,726 2,147
--------- --------- --------- --------- ---------
Income before distributions to Preferred
OP Units, discontinued operations,
and gain from property
dispositions, net ....................... 23,118 43,046 41,592 36,698 31,464
Less distributions to Preferred OP Units ..... 7,803 8,131 7,826 3,663 2,505
--------- --------- --------- --------- ---------
Income from continuing operations............. 15,315 34,915 33,766 33,035 28,959
Income (loss) from discontinued operations.... 322 (75) (89) (92) (65)
Gain from property dispositions, net ......... -- 4,275 4,801 829 655(b)
--------- --------- --------- --------- ---------
Net income ................................... $ 15,637 $ 39,115 $ 38,478 $ 33,772 $ 29,549
========= ========= ========= ========= =========
Earning attributed to:
Continuing operations
General Partner ......................... $ 13,312 $ 33,975 $ 33,371 $ 29,168 $ 26,153
Limited Partner ......................... 2,003 5,215 5,196 4,696 3,461
Discontinued operations
General Partner ......................... 280 (65) (77) (79) (57)
Limited Partner ......................... 42 (10) (12) (13) (8)
--------- --------- --------- --------- ---------
$ 15,637 $ 39,115 $ 38,478 $ 33,772 $ 29,549
========= ========= ========= ========= =========
16
ITEM 6. SELECTED FINANCIAL DATA, CONTINUED
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2002 2001(c) 2000(c) 1999(c) 1998(c)
---------- ---------- ---------- ---------- ----------
(In thousands except for per share and other data)
Basic earnings per share:
Continuing operations ................ $ 0.76 $ 1.96 $ 1.92 $ 1.69 $ 1.55
Discontinued operations .............. 0.01 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income ........................... $ 0.77 $ 1.96 $ 1.92 $ 1.69 $ 1.55
========== ========== ========== ========== ==========
Diluted earnings per share:
Continuing operations ................ $ 0.75 $ 1.95 $ 1.92 $ 1.68 $ 1.53
Discontinued operations .............. 0.02 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income ........................... $ 0.77 $ 1.95 $ 1.92 $ 1.68 $ 1.53
========== ========== ========== ========== ==========
Weighted average common shares outstanding:
Basic ................................ 20,177 19,907 19,999 19,961 19,101
========== ========== ========== ========== ==========
Diluted .............................. 20,363 20,089 20,085 20,113 19,276
========== ========== ========== ========== ==========
Distribution per common share ............. $ 2.29 $ 2.18 $ 2.10 $ 2.02 $ 1.94
========== ========== ========== ========== ==========
BALANCE SHEET DATA:
Rental property, before accumulated
depreciation ......................... $1,174,837 $ 969,936 $ 867,377 $ 847,696 $ 803,152
Total assets .............................. $1,166,576 $ 997,049 $ 969,228 $ 906,632 $ 824,039
Total debt ................................ $ 667,373 $ 495,198 $ 464,508 $ 401,564 $ 365,164
Redeemable Preferred OP Units ............. $ 53,978 $ 43,958 $ 39,347 $ 35,783 $ 35,783
Partners' capital ......................... $ 420,644 $ 431,281 $ 440,230 $ 443,009 $ 398,336
OTHER DATA (AT END OF PERIOD):
Total properties .......................... 129 116 109 110 104
Total sites ............................... 43,959 40,544 38,282 38,217 37,566
(a) Included in equity income (loss) from affiliates in 2002 is a $13.6 million
write-off of the Company's investment in Origen.
(b) Includes an $875 expense related to an unsuccessful portfolio acquisition.
(c) Revenues and expenses for the years ended December 31, 2001, 2000, 1999
and 1998 have been restated to conform with SFAS No. 144 which requires
operations of properties sold or held for sale to be reclassified as
discontinued operations.
17
ITEM 7. 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 notes thereto elsewhere herein.
The Company owns, operates, develops and finances manufactured housing
communities concentrated in the midwestern and southeastern United States. Sun
Communities, Inc. ("General Partner), a self-administered and self-managed Real
Estate Investment Trust is the sole general partner of the Company. As of
December 31, 2002, the Company owned and operated a portfolio of 129 developed
properties located in seventeen states, including 117 manufactured housing
communities, five recreational vehicle communities, and seven properties
containing both manufactured housing and recreational vehicle sites.
During 2002, the Company acquired four manufactured housing
communities, comprising 1,482 developed sites and 538 sites suitable for
development for $69.9 million, and the Company sold one manufactured housing
community for $3.3 million.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results
of Operations discusses the Company's consolidated financial statements, which
have been prepared in accordance with generally accepted accounting principles.
The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the dates
of the financial statements and the reported amounts of revenues and expenses
during the reporting periods. In preparing these financial statements,
management has made its best estimates and judgment of certain amounts included
in the financial statements. Nevertheless, actual results may differ from these
estimates under different assumptions or conditions.
Management believes the following significant accounting policies,
among others, affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements:
Impairment of Long-Lived Assets. Rental property is recorded at cost,
less accumulated depreciation. Management evaluates the recoverability of its
investment in rental property whenever events or changes in circumstances, such
as recent operating results, expected net operating cash flow and plans for
future operations, indicate that full asset recoverability is questionable. If
such assets were deemed to be impaired as a result of this measurement, the
impairment that would be recognized is measured by the amount by which the
carrying amount of the asset exceeds the fair value of the asset as determined
on a discounted net cash flow basis.
18
Notes Receivable. The Company evaluates the recoverability of its notes
receivable (including the notes receivable from Origen) whenever events occur or
there are changes in circumstances such that management believes it is probable
that it will be unable to collect all amounts due according to the contractual
terms of the loan agreement. The loan is then measured based on the present
value of the expected future cash flow discounted at the loan's effective
interest rate or the fair value of the collateral if the loan is collateral
dependent.
Depreciation. Depreciation is computed on a straight-line basis over
the estimated useful lives of the assets. The Company uses a thirty year useful
life for land improvements and buildings and a seven to fifteen year useful life
for furniture, fixtures and equipment.
Revenue Recognition. Rental income attributable to leases is recorded
on a straight-line basis when earned from tenants. Leases entered into by
tenants generally range from month-to-month to one year and are renewable by
mutual agreement of the Company and the resident.
Capitalized Costs. The Company capitalizes certain costs (including
interest and other costs) incurred in connection with the development,
redevelopment, capital enhancement and leasing of its properties. Management is
required to use professional judgment in determining whether such costs meet the
criteria for immediate expense or capitalization. The amounts are dependent on
the volume and timing of such activities and the costs associated with such
activities. Maintenance, repairs and minor improvements to properties are
expensed when incurred. Renovations and improvements to properties are
capitalized and depreciated over their estimated useful lives and construction
costs related to the development of new community or expansion sites are
capitalized until the property is substantially complete. Certain expenditures
to dealers and residents related to obtaining lessees in our communities are
capitalized and amortized over a seven year period; shorter than the average
resident's occupancy in the home and the average term that the home is in our
community. Costs associated with implementing the Company's new computer systems
are capitalized and amortized over the estimated useful lives of the related
software and hardware.
Derivative Instruments and Hedging Activities. During 2002, the Company
entered into three interest rate swap agreements to offset interest rate risk.
The Company does not enter into derivative transactions for speculative
purposes. The Company adjusts its balance sheet on an ongoing quarterly basis to
reflect current fair market value of its derivatives. Changes in the fair value
of derivatives are recorded each period in earnings or comprehensive income, as
appropriate. The ineffective portion of the hedge is immediately recognized in
earnings to the extent that the change in value of a derivative does not
perfectly offset the change in value of the instrument being hedged. The
unrealized gains and losses held in accumulated other comprehensive income will
be reclassified to earnings over time and occurs when the hedged items are also
recognized in earnings. The Company uses standard market conventions to
determine the fair values of derivative instruments, including the quoted market
prices or quotes from brokers or dealers for the same or similar instruments.
All methods of assessing fair value result in a general approximation of value
and such value may never actually be realized.
Deferred Tax Assets. SHS currently has significant deferred tax assets,
which are subject to periodic recoverability assessments. SHS million has
recognized deferred tax assets of $2.4 million, net of a valuation reserve of
$5.1 million. Realization of these deferred tax assets is principally dependent
upon SHS's achievement of projected future taxable income. Judgments regarding
future profitability may change due to future market conditions, SHS's ability
to continue to successfully execute its business plan and other factors.
19
RESULTS OF OPERATIONS
Comparison of year ended December 31, 2002 to year ended December 31, 2001
- --------------------------------------------------------------------------
For the year ended December 31, 2002, income before equity income
(loss) from affiliates, distributions to Preferred OP Units, discontinued
operations and gain from property dispositions, net decreased by $3.2 million
from $42.9 million to $39.7 million, when compared to the year ended December
31, 2001. The decrease was due to increased expenses of $12.4 million while
revenues increased by $9.2 million.
Income from property increased by $12.9 million from $138.7 million to
$151.6 million, or 9.3 percent, due to rent increases and other community
revenues ($5.9 million) and acquisitions ($7.0 million).
Other income decreased by $3.7 million from $14.4 million to $10.7
million due primarily to a decrease in interest income ($2.3 million) and
reduced development fee income and other income ($1.4 million).
Property operating and maintenance expenses increased by $4.4 million
from $29.0 million to $33.4 million, or 15.2 percent, due to acquired
communities ($1.9 million) and increases in costs including payroll ($1.2
million), workers' compensation ($0.5 million), and cable television ($0.3
million), and other expenses ($0.5 million).
Real estate taxes increased by $1.0 million from $9.5 million to $10.5
million, due to the acquired communities ($0.5 million) and changes in certain
assessments.
Property management expenses decreased by $0.2 million from $2.7
million to $2.5 million, representing 1.7 percent and 2.0 percent of income from
property in 2002 and 2001, respectively.
General and administrative expenses increased by $0.6 million from $4.6
million to $5.2 million, representing 3.2 percent and 3.0 percent of total
revenues in 2002 and 2001, respectively.
Interest expense increased by $1.4 million from $31.0 million to $32.4
million due primarily to financing additional investments in rental property
($6.0 million) offset by decreasing rates on variable rate debt ($4.9 million).
Depreciation and amortization expense increased by $5.2 million from
$33.3 million to $38.5 million due primarily to the net additional investments
in rental properties.
Equity income (loss) from affiliates decreased by $16.7 million from
income of $0.1 million to a loss of $16.6 million primarily due to equity losses
at SHS ($0.7 million), SunChamp ($0.4 million) and Origen ($1.7 million) and the
write-off of the Company's investment in Origen ($13.6 million) and a technology
investment ($0.3 million).
20
Comparison of year ended December 31, 2001 to year ended December 31, 2000
- --------------------------------------------------------------------------
For the year ended December 31, 2001, income before equity income
(loss) from affiliates, distributions to Preferred OP Units, discontinued
operations and gain from property dispositions, net increased by $1.9 million
from $41.0 million to $42.9 million, when compared to the year ended December
31, 2000. The increase was due to increased revenues of $7.4 million while
expenses increased by $5.5 million.
Income from property increased by $6.6 million from $132.1 million to
$138.7 million, or 5.0 percent, due to rent increases and other community
revenues ($6.5 million) and acquisitions ($4.4 million), offset by a revenue
reduction of $4.3 million due to property dispositions.
Other income increased by $0.9 million from $13.5 million to $14.4
million due primarily to an increase in interest income ($1.3 million) offset by
reductions in other income ($0.4 million).
Property operating and maintenance expenses increased by $0.6 million
from $28.4 million to $29.0 million, or 2.0 percent, representing general cost
increases ($1.0 million) and acquisitions ($0.7 million), offset by an expense
reduction of $1.1 million due to property dispositions.
Real estate taxes increased by $0.4 million from $9.1 million to $9.5
million, or 4.5 percent, due to the acquired communities ($0.2 million) and
changes in certain assessments.
Property management expenses decreased by $0.2 million from $2.9
million to $2.7 million, representing 2.0 percent and 2.2 percent of income from
property in 2001 and 2000, respectively.
General and administrative expenses increased by $0.5 million from $4.1
million to $4.6 million, representing 3.0 percent and 2.8 percent of total
revenues in 2001 and 2000, respectively.
Interest expense increased by $1.4 million from $29.6 million to $31.0
million due primarily to financing additional investments in rental property
offset by decreasing rates on variable rate debt.
Depreciation and amortization expense increased by $2.8 million from
$30.5 million to $33.3 million due primarily to the net additional investments
in rental properties.
Equity in income (loss) of affiliates decreased by $0.5 million due
primarily to a reduced level of new home sales at Sun Homes Services.
21
SAME PROPERTY INFORMATION
The following table reflects property-level financial information as of
and for the years ended December 31, 2002 and 2001. The "Same Property" data
represents information regarding the operation of communities owned as of
January 1, 2001 and December 31, 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 properties acquired after January 1, 2001 and new
development communities.
SAME PROPERTY TOTAL PORTFOLIO
-------------------- -----------------------
2002 2001 2002 2001
-------- -------- -------- --------
(in thousands) (in thousands)
Income from property ......................... $128,953 $123,170 $151,642 $139,022
-------- -------- -------- --------
Property operating expenses:
Property operating and maintenance ... 24,151 23,147 33,403 29,154
Real estate taxes .................... 9,790 9,258 10,545 9,524
-------- -------- -------- --------
Property operating expenses .. 33,941 32,405 43,948 38,678
-------- -------- -------- --------
Property net operating income ................ $ 95,012 $ 90,765 $107,694 $100,344
======== ======== ======== ========
Number of properties ......................... 103 103 129(2) 116
Developed sites .............................. 36,748 36,482 43,959(2) 40,544
Occupied sites ............................... 33,217 33,586 38,940(2) 36,935
Occupancy % (1) .............................. 92.2% 94.2% 89.9%(2) 93.0%
Weighted average monthly rent per site(1) .... $ 318 $ 303 $ 315 $ 301
Sites available for development .............. 2,153 2,364 7,642(2) 3,887
Sites planned for development in next year ... 20 257 175(2) 613
(1) Occupancy % and weighted average rent relates to manufactured housing
sites, excluding recreational vehicle sites.
(2) Property site information includes eleven SunChamp communities
acquired during the fourth quarter of 2002.
On a same property basis, property revenues increased by $5.8 million from
$123.2 million to $129.0 million, or 4.7 percent, due primarily to increases in
rents and related charges including water and property tax pass through.
Property operating expenses increased by $1.5 million from $32.4 million to
$33.9 million, or 4.7 percent, due to increased costs. Property net operating
income increased by $4.2 million from $90.8 million to $95.0 million, or 4.7
percent.
The occupancy at December 31, 2002, includes 19 new community developments with
3,552 sites which are 64.8 percent occupied. At December 31, 2001, there were
five new community developments with 564 sites, which were 45.2 percent
occupied. Excluding new community developments, occupancy was 92.4 percent and
93.8 percent at December 31, 2002 and 2001, respectively.
22
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity demands have historically been, and
are expected to continue to be, distributions to the General Partner'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) 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 the General Partner's stockholders to maintain the
General Partner's qualification as a REIT in accordance with the Internal
Revenue Code and make distributions to the Company's unitholders.
The Company plans to invest approximately $5 to $10 million in
developments consisting of expansions to existing communities and the new or
continuing 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 2003, 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 $1.9 million to $2.7 million at
December 31, 2002 compared to $4.6 million at December 31, 2001 because cash
used in investing activities exceeded cash provided by operating and financing
activities. Net cash provided by operating activities decreased by $14.9 million
to $51.0 million for the year ended December 31, 2002 compared to $65.9 million
for the year ended December 31, 2001. The decrease resulted primarily from
reduced net income after adding back the reduction in book value of investments
and an increase in other assets.
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
"Factors that May Affect Future Results."
In 2002, the Company closed on a $152.4 million collateralized five
year variable rate (2.17% at December 31, 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 unsecured line of credit facility, which matures in July 2005, with
a one-year optional extension. At December 31, 2002, the average interest rate
of outstanding borrowings under the line of credit was 2.27%, $63 million was
outstanding and $22 million was available to be drawn under the facility.
Subsequent to year end, the
23
Company increased the line to $105 million. 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 December
31, 2002.
In 1998, certain directors, employees and consultants of the Company
and of the General Partner purchased newly issued shares of common stock of the
General Partner and common OP Units in the Company for approximately $25.5
million in accordance with the Sun Communities 1998 Stock Purchase Plan (the
"Purchase Plan"). The participants in the Purchase Plan financed these purchases
through personal loans (the "Loans") from Bank One, N.A. (the "Bank") due in
January 2004. The Company guaranteed the repayment of the Loans. The
participants have agreed to fully indemnify the Company against any and all
liabilities arising under such guaranty (the "Guaranty") (the principal balance
of which was approximately $22.7 million at December 31, 2002).
Among other usual commercial provisions, the Guaranty requires that the
Company comply with certain financial covenants. 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 it was not the intention of the
parties to impose disparate requirements on the Guaranty and the Company's line
of credit, the Bank waived any breach of the Guaranty arising solely as a result
of the Company's non-compliance with the Differing Financial Covenants so long
as the Company remains in compliance with all of the terms and conditions of its
line of credit facility. As of December 31, 2002, the Company was in compliance
with the terms and conditions of its line of credit facility and, as a result,
the Company was in compliance with the terms and conditions of the Guaranty.
Section 402 of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley
Act") states that it is "unlawful for any issuer . . . directly or indirectly,
including through any subsidiary, to extend or maintain credit, to arrange for
the extension of credit, or to renew an extension of credit, in the form of a
personal loan to or for any director or executive officer (or equivalent
thereof) of that issuer." Section 402 of the Sarbanes-Oxley Act provides an
exception for certain extensions of credit which are "maintained by the issuer
on the date of enactment of the Sarbanes-Oxley Act [July 30, 2002] . . .,
provided that there is no material modification to any term of any such
extension of credit or any renewal of any such extension of credit on or after
that date of enactment." Jaffe, Raitt, Heuer & Weiss, P.C. has delivered a
reasoned opinion to the Company to the effect that, based on various assumptions
and qualifications set forth in the opinion, a court could reasonably find that
Section 402 of the Sarbanes-Oxley Act does not apply to the waiver letter issued
by the Bank and that, even if a court determines that Section 402 applies to the
Bank's waiver letter, a court could reasonably conclude that the Guaranty fits
within the exception under Section 402 for extensions of credit maintained by
the issuer prior to July 30, 2002. Arthur A. Weiss, a stockholder of Jaffe,
Raitt, Heuer & Weiss, P.C., the Company's regular outside counsel, is a director
of the General Partner and received a personal loan to purchase common OP Units
under the Purchase Plan.
There is no case law directly on point, and we cannot assure you that a
court would not decide
24
differently from the views expressed in counsel's opinion and such opinion
represents only the best judgment of counsel and is not binding in the courts.
It is unclear what the consequences to the Company would be if a court
determined the Bank's waiver letter constituted a material modification of the
terms of the Guaranty in violation of Section 402 of the Sarbanes-Oxley Act and
the Securities Exchange Act of 1934, as amended.
The Company's primary long-term liquidity needs are principal payments
on outstanding indebtedness. At December 31, 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
--------- -------- --------- --------- -------------
Bridge Loan $ 48,000 $ 48,000
Line of credit 63,000 $ 63,000
Collateratized term loan 42,206 658 $ 1,463 40,085
Collateralized term loan - FNMA 152,363 $152,363
Senior notes(2) 285,000 85,000 65,000 35,000 100,000
Mortgage notes, other 60,366 1,046 24,096 13,814 21,410
Capitalized lease obligations 16,438 6,832 9,606
Redeemable Preferred OP Units 53,978 1,000 2,564 14,632 35,782
-------- -------- -------- -------- --------
$721,351 $142,536 $102,729 $166,531 $309,555
======== ======== ======== ======== ========
(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 and the
General Partner's directors, employees and consultants for the purpose
of purchasing shares of the General Partner's common stock or Company
OP Units pursuant to the General Partner'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. 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.
25
The Company anticipates meeting its long-term liquidity requirements,
such as scheduled debt maturities, large property acquisitions and OP unit
redemptions, through the issuance of debt or equity securities, including equity
units in the Company, or from selective asset sales. As discussed above, the
Company is also obligated to loan Origen up to $35.5 million under the Origen
credit facility, of which $1.9 million remained to be drawn as of December 31,
2002. The Company has maintained investment grade ratings with Moody's Investor
Service and Standard & Poor's, which facilitates access to the senior unsecured
debt market. Since 1993, the General Partner and the Company have raised, in the
aggregate, nearly $1 billion from the sale of the General Partner's shares of
common stock, from the issuance of OP units in the Company and from the issuance
of secured and unsecured debt securities. In addition, at December 31, 2002, 92
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 "Factors that May Affect Future Results". 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.
The Company's $48.0 million bridge loan and $85.0 million principal
amount of senior unsecured notes are due April 30 and May 1, 2003, respectively.
The Company expects to repay this indebtedness by issuing additional senior
unsecured debt securities. The ability of the Company to issue such additional
debt securities will be affected primarily by the state of the senior unsecured
debt market and general, national and international economic and political
conditions, such as the uncertainty associated with the current war in Iraq. If
the Company is unable to access the senior unsecured debt market, or is unable
to otherwise refinance these notes, on terms acceptable to the Company prior to
May 1, 2003 and the Company is unable to successfully negotiate extensions with
the holders of these debt obligations, the Company would seek secured financing
on some of its 92 unencumbered properties.
Included in the Balance Sheet are $36 million of Preferred OP Units
which would require collateralization were the Company to no longer be
classified as investment grade by the rating agencies.
At December 31, 2002, the Company's debt to total market capitalization
approximated 43.6 percent. The debt has a weighted average maturity of
approximately 4.6 years and a weighted average interest rate of 5.3 percent.
Capital expenditures for the years ended December 31, 2002 and 2001
included recurring capital expenditures of $7.1 million and $4.8 million,
respectively.
Net cash used in investing activities was $169.2 million for the year
ended December 31, 2002 compared to $35.1 million in the prior year. The
differences are due to: increased investment in rental properties of $17.0
million; decreased proceeds from property disposition of $14.0 million; and
increased investment in notes receivables and investment in and advances to
affiliates of $103.1 million. Additionally, the Company acquired $10.0 million
in rental properties through the issuance of Preferred OP Units.
Net cash provided by financing activities was $116.0 million for the
year ended December 31, 2002, compared to a use of net cash in the prior year of
$44.9 million. The differences are due to: changes
26
in net proceeds from notes payable, inclusive of line of credit repayments, of
$144.5 million; changes in net proceeds from common stock issuance of $19.2
million; and increased distributions of $2.8 million.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the years ended
December 31, 2002, 2001, and 2000 was 1.68:1, 1.73:1 and 1.74:1 respectively.
INFLATION
Most of the leases allow for periodic rent increases which provide the
Company with the opportunity to achieve increases in rental income as each lease
expires. Such types of leases generally minimize the risk of inflation to the
Company.
SAFE HARBOR STATEMENT
This Form 10-K 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
"Factors That May Affect Future Results" for a representative example of such
uncertainties and factors. 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 January 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 46 ("FIN No. 46"), "Consolidation of Variable
Interest Entities." The objective of this interpretation is to provide guidance
on how to identify a variable interest entity ("VIE") and determine when the
assets, liabilities, non-controlling interests and results of operations of a
VIE need to be included in a company's consolidated financial statements. A
company that holds variable interests in an entity will need to consolidate the
entity if the company's interest in the VIE is such that the company will absorb
a majority of the VIE"s expected losses and/or receive a majority of the VIE's
expected residual returns, if they occur. FIN No. 46 also requires additional
disclosures by primary beneficiaries and other significant variable interest
holders.The provisions of this interpretation became effective upon issuance
with respect to VIEs created after January 31, 2003 and to VIEs in which a
company obtains an interest after that date. The provisions of this
interpretation apply in the first interim period beginning after June 15, 2003
(i.e., third quarter of 2003) to VIEs in which a company holds a variable
interest that it acquired before February 1, 2003. The Company is in the process
of assessing whether it has an interest in any VIEs which may require
consolidation in the third quarter of 2003 pursuant to FIN No. 46. Entities that
may be identified as VIEs include SHS and Origen.
27
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," which provides guidance on how to
transition from the intrinsic value method of accounting for stock-based
employee compensation under APB 25 to SFAS 123's fair value method of
accounting, if a company so elects. The adoption of this standard did not have a
significant impact on the financial position or results of operations of the
Company.
In November 2002, the FASB issued FASB Interpretation (FIN 45) No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 clarifies disclosures
that are required to be made for certain guarantees and establishes a
requirement to record a liability at fair value for certain guarantees at the
time of the guarantee's issuance. The disclosure requirements of FIN No. 45 have
been applied in these financial statements. The requirement to record a
liability applies to guarantees issued or modified after December 31, 2002. We
do not expect the requirements of FIN 45 to have a significant impact on the
financial position or results of operations of the Company.
In July 2002, the FASB issued Statement of Financial Accounting
Standards ("SFAS") 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 with a 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.
In May 2002, the FASB issued SFAS 145, "Rescission of SFAS Nos. 4, 44
and 64, Amendment of SFAS 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 August 2001, the FASB issued SFAS No. 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 are generally to be
applied prospectively. During the first quarter of 2002, the Company sold Kings
Pointe Mobile Home Park, located in Winter Haven, Florida, for approximately
$3.4 million. In accordance with SFAS 144, the Company's consolidated statements
of income and consolidated statements of cash flow have been revised from those
originally reported for the years ended
28
December 31, 2002, 2001 and 2000 to separately reflect the results of
discontinued operations for one property that was sold in the first quarter of
2002. These results were previously included in income from operations. These
revisions had no impact on the Company's consolidated balance sheets or
statements of stockholders' equity and these revisions had no impact on net
income or net income per share of common stock for the years ended December 31,
2002, 2001 and 2000.
In June 2001, the FASB approved SFAS No. 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. The adoption of
these standards did not have a significant impact on the financial position or
results of operations of the Company.
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
reconciles net income to FFO and calculates FFO data for both basic and diluted
purposes for the years ended December 31, 2002, 2001 and 2000 (in thousands):
29
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE/OP UNIT AMOUNTS)
2002 2001 2000
-------- -------- --------
Income before distributions to Preferred
OP Units, discontinued operations, and
gain from property dispositions, net $ 23,118 $ 43,046 $ 41,592
Adjustments:
Depreciation of rental property 38,262 33,050 30,209
Valuation adjustment (1) 449 -- --
NOI from discontinued operations 11 121 95
Allocation of SunChamp losses (2) 1,315 -- --
Reduction in book value of investments 13,881 -- --
Income allocated to Preferred OP Units (7,803) (8,131) (7,826)
-------- -------- --------
FFO $ 69,233 $ 68,086 $ 64,070
======== ======== ========
Weighted average common shares and OP Units
outstanding for basic per share/unit data 20,177 19,907 19,999
Dilutive securities:
Stock options and awards 186 182 86
-------- -------- --------
Weighted average common shares and OP Units
outstanding for diluted per share/unit data 20,363 20,089 20,085
======== ======== ========
FFO per weighted average Common Share/OP Unit
assuming dilution $ 3.40 $ 3.39 $ 3.19
======== ======== ========
(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.
(2) The Company acquired the equity interest of another investor in SunChamp
in December 2002. Consideration consisted of a long-term note payable at
net book value. The note is subordinated to the return of gross book value
of equity and cumulative preferred returns of 9.25% on the Company's
investment and the acquired investment. In substance, this note is a
cumulative "first-loss" position relative to the Company's interest.
Accordingly, the losses formerly allocated or allocable to the Company are
reallocated to the note.
30
ITEM 7A. 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.
The Company's variable rate debt totals $285.4 million as of December
31, 2002 which bears interest at various LIBOR or FNMA Discounted Mortgage
Backed Securities ("DMBS") rates. If LIBOR or DMBS increased or decreased by 1.0
percent during the years ended December 31, 2002 and 2001, the Company believes
its interest expense would have increased or decreased by approximately $1.7
million and $0.7 million, respectively, based on the $171.3 million and $68.3
million average balance outstanding under the Company's variable rate debt
facilities for the year ended December 31, 2002 and 2001, respectively.
Additionally, the Company had $27.3 million and $49.0 million LIBOR
based variable rate mortgage and other notes receivables as of December 31, 2002
and 2001. If LIBOR increased or decreased by 1.0 percent during the years ended
December 31, 2002 and 2001, the Company believes interest income would have
increased or decreased by approximately $0.37 million and $0.8 million,
respectively, based on the $36.7 million and $79.5 million average balance
outstanding on all variable rate notes receivables for the year ended December
31, 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements and supplementary data are filed herewith under
Item 15.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company owns approximately a thirty percent equity interest in
Origen Financial, L.L.C. On December 9, 2002, Origen engaged the certified
public accounting firm of Grant Thornton LLP to serve as its principal
independent accounting firm to audit its financial statements for the year ended
December 31, 2002. Prior to Origen's engagement of Grant Thornton LLP, the
Company did not consult with such firm on any accounting, auditing or financial
reporting issue.
31
PART III
The General Partner is the sole general partner of the Company and,
therefore, the information required by ITEMS 10, 11, 12 and 13 will be included
in the General Partner's proxy statement for its 2003 Annual Meeting of
Shareholders, and is incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
(a) The General Partner's 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 annual 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.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed herewith as part of this Form
10-K:
(1) A list of the financial statements required to be filed as
a part of this Form 10-K is shown in the "Index to the Consolidated Financial
Statements and Financial Statement Schedule" filed herewith.
(2) A list of the financial statement schedules required to be
filed as a part of this Form 10-K is shown in the "Index to the Consolidated
Financial Statements and Financial Statement Schedule" filed herewith.
(3) A list of the exhibits required by Item 601 of Regulation
S-K to be filed as a part of this Form 10-K is shown on the "Exhibit Index"
filed herewith.
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed during the last
fiscal quarter for the year ended December 31, 2002.
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 31, 2003
SUN COMMUNITIES OPERATING LIMITED
PARTNERSHIP
By: Sun Communities, Inc., General
Partner
By: /s/ Gary A. Shiffman
-------------------------------
Gary A. Shiffman, Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
- ---- ----- ----
Chief Executive Officer, President and
/s/ Gary A. Shiffman Chairman of the Board of Directors of the March 31, 2003
- --------------------------- General Partner
Gary A. Shiffman
Senior Vice President, Chief Financial Officer,
/s/ Jeffrey P. Jorissen Treasurer, Secretary and Principal Accounting March 31, 2003
- --------------------------- Officer of the General Partner
Jeffrey P. Jorissen
/s/ Paul D. Lapides Director of the General Partner March 31, 2003
- ---------------------------
Paul D. Lapides
/s/ Ted J. Simon Director of the General Partner March 31, 2003
- ------------------
Ted J. Simon
/s/ Clunet R. Lewis Director of the General Partner March 31, 2003
- ---------------------------
Clunet R. Lewis
/s/ Ronald L. Piasecki Director of the General Partner March 31, 2003
- -----------------------
Ronald L. Piasecki
/s/ Arthur A. Weiss Director of the General Partner March 31, 2003
- ---------------------------
Arthur A. Weiss
33
CERTIFICATIONS
(As Adopted Under Section 302 of the Sarbanes-Oxley Act of 2002)
I, Gary A. Shiffman, certify that:
1. I have reviewed this annual report on Form 10-K of Sun Communities
Operating Limited Partnership;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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
annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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
annual 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.
Dated: March 31, 2003 /s/ Gary A. Shiffman
-----------------------------------------
Gary A. Shiffman, Chief Executive Officer
of Sun Communities, Inc., its General
Partner
34
CERTIFICATIONS
(As Adopted Under Section 302 of the Sarbanes-Oxley Act of 2002)
I, Jeffrey P. Jorissen, certify that:
1. I have reviewed this annual report on Form 10-K of Sun Communities
Operating Limited Partnership;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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
annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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
annual 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.
Dated: March 31, 2003 /s/ Jeffrey P. Jorissen
-----------------------------------------
Jeffrey P. Jorissen, Chief Financial
Officer, of Sun Communities, Inc., the
General Partner
35
EXHIBIT INDEX
EXHIBIT METHOD OF
NUMBER DESCRIPTION FILING
------ ----------- ------
2.1 Form of Sun Communities, Inc.'s Common Stock Certificate (1)
3.1 Amended and Restated Articles of Incorporation of Sun Communities, Inc (1)
3.2 Bylaws of Sun Communities, Inc. (2)
4.1 Indenture, dated as of April 24, 1996, among Sun Communities, Inc., Sun (3)
Communities Operating Limited Partnership (the "Operating Partnership") and
Bankers Trust Company, as Trustee
4.2 Form of Note for the 2001 Notes (3)
4.3 Form of Note for the 2003 Notes (3)
4.4 First Supplemental Indenture, dated as of August 20, 1997, by and between the (7)
Operating Partnership and Bankers Trust Company, as Trustee
4.5 Form of Medium-Term Note (Floating Rate) (7)
4.6 Form of Medium-Term Note (Fixed Rate) (7)
4.7 Articles Supplementary of Board of Directors of Sun Communities, Inc. (9)
Designating a Series of Preferred Stock and Fixing Distribution and other
Rights in such Series
4.8 Articles Supplementary of Board of Directors of Sun Communities, Inc. (11)
Designating a Series of Preferred Stock
10.1 Second Amended and Restated Agreement of Limited Partnership of Sun Communities (6)
Operating Limited Partnership
10.2 Second Amended and Restated 1993 Stock Option Plan (10)
10.3 Amended and Restated 1993 Non-Employee Director Stock Option Plan (6)
10.4 Form of Stock Option Agreement between Sun Communities, Inc. and certain (1)
directors, officers and other individuals#
10.5 Form of Non-Employee Director Stock Option Agreement between Sun Communities, (4)
Inc. and certain directors#
10.6 Employment Agreement between Sun Communities, Inc. and Gary A. Shiffman# (6)
10.7 Amended and Restated Loan Agreement between Sun Communities Funding Limited (7)
Partnership and Lehman Brothers Holdings Inc.
10.8 Amended and Restated Loan Agreement among Miami Lakes Venture Associates, Sun (7)
Communities Funding Limited Partnership and Lehman Brothers Holdings Inc.
10.9 Form of Indemnification Agreement between each officer and director of Sun (7)
Communities, Inc. and Sun Communities, Inc.
10.10 Loan Agreement among the Operating Partnership, Sea Breeze Limited Partnership (7)
and High Point Associates, LP.
10.11 Option Agreement by and between the Operating Partnership and Sea Breeze (7)
Limited Partnership
10.12 Option Agreement by and between the Operating Partnership and High Point (7)
Associates, LP
10.13 Stock Pledge Agreement between Gary A. Shiffman and the Operating Partnership (5)
for 94,570 shares of Common Stock
10.14 Stock Pledge Agreement between Gary A. Shiffman and the Operating Partnership (5)
for 305,430 shares of Common Stock
10.15 Stock Pledge Agreement between Gary A. Shiffman and the Operating Partnership (7)
with respect to 80,000 shares of Common Stock
10.16 Employment Agreement between Sun Communities, Inc. and Jeffrey P. Jorissen# (9)
36
EXHIBIT METHOD OF
NUMBER DESCRIPTION FILING
------ ----------- ------
10.17 Long Term Incentive Plan (7)
10.18 Restricted Stock Award Agreement between Sun Communities, Inc. and Gary A. (9)
Shiffman, dated June 5, 1998#
10.19 Restricted Stock Award Agreement between Sun Communities, Inc. and Jeffrey P. (9)
Jorissen, dated June 5, 1998#
10.20 Restricted Stock Award Agreement between Sun. Communities, Inc. and Jonathan M. (9)
Colman, dated June 5, 1998#
10.21 Restricted Stock Award Agreement between Sun Communities, Inc. and Brian W. (9)
Fannon, dated June 5, 1998#
10.22 Sun Communities, Inc. 1998 Stock Purchase Plan# (9)
10.23 Facility and Guaranty Agreement among Sun Communities, Inc., the Operating (9)
Partnership, Certain Subsidiary Guarantors and First National Bank of Chicago,
dated December 10, 1998
10.24 Rights Agreement between Sun Communities, Inc. and State Street Bank and Trust (8)
Company, dated April 24, 1998
10.25 Contribution Agreement, dated as of September 29, 1999, by and among the Sun (11)
Communities, Inc., the Operating Partnership, Belcrest Realty Corporation and
Belair Real Estate Corporation
10.26 One Hundred Third Amendment to Second Amended and Restated Limited Partnership (11)
Agreement of the Operating Partnership
10.27 One Hundred Eleventh Amendment to Second Amended and Restated Limited (12)
Partnership Agreement of the Operating Partnership
10.28 One Hundred Thirty-Sixth Amendment to Second Amended and Restated Limited (12)
Partnership Agreement of the Operating Partnership
10.29 One Hundred Forty-Fifth Amendment to Second Amended and Restated Limited (12)
Partnership Agreement of the Operating Partnership
10.30 Restricted Stock Award Agreement between Sun Communities, Inc. and Gary A. (12)
Shiffman, dated March 30, 2001#
10.31 Restricted Stock Award Agreement between Sun Communities, Inc. and Jeffrey P. (12)
Jorissen, dated March 30, 2001#
10.32 Restricted Stock Award Agreement between Sun Communities, Inc. and Jonathan M. (12)
Colman, dated March 30, 2001#
10.33 Restricted Stock Award Agreement between Sun Communities, Inc. and Brian W. (12)
Fannon, dated March 30, 2001#
10.34 Investment Agreement dated July 20, 2001 between SUI TRS, Inc., Shiffman Family (12)
LLC, Bingham and Woodward Holdings, LLC, amended by Amendment to Investment
Agreement dated August 13, 2001
10.35 Limited Liability Company Agreement of Origen Financial, L.L.C. dated December (12)
18, 2001 by and among SUI TRS, Inc., Shiffman Family LLC, Bingham and Woodward
Holdings LLC
10.36 Second Amended and Restated Subordinated Loan Agreement, dated December 4, (15)
2002, by and between Origen Financial L.L.C. and the Operating Partnership
10.37 Subordinated Term Loan Agreement, dated December 4, 2002, by and between Origen (15)
Financial L.L.C. and the Operating Partnership
10.38 First Amendment to Second Amended and Restated Subordinated Loan Agreement, (15)
dated December 30, 2002, by and between Origen Financial L.L.C. and Sun Home
Services
10.39 First Amendment to Subordinated Term Loan Agreement, dated December 30, 2002, (15)
by and between Origen Financial L.L.C. and Sun Home Services
37
EXHIBIT METHOD OF
NUMBER DESCRIPTION FILING
------ ----------- ------
10.40 Seventh Amended and Restated Promissory Note, dated December 30, 2002, made by (15)
Origen Financial L.L.C. in favor of Sun Home Services
10.41 First Amended and Restated Subordinated Term Promissory Note, dated December (15)
30, 2002, made by Origen Financial L.L.C. in favor of Sun Home Services
10.42 First Amended and Restated Security Agreement, dated December 30, 2002, by and (15)
between Origen Financial L.L.C. and Sun Home Services
10.43 Second Amended and Restated Stock Pledge Agreement, dated December 30, 2002, by (15)
and between Origen Financial L.L.C. and Sun Home Services
10.44 First Amended and Restated Limited Liability Company Interest Security and (15)
Pledge Agreement, dated December 30, 2002, by and between Origen Financial
L.L.C. and Sun Home Services
10.45 Second Amended and Restated Guaranty, dated December 30, 2002, by Bingham in (15)
favor of the Operating Partnership
10.46 Second Amended and Restated Security Agreement, dated December 30, 2002, by and (15)
between Bingham and Sun Home Services.
10.47 Amended and Restated Stock Pledge Agreement, dated December 30, 2002, by and (15)
between Bingham and Sun Home Services
10.48 Amended and Restated Membership Pledge Agreement, dated December 30, 2002, by (15)
and between Bingham and Sun Home Services.
10.49 Second Amended and Restated Participation Agreement, dated December 30, 2002, (15)
by and among Sun Home Services, the Milton M. Shiffman Spouse's Marital Trust
and Woodward Holding LLC
10.50 Master Credit Facility Agreement, dated as of May 29, 2002, by and between Sun
Secured Financing LLC, Aspen-Ft. Collins Limited Partnership, Sun Secured (13)
Financing Houston Limited Partnership and ARCS Commercial Mortgage Co., L.P.
10.51 Credit Agreement, dated as of July 3, 2002, by and between the Operating
Partnership, Sun Communities, Inc., Banc One Capital Markets, Inc., Bank One, (13)
N.A. and other lenders which are signatories thereto
10.52 First Amendment to Master Credit Facility Agreement, dated as of August 29,
2002, by and between Sun Secured Financing LLC, Aspen-Ft. Collins Limited (14)
Partnership, Sun Secured Financing Houston Limited Partnership and ARCS
Commercial Mortgage Co., L.P.
10.53 First Amendment to Employment Agreement, dated as of July 15, 2002, by and (14)
between Sun Communities, Inc. and Gary A. Shiffman#
10.54 Second Amended and Restated Promissory Note (Secured), dated as of July 15,
2002, made by Gary A. Shiffman in favor of the Operating Partnership (14)
10.55 First Amended and Restated Promissory Note (Unsecured), dated as of July 15,
2002, made by Gary A. Shiffman in favor of the Operating Partnership (14)
10.56 First Amended and Restated Promissory Note (Secured), dated as of July 15,
2002, made by Gary A. Shiffman in favor of the Operating Partnership (14)
10.57 Second Amended and Restated Promissory Note (Unsecured), dated as of July 15,
2002, made by Gary A. Shiffman in favor of the Operating Partnership (14)
10.58 Second Amended and Restated Promissory Note (Secured), dated as of July 15,
2002, made by Gary A. Shiffman in favor of the Operating Partnership (14)
38
EXHIBIT METHOD OF
NUMBER DESCRIPTION FILING
------ ----------- ------
10.59 Employment Agreement, dated as of January 1, 2003, by and between Brian W. (15)
Fannon and Sun Home Services, Inc.#
10.60 Employment Agreement, dated as of January 1, 2003, by and between Brian W. (15)
Fannon and Sun Communities, Inc.#
10.61 Lease, dated November 1, 2002, by and between the Operating Partnership as (15)
Tenant and American Center LLC as Landlord
10.62 Term Loan Agreement, dated as of October 10, 2002, among Sun Financial, LLC, (15)
Sun Financial Texas Limited Partnership, the Operating Partnership, Sun
Communities, Inc. and Lehman Commercial Paper, Inc.
12.1 Computation of Ratio of Earnings to Fixed Charges and Ratio Earnings to (16)
Combined Fixed Charges and Preferred Dividends
21.1 List of Subsidiaries of Sun Communities Operating Limited Partnership (16)
23.1 Independent Auditors' Consent (16)
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to (16)
Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Opinion of Jaffe, Raitt, Heuer & Weiss, P.C. with respect to REIT qualification (15)
99.3 Audited financial statements of Origen Financial L.L.C. (15)
99.4 Audited financial statements of Sun Home Services, Inc. (17)
- -------------------
(1) Incorporated by reference to Sun Communities, Inc.'s Registration
Statement No. 33-69340.
(2) Incorporated by reference to Sun Communities, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1995.
(3) Incorporated by reference to Sun Communities, Inc.'s Current Report on
Form 8-K dated April 24, 1996.
(4) Incorporated by reference to Sun Communities, Inc.'s Registration
Statement No. 33-80972.
(5) Incorporated by reference to Sun Communities, Inc.'s Quarterly Report
on Form 10-K for the quarter ended September 30, 1995.
(6) Incorporated by reference to Sun Communities, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1996.
(7) Incorporated by reference to Sun Communities, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1997.
(8) Incorporated by reference to Sun Communities, Inc.'s Current Report on
Form 8-A dated May 27,1998.
(9) Incorporated by reference to Sun Communities, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1998.
(10) Incorporated by reference to Sun Communities, Inc.'s Proxy Statement,
dated April 20, 1999
(11) Incorporated by reference to Sun Communities, Inc.'s Current Report on
Form 8-K dated October 14, 1999.
39
(12) Incorporated by reference to Sun Communities, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 2001.
(13) Incorporated by reference to Sun Communities, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended June 30, 2002.
(14) Incorporated by reference to Sun Communities, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended September 30, 2002.
(15) Incorporated by reference to Sun Communities, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 2002.
(16) Filed herewith
(17) To be filed.
# Management contract or compensatory plan or arrangement required to be
identified by Form 10-K Item 14.
40
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
PAGES
Report of Independent Accountants..............................................................................F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 2002 and 2001................................................F-3
Consolidated Statements of Income
for the Years Ended December 31, 2002, 2001 and 2000........................................................F-4
Consolidated Statements of Comprehensive Income
for the Years Ended December 31, 2002, 2001 and 2000........................................................F-5
Consolidated Statements of Partners' Capital
for the Years Ended December 31, 2002, 2001 and 2000........................................................F-6
Consolidated Statements of Cash Flows
for the Years Ended December 31, 2002, 2001 and 2000........................................................F-7
Notes to Consolidated Financial Statements...........................................................F-8 - F-22
Schedule III - Real Estate and Accumulated Depreciation................................................F-23 - F-26
F-1
To the Partners of Sun Communities
Operating Limited Partnership
In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements listed in the index appearing under Item 15 on
page F-1 present fairly, in all material respects, the financial position of Sun
Communities Operating Limited Partnership and its subsidiaries at December 31,
2002 and 2001, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, based on our audits and the report of the other
auditors, the financial statement schedule listed in the index appearing under
Item 15 on page F-1 presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and the financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits. We did not audit the financial
statements of Origen Financial, L.L.C., an investee of the Company, which
statements reflect total assets of $227,748,000 at December 31, 2002 and total
revenues of $20,835,000 for the year ended December 31, 2002. Those statements
were audited by other auditors whose report thereon has been furnished to us,
and our opinion expressed herein, insofar as it relates to the amounts included
for Origen Financial, L.L.C., is based solely on the report of the other
auditors. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.
As discussed in Note 11 to the consolidated financial statements, on January 1,
2002, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets".
PricewaterhouseCoopers LLP
Detroit, Michigan
March 12, 2003
F-2
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
(AMOUNTS IN THOUSANDS)
ASSETS 2002 2001
------------ -----------
Investment in rental property, net $ 999,360 $ 829,174
Cash and cash equivalents 2,664 4,587
Notes and other receivables 58,929 78,132
Investments in and advances to affiliates 67,719 55,451
Other assets 37,904 29,705
------------- -----------
Total assets $ 1,166,576 $ 997,049
============= ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Line of credit $ 63,000 $ 93,000
Debt 604,373 402,198
Accounts payable and accrued expenses 16,120 17,683
Deposits and other liabilities 8,461 8,929
------------- -----------
Total liabilities 691,954 521,810
------------- -----------
Series B Cumulative Preferred Operating Partnership
Units ("Series B Units"), mandatory redeemable, 237 and
82 issued and outstanding for 2002 and 2001, respectively 18,195 8,175
Preferred Operating Partnership Units ("POP Units"),
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 ("OP Units") unlimited authorized, 20,662 and
20,173 issued and outstanding in 2002 and 2001, respectively
General partner 332,605 339,240
Limited partners 48,512 49,040
Unearned compensation (8,622) (6,999)
Accumulated other comprehensive loss (1,851) --
------------- -----------
Total partners' capital 420,644 431,281
------------- -----------
Total liabilities and partners' capital $ 1,166,576 $ 997,049
============= ===========
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(AMOUNTS IN THOUSANDS EXCEPT FOR PER UNIT DATA)
2002 2001 2000
----------- ----------- -----------
REVENUES
Income from property..........................................................$ 151,612 $ 138,687 $ 132,129
Other income.................................................................. 10,684 14,401 13,498
----------- ----------- -----------
Total revenues............................................................. 162,296 153,088 145,627
----------- ----------- -----------
EXPENSES
Property operating and maintenance............................................ 33,387 28,972 28,408
Real estate taxes............................................................ 10,542 9,492 9,083
Property management........................................................... 2,502 2,746 2,934
General and administrative.................................................... 5,220 4,627 4,079
Depreciation and amortization................................................. 38,525 33,320 30,487
Interest...................................................................... 32,375 31,016 29,651
----------- ----------- -----------
Total expenses............................................................. 122,551 110,173 104,642
----------- ----------- -----------
Income before equity income (loss) from affiliates, distributions to Preferred
OP Units, discontinued operations, and gain from property
dispositions, net............................................................. 39,745 42,915 40,985
Equity income (loss) from affiliates.............................................. (16,627) 131 607
----------- ----------- -----------
Income before distributions to Preferred OP Units, discontinued
operations and gain from property dispositions, net........................... 23,118 43,046 41,592
Less distributions to Preferred OP Units.......................................... 7,803 8,131 7,826
----------- ----------- -----------
Income before discontinued operations and gain from property
dispositions, net............................................................. 15,315 34,915 33,766
Income (loss) from discontinued operations........................................ 322 (75) (89)
Gain from property dispositions, net.............................................. -- 4,275 4,801
----------- ----------- -----------
Earnings attributable to OP Units.................................................$ 15,637 $ 39,115 $ 38,478
=========== =========== ===========
Earnings attributed to:
Continuing Operations:
General Partner............................................................$ 13,312 $ 33,975 $ 33,371
Limited Partners........................................................... 2,003 5,215 5,196
Discontinued Operations:
General Partner............................................................ 280 (65) (77)
Limited Partners........................................................... 42 (10) (12)
----------- ----------- -----------
$ 15,637 $ 39,115 $ 38,478
=========== =========== ===========
Basic earnings per OP Unit outstanding:
Continuing operations......................................................$ 0.76 $ 1.96 $ 1.92
Discontinued operations.................................................... 0.01 -- --
---------- ----------- -----------
Net income.................................................................$ 0.77 $ 1.96 $ 1.92
========== ========== ===========
Diluted earnings per OP Unit outstanding:
Continuing operations......................................................$ 0.75 $ 1.95 $ 1.92
Discontinued operations.................................................... 0.02 -- --
---------- ----------- -----------
Net income.................................................................$ 0.77 $ 1.95 $ 1.92
========== ========== ===========
Weighted average OP Units outstanding:
Basic...................................................................... 20,177 19,907 19,999
========== =========== ===========
Diluted.................................................................... 20,363 20,089 20,085
========== =========== ===========
The accompanying notes are an integral part of the consolidated
financial statements
F-4
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(AMOUNTS IN THOUSANDS)
2002 2001 2000
---------- ---------- -----------
Earnings attributable to OP Units $ 15,637 $ 39,115 $ 38,478
Unrealized losses on interest rate swaps (1,851) -- --
---------- ---------- -----------
Comprehensive income $ 13,786 $ 39,115 $ 38,478
========== ========== ===========
The accompanying notes are an integral part of the consolidated
financial statements
F-5
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(AMOUNTS IN THOUSANDS EXCEPT FOR PER UNIT DATA)
GENERAL LIMITED UNEARNED ACCUMULATED OTHER
PARTNERSHIP PARTNERSHIP COMPENSATION COMPREHENSIVE LOSS
----------- ----------- ------------ ------------------
Balance, January 1, 2000.............................. $ 346,417 $ 52,051 $ (5,459) $ --
Issuance (disposition) of OP Units, net............... (16)
Net contributions..................................... 420
Earnings attributable to OP Units..................... 33,294 5,184
Distributions declared of $2.10 per OP Unit........... (36,717) (5,657)
Reclassification and conversion of limited
partnership interests............................. (34) 34
Amortization.......................................... 713
----------- ----------- ----------- ----------
Balance, December 31, 2000............................ 343,380 51,596 (4,746)
Issuance (disposition) of OP Units, net............... (19)
Net contributions (withdrawals)....................... (1,830)
Earnings attributable to OP Units..................... 33,910 5,205
Distributions declared of $2.18 per OP Unit........... (38,161) (5,801)
Reclassification and conversion of limited
partnership interests............................. 1,941 (1,941)
Issuance of General Partner's restricted
common stock awards, net.......................... (3,188)
Amortization.......................................... 935
----------- ----------- ----------- ----------
Balance, December 31, 2001............................ 339,240 49,040 (6,999) --
Net contributions..................................... 17,712 6,854
Earnings attributable to OP Units..................... 13,592 2,045
Distributions declared of $2.29 per OP Unit........... (41,427) (5,939)
Reclassification and conversion of limited
partnership interests............................. 3,488 (3,488)
Issuance of General Partner's restricted
common stock awards, net.......................... (2,767)
Amortization.......................................... 1,144
Unrealized loss on interest rate swaps................ (1,851)
----------- ----------- ----------- ----------
Balance, December 31, 2002............................ $ 332,605 $ 48,512 $ (8,622) $ (1,851)
=========== =========== =========== ==========
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(AMOUNTS IN THOUSANDS)
2002 2001 2000
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Earnings attributable to OP Units.................................................$ 15,637 $ 39,115 $ 38,478
Adjustments to reconcile earnings attributable to OP Units to
cash provided by operating activities:
Gain from property dispositions, net.......................................... -- (4,275) (4,801)
Operating income included in discontinued operations.......................... 11 121 95
Income (loss) from discontinued operations ................................... (322) 75 89
Depreciation and amortization costs........................................... 38,525 33,320 30,487
Amortization of deferred financing costs...................................... 1,231 1,065 943
Reduction in book value of investments........................................ 13,881 -- --
Increase in other assets.......................................................... (15,973) (4,879) (7,480)
Increase (decrease) in accounts payable and other liabilities..................... (2,031) 1,329 (1,133)
----------- ----------- -----------
Net cash provided by operating activities..................................... 50,959 65,871 56,678
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in rental properties................................................... (87,283) (70,331) (57,832)
Proceeds related to property dispositions......................................... 3,288 17,331 34,460
Investment in and advances to affiliates.......................................... (51,782) (20,056) 675
Investment in notes receivable, net............................................... (33,397) 37,968 (46,577)
----------- ----------- -----------
Net cash used in investing activities......................................... (169,174) (35,088) (69,274)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions (withdrawals)............................................... 14,102 (5,101) 404
Borrowings (repayments) on line of credit, net.................................... (30,000) 81,000 (35,000)
Proceeds from notes payable and other debt........................................ 200,363 -- 100,000
Repayments on notes payable and other debt........................................ (18,488) (76,599) (2,056)
Payments for deferred financing costs............................................. (2,914) -- (1,242)
Distributions..................................................................... (46,771) (43,962) (42,374)
----------- ----------- -----------
Net cash provided by (used in) financing activities........................... 116,292 (44,662) 19,732
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents.............................. (1,923) (13,879) 7,136
Cash and cash equivalents, beginning of year...................................... 4,587 18,466 11,330
----------- ----------- -----------
Cash and cash equivalents, end of year............................................$ 2,664 $ 4,587 $ 18,466
=========== =========== ===========
SUPPLEMENTAL INFORMATION
Cash paid for interest including capitalized amounts of
$2,915, $3,704 and $3,148 in 2002, 2001 and 2000, respectively................$ 34,830 $ 34,048 $31,882
Noncash investing and financing activities:
Debt assumed for rental properties............................................ 20,653 26,289 --
Issuance of partnership units for rental properties........................... 4,500 4,612 3,564
Issuance of partnership units to retire capitalized lease obligations......... 5,520 -- --
SunChamp assets acquired...................................................... 92,410 -- --
SunChamp liabilities assumed.................................................. 86,210 -- --
Note issued for SunChamp equity............................................... 6,200 -- --
Restricted common stock issued as unearned
compensation by the general partner, net................................... 2,767 3,188 --
Notes receivable reclassified to advances to affiliates ...................... -- 11,210 --
Property acquired (sold) in satisfaction of note receivable................... -- 1,338 (8,614)
The accompanying notes are an integral part of the consolidated
financial statements.
F-7
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
1. BASIS OF PRESENTATION:
Sun Communities Operating Limited Partnership (the "Company") owns and
operates or finances manufactured housing community properties. Sun
Communities, Inc. ("Sun"), a self-administered and self-managed Real Estate
Investment Trust 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. Pursuant
to the terms of the Company's partnership agreement, the Company is
required to reimburse Sun for the net expenses incurred by Sun. The amounts
reimbursed by the Company are reflected in the statement of income as
general and administrative expenses. The balance sheet of Sun as of
December 31, 2002 is identical to the accompanying Company balance sheet,
except as follows:
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------
AS PRESENTED
HEREIN SUN COMMUNITIES, INC.
DECEMBER 31, 2002 ADJUSTMENTS DECEMBER 31, 2002
----------------- ----------- ----------------------
Notes and other receivables ............ $ 58,929 $ (2,600) $ 56,329
=========== =========== ===========
Total assets ........................... $ 1,166,576 $ (2,600) $ 1,163,976
=========== =========== ===========
Minority interests ..................... -- 152,490 $ 152,490
===========
Series B Units ......................... $ 18,195 (18,195)
POP Units .............................. 35,783 (35,783)
Series A Units ......................... 50,000 (50,000)
General partner ........................ 332,605 (332,605)
Limited partners ....................... 48,512 (48,512)
Common stock ........................... 183 $ 183
Additional paid-in capital ............. 420,683 420,683
Unearned compensation .................. (8,622) -- (8,622)
Accumulated other comprehensive loss ... (1,851) (1,851)
Distributions in excess of accumulated
earnings .......................... (73,774) (73,774)
Officers' notes ........................ (10,703) (10,703)
Treasury stock ......................... (6,384) (6,384)
----------- ----------- -----------
Partners' capital/Stockholders'
equity ....................... $ 420,644 $ (2,600) $ 319,532
=========== =========== ===========
Total liabilities and partners' capital/
Stockholders' equity ............... $ 1,166,576 $ (2,600) $ 1,163,976
=========== =========== ===========
F-8
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. BUSINESS: The Company owns and operates 129 manufactured housing
communities at December 31, 2002 located in seventeen states
concentrated principally in the Midwest and Southeast comprising
approximately 43,959 developed sites and approximately 7,642 sites
suitable for development.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates.
B. PRINCIPLES OF CONSOLIDATION: The accompanying financial statements
include the accounts of the Company and all its wholly and 99 percent
owned subsidiary partnerships and limited liability companies. All
significant inter-entity balances and transactions have been eliminated
in consolidation. The limited partnership interests are adjusted to
their relative ownership interest by reclassification to/from general
partnership interests. Minority interests represented by Sun's one
percent indirect interest in the aforementioned subsidiaries are not
separately recognized in the Company's financial statements, but rather
are included in general and administrative expenses since the amounts
involved are immaterial.
C. RENTAL PROPERTY: Rental property is recorded at cost, less accumulated
depreciation. Management evaluates the recoverability of its investment
in rental property whenever events or changes in circumstances such as
recent operating results, expected net operating cash flow and plans
for future operations indicate that full asset recoverability is
questionable.
The Company measures the recoverability of its assets in accordance
with the Statement of Financial Accounting Standards No. 144 ("SFAS
144"), "Accounting for the Impairment or Disposal of Long Lived
Assets." If such assets were deemed to be impaired as a result of this
measurement, the impairment that would be recognized is measured by the
amount by which the carrying amount of the asset exceeds the fair value
of the asset as determined on a discounted net cash flow basis. No such
impairment existed as of December 31, 2002.
Depreciation is computed on a straight-line basis over the estimated
useful lives of the assets. Useful lives are 30 years for land
improvements and buildings and 7 to 15 years for furniture, fixtures
and equipment.
Expenditures for ordinary maintenance and repairs are charged to
operations as incurred and significant renovations and improvements,
which improve and/or extend the useful life of the asset, are
capitalized and depreciated over their estimated useful lives.
Construction costs related to development of new communities or
expansion sites, including interest, are capitalized until the property
is substantially complete. The Company capitalizes certain costs
(including interest and other costs) incurred in connection with the
development, redevelopment, capital enhancement and leasing of its
properties.
F-9
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
C. RENTAL PROPERTY, CONTINUED: Management is required to use professional
judgment in determining whether such costs meet the criteria for
immediate expense or capitalization. The amounts are dependent on the
volume and timing of such activities and the costs associated with such
activities.
D. CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments with an initial maturity of three months or less to be cash
and cash equivalents.
E. NOTES RECEIVABLE: The Company evaluates the recoverability of its
receivables whenever events occur or there are changes in circumstances
such that management believes it is probable that it will be unable to
collect all amounts due according to the contractual terms of the loan
and lease agreements. The collectibility of loans is measured based on
the present value of the expected future cash flow discounted at the
loan's effective interest rate or the fair value of the collateral if
the loan is collateral dependent. At December 31, 2002 the reserve for
uncollectable accounts receivable from residents was $0.15 million.
F. INVESTMENTS IN AND ADVANCES TO AFFILIATES: Sun Home Services ("SHS")
sells and rents new and used homes in our communities, manages a golf
course, and provides activities and other services and facilities for
our residents. Through the Operating Partnership, the Company owns one
hundred percent (100%) of the outstanding preferred stock of SHS, is
entitled to ninety-five percent (95%) of the operating cash flow, and
accounts for its investment utilizing the equity method of accounting.
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.
Bingham Financial Services Corporation ("BFSC") was formed by Sun in
1997 in response to demand for financing from purchasers and residents
in the Company's communities. As BFSC's business developed, its
objectives and opportunities expanded and the Company concluded that
its business could be operated and grown more effectively as a separate
public entity. BFSC's initial public offering occurred in November
1997. The Company has continued to provide financial support to BFSC.
In December 2001, the Company, through SHS, made a $15 million equity
investment in a newly formed company Origen Financial, L.L.C., that was
merged with Origen Financial, Inc., subsidiary of BFSC, as part of the
recapitalization of BFSC. As a result of this equity investment, the
Company owns approximately a thirty percent (30%) interest in the
surviving company ("Origen"), which company holds all of the operating
assets of BFSC and its subsidiaries. The Company wrote-off its
remaining investment in Origen of $13.6 million in the fourth quarter
of 2002 after an extensive analysis of the investment.
Through Sun Home Services, the Company and two other participants (one
unaffiliated and one affiliated with Gary A. Shiffman, the Company's
Chief Executive Officer and President) continue to provide financing
to Origen and are subject to the risks of being a lender. These
F-10
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
F. INVESTMENTS IN AND ADVANCES TO AFFILIATES (CONTINUED):
risks include the risks relating to borrower delinquency and default
and the adequacy of the collateral for such loans. This financing
consists of a $48 million line of credit and a $10 million term loan of
which the Company's commitment is $35.5 million ($33.6 million was
outstanding as of December 31, 2002). The line bears interest at a per
annum rate equal to 700 basis points over LIBOR, with a minimum
interest rate of 11 percent and a maximum interest rate of 15 percent.
Of the Company's $35.5 million participation, $18 million is
subordinate in all respects to the first $40.0 million funded under the
facility by the three participants. This line of credit is
collateralized by a security interest in Origen's assets, which is
subordinate in all respects to all institutional indebtedness of
Origen, and a guaranty and pledge of assets by BFSC.
Summarized combined financial information of the Company's equity
investments as of December 31, 2002, SHS and Origen, are presented
below before elimination of intercompany transactions. SunChamp, which
is consolidated in the Company's financial statements as of December
31, 2002, is not included in the table.
2002 2001
--------- ---------
Loans receivable, net ............. $ 173,764 $ 127,412
Due from Origen ................... 33,560 --
SHS other assets .................. 41,638 36,281
Origen other assets ............... 53,984 49,813
--------- ---------
Total assets ............... $ 302,946 $ 213,506
========= =========
Advances under
repurchase agreements ......... $ 141,085 $ 105,564
Due to SHS ........................ 33,560 --
Due to Sun Communities ............ 67,719 39,660
SHS other liabilities ............. 25,804 8,748
Origen other liabilities .......... 42,799 20,634
--------- ---------
Total liabilities .......... 310,967 174,606
--------- ---------
Equity (deficit) .................. (8,021) 38,900
--------- ---------
Total liabilities and equity $ 302,946 $ 213,506
========= =========
Revenues .......................... $ 27,572 $ 29,274(1)
Expenses .......................... 74,143 29,675(1)
--------- ---------
Net loss .......................... $ (46,571) $ (401)
========= =========
Sun's equity income (loss) ........ $ (15,925) $ 131
========= =========
(1) Includes Origen's financial data for the period from December 19,
2001 to December 31, 2001.
SHS currently has significant deferred tax assets, which are subject to
periodic recoverability assessments. Realization of these deferred tax
assets is principally dependent upon SHS's achievement of projected
future taxable income. Judgments regarding future profitability may
change due to future market conditions, SHS's ability to continue to
successfully execute its business plan and other factors. These
changes, if any, may require possible material adjustments to these
deferred tax asset balances. At December 31, 2002, Sun Home Services
has deferred tax assets of $2.4 million, net of a valuation allowance
of $5.1 million.
F-11
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
G. REVENUE RECOGNITION: Rental income attributable to leases is recorded
on a straight-line basis when earned from tenants. Leases entered into
by tenants generally range from month-to-month to one year and are
renewable by mutual agreement of the Company and resident or, in some
cases, as provided by state statute.
H. OTHER CAPITALIZED COSTS: Certain expenditures to dealers and residents
related to obtaining lessees in our communities are capitalized and
amortized over a seven year period; shorter than average resident's
occupancy and the average term that the home is in the community. Costs
associated with implementing the Company's new computer systems are
capitalized and amortized over the estimated useful lives of the
related software and hardware.
I. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying values of cash and
cash equivalents, escrows, receivables, accounts payable, accrued
expenses and other assets and liabilities are reasonable estimates of
their fair values because of the shorter maturities of these
instruments. The fair value of the Company's long-term indebtedness,
which is based on the estimates of management and on rates currently
quoted and rates currently prevailing for comparable loans and
instruments of comparable maturities, exceeds the aggregate carrying
value by approximately $86.1 million at December 31, 2002.
J. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: 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 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 a
collateralized term loan due to FNMA. 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 $0.45 million is reflected as a component of interest
expense in the statements of income.
In accordance with SFAS No. 133, the "Accounting for Derivative
Instruments and Hedging Activities," which requires all derivative
instruments to be carried at fair value on the balance sheet, the
Company has recorded all three interest rate swaps totaling a liability
of $2.3 million as of December 31, 2002.
F-12
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
J. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED):
These valuation adjustments will only be realized if the Company
terminates the swaps prior to maturity. This is not the intent of the
Company and, therefore, the net of valuation adjustments through the
various maturity dates will approximate zero.
K. STOCK OPTIONS: The General Partner accounts for its stock options using
the intrinsic value method contained in APB Opinion No. 25. "Accounting
for Stock Issued to Employees." If the General Partner had accounted
for awards using the methods contained in FASB Statement No. 123,
"Accounting for Stock-Based Compensation", net income and earnings per
share would have been presented as follows for the years ended December
31, 2002, 2001 and 2000:
2002 2001 2000
------------ ------------ ------------
Earnings attributable to OP Units as reported...............................$ 15,637 $ 39,115 $ 38,478
Additional compensation expense under fair value method..................... (548) (370) (231)
------------ ------------ ------------
Pro forma earnings attributable to OP Units.................................$ 15,089 $ 38,745 $ 38,247
============ ============ ============
Earnings per OP Unit (Basic), as reported...................................$ 0.77 $ 1.96 $ 1.92
============ ============ ============
Earnings per OP Unit (Basic), pro forma.....................................$ 0.75 $ 1.95 $ 1.91
============ ============ ============
Earnings per OP Unit (Diluted), as reported.................................$ 0.76 $ 1.94 $ 1.91
============ ============ ============
Earnings per OP Unit (Diluted), pro forma...................................$ 0.74 $ 1.93 $ 1.90
============ ============ ============
L. RECLASSIFICATIONS: Certain 2001 and 2000 amounts have been reclassified
to conform with the 2002 financial statement presentation. Such
reclassifications had no effect on results of operations as originally
presented.
M. TAXES: As a Partnership, the Company does not pay federal or state
income taxes.
3. RENTAL PROPERTY (AMOUNTS IN THOUSANDS):
AT DECEMBER 31
2002 2001
--------- ---------
Land........................................................... $ 101,926 $ 83,954
Land improvements and buildings ............................... 999,540 831,963
Furniture, fixtures, equipment ................................ 26,277 21,432
Land held for future development .............................. 34,573 16,810
Property under development .................................... 12,521 15,777
---------- ---------
1,174,837 969,936
Less accumulated depreciation ............................ (175,477) (140,762)
---------- ---------
$ 999,360 $ 829,174
========== =========
F-13
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
3. RENTAL PROPERTY (CONTINUED):
Land improvements and buildings consist primarily of infrastructure, roads,
landscaping, clubhouses, maintenance buildings and amenities. Included in
rental property at December 31, 2002 and 2001 are net carrying amounts
related to capitalized leases of $17.9 million and $28.6 million,
respectively.
During 2002, the Company acquired one stabilized community, comprising 552
developed sites, for $21.3 million and three development communities,
comprising 930 developed sites and 538 sites available for development, for
$48.6 million consisting of cash of approximately $23.1 million, Preferred
Units of approximately $4.5 million and assumption of debt of
approximately $21.0 million. During 2001, the Company acquired five
communities comprising 2,332 developed sites for $55.8 million and two
development communities comprising 1,273 sites, for $4.3 million.
In December 2002, the Company purchased the ownership interest of Champion
Enterprises in SunChamp LLC, a joint venture to develop eleven new
communities in Texas, North Carolina, Ohio and Indiana, for approximately
$6.2 million, payable pursuant to a 7-year promissory note (a) bearing
interest at 3.46% per annum, (b) requiring no principal or interest
payments until maturity (other than a one-time prepayment of interest in
the amount of approximately $270,000 at closing), and (c) providing that
all payment obligations are subordinate in all respects to the return of
the members' equity (including the gross book value of the acquired equity)
plus a preferred return. As a result of this acquisition, the Company owns
approximately 59% of SunChamp. SunChamp is consolidated on the Company's
balance sheet as of December 31, 2002; previously SunChamp was accounted
for using the equity method. In addition, in September 2002, the Company
acquired the senior lender's entire right, title and interest in and to
SunChamp's construction loan for a purchase price equal to 89% of the
outstanding indebtedness thereof, which constitutes a discount of
approximately $5.8 million.
These transactions have been accounted for as purchases, and the statements
of income include the operations of the acquired communities from the dates
of their respective acquisitions. As of December 31, 2002, in conjunction
with a 1993 acquisition, the Company is obligated to issue $7.4 million of
OP Units through 2009 based on the per share market value of the Company's
stock on the issuance date. This obligation was accounted for as part of
the purchase price of the original acquisition.
In February 2002, the Company sold a manufactured home community in Florida
consisting of 227 sites of which 131 were occupied, for cash of
approximately $3.3 million, resulting in a gain of $0.4 million on the
sale. The gain has been included in discontinued operations and all periods
presented have been revised to reflect discontinued operations. The
adoption of this requirement did not have an impact on net income available
to common shareholders.
F-14
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
4. NOTES AND OTHER RECEIVABLES (AMOUNTS IN THOUSANDS):
AT DECEMBER 31
2002 2001
------------ -----------
Mortgage and other notes receivable, primarily with minimum monthly
interest payments at LIBOR based floating rates of approximately
LIBOR + 2.0%, maturing at various dates from July 2003 through
August 2008, substantially collateralized by manufactured home
communities. $ 38,420 $ 48,310
Installment loans collateralized by manufactured homes with
interest payable monthly at an effective weighted average
interest rate and maturity of 8.2% and 20 years, respectively. 11,633 13,475
Other receivables 6,276 13,747
Two notes of an officer of the General Partner, both of which (i) bear
interest at LIBOR + 1.75%, with a minimum and maximum interest
rate 6% and 9%, respectively, and (ii) become due in three equal
installments on each of December 31, 2008, 2009 and 2010 (with
certain prepayment obligations); and one of which is limited in
recourse to 40,000 shares of the General Partner's common stock
and 50% of any deficiency after application of the proceeds of
the sale of such shares. 2,600 2,600
------------ -----------
$ 58,929 $ 78,132
============ ============
At December 31, 2002, the maturities of mortgage notes and other
receivables are approximately as follows: 2003 - $1.5 million; 2004 - $18.4
million; 2006 and after - $18.5 million.
F-15
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
5. DEBT AND LINE OF CREDIT(AMOUNTS IN THOUSANDS):
The following table sets forth certain information regarding debt (in
thousands):
At December 31,
---------------------------------
2002 2001
--------------- --------------
Bridge loan, at variable interest rate (2.617% at
December 31, 2002), due April 30, 2003 $ 48,000 $ --
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
Collateralized term loan, due to FNMA, at variable
interest rate (2.17% at December 31, 2002) due
May 2007, convertible to a 5 to 10 year fixed rate loan 152,363 --
Collateralized term loan, interest at 7.01%,
due September 9, 2007 42,206 42,820
Capitalized lease obligations, interest at 6.1%, due
through January 2004 16,438 26,045
Mortgage notes, other 60,366 48,333
--------------- --------------
$ 604,373 $ 402,198
=============== ==============
The collateralized term loans totaling $194,569 are secured by 22
properties comprising approximately 11,000 sites. The capitalized lease
obligations and mortgage notes are collateralized by 15 communities
comprising approximately 4,300 sites. At the lease expiration date of the
capitalized leases the Company has the right and intends to purchase the
properties for the amount of the then outstanding lease obligation. One of
the capitalized lease obligations matured on January 1, 2003 and was paid
by the issuance of 41,700 Preferred OP Units, cash of approximately
$860,000 and the assumption of approximately $1,570,000 of debt, which was
immediately retired.
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/or convert them 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.
There are various covenants included in the senior notes and line of credit
including limitations on the amount of debt which may be incurred, the
amount of secured debt, and various financial ratios. At December 31, 2002,
the Company can incur approximately $25.0 million of additional aggregate
debt, and of the Company's total debt, $460.0 million may be secured debt.
At December 31, 2002, the maturities of debt, excluding the line of credit,
during the next five years are approximately as follows: 2003 -- $141.5
million; 2004 - $33.7 million; 2005 -- $66.4 million: 2006 - $12.3 million;
2007 - $76.6 million.
F-16
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
5. DEBT AND LINE OF CREDIT (AMOUNTS IN THOUSANDS) (CONTINUED):
In July 2002, the Company refinanced its line of credit at $85 million. The
Company had $22 million of this facility available to borrow at December
31, 2002. Subsequent to year-end, the Company increased this line of credit
to $105 million. 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 extension
at the Company's option. The average interest rate of outstanding
borrowings under the line of credit at December 31, 2002 was 2.27%.
The Company has a bridge loan of $48 million and senior notes of $85
million due on April 30 and May 1, 2003, respectively. It is the Company's
expectation that these obligations will be retired utilizing the proceeds
from the issuance of additional debt.
The Company is the guarantor of $22.7 million in personal bank loans
maturing in 2004, made to directors, employees and consultants of the
Company and General Partner to purchase shares of the General Partner's
common stock or OP units pursuant to the Company's Stock Purchase Plan. No
compensation expense was recognized in respect to the guarantees as the
fair value thereof was not material nor have there been any defaults.
6. SUN'S STOCK OPTIONS:
Data pertaining to stock option plans are as follows:
2002 2001 2000
---------------- ------------- -------------
Options outstanding, January 1............................... 1,090,794 1,109,250 1,121,000
Options granted.............................................. 7,500 137,900 17,500
Option price.............................................. $34.92 $27.03-$32.81 $35.37
Options exercised............................................ 97,665 59,773 16,667
Option price............................................... $20.13-$35.39 $22.75-$33.75 $28.64-$30.03
Options forfeited............................................ 24,862 96,583 12,583
Option price............................................... $27.03-$32.75 $27.03-$33.82 $30.03-$33.75
Options outstanding, December 31............................. 975,767(a) 1,090,794 1,109,250
Option price................................................. $20-$35.39 $20-$35.39 $20-$35.39
Options exercisable, December 31............................. 834,249(a) 823,227 827,329
(a) There are 324,854 and 284,359 options outstanding and exercisable,
respectively, with exercise prices ranging from $20.00 - $27.99 with a
weighted average life of 3.7 years related to the outstanding options.
The weighted average exercise price for these outstanding and
exercisable options is $24.02 and $23.59, respectively. There are
650,913 and 549,890 options outstanding and exercisable, respectively,
with exercise prices ranging from $28.00 - $35.39 with a weighted
average life of 5.4 years related to the outstanding options. The
weighted average exercise price for these outstanding and exercisable
options is $30.73 and $30.34, respectively.
F-17
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
6. SUN'S STOCK OPTIONS (CONTINUED):
Sun's stock option plans provide for up to 2.2 million shares of common
stock that may be granted to directors, executive officers and other key
employees of Sun or the Company. At December 31, 2002, 150,519 shares of
common stock were available for the granting of options. Options are
granted at fair market value and generally vest over a two-year period and
may be exercised for 10 years after date of grant. In addition, the General
Partner established a Long-Term Incentive Plan in 1997 for certain
employees granting 167,918 options which become exercisable in equal
installments in 2002-2004.
The Company has opted to measure compensation cost utilizing the intrinsic
value method. The fair value of each option grant was estimated as of the
date of grant using the Black-Scholes option-pricing model with the
following assumptions for options granted:
2002 2001 2000
-------- -------- --------
Estimated fair value per share of options granted during year.............. $ 4.42(1) $ 6.19 $ 2.43
Assumptions:
Annualized dividend yield.................................................. 5.9%(1) 5.9% 7.1%
Common stock price volatility.............................................. 16.4%(1) 16.4% 15.3%
Risk-free rate of return................................................... 5.3%(1) 5.3% 6.4%
Expected option term (in years)............................................ 7 4 6
(1) 2002 based on valuation as of April 2001, due to insignificant option
issuance in 2002.
7. PARTNERS' CAPITAL:
There are approximately $18.2 million of Series B Units outstanding at
December 31, 2002 with mandatory dividends at rates ranging from 6.85
percent to 9.19 percent and maturing between 2006 and 2012 with redemption
prices of either $45 or $100.
The Company issued 2 million Series A Units at $25 per unit in September
1999 bearing an annual coupon rate of 8.875 percent. The Series A Units may
be called by the Company at par on or after September 29, 2004, have no
stated maturity or mandatory redemption and are convertible into Sun's
preferred stock under certain circumstances.
The terms of the POP Units issued at $27 per unit were renegotiated
effective December 31, 2001. The conversion price is $68 per unit and the
annual coupon rate is 7.0 percent for the first two years followed by a
variable rate ranging from 6.5 percent to 8.5 percent with mandatory
redemption on January 2, 2014.
F-18
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
7. PARTNERS' CAPITAL (CONTINUED):
In July 2002, and in March 2001, the Company's General Partner issued
restricted stock awards of 70,000 at $39.53 per share, and 99,422 at $33.00
per share, respectively, to officers and certain employees which are being
amortized over their five to ten year vesting period. Compensation cost
recognized in income for all restricted stock awards was $1.1 million, $0.9
million and $0.7 million in 2002, 2001 and 2000, respectively.
8. OTHER INCOME (AMOUNTS IN THOUSANDS):
The components of other income are as follows for the years ended
December 31, 2002, 2001 and 2000:
2002 2001 2000
---------- --------- ----------
Interest income $ 8,380 $ 10,706 $ 9,385
Other income 2,304 3,695 4,113
---------- --------- ----------
$ 10,684 $ 14,401 $ 13,498
========== ========= ==========
9. EARNINGS PER OP UNIT (AMOUNTS IN THOUSANDS):
2002 2001 2000
----------- ----------- -----------
Earnings used for basic and diluted earnings per
OP Unit computation $ 15,637 $ 39,115 $ 38,478
=========== =========== ===========
Total units used for basic earnings per OP Unit 20,177 19,907 19,999
Dilutive securities:
Stock options 186 182 86
----------- ----------- -----------
Total shares used for diluted earnings per OP Unit
computation 20,363 20,089 20,085
=========== =========== ===========
Diluted earnings per OP Unit reflect the potential dilution that would
occur if securities were exercised or converted into OP Units. Included in
basic and diluted earnings per OP Unit from continuing operations in the
Consolidated Statements of Income is $0.21 and $0.24 related to gains from
property dispositions in 2001 and 2000, respectively.
F-19
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
10. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following unaudited quarterly amounts are in thousands, except for per
unit amounts:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
2002
Total revenues..................................................$ 40,905 $ 40,021 $ 40,843 $ 40,527
Total expenses..................................................$ 29,754 $ 29,079 $ 30,787 $ 32,931
Earnings (loss) attributable to OP Units(b).....................$ 9,332 $ 8,035 $ 6,648 (8,378)
Weighted average OP Units....................................... 19,921 20,134 20,323 20,329
Earnings (loss) per OP Unit-basic...............................$ 0.47 $ 0.40 $ 0.33 $ (0.41)
2001
Total revenues..................................................$ 38,844 $ 38,090 $ 37,792 $ 38,362
Total revenues as previously reported(c)........................$ 39,091 $ 38,148 $ 38,309 $ 38,006
Total expenses..................................................$ 27,721 $ 27,164 $ 27,059 $ 28,229
Total expenses as previously reported(c)........................$ 27,827 $ 27,263 $ 27,160 $ 28,333
Earnings attributable to OP Units(a)............................$ 12,805 $ 9,602 $ 9,092 $ 7,616
Weighted average OP Units....................................... 20,025 19,856 19,863 19,885
Earnings per OP Unit-basic......................................$ 0.64 $ 0.48 $ 0.46 $ 0.38
(a) Net income includes net gains on the disposition of properties of
$3,517 in the first quarter of 2001 and $758 in the second quarter of
2001.
(b) Included in net income for the fourth quarter of 2002 is the write-off
of $13.6 million pertaining to the Company's investment in Origen.
(c) Revenues and expenses have been restated to conform with SFAS 144 which
requires operations of properties sold or held for sale to be
reclassified as discontinued operations.
F-20
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
11. RECENT ACCOUNTING PRONOUNCEMENTS:
In January 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 46 ("FIN No. 46"), "Consolidation of
Variable Interest Entities." The objective of this interpretation is to
provide guidance on how to identify a variable interest entity ("VIE")
and determine when the assets, liabilities, non-controlling interests
and results of operations of a VIE need to be included in a company's
consolidated financial statements. A company that holds variable
interests in an entity will need to consolidate the entity if the
company's interest in the VIE is such that the company will absorb a
majority of the VIE"s expected losses and/or receive a majority of the
VIE's expected residual returns, if they occur. FIN No. 46 also
requires additional disclosures by primary beneficiaries and other
significant variable interest holders. The provisions of this
interpretation became effective upon issuance with respect to VIEs
created after January 31, 2003 and to VIEs in which a company obtains
an interest after that date. The provisions of this interpretation
apply in the first interim period beginning after June 15, 2003 (i.e.,
third quarter of 2003) to VIEs in which a company holds a variable
interest that it acquired before February 1, 2003. The Company is in
the process of assessing whether it has an interest in any VIEs which
may require consolidation in the third quarter of 2003 pursuant to FIN
No. 46. Summarized financial information for entities which may be
identified as VIEs is included in Note 1f of notes to the financial
statements.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," which provides guidance on how
to transition from the intrinsic value method of accounting for
stock-based employee compensation under APB 25 to SFAS 123's fair value
method of accounting, if a company so elects. The adoption of this
standard did not have a significant impact on the financial position or
results of operations of the Company.
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45
clarifies disclosures that are required to be made certain guarantees
and establishes a requirement to record a liability at fair value for
certain guarantees at the time of the guarantee's issuance. The
disclosure requirements of FIN No. 45 have been applied in these
financial statements. The requirement to record a liability applies to
guarantees issued or modified after December 31, 2002. The Company does
not expect the requirements of FIN 45 to have a significant impact on
the financial position or results of operations of the Company.
In July 2002, the FASB issued Statement of Financial Accounting
Standards ("SFAS") 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 with a 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.
F-21
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
11. RECENT ACCOUNTING PRONOUNCEMENTS:
In May 2002, the FASB issued SFAS 145, "Rescission of SFAS Nos. 4, 44
and 64, Amendment of SFAS 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 August 2001, the FASB issued SFAS No. 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 are generally to be applied prospectively. During the first
quarter of 2002, the Company sold Kings Pointe Mobile Home Park,
located in Winter Haven, Florida, for approximately $3.4 million. In
accordance with SFAS 144, the Company's consolidated statements of
income and consolidated statements of cash flow have been revised from
those originally reported for the years ended December 31, 2001 and
2000 to separately reflect the results of discontinued operations for
this property. These results were previously included in income from
operations. These revisions had no impact on the Company's consolidated
balance sheets or statements of stockholders' equity and these
revisions had no impact on earnings attributable to OP Units or
earnings per OP Unit for the years ended December 31, 2002, 2001 and
2000.
In June 2001, the FASB approved SFAS No. 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. The
adoption of these standards did not have a significant impact on the
financial position or results of operations of the Company.
12. CONTINGENCIES:
On March 21, 2003, the Company received an unfiled complaint by T.J.
Holdings, LLC ("TJ Holdings"), a member of Sun/Forest, LLC
("Sun/Forest") (which, in turn, owns an equity interest in SunChamp
LLC), against the Company, SunChamp LLC, certain other affiliates of
the Company and two directors of Sun Communities, Inc. The unfiled
complaint alleges that the defendants wrongfully deprived the plaintiff
of economic opportunities that they took for themselves in
contravention of duties allegedly owed to the plaintiff and purports to
claim damages of $13.0 million plus an unspecified amount for punitive
damages. The Company believes the unfiled complaint and the claims
threatened therein have no merit and, if this complaint is ultimately
filed, the Company will defend it vigorously.
The Company is involved in various other legal proceedings arising in
the ordinary course of business. All such proceedings, taken together,
are not expected to have a material adverse impact on our results of
operations or financial condition.
F-22
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP SCHEDULE III
REAL ESTATE AND ACCUMLATED DEPRECIATION
DECEMBER 31. 2002
(amount in thousands)
COST CAPITALIZED
SUBSEQUENT TO
ACQUISITION
INITIAL COST TO COMPANY IMPROVEMENTS
---------------------------- ------------------------
PROPERTY NAME LOCATION ENCUMBRANCE LAND B & F LAND B & F
- ----------------------- ----------------- ----------------- --------- -------- ---------- ----------
Academy/Westpoint Canton, MI A $ 1,485 $ 14,278 $ - $ 27
Allendale Allendale, MI A 366 3,684 - 3,675
Alpine Grand Rapids, MI - 729 6,692 - 3,628
Apple Creek Amelia, OH C 543 5,480 - 20
Arbor Terrace Brandenton, FL - 481 4,410 - 325
Ariana Village Lakeland, FL A 240 2,195 - 506
Autumn Ridge Ankeny, IO - 890 8,054 - 834
Bedford Hills Battle Creek, MI B 1,265 11,562 - 451
Bell Crossing Clarksville, TN - 717 1,916 - 3,617
Bonita Lake Bonita Springs, FL - 285 2,641 - 223
Boulder Ridge Pflugerville, TX - 1,000 500 3,324 16,117
Branch Creek Austin, TX A 796 3,716 - 5,108
Brentwood Kentwood, MI - 385 3,592 - 260
Byrne Hill Village Toledo, OH - 383 3,903 - 264
Brookside Village Goshen, IN A 260 1,080 386 7,386
Buttonwood Bay Sebring, IN - 1,952 18,294 - 1,465
Byron Center Byron Center, MI - 253 2,402 - 142
Country Acres Cadillac, MI - 380 3,495 - 242
Candlewick Court Owosso, MI - 125 1,900 132 1,097
Carrington Pointe Ft. Wayne, IN - 1,076 3,632 - 4,231
Casa Del Valle Alamo, TX - 246 2,316 - 434
Catalina Middletown, OH - 653 5,858 - 1,110
Candlelight Village Chicago Heights, IL - 600 5,623 - 651
Chisholm Point Pflugerville, TX A 609 5,286 - 2,626
Clearwater Village South Bend, IN - 80 1,270 61 1,906
Country Meadows Flat Rock, MI A 924 7,583 296 9,540
Continental North Davison, MI - (1) - 3,555
Cobus Green Elkhart, IN - 762 7,037 - 635
College Park Estates Canton, MI - 75 800 174 4,728
Continental Estates Davison, MI - 1,625 16,581 150 1,570
Countryside Village Perry, MI B 275 3,920 185 2,091
Creekwood Meadows Burton, MI - 808 2,043 404 6,556
Cutler Estates Grand Rapids, MI B 749 6,941 - 336
Davison East Davison, MI (1) - -
Deerfield Run Anderson, MI 1,700 990 1,607 - 3,228
GROSS AMOUNT CARRIED
AT DECEMBER 31, 2002 DATE OF
--------------------------- ACCUMULATED CONSTRUCTION (C)
PROPERTY NAME LAND B & F TOTAL DEPRECIATION ACQUISITION (A)
- -------------------------- -------- -------- ---------- ------------- ----------------
Academy/Westpoint $ 1,485 $ 14,305 $ 15,790 $ 1,205 2000(A)
Allendale 366 7,359 7,725 1,408 1996(A)
Alpine 729 10,320 11,049 1,904 1996(A)
Apple Creek 543 5,500 6,043 623 1999(A)
Arbor Terrace 481 4,735 5,216 1,044 1996(A)
Ariana Village 240 2,701 2,941 745 1994(A)
Autumn Ridge 890 8,888 9,778 1,856 1996(A)
Bedford Hills 1,265 12,013 13,278 2,643 1996(A)
Bell Crossing 717 5,533 6,250 428 1999(A)
Bonita Lake 285 2,864 3,149 624 1996(A)
Boulder Ridge 4,324 16,617 20,941 1,603 1998(C)
Branch Creek 796 8,824 9,620 1,707 1995(A)
Brentwood 385 3,852 4,237 867 1996(A)
Byrne Hill Village 383 4,167 4,550 498 1999(A)
Brookside Village 646 8,466 9,112 1,829 1985(A)
Buttonwood Bay 1,952 19,759 21,711 931 2001(A)
Byron Center 253 2,544 2,797 569 1996(A)
Country Acres 380 3,737 4,117 813 1996(A)
Candlewick Court 257 2,997 3,254 884 1985(A)
Carrington Pointe 1,076 7,863 8,939 1,154 1997(A)
Casa Del Valle 246 2,750 2,996 544 1997(A)
Catalina 653 6,968 7,621 1,990 1993(A)
Candlelight Village 600 6,274 6,874 1,371 1996(A)
Chisholm Point 609 7,912 8,521 1,667 1995(A)
Clearwater Village 141 3,176 3,317 799 1986(A)
Country Meadows 1,220 17,123 18,343 3,926 1994(A)
Continental North - 3,711 3,711 867 1996(A)
Cobus Green 762 7,672 8,434 2,310 1993(A)
College Park Estates 249 5,528 5,777 1,496 1978(A)
Continental Estates 1,775 18,151 19,926 3,516 1996(A)
Countryside Village 460 6,011 6,471 1,637 1987(A)
Creekwood Meadows 1,212 8,599 9,811 1,221 1997(C)
Cutler Estates 749 7,277 8,026 1,592 1996(A)
Davison East - - - - 1996(A)
Deerfield Run 990 4,835 5,825 396 1999(A)
F-23
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP SCHEDULE III
REAL ESTATE AND ACCUMLATED DEPRECIATION
DECEMBER 31. 2002
(amounts in thousands)
COST CAPITALIZED
SUBSEQUENT TO
ACQUISITION
INITIAL COST TO COMPANY IMPROVEMENTS
---------------------------- ------------------------
PROPERTY NAME LOCATION ENCUMBRANCE LAND B & F LAND B & F
- ----------------------- ----------------- ----------------- --------- -------- ---------- ----------
Desert View Village West Wendover, NV - 1,180 - 423 5,588
Eagle Crest Firestone, CO - 2,017 150 2,362 22,591
Edwardsville Edwardsville, KS B 425 8,805 541 2,671
Fisherman's Cove Flint, MI - 380 3,438 - 552
Forest Meadows Philomath, OR - 1,031 2,050 - -
Four Seasons Elkhart, IN - 500 4,811 - -
Goldcoaster Homestead, FL - 446 4,234 172 1,924
Grand Grand Rapids, MI - 374 3,587 - 203
Groves Ft. Meyers, FL - 249 2,396 - 649
Hamlin Webberville, MI - 125 1,675 536 3,425
High Point Frederika, DE - 898 7,031 - 1,055
Holly Forest Holly Hill, FL - 920 8,376 - 335
Holiday Village Elkhart, IN - 100 3,207 143 1,227
Indian Creek Ft. Meyers Beach, FL - 3,832 34,660 - 1,375
Island Lake Merritt Island, FL - 700 6,431 - 313
King's Court Traverse City, MI A 1,473 13,782 - 1,559
Kensington Meadows Lansing, MI - 250 2,699 - 3,596
King's Lake Debary, FL - 280 2,542 - 2,199
Knollwood Estates Allendale, MI D 400 4,061 - -
Kenwood La Feria, TX - 145 1,842 - -
Lafayette Place Warren, MI - 669 5,979 - 778
Lake Juliana Auburndale, FL - 335 2,848 - 846
Leesburg Landing Leesburg, FL - 50 429 921 415
Liberty Farms Valparaiso, IN - 66 1,201 116 1,917
Lincoln Estates Holland, MI - 455 4,201 - 318
Lake San Marino Naples, FL - 650 5,760 - 446
Maple Grove Estates Dorr, MI - 15 210 20 297
Meadowbrook Village Tampa, FL - 519 4,728 - 428
Meadowbrook Estates Monroe, MI - 431 3,320 379 5,960
Meadow Lake Estates White Lake, MI A 1,188 11,498 127 1,826
Meadows Nappanee, IN - 287 2,300 - 2,443
Meadowstream Village Sodus, MI - 100 1,175 109 1,443
Maplewood Mobile Lawrence, IN - 275 2,122 - 887
North Point Estates Pueblo, CO - 1,582 3,027 1 2,192
Oak Crest Austin, TX 8,331 4,311 12,611 - -
GROSS AMOUNT CARRIED
AT DECEMBER 31, 2002 DATE OF
--------------------------- ACCUMULATED CONSTRUCTION (C)
PROPERTY NAME LAND B & F TOTAL DEPRECIATION ACQUISITION (A)
- -------------------------- -------- -------- ---------- ------------- ----------------
Desert View Village 1,603 5,588 7,191 418 1998(C)
Eagle Crest 4,379 22,741 27,120 633 1998(C)
Edwardsville 966 11,476 12,442 3,203 1987(A)
Fisherman's Cove 380 3,990 4,370 1,175 1993(A)
Forest Meadows 1,031 2,050 3,081 239 1999(A)
Four Seasons 500 4,811 5,311 415 2000(A)
Goldcoaster 618 6,158 6,776 1,056 1997(A)
Grand 374 3,790 4,164 721 1996(A)
Groves 249 3,045 3,294 606 1997(A)
Hamlin 661 5,100 5,761 720 1984(A)
High Point 898 8,086 8,984 422 1997(A)
Holly Forest 920 8,711 9,631 1,611 1997(A)
Holiday Village 243 4,434 4,677 1,322 1986(A)
Indian Creek 3,832 36,035 39,867 8,033 1996(A)
Island Lake 700 6,744 7,444 1,704 1995(A)
King's Court 1,473 15,341 16,814 3,320 1996(A)
Kensington Meadows 250 6,295 6,545 1,263 1995(A)
King's Lake 280 4,741 5,021 1,116 1994(A)
Knollwood Estates 400 4,061 4,461 205 2001(A)
Kenwood 145 1,842 1,987 226 1999(A)
Lafayette Place 669 6,757 7,426 1,030 1998(A)
Lake Juliana 335 3,694 4,029 993 1994(A)
Leesburg Landing 971 844 1,815 182 1996(A)
Liberty Farms 182 3,118 3,300 874 1985(A)
Lincoln Estates 455 4,519 4,974 1,000 1996(A)
Lake San Marino 650 6,206 6,856 1,384 1996(A)
Maple Grove Estates 35 507 542 143 1979(A)
Meadowbrook Village 519 5,156 5,675 1,508 1994(A)
Meadowbrook Estates 810 9,280 10,090 2,695 1986(A)
Meadow Lake Estates 1,315 13,324 14,639 3,899 1994(A)
Meadows 287 4,743 5,030 1,272 1987(A)
Meadowstream Village 209 2,618 2,827 741 1984(A)
Maplewood Mobile 275 3,009 3,284 847 1989(A)
North Point Estates 1,583 5,219 6,802 207 2001(C)
Oak Crest 4,311 12,611 16,922 229 2002(A)
F-24
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP SCHEDULE III
REAL ESTATE AND ACCUMLATED DEPRECIATION
DECEMBER 31. 2002
(amount in thousands)
COST CAPITALIZED
SUBSEQUENT TO
ACQUISITION
INITIAL COST TO COMPANY IMPROVEMENTS
---------------------------- ------------------------
PROPERTY NAME LOCATION ENCUMBRANCE LAND B & F LAND B & F
- ----------------------- ----------------- ----------------- --------- -------- ---------- ----------
Oakwood Village Miamisburg, OH - 1,964 6,401 - 6,368
Orange Tree Orange City, FL - 283 2,530 15 765
Orchard Lake Milford, OH C 395 4,025 - 15
Paradise Chicago Heights, IL - 723 6,638 - 683
Pecan Branch Georgetown, TX - 1,379 - 331 4,158
Pheasant Ridge Lancaster, PA 2,044 19,279 - -
Pine Hills Middlebury, IN - 72 544 60 1,754
Pin Oak Parc St. Louis, MO A 1,038 3,250 467 4,776
Pine Ridge Petersburg, VA - 405 2,397 - 1,326
Presidential Hudsonville, MI A 680 6,314 - 1,261
Parkwood Mobile Grand Blanc, MI - 477 4,279 - 764
Richmond Richmond, MI - 501 2,040 - 393
River Ridge Austin, TX 6,813 3,201 15,090 - -
Roxbury Goshen, IN - 1,057 9,870 - -
Royal Country Miami, FL B 2,290 20,758 - 818
River Haven Grand Haven, MI D 1,800 16,967 - -
Saddle Oak Club Ocala, FL - 730 6,743 - 701
Saddlebrook San Marcos, TX 5,481 1,703 11,843 - -
Scio Farms Ann Arbor, MI - 2,300 22,659 - 3,861
Sea Air Rehoboth Beach, DE 4,484 1,207 10,179 - 683
Sherman Oaks Jackson, FL B 200 2,400 240 4,063
Siesta Bay Ft. Meyers Beach, FL - 2,051 18,549 - 792
Silver Star Orlando, FL - 1,022 9,306 - 419
Southfork Belton, MO - 1,000 9,011 - 1,412
Sunset Ridge Portland, MI - 2,044 - - 10,364
St. Clair Place St. Clair, MI - 501 2,029 1 347
Stonebridge Richfield Twp., MI 1,119 2,044 - 2,081 -
Snow to Sun Weslaco, TX 90 190 2,143 15 857
Sun Villa Reno, NV 6,665 2,385 11,773 - 345
Timber Ridge Ft. Collins, CO A 990 9,231 - 1,075
Timberbrook Bristol, IN B 490 3,400 101 5,024
Timberline Estates Grand Rapids, MI A 535 4,867 - 608
Town and Country Traverse City, MI - 406 3,736 - 252
Valley Brook Indianapolis, IN A 150 3,500 1,277 9,008
Village Trails Howard City, MI - 988 1,472 - 713
GROSS AMOUNT CARRIED
AT DECEMBER 31, 2002 DATE OF
--------------------------- ACCUMULATED CONSTRUCTION (C)
PROPERTY NAME LAND B & F TOTAL DEPRECIATION ACQUISITION (A)
- -------------------------- -------- -------- ---------- ------------- ----------------
Oakwood Village 1,964 12,769 14,733 1,565 1998(A)
Orange Tree 298 3,295 3,593 862 1994(A)
Orchard Lake 395 4,040 4,435 514 1999(A)
Paradise 723 7,321 8,044 1,579 1996(A)
Pecan Branch 1,710 4,158 5,868 162 1999(C)
Pheasant Ridge 2,044 19,279 21,323 328 2002(A)
Pine Hills 132 2,298 2,430 629 1980(A)
Pin Oak Parc 1,505 8,026 9,531 1,613 1994(A)
Pine Ridge 405 3,723 4,128 1,045 1986(A)
Presidential 680 7,575 8,255 1,635 1996(A)
Parkwood Mobile 477 5,043 5,520 1,460 1993(A)
Richmond 501 2,433 2,934 379 1998(A)
River Ridge 3,201 15,090 18,291 383 2002(A)
Roxbury 1,057 9,870 10,927 500 2001(A)
Royal Country 2,290 21,576 23,866 6,489 1994(A)
River Haven 1,800 16,967 18,767 898 2001(A)
Saddle Oak Club 730 7,444 8,174 2,031 1995(A)
Saddlebrook 1,703 11,843 13,546 205 2002(A)
Scio Farms 2,300 26,520 28,820 6,349 1995(A)
Sea Air 1,207 10,862 12,069 568 1997(A)
Sherman Oaks 440 6,463 6,903 1,739 1986(A)
Siesta Bay 2,051 19,341 21,392 4,307 1996(A)
Silver Star 1,022 9,725 10,747 2,156 1996(A)
Southfork 1,000 10,423 11,423 1,539 1997(A)
Sunset Ridge 2,044 10,364 12,408 438 1998(C)
St. Clair Place 502 2,376 2,878 446 1998(A)
Stonebridge 4,125 - 4,125 - 1998(C)
Snow to Sun 205 3,000 3,205 552 1997(A)
Sun Villa 2,385 12,118 14,503 1,838 1998(A)
Timber Ridge 990 10,306 11,296 2,226 1996(A)
Timberbrook 591 8,424 9,015 2,310 1987(A)
Timberline Estates 535 5,475 6,010 1,535 1994(A)
Town and Country 406 3,988 4,394 898 1996(A)
Valley Brook 1,427 12,508 13,935 3,280 1989(A)
Village Trails 988 2,185 3,173 306 1998(A)
F-25
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP SCHEDULE III
REAL ESTATE AND ACCUMLATED DEPRECIATION
DECEMBER 31. 2002
(amount in thousands)
COST CAPITALIZED
SUBSEQUENT TO
ACQUISITION
INITIAL COST TO COMPANY IMPROVEMENTS
---------------------------- ------------------------
PROPERTY NAME LOCATION ENCUMBRANCE LAND B & F LAND B & F
- ----------------------- ----------------- ----------------- --------- -------- ---------- ----------
Water Oak Country Club Est. Lady Lake, FL - 2,503 17,478 - 5,538
Westbrook Toledo, OH E 1,110 10,462 - 850
Westbrook Senior Toledo, OH - 355 3,295 - 295
West Glen Village Indianapolis, IN - 1,100 10,028 - 849
White Lake White Lake, MI - 672 6,179 - 4,612
White Oak Mt. Morris, MI A 782 7,245 112 3,601
Willowbrook Toledo, OH E 781 7,054 - 565
Windham Hills Jackson, MI - 2,673 2,364 - 7,587
Woodhaven Place Woodhaven, MI - 501 4,541 - 840
Woodlake Estates Yoder, IN - 632 3,674 - 2,603
Woodland Park Estates Eugene, OR 7,286 1,592 14,398 - 334
Woods Edge West Lafayette, IN - 100 2,600 3 7,644
Woodside Terrace Holland, OH - 1,064 9,625 - 1,262
Worthington Arms Lewis Center, OH - 376 2,624 - 1,204
Corporate Headquarters Farmington Hills, MI - - - - 2,730
Comal Farms New Braunfels, TX - 1,455 1,732 - 4,090
Creekside Reidsville, NC - 350 1,423 - 3,074
East Fork Batavia, OH - 1,280 6,302 - 3,633
Glen Laurel Concord, NC - 1,641 453 - 5,822
Meadowbrook Charlotte, NC - 1,310 6,570 - 2,494
Pebble Creek Greenwood, IN - 1,030 5,074 - 3,229
River Ranch Austin, TX - 4,690 843 - 4,453
Stonebridge San Antonio, TX - 2,552 2,096 - 3,752
Summit Ridge Converse, TX - 2,615 2,092 - 4,228
Sunset Ridge Kyle, TX - 2,190 2,775 - 4,601
Woodlake Trails San Antonio, TX - 1,186 287 160 2,955
-------------- ---------------- ---------- -------------
$ 122,450 $ 731,914 $ 15,825 $ 304,492
============== ================ ========== =============
GROSS AMOUNT CARRIED
AT DECEMBER 31, 2002 DATE OF
--------------------------- ACCUMULATED CONSTRUCTION (C)
PROPERTY NAME LAND B & F TOTAL DEPRECIATION ACQUISITION (A)
- -------------------------- -------- -------- ---------- ------------- ----------------
Water Oak Country Club Est. 2,503 23,016 25,519 6,102 1993(A)
Westbrook 1,110 11,312 12,422 1,327 1999(A)
Westbrook Senior 355 3,590 3,945 173 2001(A)
West Glen Village 1,100 10,877 11,977 3,034 1994(A)
White Lake 672 10,791 11,463 1,526 1997(A)
White Oak 894 10,846 11,740 1,780 1997(A)
Willowbrook 781 7,619 8,400 1,133 1997(A)
Windham Hills 2,673 9,951 12,624 1,074 1998(A)
Woodhaven Place 501 5,381 5,882 822 1998(A)
Woodlake Estates 632 6,277 6,909 783 1998(A)
Woodland Park Estates 1,592 14,732 16,324 2,238 1998(A)
Woods Edge 103 10,244 10,347 1,915 1985(A)
Woodside Terrace 1,064 10,887 11,951 1,991 1997(A)
Worthington Arms 376 3,828 4,204 1,115 1990(A)
Corporate Headquarters 2,730 2,730 1,678 Various
Comal Farms 1,455 5,822 7,277 255 2000(A&C)
Creekside 350 4,497 4,847 221 2000(A&C)
East Fork 1,280 9,935 11,215 581 2000(A&C)
Glen Laurel 1,641 6,275 7,916 102 2001(A&C)
Meadowbrook 1,310 9,064 10,374 665 2000(A&C)
Pebble Creek 1,030 8,303 9,333 645 2000(A&C)
River Ranch 4,690 5,296 9,986 - 2000(A&C)
Stonebridge 2,552 5,848 8,400 375 2000(A&C)
Summit Ridge 2,615 6,320 8,935 400 2000(A&C)
Sunset Ridge 2,190 7,376 9,566 511 2000(A&C)
Woodlake Trails 1,346 3,242 4,588 188 2000(A&C)
---------- ------------ ------------ ------------
$ 138,275 $ 1,036,562 $ 1,174,837 $ 175,477
========== ============ ============ ============
A These communities collaterize $152.36 million of secured debt.
B These communities collaterize $42.21 million of secured debt.
C These communities collaterize $4.67 million of secured debt.
D These communities collaterize $12.29 million of secured debt.
E These communities are financed by $16.44 million of collaterized lease
obligations.
(1) The initial cost for this property is included in the initial cost
reported for Continental Estates.
F-26