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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005.
OR
[ ] Transition pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER 1-12616
SUN COMMUNITIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Maryland 38-2730780
(State of Incorporation) (I.R.S. Employer Identification No.)
27777 Franklin Rd.
Suite 200
Southfield, Michigan 48034
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (248) 208-2500
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of shares of Common Stock, $.01 par value per share, outstanding
as of March 31, 2005: 18,336,408
SUN COMMUNITIES, INC.
INDEX
PAGES
-----
PART I
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets as of March 31, 2005 and
December 31, 2004 3
Consolidated Statements of Income for the three months
ended March 31, 2005 and 2004 4
Consolidated Statements of Comprehensive Income for the three
months ended March 31, 2005 and 2004 5
Consolidated Statements of Cash Flows for the three months
ended March 31, 2005 and 2004 6
Notes to Consolidated Financial Statements 7-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-22
Item 3. Quantitative and Qualitative Disclosures about Market Risk 23
Item 4. Controls and Procedures 24
PART II
Item 2.(c) Changes in Securities and Use of Proceeds 25
Item 6. Exhibits required by Item 601 of Regulation S-K 25
Signatures 26
2
SUN COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2005 AND DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
2005 2004
------------ ------------
ASSETS
Investment in rental property, net $ 1,151,677 $ 1,131,956
Cash and cash equivalents 12,783 52,586
Short-term investments 5,000 44,975
Inventory of manufactured homes 19,954 25,964
Investment in affiliate 48,243 48,360
Notes and other receivables 44,205 45,037
Other assets 50,685 54,289
------------ ------------
Total assets $ 1,332,547 $ 1,403,167
============ ============
LIABILITIES
Debt $ 1,073,822 $ 1,078,442
Other liabilities 42,312 31,936
------------ ------------
Total liabilities 1,116,134 1,110,378
------------ ------------
Minority interests 28,050 81,043
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 10,000 shares
authorized, none issued - -
Common stock, $.01 par value, 100,000 shares
authorized, 19,607 and 19,626 issued
in 2005 and 2004, respectively 196 196
Paid-in capital 461,834 462,522
Officer's notes (9,711) (9,798)
Unearned compensation (14,734) (15,557)
Accumulated comprehensive earnings 215 (959)
Distributions in excess of accumulated earnings (203,417) (181,073)
Treasury stock, at cost, 1,271 and 1,202 shares
in 2005 and 2004, respectively (46,020) (43,585)
------------ ------------
Total stockholders' equity 188,363 211,746
------------ ------------
Total liabilities and stockholders' equity $ 1,332,547 $ 1,403,167
============ ============
The accompanying notes are an integral part of the consolidated financial
statements
3
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
2005 2004
---------- ----------
REVENUES
Income from rental property $ 45,781 $ 42,868
Revenues from home sales 3,750 3,974
Ancillary revenues, net 503 597
Interest 1,598 1,779
Other income (loss) (169) 331
---------- ----------
Total revenues 51,463 49,549
COSTS AND EXPENSES
Property operating and maintenance 11,067 10,228
Cost of home sales 2,407 3,125
Real estate taxes 3,788 3,166
General and administrative - rental property 3,505 2,794
General and administrative - home sales 1,543 1,493
Depreciation and amortization 13,068 11,220
Interest 14,725 10,334
Florida storm damage recovery (500) -
---------- ----------
Total expenses 49,603 42,360
Equity income (loss) from affiliates (117) 200
Income from operations 1,743 7,389
---------- ----------
Less income allocated to minority interest:
Preferred OP Units 961 1,110
Common OP Units 95 709
---------- ----------
Net income $ 687 $ 5,570
========== ==========
Weighted average common shares outstanding:
Basic 17,848 18,702
========== ==========
Diluted 17,950 18,864
========== ==========
Basic earnings per share: $ 0.04 $ 0.30
========== ==========
Diluted earnings per share: $ 0.04 $ 0.30
========== ==========
The accompanying notes are an integral part of the
consolidated financial statements
4
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
2005 2004
--------- ---------
Net income $ 687 $ 5,570
Unrealized income (loss) on interest rate swaps 1,174 (1,483)
--------- ---------
Comprehensive income $ 1,861 $ 4,087
========= =========
The accompanying notes are an integral part of the consolidated financial
statements
5
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
2005 2004
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 687 $ 5,570
Adjustments to reconcile net income to cash provided by operating activities:
Income allocated to minority interests 95 709
Depreciation and amortization 14,290 11,283
Amortization of deferred financing costs 498 483
Equity loss (income) from affiliates 117 (200)
Decrease (increase) in inventory and other assets 8,732 (4,907)
Increase (decrease) in accounts payable and other liabilities (1,650) 6,182
----------- ---------
Net cash provided by operating activities 22,769 19,120
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in rental properties (31,757) (9,379)
Purchase of short-term investments (84,875) -
Proceeds from sale of short-term investments 124,850 -
Distributions from affiliates - 489
Proceeds from sale of installment loans on manufactured homes to Origen - 12,325
Decrease (increase) in notes receivable and officer's notes, net 919 (1,294)
----------- ---------
Net cash provided by investing activities 9,137 2,141
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock and OP units, net (2,110) 1,312
Repayments on line of credit, net - (2,000)
Payments to retire Perpetual Preferred Operating Partnership Units (50,000) -
Payments to redeem notes payable and other debt (4,667) (5,428)
Payments for deferred financing costs (12) (518)
Purchases of Company stock (2,435) -
Distributions (12,485) (13,097)
----------- ---------
Net cash used in financing activities (71,709) (19,731)
----------- ---------
Net increase (decrease) in cash and cash equivalents (39,803) 1,530
Cash and cash equivalents, beginning of period 52,586 24,058
----------- ---------
Cash and cash equivalents, end of period $ 12,783 $ 25,588
=========== =========
SUPPLEMENTAL INFORMATION:
Cash paid for interest including capitalized amounts of $19 and $216 for
the three months ended March 31, 2005 and 2004, respectively $ 13,849 $ 7,271
Noncash investing and financing activities:
Issuance of partnership units to retire capitalized lease obligations $ - $ 4,725
Unrealized gains (losses) on interest rate swaps $ 1,174 $ (1,483)
The accompanying notes are an integral part of the consolidated financial
statements
6
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
These unaudited condensed consolidated financial statements of Sun
Communities, Inc., a Maryland corporation, (the "Company") and all
majority-owned and controlled subsidiaries including Sun Communities
Operating Limited Partnership (the "Operating Partnership"), SunChamp LLC
("SunChamp"), and Sun Home Services, Inc. ("SHS"), have been prepared
pursuant to the Securities and Exchange Commission ("SEC") rules and
regulations and should be read in conjunction with the consolidated
financial statements and notes thereto of the Company included in the
Annual Report on Form 10-K for the year ended December 31, 2004. The
following notes to consolidated financial statements present interim
disclosures as required by the SEC. The accompanying consolidated
financial statements reflect, in the opinion of management, all
adjustments necessary for a fair presentation of the interim financial
statements. All such adjustments are of a normal and recurring nature.
Certain reclassifications have been made to prior periods' financial
statements in order to conform with current period presentation.
2. RENTAL PROPERTY:
The following summarizes rental property (amounts in thousands):
MARCH 31, DECEMBER 31,
2005 2004
------------- -------------
Land $ 116,192 $ 116,187
Land improvements and buildings 1,228,261 1,196,671
Furniture, fixtures, and equipment 34,623 35,002
Land held for future development 31,652 31,652
Property under development 1,118 1,041
------------- -------------
1,411,846 1,380,553
Less accumulated depreciation (260,169) (248,597)
------------- -------------
Rental property, net $ 1,151,677 $ 1,131,956
============= =============
During the first quarter of 2005, the Company acquired one property
located near Tampa, FL for approximately $7.3 million comprised of 697
recreational vehicle sites and 31 manufactured home sites. The property
was acquired for cash.
The Company has prospectively adopted a change in the estimated service
lives of homes in its rental program to 10 years. The effect of this
change in estimate in the current interim period is a decrease in net
income and income from operations of approximately $1.3 million and a
decrease in basic and diluted earnings per share of approximately $0.07
per share.
7
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. NOTES AND OTHER RECEIVABLES:
The following table sets forth certain information regarding notes and
other receivables (amounts in thousands):
MARCH 31, DECEMBER 31,
2005 2004
--------- ------------
Mortgage and other notes receivable, with interest payable at a weighted average
interest rate of 8.29%, maturing at various dates through August 2008,
substantially collateralized by manufactured home communities $ 18,499 $ 18,499
Installment loans on manufactured homes with interest payable
monthly at a weighted average interest rate and maturity of
6.28% and 10 years, respectively 17,259 16,447
Other receivables 8,447 10,091
--------- ---------
$ 44,205 $ 45,037
========= =========
At March 31, 2005, the maturities of mortgages and other notes receivable
are approximately as follows: 2006-$3.8 million; 2008-$14.7 million.
Officer's notes, presented as a reduction to stockholders' equity in the
balance sheet, are 10 year, LIBOR + 1.75% notes, with a minimum and
maximum interest rate of 6% and 9%, respectively, collateralized by
352,206 shares of the Company's common stock and 127,794 OP Units with
substantial personal recourse. The notes become due in three equal
installments on each of December 2008, 2009 and 2010. Reductions in the
principal balance of these notes were $0.09 million and $0.2 million for
the three months ended March 31, 2005 and 2004, respectively.
4. INVESTMENT IN AFFILIATE:
Origen Financial, Inc. ("Origen") is a real estate investment trust in the
business of originating, acquiring and servicing manufactured home loans.
In October 2003, the Company purchased 5,000,000 shares of common stock of
Origen for $50 million. The Company owns approximately 20% of Origen at
March 31, 2005 and its investment is accounted for using the equity method
of accounting. Equity earnings recorded through March 31, 2005 are an
estimate of the Company's portion of the anticipated earnings of Origen
through March 31, 2005.
8
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. DEBT:
The following table sets forth certain information regarding debt (amounts
in thousands):
MARCH 31, DECEMBER 31,
2005 2004
------------ ------------
Collateralized term loan, 7.01%, due September 9, 2007 $ 40,652 $ 40,837
Collateralized term loans - CMBS, 4.93-5.32%, due July 1, 2011-2016 496,031 496,031
Collateralized term loans - FNMA, of which $77.4M is variable, due
May 1, 2014 and January 1, 2015 at the Company's option, interest at
3.92 - 5.2% and 3.58 - 5.2% at March 31, 2005 and December 31, 2004, respectively 388,762 389,154
Preferred OP units, redeemable at various dates through January 2, 2014, average
interest at 6.92% and 6.79% at March 31, 2005 and December 31, 2004, respectively 62,123 62,123
Senior notes, 6.77%, due May 14, 2005 5,017 5,017
Mortgage notes, other 81,237 85,280
------------ ------------
$ 1,073,822 $ 1,078,442
============ ============
The collateralized term loans totaling $925.4 million at March 31, 2005
are secured by 95 properties comprising approximately 34,339 sites
representing approximately $683.5 million of net book value. The mortgage
notes are collateralized by 15 communities comprising approximately 4,965
sites representing approximately $169.7 million of net book value.
The Company has an unsecured revolving line of credit with a maximum
borrowing capacity of $115 million bearing interest at LIBOR + 1.75%. At
March 31, 2005, $3.3 million of availability was used to back standby
letters of credit and a maximum of $111.7 million remains available to be
drawn under the facility.
At March 31, 2005, the total of maturities and amortization of debt during
the next five years are approximately as follows: 2005 - $17.0 million;
2006 - $67.1 million; 2007 - $51.3 million; 2008 - $18.5 million, 2009 -
$24.1 million and $895.8 million thereafter
6. INTEREST AND OTHER INCOME:
The components of other income are as follows for the three months ended
March 31, 2005 and 2004 (in thousands):
2005 2004
-------- --------
Brokerage commissions $ 211 $ 273
Unsuccessful acquisition expenditures (346) (12)
Other income (loss) (34) 70
------- -------
$ (169) $ 331
======= =======
9
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. SEGMENT REPORTING (AMOUNTS IN THOUSANDS):
The consolidated operations of the Company can be segmented into
manufactured home sales and property operations segments. Following is a
presentation of selected financial information:
THREE MONTHS ENDED MARCH 31, 2005
-------------------------------------------
PROPERTY MANUFACTURED
OPERATIONS HOME SALES COMBINED
----------- ------------ -----------
Revenues $ 45,781(2) $ 3,750 $ 49,531
Operating expenses/Cost of sales 14,855 2,407 17,262
----------- ------------ -----------
Net operating income (1)/Gross profit 30,926 1,343 32,269
Adjustments to arrive at net income (loss):
Other revenues 1,159 773 1,932
General and administrative (3,505) (1,543) (5,048)
Depreciation and amortization (11,309) (1,759) (13,068)
Interest expense (14,645) (80) (14,725)
Florida storm damage recovery 500 - 500
Equity income (loss) from affiliate (117) - (117)
Income allocated to minority interest (1,056) - (1,056)
----------- ------------ -----------
Net income (loss) $ 1,953 $ (1,266) $ 687
=========== ============ ===========
THREE MONTHS ENDED MARCH 31, 2004
----------------------------------------
PROPERTY MANUFACTURED
OPERATIONS HOME SALES COMBINED
---------- ------------ ----------
Revenues $ 42,868(2) $ 3,974 $ 46,842
Operating expenses/Cost of sales 13,394 3,125 16,519
---------- ---------- ----------
Net operating income (1)/Gross profit 29,474 849 30,323
Adjustments to arrive at net income (loss):
Other revenues 1,922 785 2,707
General and administrative (2,794) (1,493) (4,287)
Depreciation and amortization (10,943) (277) (11,220)
Interest expense (10,311) (23) (10,334)
Equity income from affiliate 200 - 200
Income allocated to minority interest (1,819) - (1,819)
---------- ---------- ----------
Net income (loss) $ 5,729 $ (159) $ 5,570
========== ========== ==========
(1) Investors in and analysts following the real estate industry utilize net
operating income ("NOI") as a supplemental performance measure. NOI is
derived from revenues (determined in accordance with GAAP) minus property
operating expenses and real estate taxes (determined in accordance with
GAAP). NOI does not represent cash generated from operating activities in
accordance with GAAP and should not be considered to be an alternative to
net income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to be an alternative to cash flow from
operating activities (determined in accordance with GAAP) as a measure of
the Company's liquidity; nor is it indicative of funds available for the
Company's cash needs, including its ability to make cash distributions. The
Company believes that net income is the most directly comparable GAAP
measurement to net operating income. Net income includes interest and
depreciation and amortization which often have no effect on the market value
of a property and therefore limit its use as a performance measure. In
addition, such expenses are often incurred at a parent company level and
therefore are not necessarily linked to the performance of a real estate
asset. The Company believes that net operating income is helpful to
investors as a measure of operating performance because it is an indicator
of the return on property investment, and provides a method of comparing
property performance over time. The Company uses NOI as a key management
tool when evaluating performance and growth of particular properties and/or
groups of properties. The principal limitation of NOI is that it excludes
depreciation, amortization and non-property specific expenses such as
general and administrative expenses, all of which are significant costs, and
therefore, NOI is a measure of the operating performance of the properties
of the Company rather than of the Company overall.
(2) Seasonal recreational vehicle revenue is included in Property Operations
revenues and is approximately $4.0 million annually. This seasonal revenue
is recognized approximately 70% in the first quarter, 5% in both the second
and third quarters and 20% in the fourth quarter of each fiscal year.
10
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. SEGMENT REPORTING (AMOUNTS IN THOUSANDS), CONTINUED:
MARCH 31, 2005 DECEMBER 31, 2004
-------------------------------------- --------------------------------------
PROPERTY MANUFACTURED PROPERTY MANUFACTURED
SELECTED BALANCE SHEET DATA OPERATIONS HOME SALES COMBINED OPERATIONS HOME SALES COMBINED
----------- ------------ ----------- ----------- ------------ -----------
Identifiable assets:
Investment in rental property, net $ 1,080,226 $ 71,451 $ 1,151,677 $ 1,079,644 $ 52,312 $ 1,131,956
Cash and cash equivalents 13,861 (1,078) 12,783 53,260 (674) 52,586
Short-term investments 5,000 - 5,000 44,975 - 44,975
Inventory of manufactured homes - 19,954 19,954 - 25,964 25,964
Investments in affiliate 48,243 - 48,243 48,360 - 48,360
Notes and other receivables 30,869 13,336 44,205 31,574 13,463 45,037
Other assets 49,546 1,139 50,685 53,118 1,171 54,289
----------- ------------ ----------- ----------- ------------ -----------
Total assets $ 1,227,745 $ 104,802 $ 1,332,547 $ 1,310,931 $ 92,236 $ 1,403,167
=========== ============ =========== =========== ============ ===========
8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (IN THOUSANDS):
The Company has entered into four derivative contracts consisting of three
interest rate swap agreements and an interest rate cap agreement. 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 and to cap the maximum interest rate on its variable rate borrowings.
The Company does not enter into derivative instruments for speculative
purposes.
The swap agreements have the effect of fixing interest rates relative to a
portion of a collateralized term loan due to FNMA. One swap matures in
July 2009, with an effective fixed rate of 4.93 percent. A second swap
matures in July 2012, with an effective fixed rate of 5.37 percent. The
third swap matures in July 2007, with an effective fixed rate of 3.97
percent. The third swap is effective as long as 90-day LIBOR is 7 percent
or lower. The three swaps have an aggregate notional amount of $75.0
million. The interest rate cap agreement has a cap rate of 9.49 percent, a
notional amount of $152.4 million and a termination date of April 03,
2006. Each of the Company's derivative contracts is based upon 90-day
LIBOR.
The Company has designated the first two swaps and the interest rate cap
as cash flow hedges for accounting purposes. The changes in the value of
these hedges are reflected in other comprehensive income/loss on the
balance sheet. These three 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,
whether positive or negative, is reflected as a component of interest
expense. The valuation adjustment for the three months ended March 31,
2005 and 2004 totals negative $0.4 million and positive $0.4 million,
respectively.
SFAS No. 133, the "Accounting for Derivative Instruments and Hedging
Activities," requires all derivative instruments to be carried at fair
value on the balance sheet. The fair value of the instruments approximates
a liability of $0.2 million and $1.1 million as of March 31, 2005 and
December 31, 2004, respectively.
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.
11
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. STOCK OPTIONS (IN THOUSANDS):
The Company accounts for its stock options using the intrinsic value
method contained in APB Opinion No. 25. "Accounting for Stock Issued to
Employees." If the Company had accounted for options 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 three months ended March 31, 2005 and 2004:
2005 2004
---------- ----------
Net income, as reported $ 687 $ 5,570
Stock-based compensation expense under fair value method (14) (19)
---------- ----------
Pro forma net income $ 673 $ 5,551
========== ==========
Earnings per share (Basic), as reported $ 0.04 $ 0.30
========== ==========
Earnings per share (Basic), pro forma $ 0.04 $ 0.30
========== ==========
Earnings per share (Diluted), as reported $ 0.04 $ 0.30
========== ==========
Earnings per share (Diluted), pro forma $ 0.04 $ 0.29
========== ==========
Stock options issued after April 30, 2004 were valued using the
Binomial model rather than the Black-Scholes-Merton formula. The
difference in valuation between the two methods was not material.
12
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10. EARNINGS PER SHARE (IN THOUSANDS):
THREE MONTHS ENDED
MARCH 31,
-----------------------
2005 2004
--------- ---------
Earnings used for basic and diluted earnings per share: $ 687 $ 5,570
========= =========
Weighted average shares used for basic earnings per share 17,848 18,702
Dilutive securities:
Stock options and other 102 162
--------- ---------
Diluted weighted average shares 17,950 18,864
========= =========
Diluted earnings per share reflect the potential dilution that would occur
if dilutive securities were exercised or converted into common stock.
The Company also has the following potentially convertible securities
which, if converted, may impact dilution:
CONVERTIBLE SECURITIES NUMBER OF UNITS ISSUED CONVERSION FEATURES
- ----------------------------- ---------------------- --------------------------------------------------------
Series A Preferred OP Units 1,325,275 Convertible to common stock at $68 per share/unit.
Mandatorily redeemable on 01/02/2014
Series B Preferred OP Units 35,637 On each of May 1, 2004, 2005, and 2006, holder may
exchange Units for shares of common stock at exchange
rate of 2.272727 ($44 per share) shares of common stock
for each Series B Preferred Unit.
Series B-2 Preferred OP Units 100,000 Convertible into Common OP Units after 01/31/2005 at $45
per share/unit.
13
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. RECENT ACCOUNTING PRONOUNCEMENTS:
In December 2004, the Financial Accounting Standards Board (FASB) issued
Share-Based Payment Statement No. 123(R), that addresses the accounting
for share-based payment transactions in which an enterprise receives
employee services in exchange for (a) equity instruments of the enterprise
or (b) liabilities that are based on the fair value of the enterprise's
equity instruments or that may be settled by the issuance of such equity
instruments. Under the FASB's statement, all forms of share-based payments
to employees, including employee stock options, must be treated the same
as other forms of compensation by recognizing the related cost in the
income statement. The expense of the award would generally be measured at
fair value at the grant date. Current accounting guidance requires that
the expense relating to so-called fixed plan employee stock options only
be disclosed in the footnotes to the financial statements. The Statement
eliminates the ability to account for share-based compensation
transactions using APB Opinion No. 25, Accounting for Stock Issued to
Employees for options granted after June 15, 2005. On April 14, 2005, the
SEC announced it would permit companies to implement statement 123(R) at
the beginning of their next fiscal year. The Company plans to adopt the
new rules reflected in statement 123(R) using the modified-prospective
method, effective January 1, 2006. The Company is currently evaluating the
impact of this standard on its results of operations and financial
position.
12. CONTINGENCIES:
On April 9, 2003, T.J. Holdings, LLC ("TJ Holdings"), a member of
Sun/Forest, LLC ("Sun/Forest") (which, in turn, owns an equity interest in
SunChamp LLC), filed a complaint against the Company, SunChamp LLC,
certain other affiliates of the Company and two directors of Sun
Communities, Inc. in the Superior Court of Guilford County, North
Carolina. The 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 complaint and the claims threatened
therein have no merit and will defend it vigorously. The current status is
that the proceedings in North Carolina have been stayed pending final
determination in Michigan as to whether the dispute should be submitted to
arbitration.
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.
13. SUBSEQUENT EVENTS:
Subsequent to March 31, 2005, the Company sold one property located in
Leesburg, FL consisting of 96 manufactured housing sites for approximately
$2.2 million and signed an agreement to sell a community located in Bonita
Springs, FL comprised of 167 recreational vehicle sites for approximately
$3.1 million. Combined revenues for these properties totaled $0.3 million
and $0.7 million for the three month period ended March 31, 2005 and
twelve month period ended December 31, 2004, respectively. Net income from
these properties was $0.1 million and $0.1 million for the three month
period ended March 31, 2005 and twelve month period ended December 31,
2004, respectively. Due to the immaterial effect of these transactions,
both qualitatively and quantitatively, the provisions of SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets will not be
applied.
14
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion and analysis of the consolidated financial condition
and results of operations should be read in conjunction with the consolidated
financial statements and the notes thereto. Capitalized terms are used as
defined elsewhere in this Form 10-Q.
SIGNIFICANT ACCOUNTING POLICIES
The Company had identified significant accounting policies that, as a result of
the judgments, uncertainties, uniqueness and complexities of the underlying
accounting standards and operations involved, could result in material changes
to its financial condition or result of operations under different conditions or
using different assumptions. Details regarding the Company's significant
accounting policies are described fully in the Company's 2004 Annual Report
filed with the Securities and Exchange Commission on Form 10-K. During the three
months ended March 31, 2005, there have been no material changes to the
Company's significant accounting policies that impacted the Company's financial
condition or results of operations.
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 2005 and 2004
For the three months ended March 31, 2005, income from operations before
minority interest decreased by $5.7 million from $7.4 million to $1.7 million,
when compared to the three months ended March 31, 2004. The decrease was due to
increased expenses of $7.2 million and decreased equity income from affiliate of
$0.3 million, offset by increased revenues of $1.8 million as described in more
detail below.
Income from rental property increased by $2.9 million from $42.9 million to
$45.8 million, or 6.8 percent, due primarily to rent increases and other
community revenues.
Revenues from home sales decreased by $0.2 million from $4.0 million to $3.8
million, or 5.0 percent. The decline in the number of homes sold was offset by
increases in average sales prices.
Ancillary revenues, net decreased by $0.1 million from $0.6 million to $0.5
million due primarily to increased refurbishment costs of homes utilized in the
Company's rental program.
Interest income decreased by $0.2 million from $1.8 million to $1.6 million, or
11.1 percent, due primarily to a decrease in interest earning notes and
receivables.
Other operating income decreased by $0.5 million from $0.3 million to a loss of
$0.2 million due primarily to an increase in expenditures on unsuccessful
acquisitions.
15
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS, CONTINUED:
Property operating and maintenance expenses increased by $0.8 million from $10.2
million to $11.0 million, or 7.8 percent. The increase was due to increases in
utility costs ($0.4 million), payroll expense ($0.1 million), repair and
maintenance expense ($0.1 million), and other miscellaneous expenses ($0.2
million).
Cost of home sales decreased by $0.7 million from $3.1 million to $2.4 million,
or 22.6 percent, due primarily to a decline in the number of homes sold.
Real estate taxes increased by $0.6 million from $3.2 million to $3.8 million,
or 18.8 percent, due primarily to increases in assessments and tax rates.
General and administrative expenses for rental property increased by $0.7
million from $2.8 million to $3.5 million, or 25.0 percent, due to an increase
in payroll and benefits ($0.3 million), legal costs ($0.3 million), and other
miscellaneous expenses ($0.1 million).
Depreciation and amortization increased by $1.8 million from $11.2 million to $
13.0 million, or 16.1 percent, due primarily to change in estimated useful lives
of homes utilized in the Company's rental program.
Interest expense increased by $4.4 million from $10.3 million to $14.7 million,
or 42.7 percent, primarily due to increased debt levels somewhat offset by lower
interest rates.
While all costs have yet to be incurred, the settlement of the Company's
insurance claim relating to the Florida hurricanes of 2004 justifies a reduction
of $0.5 million in the Company's reserve for loss.
16
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAME PROPERTY INFORMATION
The following table reflects property-level financial information as of and for
the three months ended March 31, 2005 and 2004. The "Same Property" data
represents information regarding the operation of communities owned as of
January 1, 2004 and March 31, 2005. Site, occupancy, and rent data for those
communities is presented as of the last day of each period presented. The "Total
Portfolio" column differs from the "Same Property" column by including financial
and statistical information for new development and acquisition communities.
SAME PROPERTY TOTAL PORTFOLIO
--------------------------- ---------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
(in thousands) (in thousands)
Income from rental property $ 40,719 $ 40,222 $ 45,781 $ 42,868
-------- -------- -------- --------
Property operating expenses:
Property operating and maintenance 7,959 8,085 11,067 10,228
Real estate taxes 3,344 3,107 3,788 3,166
-------- -------- -------- --------
Property operating expenses 11,303 11,192 14,855 13,394
-------- -------- -------- --------
Property net operating income (1) $ 29,416 $ 29,030 $ 30,926 $ 29,474
======== ======== ======== ========
Number of properties 122 122 137 127
Developed sites 43,035 43,053 47,617 43,912
Occupied sites 35,500 35,932 38,479 36,384
Occupancy % 85.6%(2) 86.9%(2) 84.4%(2) 86.1%(2)
Weighted Average monthly rent per site $ 347 (2) $ 333 (2) $ 347 (2) $ 332 (2)
Sites available for development 5,441 5,509 7,237 6,848
Sites planned for development in next year 208 115 208 69
(1) Investors in and analysts following the real estate industry utilize net
operating income ("NOI") as a supplemental performance measure. NOI is
derived from revenues (determined in accordance with GAAP) minus property
operating expenses and real estate taxes (determined in accordance with
GAAP). NOI does not represent cash generated from operating activities in
accordance with GAAP and should not be considered to be an alternative to
net income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to be an alternative to cash flow from
operating activities (determined in accordance with GAAP) as a measure of
the Company's liquidity; nor is it indicative of funds available for the
Company's cash needs, including its ability to make cash distributions.
The Company believes that net income is the most directly comparable GAAP
measurement to net operating income. Net income includes interest and
depreciation and amortization which often have no effect on the market
value of a property and therefore limit its use as a performance measure.
In addition, such expenses are often incurred at a parent company level
and therefore are not necessarily linked to the performance of a real
estate asset. The Company believes that net operating income is helpful to
investors as a measure of operating performance because it is an indicator
of the return on property investment, and provides a method of comparing
property performance over time. The Company uses NOI as a key management
tool when evaluating performance and growth of particular properties
and/or groups of properties. The principal limitation of NOI is that it
excludes depreciation, amortization and non-property specific expenses
such as general and administrative expenses, all of which are significant
costs, and therefore, NOI is a measure of the operating performance of the
properties of the Company rather than of the Company overall.
(2) Occupancy % and weighted average rent relates to manufactured housing
sites, excluding recreational vehicle sites.
17
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAME PROPERTY INFORMATION, CONTINUED
On a same property basis, property net operating income increased by $0.4
million from $29.0 million to $29.4 million, or 1.3 percent. Income from rental
property increased by $0.5 million from $40.2 million to $40.7 million, or 1.2
percent, due primarily to increases in rents including water and property tax
pass through. Property operating expenses increased by $0.1 million from $11.2
million to $11.3 million, or 1.0 percent, due primarily to increases in real
estate taxes and utility expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity demands have historically been, and are
expected to continue to be, distributions to the Company's stockholders and the
unitholders of the Operating Partnership, property acquisitions, development and
expansion of properties, capital improvements of properties, the purchase of new
and pre-owned homes and debt repayment.
The Company expects to meet its short-term liquidity requirements through its
working capital provided by operating activities and through its $115.0 million
line of credit. The Company considers these resources to be adequate to meet all
operating requirements, including recurring capital improvements, routinely
amortizing debt and other normally recurring expenditures of a capital nature,
pay dividends to its stockholders to maintain qualification as a REIT in
accordance with the Internal Revenue Code and make distributions to the
Operating Partnership's unitholders.
The Company plans to invest approximately $2 to $5 million in developments
consisting of expansions to existing communities and the development of new
communities during 2005. 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 may invest substantial amounts in the acquisition of
properties during 2005, depending upon a number of factors, including the
availability of high-quality properties that meet the Company's criteria for
acquisition. The Company will finance these investments using the proceeds from
its secured financing transactions, the temporary use of its line of credit
until permanent secured financing can be arranged and through the assumption of
existing debt on the properties.
The Company has also invested approximately $15 million in the acquisition of
homes primarily intended for its rental program. Expenditures for the reminder
of 2005 will be dependent upon the condition of the markets for repossessions
and new home sales as well as rental homes.
Cash and cash equivalents decreased by $39.8 million to $12.8 million at March
31, 2005 compared to $52.6 million at December 31, 2004. Net cash provided by
operating activities increased by $3.7 million to $22.8 million for the three
months ended March 31, 2005 compared to $19.1 million for the three months ended
March 31, 2004.
18
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES CONTINUED:
The Company's net cash flows provided by operating activities may be adversely
impacted by, among other things: (a) the market and economic conditions in the
Company's current markets generally, and specifically in metropolitan areas of
the Company's current markets; (b) lower occupancy and rental rates of the
Company's properties (the "Properties"); (c) increased operating costs,
including insurance premiums, real estate taxes and utilities, that cannot be
passed on to the Company's tenants; and (d) decreased sales of manufactured
homes. See "Factors That May Affect Future Results" in the Company's Annual
Report on Form 10-K for the year ended December 31, 2004.
The Company anticipates meeting its long-term liquidity requirements, such as
scheduled debt maturities, large property acquisitions, and Operating
Partnership unit redemptions through the collateralization of a significant
portion of its properties. From time to time, the Company may also issue shares
of its capital stock, issue equity units in the Operating Partnership or sell
selected assets. 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" in the Company's Annual Report on Form
10-K for the year ended December 31, 2004. If the Company is unable obtain
additional debt or equity financing on acceptable terms, the Company's business,
results of operations and financial condition will be adversely impacted.
At March 31, 2005, the Company's debt to total market capitalization
approximated 59.1 percent (assuming conversion of all Common OP Units to shares
of common stock). The debt has a weighted average maturity of approximately 8.3
years and a weighted average interest rate of 5.1 percent.
Capital expenditures for the three months ended March 31, 2005 and 2004 included
recurring capital expenditures of $1.4 million and $1.1 million, respectively.
Net cash provided by investing activities increased by $7.0 million to $9.1
million for the three months ended March 31, 2005 compared to $2.1 million
provided by investing activities for the three months ended March 31, 2004. This
increase was due to a $40.0 million increase in net proceeds from sale of
short-term investments and a $2.2 million decrease in notes receivable and
officers' notes, net, offset by increased investment in rental properties of
$22.4 million, reduction in distributions from affiliate of $0.5 million, and a
$12.3 million decrease in proceeds from sales of installments loans to Origen.
Net cash used in financing activities increased by $52.0 million to $71.7
million for the three months ended March 31, 2005 from $19.7 million for the
three months ended March 31, 2004. This increase was primarily due to payments
to retire Perpetual Preferred Operating Partnership Units of $50.0 million,
purchases of Company stock of $2.4 million under a one million share buy back
authorization, and a $3.4 million decrease of proceeds from issuance of common
stock, offset by a $2.7 million decrease in repayments of notes payable and
other debt, inclusive of repayments on line of credit, a $0.6 million decrease
in distributions, and a $0.5 million increase in payments for deferred financing
costs.
19
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SUPPLEMENTAL MEASURE:
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 depreciable operating property, plus real estate-related depreciation
and amortization, and after adjustments for unconsolidated partnerships and
joint ventures. FFO is a non-GAAP financial measure that management believes is
a useful supplemental measure of the Company's operating performance. Management
generally considers FFO to be a useful measure for reviewing comparative
operating and financial performance because, by excluding gains and losses
related to sales of previously depreciated operating real estate assets and
excluding real estate asset depreciation and amortization (which can vary among
owners of identical assets in similar condition based on historical cost
accounting and useful life estimates), FFO provides a performance measure that,
when compared year over year, reflects the impact to operations from trends in
occupancy rates, rental rates and operating costs, providing perspective not
readily apparent from net income. Management believes that the use of FFO has
been beneficial in improving the understanding of operating results of REITs
among the investing public and making comparisons of REIT operating results more
meaningful.
Because FFO excludes significant economic components of net income
including depreciation and amortization, FFO should be used as an adjunct to net
income and not as an alternative to net income. The principal limitation of FFO
is that it does not represent cash flow from operations as defined by GAAP 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. FFO only provides investors with an additional performance
measure. Other REITS may use different methods for calculating FFO and,
accordingly, the Company's FFO may not be comparable to other REITs.
The following table reconciles net income to FFO and calculates both basic and
diluted FFO per share for the three months ended March 31, 2005 and 2004 (in
thousands):
20
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SUPPLEMENTAL MEASURE, CONTINUED:
RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
2005 2004
------- ---------
Net income $ 687 $ 5,570
Adjustments:
Depreciation and amortization 13,711 10,841
Valuation adjustment(1) 359 (407)
Allocation of SunChamp losses(2) - 300
Income allocated to common minority interests 95 709
------- --------
Funds from operations (FFO) $14,852 $ 17,013
======= ========
Weighted average common shares/OP Units outstanding:
Basic 20,319 21,175
======= ========
Diluted 20,421 21,337
======= ========
FFO per weighted average Common Share/OP Unit - Basic 0.73 0.80
======= ========
FFO per weighted average Common Share/OP Unit - Diluted 0.73 0.80
======= ========
(1) The Company entered into three interest rate swaps and an interest rate
cap agreement. The valuation adjustment reflects the theoretical noncash
profit and loss were those hedging transactions terminated at the balance
sheet date. As the Company has no expectation of terminating the
transactions prior to maturity, the net of these noncash valuation
adjustments will be zero at the various maturities. As any imperfection
related to hedging correlation in these swaps is reflected currently in
cash as interest, the valuation adjustments reflect volatility that would
distort the comparative measurement of FFO and on a net basis approximate
zero. Accordingly, the valuation adjustments are excluded from FFO. 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. Although the adjustment for the allocation of the SunChamp
losses (based on SunChamp as a stand-alone entity) is not reflected in the
accompanying financial statements, management believes that it is
appropriate to provide for this adjustment because the Company's payment
obligations with respect to the note 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, the losses that are
allocated to the Company from SunChamp as a stand-alone entity under
generally accepted accounting principles are effectively reallocated to
the note for purposes of calculating FFO. A situation such as this is not
contemplated in the NAREIT definition of FFO due to the unique
circumstances of the transaction. Although not comparable to the precise
NAREIT definition, the Company believes the inclusion of this item in its
calculation of FFO to be appropriate as noted above.
21
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAFE HARBOR STATEMENT
This Form 10-Q contains various "forward-looking statements" within the meaning
of the Securities Act of 1933 and the Securities Exchange Act of 1934, and the
Company intends that such forward-looking statements will be subject to the safe
harbors created thereby. For this purpose, any statements contained in this
filing that relate to prospective events or developments are deemed to be
forward-looking statements. Words such as "believes," "forecasts,"
"anticipates," "intends," "plans," "expects," "may", "will" and similar
expressions are intended to identify forward-looking statements. These
forward-looking statements reflect the Company's current views with respect to
future events and financial performance, but involve known and unknown risks and
uncertainties, both general and specific to the matters discussed in this
filing. These risks and uncertainties may cause the actual results of the
Company to be materially different from any future results expressed or implied
by such forward looking statements. Such risks and uncertainties include the
national, regional and local economic climates, the ability to maintain rental
rates and occupancy levels, competitive market forces, changes in market rates
of interest, the ability of manufactured home buyers to obtain financing, the
level of repossessions by manufactured home lenders and those referenced under
the headings entitled "Factors That May Affect Future Results" or "Risk Factors"
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 2004 and the Company's filings with the Securities and Exchange
Commission. The forward-looking statements contained in this Form 10-Q speak
only as of the date hereof and the Company expressly disclaims any obligation to
provide public updates, revisions or amendments to any forward-looking
statements made herein to reflect changes in the Company's expectations of
future events.
22
SUN COMMUNITIES, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's principal market risk exposure is interest rate risk. The Company
mitigates this risk by maintaining prudent amounts of leverage, minimizing
capital costs and interest expense while continuously evaluating all available
debt and equity resources and following established risk management policies and
procedures, which include the periodic use of derivatives. The Company's primary
strategy in entering into derivative contracts is to minimize the variability
that changes in interest rates could have on its future cash flows. The Company
generally employs derivative instruments that effectively convert a portion of
its variable rate debt to fixed rate debt. The Company does not enter into
derivative instruments for speculative purposes.
The Company's variable rate debt totals $104.7 million and $197.1 million as of
March 31, 2005 and 2004, respectively, which bears interest at various Prime and
LIBOR/DMBS rates. If Prime or LIBOR/DMBS increased or decreased by 1.00 percent
during the three months ended March 31, 2005 and 2004, the Company believes its
interest expense would have increased or decreased by approximately $1.1 million
and $2.0 million based on the $107.2 million and $204.9 million average balance
outstanding under the Company's variable rate debt facilities for the three
months ended March 31, 2005 and 2004, respectively.
Additionally, the Company had $14.7 million and $32.4 million LIBOR based
variable rate mortgage and other notes receivables as of March 31, 2005 and
2004, respectively. If LIBOR increased or decreased by 1.0 percent during the
three months ended March 31, 2005 and 2004, the Company believes interest income
would have increased or decreased by approximately $0.2 million and $0.3 million
based on the $14.7 million and $32.3 million average balance outstanding on all
variable rate notes receivable for the three months ended March 31, 2005 and
2004, respectively.
The Company has entered into three separate interest rate swap agreements and an
interest rate cap agreement. One of these swap agreements fixes $25 million of
variable rate borrowings at 4.93 percent for the period April 2003 through July
2009, another of these swap agreements fixes $25 million of variable rate
borrowings at 5.37 percent for the period April 2003 through July 2012 and the
third swap agreement, which is only effective for so long as 90-day LIBOR is 7
percent or less, fixes $25 million of variable rate borrowings at 3.97 percent
for the period April 2003 through July 2007. The interest rate cap agreement has
a cap rate of 9.49 percent, a notional amount of $152.4 million and a
termination date of April 13, 2006. Each of the Company's derivative contracts
is based upon 90-day LIBOR.
23
SUN COMMUNITIES, INC.
ITEM 4. CONTROLS AND PROCEDURES
(a) Under the supervision and with the participation of the Company's
management, including the Chief Executive Officer, Gary A. Shiffman,
and Chief Financial Officer, Jeffrey P. Jorissen, the Company
evaluated the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of the end of the
period covered by this quarterly report, pursuant to Rule 13a-15 of
the Securities Exchange Act of 1934 (the "Exchange Act"). Based upon
that evaluation, the Company's Chief Executive Officer and Chief
Financial Officer concluded that 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 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 have been no changes in the Company's internal control over
financial reporting during the quarterly period ended March 31,
2005, that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial
reporting.
24
SUN COMMUNITIES, INC.
PART II
ITEM 2. (c) - CHANGES IN SECURITIES AND USE OF PROCEEDS
The Board of Directors authorized a program to purchase up to 1,000,000 shares
of the Company's common stock on November 15, 2004. The results of this stock
repurchase program for the three months ended March 31, 2005 are as follows:
TOTAL NUMBER OF
SHARES PURCHASED AS MAXIMUM NUMBER OF
AVERAGE PART OF PUBLICLY SHARES THAT MAY YET BE
TOTAL NUMBER OF PRICE PAID ANNOUNCED PLANS OR PURCHASED UNDER THE
PERIOD SHARES PURCHASED PER SHARE PROGRAMS PLANS OR PROGRAMS
- ----------------- ---------------- ---------- ------------------- ----------------------
01/01/05-01/31/05 - $ - - 1,000,000
02/01/05-02/28/05 - $ - - 1,000,000
03/01/05-03/31/05 69,000 $ 35.33 69,000 931,000
Total 69,000 $ 35.33 69,000 931,000
ITEM 6. - EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
See the attached Exhibit Index.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 10, 2005
SUN COMMUNITIES, INC.
BY: /s/ Jeffrey P. Jorissen
------------------------------------------------
Jeffrey P. Jorissen, Chief Financial Officer
and Secretary
(Duly authorized officer and principal
financial officer)
26
SUN COMMUNITIES, INC.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules
13a-14(a)/15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules
13a-14(a)/15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
27