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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number:
COMMISSION FILE NUMBER: 1-11718
MANUFACTURED HOME COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 36-3857664
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
incorporation or organization)
TWO NORTH RIVERSIDE PLAZA SUITE 800, CHICAGO, ILLINOIS 60606
800, CHICAGO, ILLINOIS (Zip Code)
(Address of principal executive offices)
(Zip Code)
(312) 474-1122
(Registrant's telephone number, including area code)
Securities registered pursuant to Section279-1400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) of the Act:OF THE ACT:
Common Stock, $.01 Par Value The New York Stock Exchange
(Title of Class) (Name of exchange on which registered)
Securities registered pursuant to Section
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) of the Act: NoneOF THE ACT: NONE
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]Yes [X] No [ ]
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 the 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. [ ]
The aggregate market value of voting stock held by nonaffiliates was
approximately $597.2$640.1 million as of February 22, 199911, 2002 based upon the closing
price of $23.9375$32.55 on such date using beneficial ownership of stock rules adopted
pursuant to Section 13 of the Securities Exchange Act of 1934 to exclude voting
stock owned by Directors and Officers, some of whom may not be held to be
affiliates upon judicial determination.
At February 22, 1999, 26,580,209March 15, 2002, 21,740,248 shares of the Registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III incorporates by reference the Registrant's Proxy Statement relating to
the Annual Meeting of Stockholders to be held May 11, 1999.8, 2002.
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MANUFACTURED HOME COMMUNITIES, INC.
TABLE OF CONTENTS
PART I. PagePAGE
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PART I
Item 1. Business................................................................................................3Business................................................................................. 3
Item 2. Properties..............................................................................................7Properties............................................................................... 8
Item 3. Legal Proceedings......................................................................................12Proceedings........................................................................ 13
Item 4. Submission of Matters to a Vote of Security Holders....................................................15Holders...................................... 16
PART II.II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters..............................15Matters................ 17
Item 6. Selected Financial Data and Operating Information......................................................15Information........................................ 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................18Operations.... 20
Item 7A. Quantitative and Qualitative Disclosure About Market Risk..............................................25Risk................................ 30
Item 8. Financial Statements and Supplementary Data............................................................25Data.............................................. 30
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................25Disclosure..... 30
PART III.III
Item 10. Directors and Executive Officers of the Registrant.....................................................25Registrant....................................... 30
Item 11. Executive Compensation.................................................................................25Compensation................................................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and Management.........................................25Management........................... 30
Item 13. Certain Relationships and Related Transactions.........................................................25Transactions........................................... 30
PART IV.IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................268-K.......................... 31
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PART I
ITEM 1. BUSINESS
THE COMPANY
GENERAL
Manufactured Home Communities, Inc. (together with its consolidated
subsidiaries, the "Company") is a fully integrated company which owns and
operates manufactured home communities. Manufactured home communities ("Communities"). Communities are
residential developments designed and improved for the placement of detached,
single-family manufactured homes which are produced off-site and installed and
set on residential sites ("Site Set") within the community.Community. The owner of each
home leases the site on which it is located. Modern manufactured home communitiesCommunities are similar to
typical residential subdivisions, containing centralized entrances, paved
streets, curbs and gutters and parkways. In addition, these communitiesCommunities often
provide a clubhouse for social activities and recreation and other amenities,
which may include swimming pools, shuffleboard courts, tennis courts, laundry
facilities and cable television service. UtilitiesIn some cases, utilities are provided
or arranged for by the owner of the community.Community, otherwise, the resident contracts
the utility directly. Some communitiesCommunities provide water and sewer service through
publicmunicipal or privateregulated utilities, while others provide these services to
residents from on-site facilities.
Each Community is generally designed to attract, and is marketed to one of
two types of residents -- (1) retirees and empty nesters or (2) families and
first-time homeowners. The Company believes both types of Communities are
attractive investments and focuses on owning Communities in or near large
metropolitan markets and retirement destinations.
The Company was formed to continue the property operations, business
objectives and acquisition strategies of an entity that hashad owned and operated
manufactured home communitiesCommunities since 1969. As of December 31, 1998,2001, the Company owned or controlledhad an
ownership interest in a portfolio of 154 manufactured home communities148 Communities and recreational vehicle
("RV") resorts (the "Properties") located throughout the United States
containing 53,39150,761 residential sites. The Properties are located in 2623 states
(with the number of Properties in each state shown parenthetically) -- Florida
(45)(49), California (25), Arizona (19)(17), Michigan (11), Colorado (10), Delaware (7),
Nevada (5), Indiana (4)(3), Oregon (3), Kansas (3), Missouri (3), Illinois (2), Iowa (2), New York (2), Utah
(2), Pennsylvania (1), Maryland (1), Minnesota (1), Montana (1), New Mexico (1),
Ohio (1), Oklahoma (1), Texas (1), Virginia (1), West Virginia (1), and Washington (1). As of
December 31, 1998,2001, the Company also owned twoa commercial buildingsbuilding located in
California.
The Company has approximately 800 full-time employees dedicated to carrying
out the Company's operating philosophy and strategies of value enhancement and
service to residents. The Company typically utilizes a one or two-person
management team (who reside at the Properties) for the on-site management of each of the Properties. Typically,
clerical and maintenance workers are employed to assist these individuals in the
management and care of the Properties. Direct supervision of on-site management
is the responsibility of the Company's five
regional vice presidents and five regional and
district managers. These individuals have significant experience in addressing
the needs of residents and in finding or creating innovative approaches to
maximize value and increase cash flow from property operations. Complementing
this field management staff are approximately 5060 corporate employees who assist
on-site management in all property functions.
FORMATION OF THE COMPANY
The Company, formed in March 1993, is a Maryland corporation which has
elected to be taxed as a real estate investment trust ("REIT"). The Company
generally will not be subject to Federal income tax to the extent it distributes
its REIT taxable income to its stockholders. REITs are subject to a number of
organizational and operational requirements. If the Company fails to qualify as
a REIT, its income is taxable at regular corporate rates. Even if the Company
qualifies for taxation as a REIT, the Company is subject to certain state and
local taxes on its income and property and Federal income and excise taxes on
its undistributed income.
The operations of the Company are conducted through certain entities which
are owned or controlled by the Company. MHC Operating Limited Partnership (the
"Operating Partnership") is the entity through which the Company conducts
substantially all of its operations. Sub-partnershipsSubsidiaries of the Operating Partnership
werehave been created to: (i) facilitate mortgage financing (the "Financing
Partnerships"); (ii) facilitate the Company's ability to provide financing to
the owners of manufactured home communitiesCommunities ("Lending Partnership"); (iii) own
the management operations of the Company ("Management Partnerships"); and (iv)(iii) own the assets and
operations of certain utility companies which service the Properties ("MHC
Systems"). The financial results of the Operating Partnership and sub-partnershipssubsidiaries
(together, the "Subsidiaries") are consolidated in the Company's consolidated
financial statements. The operations of the Company are managed on a
property-by-property basis therefor the results of our financing, lending and
property management and utility operations are not reviewed separately by
management to make decisions regarding allocation of resources or to assess
performance.
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In addition, since certain activities, if performed by the Company, may not
behave been qualifying REIT activities under the Internal Revenue Code of 1986, as
amended (the "Code"), the Company has invested in the non-voting preferred stock
of various corporations which engage in such activities. Realty Systems, Inc.
("RSI") is a preferred stock subsidiary of the Company that, doing business as
Carefree Sales, is engaged in the business of purchasing, selling, leasing and
financing manufactured homes that are located or will be located in propertiesProperties
owned and managed by the Company. RSICarefree Sales also provides brokerage
services to residents at such properties.Properties. Typically, residents move from a
communityCommunity but do not relocate their homes. RSICarefree Sales may provide brokerage
services, in competition with other local brokers, by seeking buyers for the
homes. RSICarefree Sales also leases homes to prospective residents with the
expectation that the tenant eventually will purchase the home. LP Management
Corp. leases from the Operating Partnership certain real property within or
adjacent to certain of the Properties consisting of golf courses, pro shops,
restaurants and recreational vehicleRV areas. The Company believes that RSI'sthe activities of RSI and LP
Management Corp.'s (collectively, "Affiliates")
activities benefit the Company by maintaining
and enhancing occupancy at the Properties. The Company accounts for its
investment in and advances to Affiliates using the equity method of accounting.
BUSINESS OBJECTIVES AND OPERATING STRATEGIES
The Company seeks to maximize both current income and long-term growth in
income. The Company focuses on manufactured home communitiesCommunities that have strong cash flow growth potential and
expects to hold such propertiesProperties for long-term investment and capital
appreciation. In determining cash flow potential, the Company evaluates the
Community's ability to attract and retain high quality residents who take pride
in their Community and in their home. These business objectives and their
implementation are determined by the Company's Board of Directors and may be
changed at any time. The Company's investment and operating approach includes:
- AggressivelyProviding consistently high levels of services and amenities in
attractive surroundings to foster a strong sense of community and
pride of home ownership;
- Efficiently managing the Properties to increase operating margins by
controlling expenses, increasing occupancy and maintaining
competitive market rents, increasing occupancy and
expense control;rents;
- Increasing income and property values by continuing the strategic
expansion and, where appropriate, renovation of the Properties;
- Utilizing management information systems to evaluate potential
acquisitions, identify and track competing properties and monitor
tenantresident satisfaction; and
- Selectively acquiring manufactured home communitiesCommunities that have potential for long-term
cash flow growth.growth and to create property concentrations in and around
major metropolitan areas and retirement destinations to capitalize
on operating synergies and incremental efficiencies.
The Company is committed to enhancing its reputation as the most respected
brand name in the manufactured home community business.industry. Its strategy is to own and operate the highest
quality communitiesCommunities in major metropolitan areas and retirement destinations locations
across the United States. The focus is on creating an attractive residential
environment for homeowners by providing a well-maintained, comfortable communityCommunity
with a variety of organized recreational and social activities and superior
amenities. In addition, the Company regularly surveys rental rates of
competing properties and conducts satisfaction surveys of residents to determine
the factors residents consider most important in choosing a manufactured home
community.
FUTURE ACQUISITIONS
The Company acquired or gained a controlling interest in eighty-five
propertieseighty-eight
Properties during 1997 and 1998,through 1999, more than doubling its portfolio. The
Company believes that opportunities for property acquisitions are particularly
attractivestill
available and in general consolidation within the industry will continue
(see -- The Industry -- Industry Consolidation). However, the Company believes
that transactions occurring during 1999 and 2000 in the private marketplace are
at this time becausevaluations significantly in excess of increasingthe Company's current public market
valuation. As a result, during 1999 and 2000 the Company accelerated its stock
repurchase program. The Company's Board of Directors continues to review the
conditions under which the Company will repurchase its stock. These conditions
include, but are not limited to, market price, balance sheet flexibility, other
opportunities and capital requirements. (For more information on the Company's
stock repurchase program see Note 4 to the accompanying financial
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statements.) Increasing acceptability of and demand for manufacturedSite Set homes and
continued constraints on development of new manufactured
home communities.Communities continue to add to their
attractiveness as an investment. The Company believes it has a competitive
advantage in the acquisition of new communitiesCommunities due to its experienced
management, significant presence in major real estate markets and substantial
capital resources. The Company is actively seeking to acquire additional
communitiesCommunities and currently is engaged in various stages of negotiations relating
to the possible acquisition of a number of communities.
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5Communities.
The Company anticipates that newly acquired properties will be located in
the United States. The Company utilizes market information systems to identify
and evaluate acquisition opportunities, including a market data basedatabase to review
the primary economic indicators of the various locations in which the Company
expects to expand its operations. Acquisitions will be financed from the most
appropriate sources of capital, which may include undistributed funds from
operations, issuance of additional equity securities, sales of investments,
collateralized and uncollateralized borrowings and issuance of debt securities.
In addition, the Company may cause the Operating Partnership to issue units of
limited partnership interestsinterest ("OP Units") to finance acquisitions. The Company
believes that an ownership structure which includes the Operating Partnership
will permit the Company to acquire additional manufactured home communitiesCommunities in transactions that
may defer all or a portion of the sellers' tax consequences.
When evaluating potential acquisitions, the Company will consider such
factors as: (i) the replacement cost of the property; (ii) the geographic area
and type of property; (iii) the location, construction quality, condition and
design of the property; (iv) the current and projected cash flow of the property
and the ability to increase cash flow; (v) the potential for capital
appreciation of the property; (vi) the terms of tenant leases, including the
potential for rent increases; (vii) the potential for economic growth and the
tax and regulatory environment of the community in which the property is
located; (viii) the potential for expansion of the physical layout of the
property and/orand the number of sites; (ix) the occupancy and demand by residents for
properties of a similar type in the vicinity and the residents profile; (x) the
prospects for liquidity through sale, financing or refinancing of the property;
and (xi) competition from existing manufactured home communitiesCommunities and the potential for the
construction of new communitiesCommunities in the area. The Company expects to purchase
manufactured home communitiesCommunities with physical and market characteristics similar to the Properties
in its current portfolio.
PROPERTY EXPANSIONS
The Company will seek to increaseSeveral of the income generated from theCompany's Properties and from any additional properties acquired byhave available land for expanding the
number of sites available to be leased to residents if justifiedresidents. Development of these sites
("Expansion Sites") is predicated by local market conditions and permitted by
zoning and other applicable laws. OfWhen justified, development of Expansion Sites
allows the 154 Properties, tenCompany to leverage existing facilities and amenities to increase the
income generated from the Properties. Where appropriate, facilities and
amenities may be expanded consistent with existing zoning regulations. In 1999, the Company
expects to develop an additional 50 expansion sites within two of these
Properties. In addition, where appropriate, the Company will consider upgradingupgraded or adding facilities and amenitiesadded to certain Properties in order to make those
Properties more attractive in their markets. The Company's acquisition
philosophy has included the desire to own Properties with potential Expansion
Site development, and the Company has been successful in acquiring a number of
such Properties. Several examples of these Properties include the 1994
acquisition of Bulow Village with potential development of approximately 725
Expansion Sites, the 1997 acquisition of Golf Vista Estates with potential
development of approximately 128 Expansion Sites and the acquisition in 1999
of Coquina Crossing with potential development of approximately 393 Expansion
Sites, and the acquisition in 2001 of Grand Island and The Lakes at
Countrywood with combined potential Expansion Sites of 224 sites.
Of the Company's 148 Properties, ten may be expanded consistent with
existing zoning regulations. In 2002, the Company expects to develop an
additional 141 Expansion Sites within three of these Properties. As of December
31, 1998,2001, the Company had more than 1,050 expansion sitesapproximately 817 Expansion Sites available for
occupancy in eighteen24 of the Properties. The Company filled 207 of the expansion sites205 Expansion Sites in
19982001 and expects to fill an additional 200 to 300 sites250 Expansion Sites in 1999.2002.
LEASES
The typical lease entered into between the tenantresident and one of the Company's
manufactured home communitiesCompany for the
rental of a site requiresis for a security
deposit and is month-to-month or year-to-year term, renewable upon
the consent of both parties or, in some instances, as provided by statute. These
leases are cancelable, depending on stateapplicable law, for non-payment of rent,
violation of community rules and regulations or other specified defaults.
Non-cancelable long-term leases, with remaining terms ranging up to eleventen years,
are in effect at certain sites within eight22 of the Properties. These leases are
subject to rental rate increases based on the Consumer Price Index ("CPI"), in
some instances taking into consideration certain floors and ceilings and
allowing for pass-throughs of certain items such as real estate taxes, utility
expenses and capital expenditures. Generally, market rate adjustments are made
on an annual basis.
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REGULATIONS AND INSURANCE
General. Manufactured home communitiesCommunities are subject to various laws, ordinances and
regulations, including regulations relating to recreational facilities such as
swimming pools, clubhouses and other common areas. The Company believes that
each Property has the necessary permits and approvals to operate.
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Rent Control Legislation. State and local rent control laws, principally
in California and Florida, limit the Company's ability to increase rents and to
recover increases in operating expenses and the costs of capital improvements.improvements at
certain Properties. Enactment of such laws has been considered from time to time
in other jurisdictions. The Company presently expects to continue to maintain
manufactured home communities,Communities, and may purchase additional properties, in markets that are either
subject to rent control or in which rent-limiting legislation exists or may be
enacted. For example, Florida has enacted a law whichthat generally provides that
rental increases must be reasonable. Also, certain jurisdictions in California
in which the Company owns Properties limit rent increases to changes in the CPI
or some percentage thereof.
Insurance. Management believes that the Properties are covered by adequate
fire, flood, property, earthquake and business interruption insurance (where
appropriate) provided by reputable companies and with commercially reasonable
deductibles and limits. Due to the lack of available commercially reasonable
coverage, the company is self-insured for terrorist incidents. The Company
believes its insurance coverage is adequate based on the Company's assessment of
the risks to be insured, the probability of loss and the relative cost of
available coverage. The Company has obtained title insurance insuring fee title
to the Properties in an aggregate amount which the Company believes to be
adequate.
INDUSTRY
THE MANUFACTURED HOME COMMUNITY INDUSTRY
The Company believes that modern manufactured home communities, likeCommunities, such as the Properties,
provide an opportunity for increased cash flows and appreciation in value. These
may be achieved through increases in occupancy rates and rents, as well as
expense controls, expansion of existing Properties and opportunistic
acquisitions, for the following industry specific reasons:
- Barriers to Entry: The Company believes that the supply of new
manufactured home communitiesCommunities will be constrained due to barriers to entry into the
industry. The most significant barrier has been the difficulty in
securing zoning from local authorities. This has been the result of
(i) the public's historically poor perception of the business,industry, and
(ii) the fact that manufactured home communitiesCommunities generate less tax revenue because the
homes are treated as personal property (a benefit to the home owner)
rather than real property. Another factor that creates substantial
barriers to entry is the length of time between investment in the
communities'Community's development and the attainment of stabilized occupancy
and the generation of revenues. The initial development of the
infrastructure may take up to two or three years. Once the communityCommunity
is ready for occupancy, it may be difficult to attract residents to
an empty community.Community. Substantial occupancy levels may take a number ofseveral years
to achieve.
- Industry Consolidation: According to an industry analyst's manufactured
home community industry
report, there are approximately 50,000 manufactured home communitiesCommunities in the United States,
and approximately 24,0006.5% or 3,250 of these communitiesthe Communities have more than 60 sites. The Company
believes that approximately 20% or 4,800 of the communities with more
than 60200
sites and would be considered "investment-grade". properties. The sixfive
public companies whichREITs that own manufactured home communitiesCommunities own approximately 520532 or about 10%16% of
the "investment-grade" communities.Communities. In addition, based on a report
prepared by one analyst, the top 50150 owners of manufactured
home communitiesCommunities own
approximately 38%69% of the "investment-grade" assets. The Company believes
that this relatively high degree of fragmentation in the industry
provides the Company, as a national organization with experienced
management and substantial financial resources, the opportunity to
purchase additional manufactured home communities at
favorable prices.Communities.
- Stable Tenant Base: The Company believes that manufactured home
communitiesCommunities tend to
achieve and maintain a stable rate of occupancy due to the following
factors: (i) residents own their own homes, (ii) manufactured home communitiesCommunities tend to
foster a sense of community as a result of amenities such as club houses,clubhouses,
recreational and social activities and (iii) since moving a manufacturedSite Set home
from one communityCommunity to another involves substantial cost and effort,
residents often sell their home in-place (similar to site-built
residential housing) with no interruption of rental payments.
MANUFACTURED6
SITE SET HOUSING
Based on the current growth in the number of individuals living in manufacturedSite Set
homes, the Company believes that manufacturedSite Set homes are increasingly viewed by the
public as an attractive and economical form of housing. According to the
industry's trade association, nearly one in four new single family homes sold in
the United States today is factory-built.
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7Site set.
The Company believes that the growing popularity of manufacturedSite Set housing is
primarily the result of the following factors:
- Importance of Home Ownership. According to the Fannie Mae 1998("FNMA") 2000
National Housing Survey ("FNMA Survey") renters' desire to own a home is stronger
now than at any time in the 1990's. Security and permanence are thoughtcontinues to be non-financial reasonsa
top priority. According to ownthe report, "A home is more than merely
shelter. Owning a home. The commitment to home ownership is
tempered by an awarenessprovides a sense of the high cost offinancial security...Americans
view owning a home. The
affordability of manufactured housing allows many individualshome as the second most important action a person can take
to achieve this goal without jeopardizing their financial security.security, behind stating an IRA [401(k)] or other
type of retirement account.
- Affordability. For a significant number of persons, manufacturedSite Set housing
represents the only means of achieving home ownership. In addition, the
total cost of housing in a manufactured home communityCommunity (home cost, site rent and related
occupancy costs) is competitive with and often lower than the total cost
of alternative housing, such as apartments and condominiums.condominiums, and
generally substantially lower than "stick-built" residential
alternatives.
- Lifestyle Choice. As the average age of the United States population has
increased, manufacturedSite Set housing has become an increasingly popular housing
alternative for retirement and "empty-nest" living. According to FNMA,
the FNMA,
amongsurviving baby-boom generation -- the 80 million people born between
1945 and 1964 -- will constitute 18% of the U.S. population within the
next 30 years and more than 32 million will reach age 55 within the next
ten years. Among those people who are nearing retirement (age 40 to 54),
approximately 33% plan on moving upon retirement. Approximately 44% of adults age 40 to
54 and 14% of adults age 55 and over are expected to become "empty nesters"
within the next ten years. The Company believes
that manufacturedSite Set housing is especially attractive to such individuals when
located within a communityCommunity that offers an appealing amenity package,
close proximity to local services, social activities, low maintenance
and a secure environment.
- Construction Quality. Since 1976, all manufacturedSite Set housing has been required
to meet stringent Federal standards, resulting in significant increases
in the quality of the industry's product. The Department of Housing and
Urban Development's standards for manufacturedSite Set housing construction quality
are the only Federally regulated standards governing housing quality of
any type in the United States. ManufacturedSite Set homes produced since 1976 have
received a "red and silver" government seal certifying that they were
built in compliance with the Federal code. The code regulates manufacturedSite Set
home design and construction, strength and durability, fire resistance
and energy efficiency, and the installation and performance of heating,
plumbing, air conditioning, thermal and electrical systems. In newer
homes, top grade lumber and dry wall materials are common. Also,
manufacturers are required to follow the same fire codes as builders of
site-built structures.
- Comparability to Site-Built Homes. The manufacturedSite Set housing industry has
experienced a recent trend towards multi-section homes. Many modern manufacturedSite
Set homes are longer (up to 80 feet compared to 50 feet in the 1960s)1960's)
and wider than earlier models. Many homes have vaulted ceilings,
fireplaces and as many as four bedrooms, and closely resemble single
family ranch style site-built homes.
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ITEM 2. PROPERTIES
The Company believes that the Properties provide attractive amenities and
common facilities that create a comfortable and attractive communityCommunity for the
residents, with most offering a clubhouse, a swimming pool, laundry facilities
and cable television service. Many also offer additional amenities such as
sauna/whirlpool spas, golf courses, tennis, shuffleboard and basketball courts
and exercise rooms. Since residents own their homes, it is their responsibility
to maintain their homes and the surrounding area. It is management's role to
insureensure that residents comply with communityCommunity policies and to provide maintenance
of the common areas, facilities and amenities. The Company holds periodic
meetings of its property management personnel for training and implementation of
the Company's strategies. The Properties historically have had, and the Company
believes they will continue to have, low turnover and high occupancy rates due in
part to this strategy.rates.
The distribution of the Properties throughout the United States reflects
the Company's belief that geographic diversification helps insulate the
portfolio from regional economic influences. The Company intends to target new
acquisitions in or near markets where the Properties are located and will also
consider acquisitions of properties outside such markets. The Company's five
largest markets of Properties owned are Florida (45(49 Properties), California (25
Properties), Arizona (19(17 Properties), Michigan (11 Properties) and Colorado (10
Properties). These markets accounted for 34%36%, 17%, 11%9%, 4%3%, and 8%10%,
respectively, of the Company's total revenues for the year ended December 31,
1998.2001. The Company also has Properties located in the following markets:
Northeast, Northwest, Midwest, and Nevada/Utah/New Mexico. The Company's largest
Property, Bay Indies, located in Venice, Florida, accounted for 3% of the
Company's total revenues for the year ended December 31, 1998.
72001.
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The following tables set forth certain information relating to the
Properties owned by the Company as of December 31, 1998,2001, categorized by the
Company's major markets. "Core Portfolio" represents an analysis of Properties
owned as of the beginning ofthroughout both years underof comparison. The table excludes the following RV
resort Properties (2,687 sites) at which rents and occupancy vary based on
seasonality: Sherwood Forest RV (Kissimmee, Florida); Southern Palms (Eustis,
Florida); Mesa Regal (Mesa, Arizona) and Fun & Sun (San Benito, Texas). The table excludes five Properties
(1,521 sites) in which the Company has a non-controlling joint venture interest
and accounts for using the equity method of accounting.
Number Monthly Monthly
of Sites Occupancy Occupancy Base Rent Base Rent
Location as of as of as of as of as of
Community City, StateNUMBER MONTHLY MONTHLY
OF SITES OCCUPANCY OCCUPANCY BASE RENT BASE RENT
LOCATION AS OF AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/9801 12/31/9801 12/31/9700 12/31/9801 12/31/97
- ------------------------- ---------------------- ---------- ------------ ------------ ---------- -----------00
-------- ----------------------- -------- --------- --------- --------- ---------
FLORIDA
NORTHERN, CENTRAL & EASTERN FLORIDA:
Maralago Cay Lantana FL 602 96.3% 95.7% $417 $405
Brittany Estates Tallahassee FL 299 84.6% 93.6% $285 $270
Bulow Plantation FLagler Beach FL 276 99.4%(b) 97.8%(b) $258 $244
Carriage Cove Daytona Beach FL 418 97.4% 98.3% $399 $370
Coquina Crossing St Augustine FL 361 91.1%(b) 86.8%(b) $317 $305
Coral Cay Margate FL 819 93.4% 96.3% $428 $411
Countryside North Vero Beach FL 646 95.7%(b) 95.5%(b) $315 $298
Fernwood Deland FL 92 94.6% 95.7% $260 $250
Grand Island Grand Island FL(a) 309 76.4% $282
Heritage Village Vero Beach FL 436 97.0% 97.2% $346 $308
Holiday Village, FL Vero Beach FL 128 78.1% 79.7% $286 $281
Indian Oaks Rockledge FL 211 96.2%(b) 94.8%(b) $243 $234
Lakewood Village Melbourne FL 349 95.1% 95.7% $359 $345
Mid-Florida Lakes Leesburg FL 1,226 91.1%(b) 93.2%(b) $325 $313
Oak Bend Ocala FL 262 87.4%(b) 84.4%(b) $250 $239
Pickwick Port Orange FL 432 97.2% 94.9% $310 $296
Sherwood Forest Kissimmee FL 769 96.6%(b) 94.7%(b) $334 $319
Spanish Oaks Ocala FL 459 93.9% 93.7% $301 $281
The Landings Port Orange FL 433 88.9%(b) 89.4%(b) $308 $293
The Meadows, FL Palm Beach Gardens FL 380 82.6%(b) 81.1%(b) $331 $314
TAMPA/NAPLES CORRIDOR:NAPLES:
Bay Indies Venice FL (b) 1,309 100% 100% $299 $29298.9% 99.9% $323 $314
Bay Lake Estates Nokomis FL (b) 228 100% 100% $330 $32096.1% 98.2% $370 $354
Boulevard Estates Clearwater FL 288 97% (a) $263 (a)297 89.2% 89.6% $349 $333
Buccaneer Estates N. Ft. Myers FL (b) 971 100% 100% $293 $28699.1% 99.3% $331 $317
Chalet Village Tampa FL 60 92% (a) $291 (a)
Country Meadows Plant City FL 736 99% (a) $261 (a)90.0% 90.0% $327 $309
Country Place New PortRicheyPort Richey FL 515 97.9%(b) 515 78% (c) 72% (c) $213 $20590.9%(b) $237 $230
Down Yonder Largo FL 361 98% (a) $326 (a)99.4% 98.9% $375 $356
East Bay Oaks Largo FL (b) 328 99% 99% $328 $31497.3% 97.0% $367 $351
Eldorado Village Largo FL (b) 227 97% 100% $331 $31496.0% 96.9% $370 $356
Friendly Village of Kapok Clearwater FL 236 87% (a) $258 (a)84.3% 84.7% $349 $341
Hillcrest Clearwater FL 279 84% 82% $304 $27884.2% 80.3% $345 $322
Holiday Ranch Largo FL 150 95% 89% $311 $28892.7% 94.0% $341 $333
Lake Fairways N. Ft. Myers FL (b) 896 100% 100% $331 $32399.1% 99.4% $364 $348
Lake Haven Dunedin FL 379 92.9% 97.6% $382 $376
Lakes at Countrywood Plant City FL(a) 421 96.5% $246
Meadows at Countrywood Plant City FL 736 98.9% 98.8% $285 $277
Oaks at Countrywood Plant City FL 168 67.9%(b) 379 97% 98% $351 $336
Naples Estates Naples FL 484 100% (a) $320 (a)64.9%(b) $248 $231
Pine Lakes N. Ft. Myers FL (b) 585 100% 100% $402 $392584 99.1% 99.8% $439 $421
Satellite Park Clearwater FL 87 94% (a) $231 (a)
Sunset Oaks Plant City FL 167 41% (c) (a) $222 (a)90.8% 90.8% $302 $292
The Heritage N. Ft. Myers FL 455 83.5%(b) 455 72% (c) 67% (c) $274 $27079.6%(b) $306 $290
Windmill Manor Bradenton FL 292 95% 98% $340 $33495.9% 96.2% $357 $340(d)
Windmill Village -- Ft. Myers N. Ft. Myers FL (b) 491 99% 100% $282 $27498.0% 98.6% $310 $297
Windmill Village North Sarasota FL (b) 471 100% 100% $298 $28798.5% 99.8% $332 $320
Windmill Village South Sarasota FL (b) 306 100% 100% $301 $288
NORTHERN, CENTRAL AND EASTERN FLORIDA:
Arrowhead Village Lantana FL 602 95% 96% $381 $362
Brittany Estates Tallahassee FL 298 88% (a) $202 (a)
Bulow Village Flagler Beach FL (b) 276 76% (c) 65% (c) $215 $196
Carriage Cove Daytona Beach FL 419 98% 99% $347 $334
Colonies of Margate Margate FL (b) 819 97% 98% $404 $392
Countryside North Vero Beach FL 646 92% (a) $277 (a)
Fernwood Deland FL 92 96% (a) $207 (a)
Heritage Village Vero Beach FL (b) 436 98% 98% $281 $269
Holiday Village Vero Beach FL 128 82% (a) $250 (a)
Indian Oaks Rockledge FL 211 82% (c) 80% (c) $228 $221
Lakewood Village Melbourne FL (b) 349 96% 96% $318 $306
Mid-Florida Lakes Leesburg FL (b) 1,195 96% (c) 95% (c) $296 $288
Oak Bend Ocala FL (b) 262 82% (c) 79% (c) $219 $208
Pickwick Village Port Orange FL 432 95% 94% $283 $277
Sherwood Forest Kissimmee FL 769 84% (a) $299 (a)
Spanish Oaks Ocala FL (b) 459 97% 98% $274 $260
The Landings Port Orange FL 436 88% 91% $277 $274
---------- ------------ ------------ ----------- -----------
Total Florida Market 18,130 94% 95% $303 $301
---------- ------------ ------------ ----------- ----------
Florida Core Portfolio 10,957 95% 95% $309 $300
---------- ------------ ------------ ----------- ----------99.3% 100.0% $332 $321
------- ----- ------ ---- ----
TOTAL FLORIDA MARKET 19,154 94.3% 94.7% $333 $323
------- ----- ------ ---- ----
FLORIDA MARKET -- CORE PORTFOLIO 18,424 94.6% 95.1% $336 $323
------- ----- ------ ---- ----
89
9
Number Monthly Monthly
of Sites Occupancy Occupancy Base Rent Base Rent
Location as of as of as of as of as of
Community City, StateNUMBER MONTHLY MONTHLY
OF SITES OCCUPANCY OCCUPANCY BASE RENT BASE RENT
LOCATION AS OF AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/9801 12/31/9801 12/31/9700 12/31/9801 12/31/97
- ------------------------ ---------------------- ---------- ------------ ------------- ----------- -----------00
-------- ----------------------- -------- --------- --------- --------- ---------
CALIFORNIA
NORTHERN CALIFORNIA:
California Hawaiian San Jose CA 413 99% 100% $565 $544419 98.1%(b) 98.1%(b) $636 $600
Colony Park Ceres CA 186 73% 72% $316 $31986.0% 76.9% $353 $345
Concord Cascade Pacheco CA (b) 283 100% 99% $476 $47398.9% 98.9% $544 $521
Contempo Marin San Rafael CA (b) 396 99% 100% $595 $58298.7% 98.7% $644 $631
Coralwood Modesto CA 194 92% 93% $397 $373
De Anza Santa Cruz Santa Cruz CA (b) 198 100% 100% $473 $46097.4% 92.8% $413 $403
Four Seasons Fresno CA 242 69% 67% $229 $22673.6% 71.5% $254 $244
Laguna LakesLake San Luis Obispo CA 290 100% (a) $285 (a)99.7% 99.7% $344 $328
Monte del Lago Castroville CA 314 95% (c) 86% (c) $447 $43197.8%(b) 99.4%(b) $513 $485
Quail Meadows Riverbank CA 146 95% (a) $319 (a)100.0% 98.6% $363 $340
Royal Oaks Visalia CA 149 83% 85% $242 $240
Westwinds I-IV (d) San Jose81.9% 83.2% $273 $258
DeAnza Santa Cruz Santa Cruz CA 724 99% 100% $534 $501198 99.5% 100.0% $526 $514
Sea Oaks Los Osos CA 125 100% 100% $331 $323
Sun Shadow100.0% 100.0% $349 $344
Sunshadow San Jose CA 121 99% 100% $542 $527100.0% 100.0% $605 $583
Westwinds (4 Properties) San Jose CA 723 98.9% 99.9% $656 $615
SOUTHERN CALIFORNIA:
Date Palm Country Club Cathedral City CA (b) 538 90% 90% $589 $57395.9% 93.9% $640 $631
Lamplighter Spring Valley CA (b) 270 96% 96% $486 $47798.1% 99.6% $565 $535
Meadowbrook Santee CA 340 93% (a) $554 (a)332 99.1% 99.4% $603 $590
Rancho Mesa El Cajon CA 158 92% (a) $492 (a)99.4% 99.4% $535 $510
Rancho Valley El Cajon CA (b) 140 97% 94% $481 $47498.6% 99.3% $550 $518
Royal Holiday Hemet CA 179 64.2% 72.6% $277 $259
Santiago Estates Sylmar CA 305 93% (a) $549 (a)
---------- ------------ ------------ ----------- -----------
Total California Market 5,532 94% 94% $482 $474
---------- ------------ ------------ ----------- -----------
California Core Portfolio 1,825 96% 96% $536 $523
---------- ------------ ------------ ----------- -----------299 96.0% 94.6% $617 $591
------- ----- ------ ---- ----
TOTAL CALIFORNIA MARKET 5,702 95.4% 95.2% $538 $516
------- ----- ------ ---- ----
CALIFORNIA MARKET -- CORE PORTFOLIO 5,702 95.4% 95.2% $538 $516
------- ----- ------ ---- ----
ARIZONA
Apollo Village Phoenix AZ 237 91.6%(b) 238 93% (c) 93% (c) $334 $31692.8%(b) $371 $356
Brentwood Manor Mesa AZ (b) 275 97% 99% $403 $386274 93.8% 94.9% $456 $431
Carefree Manor Phoenix AZ 126 96% 98% $265 $264128 97.7% 99.2% $322 $303
Casa del Sol Resort #1 Peoria AZ (b) 246 95% 97% $377 $36886.6% 94.7% $422 $407
Casa del Sol Resort #2 Glendale AZ (b) 239 98% 100% $408 $39394.1% 97.9% $455 $438
Casa del Sol Resort #3 Glendale AZ 238 96% (a) $386 (a)94.1% 96.2% $439 $420
Central Park Phoenix AZ (b) 293 95% 94% $340 $32995.2% 96.9% $386 $373
Desert Skies Phoenix AZ 164 96% 97% $259 $25697.6% 97.0% $317 $293
Fairview Manor Tucson AZ 235 96% 99% $279 $27491.1% 92.8% $326 $311
Hacienda Dede Valencia Mesa AZ (b) 366 95% 94% $329 $316
Mon Dak Mesa AZ 212 88% (a) $255 (a)365 85.2% 94.2% $377 $361
Palm Shadows Glendale AZ (b) 294 97% 98% $311 $29790.8% 94.9% $355 $336
Sedona Shadows Sedona AZ 200 87% 86% $279 $267198 91.4% 88.0% $327 $306
Sunrise Heights Phoenix AZ (b) 200 95% 94% $314 $304199 90.5% 95.5% $358 $347
The Mark Mesa AZ (b) 410 99% 99% $316 $29591.7% 95.9% $383 $361
The Meadows Tempe AZ (b) 391 96% 96% $384 $36692.3% 98.0% $439 $416
Whispering Palms (d) Phoenix AZ 116 97% 100% $237 $227
---------- ------------ ------------ ----------- -----------
Total Arizona Market 4,243 95% 96% $332 $317
---------- ------------ ------------ ----------- -----------
Arizona Core Portfolio 2,952 96% 96% $351 $336
---------- ------------ ------------ ----------- -----------94.8% 99.1% $282 $267
------- ----- ------ ---- ----
TOTAL ARIZONA MARKET 4,027 91.9% 95.4% $385 $367
------- ----- ------ ---- ----
ARIZONA MARKET -- CORE PORTFOLIO 4,027 91.9% 95.4% $385 $367
------- ----- ------ ---- ----
910
10
Number Monthly Monthly
of Sites Occupancy Occupancy Base Rent Base Rent
Location as of as of as of as of as of
Community City, StateNUMBER MONTHLY MONTHLY
OF SITES OCCUPANCY OCCUPANCY BASE RENT BASE RENT
LOCATION AS OF AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/9801 12/31/9801 12/31/9700 12/31/9801 12/31/97
- ------------------------ --------------------- ---------- ------------ ------------- ----------- -----------00
-------- ----------------------- -------- --------- --------- --------- ---------
MICHIGAN
Americana EstatesEstate Kalamazoo MI 161 98% (a) $254 (a)162 88.9% 93.2% $306 $294
Appletree Walker MI 238 94% (a) $292 (a)239 94.1% 96.7% $334 $318
Brighton Village Brighton MI 196 92% (a) $306 (a)197 98.0% 99.0% $384 $369
College Heights Auburn Hills MI 161 94% (a) $316 (a)162 98.8% 98.1% $392 $372
Creekside Wyoming MI 165 96% 98% $342 $34094.5% 97.6% $374 $356
Groveland Manor Holly MI 186 95% (a) $293 (a)89.2% 91.4% $358 $346
Hillcrest Acres Kalamazoo MI 150 98% (a) $258 (a)94.0% 96.0% $319 $307
Metro Park Romulus MI 227 86% (a) $290 (a)99.6% 98.7% $364 $384
Riverview Estates Bay City MI 198 87% (a) $210 (a)
Willow Run Ypsilanti MI 185 91% (a) $257 (a)197 78.2% 78.2% $259 $249
South Lyon Woods South Lyon MI 211 100% (a) $370 (a)
---------- ------------ ------------ ----------- -----------
---------- ------------ ------------ ----------- -----------
Total Michigan Market 2,078 93% 98% $292 $340
---------- ------------ ------------ ----------- -----------98.6% 98.1% $455 $439
Timberland Ypsilianti MI 185 91.9% 91.4% $343 $332
------- ----- ------ ---- ----
TOTAL MICHIGAN MARKET 2,081 93.4% 94.4% $359 $344
------- ----- ------ ---- ----
MICHIGAN MARKET -- CORE
PORTFOLIO 2,081 93.4% 94.4% $359 $344
------- ----- ------ ---- ----
COLORADO
Bear Creek Sheridan CO 126 98% 99% $357 $354124 97.6% 100.0% $409 $385
Cimarron Broomfield CO (b) 327 98% 98% $350 $33298.2% 99.1% $417 $391
Golden Terrace Golden CO (b) 265 96% 99% $398 $369
Golden Terrace West Golden CO (b) 317 97% 98% $388 $36298.6% 99.2% $464 $431
Golden Terrace South Golden CO 80 98% 99% $366 $33796.3% 100.0% $441 $407
Golden Terrace West Golden CO 316 98.1% 100.0% $454 $424
Hillcrest Village Aurora CO (b) 603 95% 95% $380 $359602 95.5% 96.3% $445 $422
Holiday Hills Denver CO (b) 737 96% 97% $368 $34695.4% 97.1% $437 $412
Holiday Village - CO Co. Springs CO (b) 240 97% 97% $368 $34896.7% 96.3% $427 $403
Pueblo Grande Pueblo CO (b) 252 98% 98% $241 $22696.8% 96.8% $281 $265
Woodland Hills Denver CO (b) 434 98% 99% $353 $336
---------- ------------ ------------ ----------- -----------
Total Colorado Market 3,381 97% 97% $360 $340
---------- ------------ ------------ ----------- -----------
Colorado Core Portfolio 3,175 97% 97% $360 $340
---------- ------------ ------------ ----------- -----------97.9% 98.6% $418 $390
------- ----- ------ ---- ----
TOTAL COLORADO MARKET 3,377 96.8% 97.9% $424 $399
------- ----- ------ ---- ----
COLORADO MARKET -- CORE PORTFOLIO 3,377 96.8% 97.9% $424 $399
------- ----- ------ ---- ----
NORTHEAST
Aspen Meadows Rehoboth DE 199 95% (a) $228 (a)200 99.5% 100.0% $262 $250
Camelot Meadows Rehoboth DE 302 97% (a) $228 (a)
Mariner's319 99.9% 100.0% $265 $252
Mariners Cove Millsboro DE 375 89.3%(b) 375 84% (c) 83% (c) $314 $30288.5%(b) $381 $356
McNicol Rehoboth DE 93 100% (a) $239 (a)98.9% 97.8% $258 $248
Sweetbriar Rehoboth DE 142 98% (a) $189 (a)98.6% 100.0% $199 $187
Waterford WilmingtonEstates Bear DE 731 97.4%(b) 731 92% (c) 89% (c) $350 $33796.9%(b) $398 $379
Whispering Pines (d) Lewes DE (b) 392 94% 97% $246 $241393 95.2% 96.9% $269 $258
Pheasant Ridge Mt. Airy MD 101 97.0% 99.0% $453 $424
Brook Gardens Lackawanna NY 424 96.5% 97.2% $435 $423
Greenwood Village Manorville NY 486 99.4%(b) 101 100% 100%97.3%(b) $389 $368$366
Green Acres Breinigsville PA 595 96.1% 97.3% $420 $408
Meadows of Chantilly Chantilly VA (b) 500 82% 86% $466 $45796.6% 92.0% $512 $493
Independence Hill Morgantown WV (b) 203 89% 98% $187 $178
Green Acres Breinigsville PA (b) 595 98% (c) 98% (c) $369 $357
Brook Gardens Lackawanna NY 426 98% 99% $392 $388
Greenwood Village Manorville NY 477 88% (c) (a) $358 (a)
---------- ------------ ------------ ----------- -----------
Total Northeast Market 4,536 92% 92% $329 $340
---------- ------------ ------------ ----------- -----------
Northeast Core Portfolio 2,897 91% 91% $344 $332
---------- ------------ ------------ ----------- -----------88.2% 90.1% $214 $204
------- ----- ------ ---- ----
TOTAL NORTHEAST MARKET 4,562 96.3% 96.0% $372 $355
------- ----- ------ ---- ----
NORTHEAST MARKET -- CORE PORTFOLIO 4,562 96.3% 96.0% $372 $355
------- ----- ------ ---- ----
1011
11
Number Monthly Monthly
of Sites Occupancy Occupancy Base Rent Base Rent
Location as of as of as of as of as of
Community City, StateNUMBER MONTHLY MONTHLY
OF SITES OCCUPANCY OCCUPANCY BASE RENT BASE RENT
LOCATION AS OF AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/9801 12/31/9801 12/31/9700 12/31/9801 12/31/97
- ------------------------ ---------------------- ---------- ------------ ------------- ----------- -----------
MIDWEST00
-------- ----------------------- -------- --------- --------- --------- ---------
MIDWEST
Five Seasons Cedar Rapids IA 390 83% (c) 91% (c) $238 $22879.0%(b) 79.7%(b) $253 $240
Holiday Village, - IA SiouxSoux City IA (b) 519 93% 95% $216 $204
Camelot Acres Burnsville MN (b) 319 95% 96% $351 $33580.5% 87.7% $248 $241
Golf Vista Estates Monee IL 319 67% (c) 86% (c) $301 $283371 88.4%(b) 90.6%(b) $387 $344
Willow Lake Estates Elgin IL (b) 616 98% 99% $538 $527617 96.8% 97.4% $624 $583
Burns Harbor Estates Chesterton IN (b) 228 95% 97% $276 $268
Candlelight Village Columbus IN (b) 585 99% (c) 97% (c) $188 $164227 83.7% 89.0% $305 $287
Oak Tree Village Portage IN (b) 380 96% 98% $255 $250379 90.0% 93.1% $302 $283
Windsong Indianapolis IN 268 96% (a) $252 (a)84.0% 91.4% $292 $277
Camelot Acres Burnsville MN 302 99.8% 99.3% $417 $390
Royal Village Toledo OH 233 96% (a) $234 (a)
Bonner Springs Bonner Springs KS (b) 210 90% 77% $186 $175
Carriage Park Kansas City KS (b) 143 66% (e) 67% (e) $187 $172
Quivira Hills Kansas City KS (b) 142 82% 80% $220 $212
Rockwood Village Tulsa OK (b) 265 100% 99% $204 $191
Briarwood Brookline MO (b) 166 96% 95% $173 $169
Dellwood Manor Warrensburg MO (b) 136 82% 89% $165 $156
Northstar Village Kansas City MO (b) 219 89% 85% $232 $219
---------- ------------ ------------ ----------- -----------
Total Midwest Market 5,138 92% 93% $272 $263
---------- ------------ ------------ ----------- -----------
Midwest Core Portfolio 3,928 94% 93% $277 $266
---------- ------------ ------------ ----------- -----------90.1% 89.3% $319 $300
------- ----- ------ ---- ----
TOTAL MIDWEST MARKET 3,306 88.3% 91.9% $377 $350
------- ----- ------ ---- ----
MIDWEST MARKET -- CORE PORTFOLIO 3,306 88.3% 91.9% $377 $350
------- ----- ------ ---- ----
NEVADA, UTAH, NEW MEXICO
Del Rey Albuquerque NM 407 84.5% 90.9% $328 $328
Bonanza Las Vegas NV 353 75.9% 81.6% $465 $465
Boulder Cascade Las Vegas NV 298 86.9% 89.3% $417 $394
Cabana Las Vegas NV 263 97.3% 98.9% $432 $415
Flamingo West Las Vegas NV 258 84.1%(b) 407 89% 95% $351 $33780.2%(b) $430 $406
Villa Borega Las Vegas NV 293 91.1% 95.9% $421 $402(d)
All Seasons Salt Lake City UT 121 99% 100% $267 $25198.3% 97.5% $328 $315
Westwood Village Farr West UT 294 100% 100% $206 $204
Bonanza Las Vegas NV 314 96.5%(b) 353 95% 99% $439 $415
Boulder Cascade Las Vegas NV 299 98% (a) $428 (a)
Flamingo West Las Vegas NV 95.2%(b) 205 100% 100% $379 $375
The Cabana Las Vegas NV (b) 263 100% 100% $387 $378
Villa Borega Las Vegas NV 293 99% 98% $413 $403
---------- ------------ ------------ ----------- -----------
Total Nevada, Utah, New Mexico Market 2,235 97% 98% $366 $348
---------- ------------ ------------ ---------- -----------
Nevada, Utah, New Mexico Core Portfolio 1,228 95% 98% $389$237 $232
------- ----- ------ ---- ----
TOTAL NEVADA, UTAH, NEW MEXICO
MARKET 2,307 88.1% 90.6% $380 ---------- ------------ ------------- ----------- -----------$369
------- ----- ------ ---- ----
NEVADA, UTAH, NEW MEXICO MARKET --
CORE PORTFOLIO 2,307 88.1% 90.6% $380 $369
------- ----- ------ ---- ----
NORTHWEST
Casa Village Billings MT 491 92.3% 98.0% $282 $272
Falcon Wood Village Eugene OR 183 98.9% 98.4% $363 $345
Quail Hollow Fairview OR 137 97.8% 98.6% $442 $426
Shadowbrook Clackamas OR 156 98.7% 99.4% $444 $429
Kloshe Illahee Federal Way WA 258 100% 100% $413 $397
Falconwood Eugene OR 183 98% 98% $312 $285
Quail Hollow Fairview OR 137 100% 100% $394 $373
Shadowbrook Clackamas OR 156 100% 100% $39099.6% 99.2% $478 $454
------- ----- ------ ---- ----
TOTAL NORTHWEST MARKET 1,225 96.3% 98.5% $376 $359
------- ----- ------ ---- ----
NORTHWEST MARKET -- CORE
PORTFOLIO 1,225 96.3% 98.5% $376 $359
------- ----- ------ ---- ----
GRAND TOTAL ALL MARKETS 45,741 93.6% 94.7% $388 $367
======= ===== ====== ==== ====
GRAND TOTAL ALL MARKETS -- CORE
PORTFOLIO 45,011 93.9%(c) 94.9%(c) $384 Casa Village Billings MT (b) 497 93% (c) 97% (c) $257 $240
---------- ------------ ------------ ----------- -----------
Total Northwest Market 1,231 97% 98% $332 $313
---------- ------------ ------------ ----------- -----------
Northwest Core Portfolio 497 93% 97% $257 $240
---------- ------------ ------------ ----------- -----------
Grand Total Company Portfolio 46,504 94% (f) 95% (f) $334 $329
========== ============ ============ =========== ===========
Grand Total Core Portfolio 27,459 95% 95% $337 $325
========== ============ ============ =========== ===========$367
======= ===== ====== ==== ====
- ---------------
(a) The Company acquired this Property in 1998.
(b) Represents a Property whichthat is not part of the Core Portfolio.
(c)(b) The process of filling expansion sitesExpansion Sites at these propertiesProperties is ongoing. (d) Westwinds I-IV formerly known as San Jose I-IV; Whispering Palms formerly
known as Em Ja Ha; and Whispering Pines formerly known as Nassau.
(e) Carriage Park suffered damage to approximately 85 homesA
decrease in 1993 due to
flooding; the processoccupancy may reflect development of releasing these sites is ongoing.
(f)additional Expansion Sites.
(c) Changes in total portfolio occupancy include the impact of acquisitions and
expansion programs and are therefore not comparable.
(d) During 2001, at certain Properties the amounts charged to residents for
utilities were separated ("Unbundled") from their rent charges and recorded
as utility income. For comparison purposes an adjustment was made to base
rental income for 2000. This adjustment is reflected on this table in the
monthly base rent per site amounts for 2000.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations.
1112
12
ITEM 3. LEGAL PROCEEDINGS
DEANZA SANTA CRUZ MOBILE ESTATES
The residents of DeAnza Santa Cruz Mobile Estates, a property located in
Santa Cruz, California (the "City") previously brought several actions opposing
certain fees and charges in connection with water service at the Property. The
trial of the ongoing utility charge dispute with the residents of this Property
concluded on January 22, 1999. This
summary provides the history and reasoning underlying the Company's defense of
the residents' claims and explains the Company's decision to continue to defend
its position, which the Company believes is fair and accurate.
DeAnza Santa Cruz Mobile Estates is a 198 site community198-site Community overlooking the
Pacific Ocean. It is subject to the City's rent control ordinance which limits
annual rent increases to 75% of CPI. The Company purchased this Property in
August 1994 from certain unaffiliated DeAnza entities ("DeAnza"). Prior to the
Company's purchase in 1994, DeAnza made the decision to submeter and separately
bill tenants at the Property for both water and sewer in 1993 in the face of the
City's rapidly rising utility costs.
Under California Civil Code Section 798.41, DeAnza was required to reduce
rent by an amount equal to the average cost of usage over the preceding 12
months. This was done. With respect to water charges, because DeAnza did not
lookingwant to submit to
jurisdiction ofbe regulated by the California Public Utility Commission ("PUC"CPUC"),
DeAnza relied on California Public Utilities Code Section 2705.5 ("PUCCPUC Section
2705.5") to determine what rates would be charged for water on an ongoing basis
without becoming a public utility. ThisDeAnza and the Company interpreted the
statute providesas providing that in a submetered mobilehomemobile home park, the property owner
is not subject to regulation and control of the PUCCPUC so long as the users are
charged what they would be charged by the utility company if users received
their water directly from the utility company. In Santa Cruz, customers
receiving their water directly from the city'sCity's water utility were charged a
certain lifeline rate for the first 400 ccfs of water and a greater rate for
usage over 400 ccfs of water, a readiness to serve charge of $7.80 per month and
tax on the total. In reliance on PUCCPUC Section 2705.5, DeAnza implemented its
billings on this schedule notwithstanding that it did not receive the discount
for the first 400 ccfs of water because it was a commercial and not a
residential customer.
A dispute with the residents ensued over the readiness to serve charge and
tax thereon. The residents argued that California Civil Code Section 798.41
required that the parkProperty owner could only pass through its actual costs of
water (and that the excess charges over the amount of the rent rollback were an
improper rent increase) and that PUCCPUC Section 2705.5 was not applicable. DeAnza
unbundled the utility charges from rent consistent with California Civil Code
Section 798.41 and it has generally been undisputed that the rent rollback was
accurately calculated.
In August 1994, when the Company acquired the Property, the Company
reviewed the respective legal positions of the Santa Cruz Homeowners Association
("HOA") and DeAnza and concurred with DeAnza. TheirDeAnza's reliance on PUCCPUC Section
2705.5 made both legal and practical sense in that residents paid only what they
would pay if they lived in a residential neighborhood within the city of Santa
CruzCity and
permitted DeAnza to recoup part of the expenses of operating a submetered system
through the readiness to serve charge.
Over a period of 18 months from 1993 into May of 1995, a series of
complaints were filed by the HOA and Herbert Rossman, a resident, against
DeAnza, and later, the Company. DeAnza and the Company demurred to each of these
complaints on the grounds that the PUCCPUC had exclusive jurisdiction over the
setting of water rates and that residents under rent control had to first
exhaust their administrative remedies before proceeding in a civil action. At
one point, the case was dismissed (with leave to amend) on the basis that
jurisdiction was with the PUCCPUC and, at another point, Mr. Rossman was dismissed
from the case because he had not exhausted his administrative remedies.
On June 29, 1995, a hearing was held before a Santa CruzCity rent control officer on
thebilling and submetering ofissues related to both water and sewer. The Company and
DeAnza prevailed on all issues related to sewer and the rent rollback related to
water, but the hearing officer determined that the Company could only pass
through its actual cost of water, i.e., a prorated readiness to serve charge and
tax thereon. The hearing officer did not deal with the subsidy being given to
residents through the quantity charge and ordered a rebate in a fixed amount per
resident. The Company and DeAnza requested reconsideration on this issue, among
others, which reconsideration was denied by the hearing officer.
13
The Company then took a writ of mandate (an appeal from an administrative
order) to the Superior Court and, pending this appeal, the residents, the
Company and the City agreed to stay the effect of the hearing officer's decision
until the Court rendered judgment.
12
13
In July 1996, the Superior Court affirmed the hearing officer's decision
without addressing concerns about the failure to take the subsidy on the
quantity charge into account.
The Company requested that the City and the HOA agree to a further stay
pending appeal to the court of appeals,appeal, but they refused and the appealsappeal court
denied the Company's request for a stay in late November 1996. Therefore, on
January 1, 1997, the Company reduced its water charges at this Property to
reflect a pass-through of only the readiness to serve charge and tax at the
master meter (approximately $0.73) and to eliminate the subsidy on the water
charges. On their March 1, 1997 rent billings, residents were credited for
amounts previously "overcharged" for readiness to serve charge and tax. The
amount of the rebate given by the Company and DeAnza was $36,400. In calculating
the rebate, the Company and DeAnza took into account the previous subsidy on
water usage although this issue had not yet been decided by the court of appeals.appeal.
The Company and DeAnza felt legally safe in so doing based on language in the
hearing officer's decision that actual costs could be passed through.
On March 12, 1997, the Company also filed an application with the PUCCPUC to
dedicate the water system at this Property to public use and have the PUCCPUC set
cost basedcost-based rates for water usage. The Company believed it was obligated to take
this action because of its consistent reliance on PUCCPUC Section 2705.5 as a safe
harbor from PUCCPUC jurisdiction. That is, when the Company could no longer charge
for water as the local serving utility would charge, it was no longer exempt
from the PUC'sCPUC's jurisdiction and control under PUCCPUC Section 2705.5.
On March 20, 1997,1998, the court of appealsappeal issued the writ of mandate requested
by the Company on the grounds that the hearing officer had improperly calculated
the amount of the rebate (meaning the Company had correctly calculated the rent
credits), but also ruling that the hearing officer was correct when he found
that the readiness to serve charge and tax thereon as charged by DeAnza and the
Company were an inappropriate rent increase. The decision primarily reflected
the court of appealsappeal's view that CPUC Section 2705.5 operated as a ceiling and
that California Civil Code Section 798.41 allowed for a charge based on actual
costs, including costs of administration, operation and maintenance of the
system, but that the Company had not to provide evidence of such costs. The
court of appeal further agreed with the Company that the city'sCity's hearing officer
did not have the authority under California Civil Code Section 798.41 to
establish rates that could be charged in the future.
Following this decision, the PUCCPUC granted the Company its certificate of
convenience and necessity on December 17, 1998 and approved cost basedcost-based rates and
charges for water that exceed what residents were paying under the Company's
reliance on PUCCPUC Section 2705.5. Concurrently, the PUCCPUC also issued an Order
Instituting Investigation ("OII") confirming its exclusive jurisdiction over the
issue of water rates in a submetered system and commencing an investigation into
the confusion and turmoil over billings in submetered properties. Specifically,
the OII states: "The Commission has exclusive and primary jurisdiction over the
establishment of rates for water and sewer services provided by private
entities."
Specifically, the PUCCPUC ruling regarding the Company's application stated:
"The ultimate question of what fees and charges may or may not be assessed,
beyond external supplier pass-through charges, for in-park facilities when a
mobile home park does not adhere to the provisions of PUCCPUC Section 2705.5, must
be decided by the Commission."
After the court of appealsappeal decision, the HOA brought all of its members back
into the underlying civil action for the purpose of determining damages,
including punitive damages, against the Company. The trial was continued from
July 1998 to January 1999 to give the PUCCPUC time to act on the Company's
application. Notwithstanding the action taken by the PUCCPUC in issuing the OII in
December 1998, the trial court denied the Company's motion to dismiss on
jurisdictional grounds and trial commenced before a jury on January 11, 1999.
Not only did the trial court not consider the Company's motion to dismiss,
the trial court refused to allow evidence of the OII or the Company's PUCCPUC
approval to go before the jury. Notwithstanding the Company's strenuous
objections, the judge also allowed evidence of the Company's and DeAnza's
litigation tactics to be used as evidence of bad faith and oppressive actions
(including evidence of the application to the PUCCPUC requesting a $22.00 readiness
to serve charge). The Company's motion for a mistrial based upon these
evidentiary rulings was denied. On January 22, 1999, the jury returned a verdict
awarding $6.0 million of punitive damages against the Company and DeAnza. The
Company had previously agreed to indemnify DeAnza on the matter.
14
On April 19, 1999, the trial court denied all of the Company's and DeAnza's
post-trial motions for judgement notwithstanding the verdict, new trial and
remittur. The trial court also awarded $700,000 of attorneys' fees to
plaintiffs. The Company is preparing to bondappealed the jury verdict and attorneys' fees award
(which also accrues interest at the statutory rate of 10.0% per annum). The
Company bonded the judgment pending appeal in accordance with California
procedural rules, which require a bond equal to 150% of the amount of the
judgment. Post-judgment interest will accrue at the statutory rate of 10.0% per
annum.
13
14On December 21, 2001 the California Court of Appeal for the Sixth District
reversed the $6.0 million punitive damage award, the related award of attorneys'
fees, and, as a result, all post-judgement interest thereon, on the basis that
punitive damages are not available as a remedy for a statutory violation of the
MRL. The decision of the appellate court left the HOA with the right to seek a
new trial in which it must prove its entitlement to either the statutory penalty
and attorneys' fees available under the MRL or punitive damages based on causes
of action for fraud, misrepresentation or other tort. The HOA has filed in
Superior Court, seeking statutory penalties and attorneys' fees, which may be
heard in late March, 2002. The Company will participate in post trial motions including a case
management conference before March 15, 1999. The post trial motions will include
a motion for judgment notwithstandingintends to vigorously defend itself
against these claims.
In two related appeals, the verdict, new trial and remittitur (a
procedure wherebyCompany had argued that the trial judge could unilaterally reduce the punitive damages
award). To the extent the Company is unablecourt's
ability to obtain reliefenter an award of attorneys' fees in the form of
reversal or reductionfavor of the award inHOA and to take
certain other actions was preempted by the trial court pursuant to post trial
motions, relief fromexercise of exclusive jurisdiction by
the verdict, if any, will have to come on appeal.
Generally, the Company's appeal will focus on two areas: 1) lack of
jurisdiction in the trial court; and 2) trial error. Given that the PUC has
issued an OII confirming its exclusive jurisdictionCPUC over the issue of how to set rates for water
rates in a submetered system, that there was generally no disputemobile
home park. During 2000, the California court of appeal rejected the Company's
preemption argument with respect to these prior rulings in favor of plaintiffs,
one of which had awarded plaintiffs approximately $100,000 of attorneys' fees.
The California Supreme Court declined to accept the case for review and the
Company paid the judgment, including post-judgment interest thereon, and settled
the matter for approximately $200,000 late in 2000.
In a separate matter, in December 2000 the HOA and certain individual
residents of the Property filed a complaint in the Superior Court of California,
County of Santa Cruz (No. CV 139825) against the Company, certain affiliates of
the Company and certain employees of the Company. The new lawsuit seeks damages,
including punitive damages, for intentional infliction of emotional distress,
unfair business practices, and unlawful retaliation purportedly arising from
allegedly retaliatory rent roll backincreases which were noticed by the Company to
achieve relief fromcertain residents in September 2000. The Company believes that the residents who
received rent increase notices with respect to rent increases above those
permitted by the local rent control ordinance were not covered by the magnitudeordinance
either because they did not comply with the provisions of the verdictordinance or
because they are exempted by state law. On December 29, 2000, the Superior Court
of California, County of Santa Cruz enjoined such rent increases. The Company
intends to vigorously defend the matter, which may go to trial in lightthe summer of
reasonable reliance2002.
ELLENBURG COMMUNITIES
The Company and certain other parties entered into a settlement agreement
("the Settlement"), which was approved by the Los Angeles County Superior Court
in April 2000. The Settlement resolved substantially all of the litigation and
appeals involving the Ellenburg Properties, and transactions arising out of the
settlement closed on May 22, 2000 (see Note 5). Only the PUC's statutory authority, useappeals of prejudicial evidencethe two
entities remain, neither of which is expected to materially affect the Company.
In connection with the Ellenburg Acquisition, on September 8, 1999,
Ellenburg Fund 20 ("Fund 20") filed a cross complaint in the Ellenburg
dissolution proceeding against the Company and denialcertain of the Company's rights to
present the PUC decisionits affiliates
alleging causes of action for fraud and related evidence, the Company believes the court of
appeals will reverse or substantially reduce the punitive damage award. However,
there can be no assurances that this will occur.
The Company's view is that the range of possible loss on this matter at
this time based on the opposing legal theories is from 0 (zero) (without
considering the Company's litigation expense which is not expected to be
material) to $6 million (plus costs which the Company expect plaintiffs' counsel
to claim, the Company's litigation expense, cost of the bond and post-judgment
interest). The HOA is also seeking to recover attorneys feesother claims in connection with the
trial, including a multiplier of such fees which may result in an attorneys
fee award in the range of $700,000 to $900,000. This is in addition to the
$100,000 award referred to above.Ellenburg acquisition. The Company will vigorously oppose such award
of attorney fees.
Undersubsequently successfully had the Company's theory ofcross
complaint against the case, once appropriate unbundling ofCompany and its affiliates dismissed with prejudice by the
utility service from rentCalifornia Superior Court. However, Fund 20 has occurred, onlyappealed. This appeal was one
not resolved by the PUC has exclusive jurisdiction
regarding rates that may be charged for utility services on a prospective basis.Settlement. The Company believes Fund 20's allegations are
without merit and will vigorously defend itself.
In October 2001, Fund 20 sued the actionsCompany and certain of its affiliates
again, this time in Almeda County, California making substantially the same
allegations. The Company obtained an injunction preventing the case from
proceeding until the Fund 20 appeal is decided and other related proceedings in
Arizona (from which the Company has already been dismissed with prejudice) are
concluded.
15
CANDLELIGHT PROPERTIES, L.L.C
In 1996, 1997 and 1998, the Lending Partnership made loans to Candlelight
Properties, L.L.C. ("Borrower") in the aggregate principal amount of $8,050,000
(collectively, the "Loan". The Loan was secured by a mortgage on Candlelight
Village ("Candlelight"), a Property in Columbus, Indiana, and was guaranteed by
Ronald E. Farren, the PUC99% owner of Borrower. The Company accounted for the Loan
as an investment in reiterating its exclusive
jurisdiction, agreeingreal estate and, accordingly, Candlelight's rental revenues
and operating costs were included with the Company's interpretationrental revenues and
operating costs for financial reporting purposes. Concurrently with the funding
of PUC Section 2705.5,the Loan, Borrower granted the Operating Partnership the option to acquire
Candlelight upon the maturity of the Loan. The Operating Partnership notified
Borrower that it was exercising its option to acquire Candlelight in March 1999,
and the Loan subsequently matured on May 3, 1999. However, Borrower failed to
repay the Loan and refused to convey Candlelight to the Operating Partnership.
Borrower filed suit in certificating the Company's utility company throughCircuit Court of Bartholomew County, Indiana
("Court") on May 5, 1999, seeking declaratory judgment on the establishmentvalidity of cost based ratesthe
exercise of the option. The Lending Partnership filed suit in the Court the next
day, seeking to foreclose its mortgage, and the suits were consolidated by the
Court.
On September 20, 2001, the parties entered into a settlement agreement
providing for a cash payment of $10.8 million to the Lending Partnership and
dismissal with prejudice of all litigation among the parties and their
affiliates, among other terms. The closing under the Settlement Agreement
occurred on October 5, 2001. The Company accounted for the Property validate its previous reliance on PUC Section
2705.5Settlement as a
means of recovering a portiondisposition of the costproperty.
WESTWINDS
The Operating Partnership is the ground lessee ("Lessee") of providing watercertain
property in San Jose, California under ground leases ("Leases") from the
Nicholson Family Trust ("Lessor"). On February 13, 2001, Lessor filed a petition
for arbitration of disputes over whether certain items constitute "gross
revenue" under the Leases in which petition Lessor seeks damages and termination
of the Leases. Lessee responded on March 12, 2001 disputing Lessor's
contentions. Lessor claims that "gross revenue" for the purpose of calculating
percentage rent owing to Lessor under the ground leases includes certain amounts
Lessee has recouped from tenants of the Property (who are protected by rent
control) related to ground rent already paid to Lessor. Lessee has successfully
been able to pass-through to tenants at the Property. Basedproperty increases in ground rent
under the Leases. Lessee contends that this pass-through results in
reimbursement of lease expense, not "gross revenue." Lessor also contends that
the "net income" of RSI. from the Property should be included in the gross
revenue calculation. Lessee disputes this for many reasons, including, but not
limited to, the fact that RSI is not a lessee under the Leases, the sales
activity is not conducted by Lessee, and RSI is a separate company from Lessee.
Lessor's motion for summary judgment on the PUC's rulings, while legal expense will be incurred in
further defense, it follows that residents did not incur any actual damages (inpass-through issue was denied
by an arbitration panel on November 2, 2001. Lessor and Lessee have agreed to
mediate the form of "overcharges") and may be liable to return amounts previously repaid
by the Company and DeAnza.
Obviously, plaintiff's theory as described herein has resulted not only in
a refund to residents of amounts "overcharged", but also in the punitive damage
award. To avoid trying this case on the merits, plaintiffs introduced
substantial evidence of legal strategy and objected strenuously (and
successfully) to introduction of evidence supporting the Company on the merits.
Currently, there is little or no settlement potential unless the trial
court indicates to plaintiffs at a scheduled case management conference
(February 24, 1999) that it is seriously considering granting a new trial or
other relief to the Company based on post trial motions. Estimated legal
expense, if this matter is not resolveddispute prior to appeal, during the next 15
months could reach between $300,000 and $500,000.
In a separate matter, on September 29, 1995, the United States
Environmental Protection Agency ("USEPA") issued its Findings of Violations and
Order for Compliance with respect to the National Pollution Discharge
Elimination System ("NPDES") Permit governing the operation of the on-site waste
water treatment plant at one of the Company's Properties. On October 6, 1995,
the USEPA issued its Findings of Violation and Order for Compliance with respect
to the NPDES Permit governing the operation of the on-site waste water treatment
plant at another of the Company's Properties. The Company and USEPA have reached
a tentative agreement to resolve the matter in which the operation of the
remaining waste water treatment plant would be subject to a consent decree that
would provide for fines and penalties in the event of future violations and the
Company would contribute monies to a supplemental environmental project and pay
a fine. The tentative agreement has not yet been reduced to writing and
therefore remains subject to change.arbitration. The Company does not believe the impact of
the settlement will be material and the Company believes it has established
adequate reserves for any amounts that may be paid.
In another matter, in connection with the acquisition of the Ellenburg
Communities and pursuant to orders of the California Superior Court,
approximately $30 million of the
amounts paid by the Company have been deposited
with the court appointed winding up agents (the "Winding Up Agents"). The
deposited amounts relate to claims (the "Karno Claims") of Norton S. Karno (and
related entities) who at various times has been a creditor, advisor, lawyer and
shareholder of certain of the entities related to the Ellenburg Communities. The
Winding Up Agents have disputed the claims and have filed a complaint against
Mr. Karno (and related entities) requesting that the court determine that the
claims be reduced or eliminated.
14
15
On October 30, 1998, the Company received notice of a lawsuit filedin question are material even if resolved against the CompanyLessee and, certain Executive Officersbased
upon advice of the Company in the Los Angeles
Superior Court alleging, among other causes of action, that the Company breached
certain agreements in connection with the acquisition of the Ellenburg
Communities and claiming damages in excess of $50 million plus punitive damages.
Based upon jurisdictional issues, in February 1999 the claims against the
Executive Officers of the Company were dismissed. The Company believes most of
the claim relates to the disputed Karno Claims discussed above. The Company
believes the claims are without merit, intends to vigorously defend the
defendants in this matter andcounsel, does not believe that the impact of this matterLessor will be material.
In connection withsuccessful in
terminating the acquisition of the Ellenburg Communities, Mr. Karno
and others have appealed various court orders on which the Company has relied.
The court of appeals has recently requested briefing on the issue of whether
certain appeals are moot. Mr. Karno has also sought before both the California
Superior Court and Court of Appeals to take control of ECC, but to date none of
his attempts have been successful.Leases.
OTHER
The Company is involved in various other legal proceedings arising in the
ordinary course of business. AllManagement believes that all proceedings herein
described or referred to, taken together, are not expected to have a material
adverse impact on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth for the period indicated, the high and low
sales prices for the Company's common stock as reported by theThe New York Stock
Exchange under the trading symbol MHC.
Distributions Return of Capital
Close High Low MadeDISTRIBUTIONS RETURN OF CAPITAL
CLOSE HIGH LOW MADE GAAP Basis (a)
----- ---- --- ----BASIS(A)
-------- -------- -------- ------------- -----------------
19982001
1st Quarter $25.8750 $27.1250 $24.5625 $.3625 $.05$27.0000 $28.7500 $25.8800 $ .4450 $ .00
2nd Quarter 24.1250 27.0000 24.0000 .3625 .0828.1000 28.2000 26.4800 .4450 .16
3rd Quarter 25.4375 27.2500 22.0000 .3625 .1030.4200 30.4200 28.0500 .4450 .16
4th Quarter 25.0625 25.6875 22.8750 .3625 .10
199731.2100 31.6400 30.0000 .4450 .11
2000
1st Quarter $21.8750 $24.2500 $21.3750$23.1250 $25.7500 $22.2500 $ .33 $.05.4150 $ .14
2nd Quarter 23.9375 25.7500 23.0625 23.7500 20.1250 .33 .04.4150 .00
3rd Quarter 26.0000 26.4375 23.0625 .33 .0225.0000 25.2500 23.5000 .4150 .17
4th Quarter 27.0000 27.5000 25.6250 .33 .0429.0000 29.1250 24.3125 .4150 .12
(a) Represents distributions per share in excess of net income per share-basic
on a GAAP basis and is not the same as return of capital on a tax basis.
The number of beneficial holders of the Company's common stock at December
31, 19982001 was approximately 5,600.4,400.
17
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AND PROPERTY DATA)
ITEM 6. SELECTED FINANCIAL AND OPERATING INFORMATION
The following table sets forth selected financial and operating information
on a historical basis for the Company. The following information should be read
in conjunction with all of the financial statements and notes thereto included
elsewhere in this Form 10-K. The historical operating data for the years ended
December 31, 2001, 2000, 1999, 1998 and 1997 and 1996 hashave been derived from the
historical Financial Statements of the Company audited by Ernst & Young LLP,
independent auditors.
The historical operating data for the years ended December 31, 1995 and 1994 has
been derived from the historical Financial Statements of the Company audited by
Coopers & Lybrand, L.L.P., independent auditors.
On April 22, 1994, a two-for-one stock split became effective. For purposes
of presenting outstanding shares, distribution per share and OP Units, the
impact of the stock split has been given retroactive treatment.
15
16
Manufactured Home Communities, Inc. Consolidated Historical
(1) Years ended DecemberYEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
1996 1995 1994
------------- -------------- --------------- ------------- ------------
(Amounts in thousands, except for per share and property data)---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
OPERATING DATA:
REVENUES
Base rental income $ 165,340 $ 108,984 $ 93,109 $ 85,242 $ 60,085income........................................... $195,644 $189,481 $181,672 $165,340 $108,984
RV base rental income........................................ 5,748 7,414 9,526 7,153 --
Utility and other income 25,372income..................................... 22,014 20,366 20,096 18,219 11,785 8,821 8,481 4,348
Equity in income of affiliatesaffiliates............................... 1,811 2,408 2,065 1,070 800
853 885 727
Interest incomeincome.............................................. 639 1,009 1,669 3,048 1,941
2,420 2,296 3,599
--------- --------- --------- -------- ----------------- -------- -------- --------
Total revenuesrevenues............................................. 225,856 220,678 215,028 194,830 123,510
105,203 96,904 68,759
--------- --------- --------- -------- ----------------- -------- -------- --------
EXPENSES
Property operating and maintenancemaintenance........................... 62,008 59,199 58,038 53,064 32,343
28,399 27,057 19,203
Real estate taxestaxes............................................ 17,420 16,888 16,460 14,470 8,352
7,947 7,241 4,214
Property managementmanagement.......................................... 8,984 8,690 8,337 7,108 5,079
4,338 4,675 4,099
General and administrativeadministrative................................... 6,687 6,423 6,092 5,411 4,559 4,062 4,537 3,668
Depreciation and other costs (2) 29,421 17,955 15,732 16,122 9,520
Interest and related amortization (3)amortization............................ 51,305 53,280 53,775 49,693 21,753
17,782 18,527 11,146
--------- ---------Depreciation on corporate assets............................. 1,243 1,139 1,005 995 590
Depreciation on real estate assets and other costs........... 34,833 34,411 34,486 28,426 17,365
-------- -------- ----------------- -------- --------
Total expensesexpenses............................................. 182,480 180,030 178,193 159,167 90,041
78,260 78,159 51,850
--------- --------- -------- -------- ----------------- -------- --------
Income from operationsoperations....................................... 43,376 40,648 36,835 35,663 33,469
26,943 18,745 16,909
Gain (loss) on sale of property --- --- --- 1,278 (293)
--------- ---------and other........................... 8,168 12,053 -- -- --
-------- -------- ----------------- -------- --------
Income before allocation to minority interests
and extraordinary itemloss on early extinguishment of debt..... 51,544 52,701 36,835 35,663 33,469
26,943 20,023 16,616
Income(Income) allocated to minority interestsCommon OP Units........................ (8,209) (8,463) (6,219) (6,733) (4,373)
(2,671) (2,006) (1,568)
--------- ---------(Income) allocated to Perpetual Preferred OP Units........... (11,252) (11,252) (2,844) -- --
-------- -------- ----------------- -------- --------
Income before extraordinary itemloss on early
extinguishment of debt..................................... 32,083 32,986 27,772 28,930 29,096 24,272 18,017 15,048
Extraordinary loss on early extinguishment of
debt (net of income$264 and $105 allocated to
minority interests) ---........................................ -- (1,041) -- -- (451) --- --- ---
--------- ---------
-------- -------- ---------
Net income-------- -------- --------
NET INCOME................................................. $ 32,083 $ 31,945 $ 27,772 $ 28,930 $ 28,645
$ 24,272 $ 18,017 $ 15,048
========= ========= ======== ======== ================= ======== ========
Net income per common shareCommon Share before extraordinary
item - basic-- basic.............................................. $ 1.53 $ 1.54 $ 1.10 $ 1.13 $ 1.18
$ .98 $ .74 $ .70
========= ========= ======== ======== ================= ======== ========
Net income per common shareCommon Share before extraordinary
item - diluted-- diluted............................................ $ 1.49 $ 1.51 $ 1.09 $ 1.12 $ 1.16
======== ======== ======== ======== ========
Net income per Common Share -- basic......................... $ 1.53 $ 1.49 $ 1.10 $ 1.13 $ 1.16
======== ======== ======== ======== ========
Net income per Common Share -- diluted....................... $ 1.49 $ 1.46 $ 1.09 $ 1.12 $ 1.15
$ .98 $ .74 $ .70
========= ========= ======== ======== =========
Net income per common share - basic $ 1.13 $ 1.16 $ .98 $ .74 $ .70
========= ========= ======== ======== =========
Net income========
Dividend declared per common share - dilutedCommon Share........................... $ 1.121.78 $ 1.151.66 $ .98 $ .74 $ .70
========= ========= ======== ======== =========
Dividend per share1.55 $ 1.45 $ 1.32
$ 1.22 $ 1.18 $ 1.14
========= ========= ======== ======== ================= ======== ========
Weighted average common sharesCommon Shares outstanding -
basic, excluding-- basic.......... 21,036 21,469 25,224 25,626 24,689
Weighted average Common OP Units of 5,977,outstanding................. 5,466 5,592 5,704 5,955 3,749
2,715, 2,717 and 2,397, respectively 25,626 24,689 24,693 24,353 21,508
========= ========= ======== ======== =========
Weighted average common sharesCommon Shares outstanding -
diluted, including OP Units of 5,977,
3,749, 2,715, 2,717 and 2,397, respectively-- diluted........ 27,010 27,408 31,252 31,962 28,762 27,546 27,138 23,942
========= ========= ======== ======== =========
OTHER DATA:
Funds from operations (4) $ 64,089 $ 50,834 $ 42,187 $ 34,518 $ 26,186
Net cash flow:
Operating activities $ 71,977 $ 54,581 $ 49,660 $ 40,161 $ 24,910
Investing activities $(262,762) $(239,445) $(60,954) $ 4,382 $(220,707)
Financing activities $ 203,533 $ 185,449 $ 10,858 $(45,707) $ 170,427
Total Properties (at end of period) (5) 154 121 69 65 67
Total sites (at end of period) 53,391 44,108 27,356 25,552 25,860
Total sites (weighted average) 49,932 29,323 26,621 25,375 18,164
1618
17MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AND PROPERTY DATA)
(1) DecemberAS OF DECEMBER 31,
-------------------------------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
1996 1995 1994
------------- -------------- --------------- ------------- --------------
(In thousands)----------- ----------- ----------- ----------- ----------
BALANCE SHEET DATA:
Real estate, before accumulated depreciation(2)... $1,238,138 $1,218,176 $1,264,343 $1,237,431 $936,318 $597,650 $543,229 $541,775
depreciation (6)$ 936,318
Total assetsassets...................................... 1,099,963 1,104,304 1,160,338 1,176,841 864,365
567,874 523,125 544,106
Total debtmortgages and loans......................... 708,857 719,684 725,264 750,849 495,172
254,982 211,966 226,670
Minority interestsinterests................................ 171,147 171,271 179,397 70,468 67,453
28,640 29,305 30,507
Stockholders' equityequity.............................. 175,150 168,095 211,401 310,441 280,575
257,952 261,500 270,602OTHER DATA:
Funds from operations(3).......................... $ 66,957 $ 63,807 $ 68,477 $ 64,089 $ 50,834
Net cash flow:
Operating activities........................... $ 80,708 $ 68,001 $ 72,580 $ 71,977 $ 54,581
Investing activities........................... $ (23,067) $ 23,102 $ (37,868) $ (262,762) $(239,445)
Financing activities........................... $ (59,134) $ (94,932) $ (41,693) $ 203,533 $ 185,449
Total Properties (at end of period)(4)............ 148 154 157 154 121
Total sites (at end of period).................... 50,761 51,452 54,002 53,009 44,108
Total sites (weighted average)(5)................. 46,243 46,964 46,914 43,932 29,323
____________- ---------------
(1) See the Consolidated Financial Statements of the Company included elsewhere
herein.
(2) Depreciation and other costs include depreciation on corporate assets of
approximately $995,000, $590,000, $488,000, $349,000 and $243,000 for the
years ended December 31, 1998, 1997, 1996, 1995 and 1994,
respectively.
(3) The $265 million mortgage note payable (the "Mortgage Debt") bears interest
at 7.015% through February 1, 2008.
The Company has a $175 million credit facility bearing interest atbelieves that the London Interbank Offered Rate ("LIBOR") plus 1.125% ($145 million was
outstanding at December 31, 1998).
In July 1995, the Company entered into an interest rate swap agreement (the
"1998 Swap") fixing LIBOR on $100 millionbook value of the Company's floating rate
debt at 6.4% forProperties, which reflects
the period, 1998 through 2003. By fixinghistorical costs of such real estate assets less accumulated
depreciation, is less than the rate on $100
millioncurrent market value of debt, the Company avoids the general uncertainty relating to the
floating interest rate on the Company's variable rate debt through such
time.
(4)Properties.
(3) The Company generally considers Funds From Operations ("FFO") to be an
appropriate measure of the performance of an equity REIT.Real Estate Investment
Trust ("REIT"). FFO was definedredefined by the National Association of Real Estate
Investment Trusts ("NAREIT") in March 1995October 1999, effective January 1, 2000, as
net income (computed in accordance with generally accepted accounting
principles ["GAAP'GAAP"]), before allocation to minority interests, excluding
gains (or losses) from sales of property, plus real estate depreciation and
after adjustments for significant non-recurring items, if
any. In the first quarter of 1996, the Company adopted this new definition
of FFO which is effective for periods ending after December 31, 1995.unconsolidated partnerships and joint ventures. For
purposes of presenting FFO, the revised definition of FFO has been given
retroactive treatment. Prior to this adoption, FFO was defined as income
before allocation to minority interests plus certain non-cash items,
primarily depreciation and amortization. The Company believes that FFO is helpful to investors
as a measure of the performance of an equity REIT because, along with cash
flows from operating activities, financing activities and investing
activities, it provides investors an understanding of the ability of the
Company to incur and service debt and to make capital expenditures. The
Company computes FFO in accordance with the NAREIT definition which may
differ from the methodology for calculating FFO utilized by other equity
REITs and, accordingly, may not be comparable to such other REITs.REITs
computations. FFO in and of itself does not represent cash generated from
operating activities in accordance with GAAP and therefore should not be
considered an alternative to net income as an indication of the Company's
performance or to net cash flows from operating activities as determined by
GAAP as a measure of liquidity and is not necessarily indicative of cash
available to fund cash needs.
17
18
(5) During 1994, 23 Properties were acquired, which had an aggregate net
operating income of $10.3 million in 1994, which included approximately
$3.7 million of depreciation and amortization expense. Also during 1994,
three properties were sold; net operating income attributable to such
properties was approximately $30,500, which included approximately $32,000
of depreciation and amortization expense. During the year ended December
31, 1995, two properties were sold; net operating income attributable to
such properties was approximately $235,000, which included approximately
$83,000 of depreciation and amortization expense. During the year ended
December 31, 1996, four Properties were acquired; net operating income
attributable to such Properties was approximately $1.8 million, which
included approximately $371,000 of depreciation and amortization expense.(4) During the year ended December 31, 1997, 39 Properties were acquired; net
operating income attributable to such Properties during 1997 was
approximately $3.8 million, which included approximately $1.7 million of
depreciation and amortization expense. During the year ended December 31,
1998, 41 Properties were acquired; net operating income attributable to such
Properties during 1998 was approximately $7.6 million, which included
approximately $3.9 million of depreciation and amortization expense. (6) During
1994, 23the year ended December 31, 1999, two Properties were acquired,acquired; net
operating income attributable to such Properties during 1999 was
approximately $87,000, which had an aggregateincluded approximately $104,000 of depreciation
expense. During the year ended December 31, 2000, three Properties and a
water and wastewater treatment company were sold; net The Company believes thatoperating income
attributable to such Properties during 2000 was approximately $1.6 million,
which included approximately $623,000 of depreciation expense. During the
book valueyear ended December 31, 2001, two Properties were purchased; net operating
income attributable to such Properties during 2001 was approximately $1.3
million, which included approximately $396,000 of depreciation expense. Also
during the year ended December 31, 2001, eight Properties were sold; net
operating income attributable to such Properties during 2001 was $1.0
million, which reflectsx
historical costsincluded approximately $235,000 of such real estate assets less accumulated depreciation is less than the current market value of the Properties.expense.
(5) Excludes recreational vehicle sites and sites held through unconsolidated
joint ventures.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the historical Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Form 10-K. The following discussion may
contain certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 which reflect management's current
views with respect to future events and financial performance. Such
forward-looking statements are subject to certain risks and uncertainties,
including, but not limited to, the effects of future events on the Company's
financial performance; the adverse impact of external factors such as inflation
and consumer confidence; and the risks associated with real estate ownership.
RESULTS OF OPERATIONS
PROPERTY ACQUISITIONS, JOINT VENTURES AND DISPOSITIONS
The following chart lists the Properties acquired or sold since January 1,
1999. The Company defines its core Community portfolio ("Core Portfolio") as
Properties owned throughout both periods of comparison. Excluded from the Core
Portfolio are any Properties acquired or sold during the period and also any
recreational vehicle ("RV") Properties which, together, are referred to as the
"Non-Core" Properties.
PROPERTY TRANSACTION DATE SITES
-------- ---------------- ------
TOTAL SITES AS OF JANUARY 1, 1999......................... 53,009
ACQUISITIONS:
The Meadows............................................. April 1, 1999 380
Coquina Crossing........................................ July 23, 1999 270
Grand Island (f.k.a. Golden Lakes)...................... January 3, 2001 421
Lakes at Countrywood (f.k.a. Chain O' Lakes)............ January 3, 2001 309
Bulow Resort RV......................................... July 1, 2001 352
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES:
Lakeshore Communities (2 properties).................... 1999 343
EXPANSION SITE DEVELOPMENT:
Sites added in 1999..................................... --
Sites added in 2000..................................... 108
Sites added in 2001..................................... 143
DISPOSITIONS:
Garden West Office Plaza................................ October 26, 1999 --
FFEC-Six (water and wastewater service company)......... February 29, 2000 --
Mesa Regal RV Resort.................................... May 22, 2000 (2,005)
Naples Estates.......................................... May 22, 2000 (484)
Mon Dak................................................. May 22, 2000 (219)
Dellwood Estates........................................ February 13, 2001 (136)
Briarwood............................................... February 13, 2001 (166)
Bonner Springs.......................................... February 13, 2001 (211)
Carriage Park........................................... February 13, 2001 (143)
North Star.............................................. February 13, 2001 (219)
Quivira Hills........................................... February 13, 2001 (142)
Rockwood................................................ February 13, 2001 (264)
Candlelight............................................. October 5, 2001 (585)
------
TOTAL SITES AS OF DECEMBER 31, 2001.......................................... 50,761
======
20
TRENDS
Occupancy in the Company's Properties as well as the ability to increase
rental rates directly affects revenues. In 2001, occupancy in the Company's Core
Portfolio has remained relatively stable. Also during 2001, average monthly base
rental rates for the Core Portfolio increased approximately 4.5%. The Company
believes these trends will continue through 2002.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States,
which require the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and the related
disclosures. The Company believes that the following critical accounting
policies, among others, affect its more significant judgments and estimates used
in the preparation of its consolidated financial statements.
The Company periodically evaluates its long-lived assets, including its
investments in real estate for impairment indicators. The judgments regarding
the existence of impairment indicators, are based on factors such as operational
performance, market conditions and legal factors. Future events could occur
which would cause us to conclude that impairment indicators exist and an
impairment loss is warranted.
The valuation of financial instruments under SFAS No. 107 and SFAS No. 133
requires the Company to make estimates and judgments that affect the fair value
of the instruments. The Company, where possible, bases the fair values of its
financial instruments, including its derivative instrument, on listed market
prices and third party quotes. Where these are not available, the Company bases
its estimates on other factors relevant to the financial instrument.
21
COMPARISON OF YEAR ENDED DECEMBER 31, 19982001 TO YEAR ENDED DECEMBER 31, 19972000
Since December 31, 1997,1999, the gross investment in rental property hasreal estate increased from
$936$1,264 million to $1,237$1,238 million as of December 31, 19982001, due primarily to the
acquisitionaforementioned acquisitions and dispositions of Properties during the following properties (collectively, the "1998 Acquisition
Properties"): (i) the Ellenburg Communities; (ii) Quail Meadows on January 8,
1998; (iii) Sherwood Forest RV Resort on April 30, 1998; (iv) Casa Del Sol
Resort III on May 14, 1998; (v) a portfolio of eighteen properties (the "College
Heights Communities") on June 4, 1998; and (vi) Sunset Oaks on August 13, 1998.period.
The total number of sites owned andor controlled has increaseddecreased from 44,10854,002 as of
December 31, 19971999 to 53,39150,761 as of December 31, 1998.2001.
The following table summarizes certain weighted average statisticsfinancial and statistical data for
the Core Portfolio and the Total Portfolio for the years ended December 31, 19982001
and 1997. "Core Portfolio" represents an analysis
of properties owned during both periods of comparison.2000.
Core Portfolio Total Portfolio
----------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- -----------CORE PORTFOLIO TOTAL PORTFOLIO
----------------------------------------- -----------------------------------------
INCREASE/ % INCREASE/ %
(dollars in thousands) 2001 2000 (DECREASE) CHANGE 2001 2000 (DECREASE) CHANGE
-------- -------- ---------- ------ -------- -------- ---------- ------
(DOLLARS IN THOUSANDS)
Base rental income(1)............ $192,160 $183,615 $8,545 4.7% $195,644 $189,064 $ 6,580 3.5%
Utility and other income......... 20,222 18,664 1,558 8.3% 27,762 28,197 (435) (1.5%)
Equity in income of affiliates... -- -- -- -- 1,811 2,408 (597) (24.8%)
Interest income.................. -- -- -- -- 639 1,009 (370) (36.7%)
-------- -------- ------ ------ -------- -------- ------- ------
Total sites 27,455 27,432 43,932 29,323
Occupied sites 26,057 25,983 41,420 27,770revenues................. 212,382 202,279 10,103 5.0% 225,856 220,678 5,178 2.3%
Property operating and
maintenance.................... 57,787 54,150 3,637 6.7% 62,008 59,199 2,809 4.7%
Real estate taxes................ 16,773 16,321 452 2.8% 17,420 16,888 532 3.2%
Property management.............. 8,594 8,121 473 5.8% 8,984 8,690 294 3.4%
General and administrative....... -- -- -- -- 6,687 6,423 264 4.1%
-------- -------- ------ ------ -------- -------- ------- ------
Total operating expenses....... 83,154 78,592 4,562 5.8% 95,099 91,200 3,899 4.3%
-------- -------- ------ ------ -------- -------- ------- ------
Income from operations before
interest, depreciation and
amortization expenses.......... 129,228 123,687 5,541 4.5% 130,757 129,478 1,279 1.0%
Interest and related
amortization................... -- -- -- -- 51,305 53,280 (1,975) (3.7%)
Depreciation on corporate
assets......................... -- -- -- -- 1,243 1,139 104 9.1%
Property depreciation and
other.......................... 32,243 30,792 1,451 4.7% 34,833 34,411 422 1.2%
-------- -------- ------ ------ -------- -------- ------- ------
Income from operations(2)...... $ 96,985 $ 92,895 $4,090 4.4% $ 43,376 $ 40,648 $ 2,728 6.7%
======== ======== ====== ====== ======== ======== ======= ======
Site and Occupancy
% 94.9% 94.7%Information(3):
Average total sites.............. 44,966 44,828 138 0.3% 46,243 46,964 (721) (1.5%)
Average occupied sites........... 42,384 42,320 61 0.2% 43,576 44,325 (749) (1.7%)
Occupancy %...................... 94.3% 94.7%94.4% (0.1%) (0.1%) 94.2% 94.4% (0.2%) (0.2%)
Monthly base rent per sitesite....... $ 335377.82 $ 321361.47 $16.35 4.5% $ 332374.15 $ 327355.45 $ 18.70 5.3%
Total sites as of December 31,... 45,011 44,868 143 0.3% 45,743 46,734 (991) (2.1%)
Total occupied sites as of
December 31,................... 42,243 42,529 (286) (0.7%) 42,887 44,270 (1,383) (3.1%)
Base- ---------------
(1) During 2001, at certain Properties the amounts charged to residents for
utilities were separated ("Unbundled") from their base rent charges and
recorded as utility income. For comparison purposes, a reclassification was
made to base rental income ($165 million) increased $56.3 million or 51.7%. Forfor 2000 on this table. This reclassification is
also reflected in the monthly base rent per site amounts for 2000.
(2) Income from operations for the Core Portfolio base rentaldoes not include an allocation
of income increased approximately $4.1 millionfrom affiliates, interest income, corporate general and
administrative expense, interest expense and related amortization or
4.1%,
reflecting an increase in base rental rates.depreciation on corporate assets.
(3) Site and occupancy information does not include the Properties owned through
unconsolidated joint ventures or the RV Properties.
22
Revenues
The remaining $52.2 million4.7% increase in base rental income was attributed to the properties acquired in 1997
and the 1998 Acquisition Properties (collectively, the "1997 and 1998
Acquisition Properties").
18
19
Monthly base rent per site for the total portfolio increased 1.5%, reflectingCore Portfolio reflects a
4.4%4.5% increase in monthly base rent per site coupled with a 0.2% increase in
average occupied sites. The increase in utility and other income for the Core
Portfolio offset byis due primarily to increases in pass through items such as utilities
and real estate taxes -- which resulted from higher expenses for these items.
For the Total Portfolio, changes in base rental income and utility and other
income generally reflect those of the Core Portfolio and the effect of
acquisition and disposition of the Non-Core Properties.
Equity in income of affiliates decreased 24.8%, reflecting lower monthly base rentssales
volumes. Combined home sales revenue decreased approximately $4.0 million, of
which $3.3 million is attributable to a decline in new home inventory sales
volume. Sales volumes for the 1997new home inventory, used home inventory and 1998 Acquisition Properties. Average
monthly base rent per site for the 1997brokered
home sales were 485, 250 and 1998 Acquisition Properties was $3291,114, respectively, for the year ended December
31, 1998.
Weighted average occupancy decreased 0.4%2001, and 535, 290 and 1,271, respectively, for the year ended December 31,
2000.
The decrease in interest income is primarily due to the additionrepayment of
certain notes receivable, fewer short-term investments and lower interest rates.
Short-term investments had average balances for the 1997years ended December 31,
2001 and 1998 Acquisition Properties to the portfolio with lower occupancy
percentages, partially offset by increased occupancy2000 of approximately $1.9 million and $1.5 million, respectively,
which earned interest income at an effective rate of 3.8% and 6.0% per annum,
respectively.
Operating Expenses
The increase in property operating and maintenance expense for the Core
Portfolio is due primarily to increases in utility expenses passed through and
included in utility income. Expenses for the Core Portfolio also reflect
increases in payroll and property insurance expenses. Core Portfolio real estate
taxes increased 2.8% generally due to higher assessed values on certain
Properties. The 0.2% increase atin Total Portfolio property operating and maintenance
expense and real estate taxes is also impacted by acquisition and disposition of
Non-Core Properties. Property management expense allocated to the Core
Portfolio, which reflects costs of managing the Properties and is estimated
based on a percentage of Property revenues, increased 5.8%.
General and administrative expenses ("G&A") increased 4.1% due to increased
public company costs and related expenses and promotional costs. G&A for 2001
includes a charge for additional amortization of deferred compensation offset by
a reversal of legal expenses previously accrued related to the Ellenburg
settlement.
Interest and related amortization decreased due to lower interest rates
during the period. The weighted average outstanding debt balances for the years
ended December 31, 2001 and 2000 were $713.2 million and $707.5 million,
respectively. The effective interest rate was 7.0% and 7.4% per annum for the
years ended December 31, 2001 and 2000, respectively.
Depreciation on corporate assets increased due to fixed asset additions
related to information and communication systems. Depreciation on real estate
assets and other costs increased due primarily to the acquisition and
disposition of Non-Core Properties.
23
COMPARISON OF YEAR ENDED DECEMBER 31, 2000 TO YEAR ENDED DECEMBER 31, 1999
Since December 31, 1998, the gross investment in real estate decreased from
$1,237 million to $1,218 million as of December 31, 2000, due primarily to the
aforementioned acquisitions and dispositions of Properties during the period.
The total number of sites owned or controlled decreased from 53,009 as of
December 31, 1998 to 51,452 as of December 31, 2000.
The following table summarizes certain financial and statistical data for
the Core Portfolio and the Total Portfolio for the years ended December 31, 2000
and 1999.
CORE PORTFOLIO TOTAL PORTFOLIO
----------------------------------------- -----------------------------------------
INCREASE/ % INCREASE/ %
(dollars in thousands) 2000 1999 (DECREASE) CHANGE 2000 1999 (DECREASE) CHANGE
-------- -------- ---------- ------ -------- -------- ---------- ------
(DOLLARS IN THOUSANDS)
Base rental income............... $186,148 $178,095 $8,053 4.5% $189,481 $181,672 $ 7,809 4.3%
Utility and other income......... 17,986 17,436 550 3.2% 27,780 29,622 (1,842) (6.2%)
Equity in income of affiliates... -- -- -- -- 2,408 2,065 343 16.6%
Interest income.................. -- -- -- -- 1,009 1,669 (660) (39.5%)
-------- -------- ------ ------ -------- -------- ------- ------
Total revenues................. 204,134 195,531 8,603 4.4% 220,678 215,028 5,650 2.6%
Property operating and
maintenance.................... 54,358 52,096 2,262 4.3% 59,199 58,038 1,161 2.0%
Real estate taxes................ 16,186 15,811 375 2.4% 16,888 16,460 428 2.6%
Property management.............. 8,194 7,725 469 6.1% 8,690 8,337 353 4.2%
General and administrative....... -- -- -- -- 6,423 6,092 331 5.4%
-------- -------- ------ ------ -------- -------- ------- ------
Total operating expenses....... 78,738 75,632 3,106 4.1% 91,200 88,927 2,273 2.6%
-------- -------- ------ ------ -------- -------- ------- ------
Income from operations before
interest, depreciation and
amortization expenses.......... 125,396 119,899 5,497 4.6% 129,478 126,101 3,377 2.7%
Interest and related
amortization................... -- -- -- -- 53,280 53,775 (495) (0.9%)
Depreciation on corporate
assets......................... -- -- -- -- 1,139 1,005 134 13.3%
Property depreciation and
other.......................... 31,366 30,912 454 1.5% 34,411 34,486 (75) (0.2%)
-------- -------- ------ ------ -------- -------- ------- ------
Income from operations(1)...... $ 94,030 $ 88,987 $5,043 5.7% $ 40,648 $ 36,835 $ 3,813 10.4%
======== ======== ====== ====== ======== ======== ======= ======
Site and Occupancy
Information(2):
Average total sites.............. 45,894 45,810 84 0.2% 46,964 46,914 50 0.1%
Average occupied sites........... 43,410 43,138 272 0.6% 44,325 44,110 215 0.5%
Occupancy %...................... 94.6% 94.2% 0.4% 0.4% 94.4% 94.0% 0.4% 0.4%
Monthly base rent per site....... $ 357.35 $ 344.04 $13.31 3.9% $ 356.24 $ 343.22 $ 13.02 3.8%
Total sites as of December 31,... 45,902 45,808 94 0.2% 46,734 47,284 (550) (1.2%)
Total occupied sites as of
December 31,................... 43,595 43,289 306 0.7% 44,270 44,555 (285) (0.6%)
- ---------------
(1) Income from operations for the Core Portfolio does not include an allocation
of income from affiliates, interest income, corporate general and
administrative expense, interest expense and related amortization or
depreciation on corporate assets.
(2) Site and occupancy information does not include the five Properties owned
through joint ventures or the three RV properties.
24
Revenues
The 4.5% increase in base rental income for the Core Portfolio reflects a
0.4% decrease attributed to lower
occupancy at four family properties3.9% increase in monthly base rent per site coupled with a 0.6% increase in
average occupied sites. The 4.3% increase in base rental income for the Total
Portfolio reflects a 3.8% increase in monthly base rent per site coupled with a
0.5% increase in average occupied sites and lower occupancy at two properties wherealso reflects the Company has implemented a program to upgrade the resident profileacquisition and
housing stock. Excluding these communities, occupancy atdisposition of Non-Core Properties. The increase in utility and other income for
the Core Portfolio increased 0.6%.
Utilityis due primarily to increases in pass through items such as
utilities and real estate taxes -- which resulted from higher expenses for these
items. The decrease in Total Portfolio utility and other income ($25.4 million) increased $13.6 million or 115.3%,is due to an increase of $13.1 million attributedprimarily
to the 1997 and 1998 Acquisition
Properties, including $7.2 millionsale of Mesa Regal RV income. The remaining $500,000
increase reflected increased utility income, real estate tax pass-onsresort and other miscellaneouschanges in the Non-Core
Properties. Also included in other income atis a gain on the Core Portfolio.
Interestsale of the FFEC-Six
water and wastewater treatment company of $719,000, partially offset by an
impairment loss on the DeAnza Santa Cruz water and wastewater service company of
$701,000.
The decrease in interest income ($3.0 million) increased $1.1 million or 57.0%,is primarily due to the issuancerepayment of
$14.6 million ofcertain notes receivable and an increase in
interest earned onfewer short-term investments. Short-term
investments had average balances for the years ended December 31, 19982000
and 19971999 of approximately $6.9$1.5 million and $4.7$2.8 million, respectively, which
earned interest income at an effective rate of 5.4%6.0% and 6.3% per annum,
respectively.
Operating Expenses
The increase in both years.
Propertyproperty operating and maintenance expenses ($53.0 million) increased $20.7
million or 64.1%. Of this increase $19.4 million is attributed to the 1997 and
1998 Acquisition Properties. The remaining $1.3 million increase includes
approximately $300,000 of one-time expenses associated with water main breaks,
storm damage and legal costs atexpense for the Core
Portfolio. ThePortfolio is due primarily to increases in utility expenses passed through and
included in utility income. Expenses for the Core Portfolio also experiencedreflect
increases in propertyrepairs and maintenance expense, payroll and property general and
administrative expenses andpartially offset by decreased insurance and other
expenses. PropertyCore Portfolio real estate taxes increased 2.4% generally due to
higher property assessments on certain Properties. The increase in Total
Portfolio property operating and maintenance expenses represented 27.2% of total revenues in 1998expense and 26.2% in 1997.
Realreal estate taxes ($14.5 million) increased $6.1 million or 73.3% due to
the impactis
also impacted by acquisition and disposition of the 1997 and 1998 Acquisition Properties. Real estate taxes
represented 7.4% of total revenues in 1998 and 6.8% in 1997.
Property management expenses ($7.1 million) increased $2.0 million or
39.9%. The increase was primarily due to an increase in management company
payroll and incremental costs associated with self management of the 1997 and
1998 AcquisitionNon-Core Properties. Property
management expenses represented 3.6%expense for the Core Portfolio, which reflects costs of totalmanaging the
Properties and is estimated based on a percentage of Property revenues,
in 1998 and 4.1% of total revenues in 1997.increased 6.1%.
General and Administrativeadministrative expenses ("G&A") ($5.4 million) increased
$851,000 or 18.7%. The increase was primarily due to increased
payroll. G&A
represented 2.8% of total revenues in 1998payroll resulting from salary increases and 3.7% in 1997.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
increased $41.6 million or 56.8%. Approximately $37.6 million of the increasepublic company related
to the 1997 and 1998 Acquisition Properties. The remaining increase
reflected increased base rental income at the Core Portfolio. EBITDA
represented 58.9% of total revenues in 1998 and 59.2% in 1997.expenses.
Interest and related amortization ($49.7 million) increased $27.9 million
or 128.4%. The increase wasdecreased due to higherlower weighted average
outstanding debt balances during the period. The weighted average outstanding
debt balances for the years ended December 31, 19982000 and 19971999 were $696$707.5 million
and $301.3$738.1 million, respectively. The effective interest rate was 7.4% and 7.2%
per annum for the years ended December 31, 2000 and 1999, respectively.
Depreciation on corporate assets increased due to fixed asset additions
related to information and communication systems. Depreciation on real estate
assets and other costs decreased due primarily to the acquisition and
disposition of Non-Core Properties.
25
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
As of December 31, 2001, the Company had $1.4 million in 1998cash and 7.1% in 1997.
Interestcash
equivalents and related amortization represented 25.5%$133.8 million available on its line of total revenues in 1998
and 17.6% in 1997.credit. The Company
expects to meet its short-term liquidity requirements, including its
distributions, generally through its working capital, net cash provided by
operating activities and availability under the existing line of credit. The
Company expects to meet certain long-term liquidity requirements such as
scheduled debt maturities, property acquisitions and capital improvements by
long-term collateralized and uncollateralized borrowings including borrowings
under its existing line of credit and the issuance of debt securities or
additional equity securities in the Company, in addition to working capital.
In order to qualify as a REIT for federal income tax purposes, the Company
must distribute 95% or more of its taxable income (excluding capital gains). The
following distributions have been declared and/or paid to common stockholders
and minority interests since January 1, 1999.
DISTRIBUTION FOR THE SHAREHOLDER
AMOUNT PER SHARE QUARTER ENDING RECORD DATE PAYMENT DATE
----------------- ------------------ ------------------ ----------------
$0.3875 March 31, 1999 March 26, 1999 April 9, 1999
$0.3875 June 30, 1999 June 25, 1999 July 9, 1999
$0.3875 September 30, 1999 September 24, 1999 October 8, 1999
$0.3875 December 31, 1999 December 31, 1999 January 14, 2000
- -----------------------------------------------------------------------------------------------
$0.4150 March 31, 2000 March 31, 2000 April 14, 2000
$0.4150 June 30, 2000 June 30, 2000 July 14, 2000
$0.4150 September 30, 2000 September 29, 2000 October 13, 2000
$0.4150 December 31, 2000 December 29, 2000 January 12, 2001
- -----------------------------------------------------------------------------------------------
$0.4450 March 31, 2001 March 30, 2001 April 13, 2001
$0.4450 June 30, 2001 June 29, 2001 July 13, 2001
$0.4450 September 30, 2001 September 28, 2001 October 12, 2001
$0.4450 December 31, 2001 December 28, 2001 January 11, 2002
The Operating Partnership paid distributions of 9.0% per annum on the $125
million of Series D Cumulative Redeemable Perpetual Preferred Units ("Preferred
Units"). Distributions on the Preferred Units were paid quarterly on the last
calendar day of each quarter beginning December 31, 1999. The Company expects to
continue to make regular quarterly distributions and has set its 2002
distribution to common stockholders at $1.90 per share per annum.
MORTGAGES AND CREDIT FACILITIES
On October 29, 2001, the Company entered into an interest rate swap
agreement, fixing the London Interbank Offered Rate ("LIBOR") on $100 million of
the Company's floating rate debt at approximately 3.7% per annum for the period
October 2001 through August 2004. The terms of the swap require monthly
settlements on the same dates interest payments are due on the debt. In
accordance with SFAS No. 133 as herein defined, the interest rate swap will be
reflected at market value. The Company believes the swap is a $265.0perfectly
effective cash flow hedge, under SFAS No. 133 and there will be no effect on net
income as a result of the mark-to-market adjustments.
During the year ended December 31, 2001, the Company borrowed $46.0 million
on its line of credit and paid down $89.7 million on the line of credit. The
line of credit bears interest at a per annum rate of LIBOR plus 1.125%.
In July of 2001, the Company paid off three maturing mortgages in the
amount of $12.1 million. The payoffs were funded with borrowings on the line of
credit.
26
On August 3, 2001, the Company entered into a $50.0 million mortgage note
(the "Mortgage Debt""Stagecoach Mortgage") collateralized by 29 properties7 Properties beneficially owned by
MHC Financing Limited
Partnership.Stagecoach, L.L.C. The Stagecoach Mortgage Debt has a maturity date of January 2, 2028 and paysbears interest only at 7.015%. There is no principal amortization until February 1,
2008 after which principal and interest are paid from available cash flow and
the interest rate is reset at a rate equalof 6.98%
per annum, amortizes beginning September 1, 2001 over 10 years and matures
August 31, 2011. Proceeds from the financing were used to reduce borrowings on
the then 10-year U.S. Treasury
obligationsline of credit by $37.9 million.
On February 24, 2000, the Company entered into mortgage agreements
collateralizing two Properties for a total of $14.6 million. The mortgage notes
mature on March 1, 2010, amortize beginning March 1, 2000 over 30 years and bear
interest at a rate of approximately 8.3% per annum.
On April 3, 2000, the Company extended to April 3, 2002 the maturity of its
$100 million unsecured term loan (the "Term Loan") with a group of banks with
interest only payable monthly at a per annum rate of LIBOR plus 2.0%1.0%. On
February 8, 2002, the Company entered into a term loan credit agreement with the
same group of banks, which extended the Term Loan to August 9, 2005.
On June 30, 2000, the Company obtained $110 million in debt financing
consisting of two mortgage notes -- one for $94.3 million and one for $15.7
million -- secured by seven Properties. The proceeds of the financing were used
to repay $60 million of mortgage debt secured by the seven Properties, to repay
amounts outstanding under the Company's line of credit and for working capital
purposes. The Company has anrecorded a $1.0 million extraordinary loss (net of
$264,000 allocated to Minority Interests) in connection with the early repayment
of the $60 million of mortgage debt.
On August 9, 2000, the Company amended its unsecured line of credit with a
bank (the "Credit Agreement") bearing interest at the London Interbank Offered Rate ("LIBOR")a per annum rate of LIBOR plus
1.125%. On April 28, 1998,Among other things, the Company amendedamendment lowered the total facility under the
Credit Agreement increasing
the line of credit from $100 million to $150 million. On December 18, 1998, the
Company further amended the Credit Agreement, increasing the line of credit from
$150 million to $175 million. The Credit Agreement matures on August 17, 2000,
at which time the Company may extendand extended the maturity date to August 17, 2002 and
the Credit Agreement would be converted to a term loan.9, 2003.
The Company pays a quarterly fee on the average unused amount of such credit
equal to 0.15% of such amount. As of December 31, 1998, $1452001, $133.8 million was
outstandingavailable under the Credit Agreement.
The
Company paid fees relatedCertain of the Company's mortgage and credit agreements contain covenants
and restrictions including restrictions as to the amendments which were immaterial.
19
20
The Company has a term loan (the "Term Loan") with a groupratio of banks withsecured or unsecured
debt versus encumbered or unencumbered assets, the ratio of fixed
charges-to-earnings before interest, only payable monthly at a rate of LIBOR plus 1.0%.taxes, depreciation and amortization
("EBITDA"), limitations on certain holdings and other restrictions.
ACQUISITIONS, DISPOSITIONS AND INVESTMENTS
On April 28, 1998,
the Company amended the Term Loan to increase the borrowing from $60 million to
$100 million. The Term Loan matures on April 3, 2000 and may be extended to
April 3, 2002. The Company used the $40 million in proceeds to repay a portion
of the $50 million previously borrowed on April 7, 1998 under the Term Loan. The
Company paid fees related to this amendment which were immaterial.
In July 1995,September 4, 1997, the Company entered into an interest rate swapa portfolio purchase
agreement (the
"1998 Swap") fixing LIBOR on $100 million of the Company's floating rate debt at
6.4% for the period 1998 through 2003. The cost of the 1998 Swap consisted only
of legal costs which were deemed immaterial. The value of the 1998 Swap is
impacted(as amended by changes in the market rate of interest. Had the 1998 Swap been
entered intoa supplemental agreement on December 31, 1998,17, 1997) to
acquire 37 manufactured home communities (the "Ellenburg Communities") from
partnerships having Ellenburg Capital Corporation ("ECC") as the applicable LIBOR swap rate would have
been 4.56%. Each 0.01% increase or decreasegeneral
partner, for a purchase price in the applicable swap rate for the
1998 Swap increases or decreases the valueexcess of the 1998 Swap versus its current
value by approximately $39,000. The Company accounts for the 1998 Swap as a
hedge. Payments and receipts under the 1998 Swap are accounted for as an
adjustment to interest expense.
Depreciation on corporate assets ($995,000) increased $405,000 or 68.8%
due to fixed asset additions in$300 million. During 1997 and 1998,
associated with the Company's
upgrade of certain computer systems infrastructure and the wide area network.
DepreciationCompany closed on corporate assets represented 0.5% of total revenues in both 1998
and 1997.
Depreciation on real estate assets and other costs ($28.4 million)
increased $11.1 million or 63.7% as a result of 1997 and 1998 Acquisition
Properties. Depreciation on real estate assets and other costs represented
14.6% of total revenues in 1998 and 14.1% in 1997.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
Since December 31, 1996, the gross investment in rental property increased
from $598 million to $936 million as of December 31, 1997 due to the acquisition of the following properties (the "1997 Acquisition Properties"): (i) California
Hawaiian on March 14, 1997; (ii) Golf Vista Estates on March 27, 1997; (iii)
Golden Terrace South on May 30, 1997; (iv) a portfolio of eighteen manufactured
home communities and two commercial properties (collectively, the "MPW
Properties") on August 29, 1997; (v) Arrowhead Village on September 16, 1997,
and (vi) seventeen31 of the Ellenburg Communities for an
aggregate purchase price of approximately $278 million and gained control of an
additional five Ellenburg Communities with acquisition advances of approximately
$57 million to the partnerships which owned such Ellenburg Communities. All
fundings related to the acquisition were funded by the Company with borrowings
under the Company's line of credit, term bank facilities, assumed debt and the
issuance of Common OP Units.
During 1998, the Company received approximately $14.3 million, including
approximately $365,000 of interest income, which was being held subject to the
completion of due diligence procedures on the Ellenburg Communities. The $14.3
million was initially recorded as a liability until 1999 when a settlement of
certain related issues was substantially complete and accordingly, in a non-cash
transaction, relieved the liability and adjusted the purchase price of the
Ellenburg Communities.
In April 2000, the California Superior Court approved a settlement
agreement (the "Settlement") in connection with the dissolution proceeding of
ECC and its affiliated partnerships. As part of the Settlement, the Company
received $13.5 million previously held in escrow in connection with the purchase
of the Ellenburg Communities and recorded $3.0 million of interest income
related to these funds. In connection with the Settlement, the Company sold
three communities -- Mesa Regal RV Resort, Mon Dak and Naples Estates -- for an
aggregate sales price of $59.0 million, including cash proceeds of $40.0 million
and assumption of debt by the purchaser of $19.0 million. The Company recorded a
$9.1 million gain on the sale of these Properties. Proceeds from the Settlement
and property sales were used to pay down the Company's line of credit.
27
On January 6, 1998, the Company funded a $12.3 million loan (the "Meadows
Loan") to Meadows Preservation, Inc. The Meadows Loan was collateralized by The
Meadows manufactured home community located in Palm Beach Gardens, Florida. On
April 1, 1999, the Company effectively exchanged the Meadows Loan for an equity
and debt interest in the partnership that owns The Meadows. The Company includes
The Meadows in investment in real estate and the related results of operations
in the Statement of Operations.
On July 23, 1999, the Company acquired Coquina Crossing, located in St.
Augustine, Florida, for a purchase price of approximately $10.4 million. The
acquisition was funded with a borrowing under the Company's line of credit.
Coquina Crossing is a 748-site senior community with 274 developed sites and
zoned expansion potential for 479 sites. In addition, Realty Systems, Inc.
("RSI"), an affiliate of the Company, purchased the model home inventory at the
community for approximately $1.1 million.
On February 29, 2000, MHC Systems, Inc., a consolidated subsidiary of the
Company, disposed of the water and wastewater service company and facilities
known as FFEC-Six in a cash sale. Net proceeds from the sale of approximately
$4.2 million were used to pay down the Company's line of credit .
On December 18, 1997.28, 2000, the Company, through its joint venture with Meadows
Management Company, acquired a 50% economic interest in Voyager RV Resort, a
1,576 site RV resort in Tucson, Arizona, for total consideration of $8.0
million. The Company's investment included cash of $3.0 million, its 50%
interest in land held through the joint venture valued at $2.0 million and notes
receivable from the principals of Meadows Management Company totaling $3.0
million.
On January 3, 2001, the Company acquired two Florida Properties, totaling
730 sites, for an aggregate purchase price of approximately $16.3 million. The
Lakes at Countrywood is a 421-site community in Plant City, near Tampa, Florida,
and includes approximately 23 acres for expansion. Grand Island is a 309-site
community in Grand Island, near Orlando, Florida, and includes a marina with 50
boat docks. The acquisition was funded with a borrowing under the Company's line
of credit.
On February 13, 2001, the Company completed the disposition of seven
Properties, totaling 1,281 sites, in Kansas, Missouri and Oklahoma, for a total
numbersale price of sites ownedapproximately $17.4 million. A gain of $8.1 million was recorded
on the accompanying consolidated statements of operations. Proceeds from the
sale were used to reduce the amount outstanding on the Company's line of credit.
On October 5, 2001, the Company finalized a settlement agreement between
the Lending Partnership, the Operating Partnership and controlled increasedthe limited liability
partnership which owns Candlelight Village in Columbus, Indiana. In 1996, the
Company funded a recourse loan to the owner of Candlelight Village and accounted
for the loan as an investment in real estate. The Company received $10.8 million
in proceeds from 27,356the settlement, which was accounted for as a sale of December 31,
1996 to 44,108real
estate and recorded a $75,000 gain on the sale. Proceeds from the sale were used
as of December 31, 1997.
The following table summarizes certain weighted average statisticsworking capital.
CAPITAL IMPROVEMENTS
Capital expenditures for improvements are identified by the Company as
recurring capital expenditures ("Recurring CapEx"), site development costs and
corporate headquarters costs. Recurring CapEx was approximately $12.7 million
and $7.9 million for the years ended December 31, 19972001 and 1996. "Core Portfolio" represents an analysis
of properties owned during both periods of comparison.
Core Portfolio Total Portfolio
----------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- ----------
Total sites 25,631 25,554 29,323 26,621
Occupied sites 24,319 24,098 27,770 25,025
Occupancy % 94.9% 94.3% 94.7% 94.0%
Monthly base rent per site $ 325 $ 312 $ 327 $ 310
Base rental income ($109 million) increased $15.92000, respectively.
Of these expenditures, the Company believes that approximately $7.1 million or
17.0%. For the
Core Portfolio, base rental income increased approximately $4.7 million or
5.2%, reflecting a 4.3% increase in base rental rates and a 0.9% increase
related to occupancy. The remaining $11.2 million increase in base rental
income was attributed to the 1997 Acquisition Properties.
Monthly base rent$142 per site for the total portfolio increased 5.5%,
reflecting a 4.2% increase in monthly base rent2001 and $6.5 million or $130 per site for the Core Portfolio2000 are
non-revenue producing improvements which are necessary in order to increase
and/or maintain occupancy levels and higher monthly basemaintain competitive market rents for the 1997 Acquisition Properties. Average
monthly base rent per site for the 1997 Acquisition Properties was $343 for the
year ended December 31, 1997.
Weighted average occupancy increased 0.7% due to increased occupancy at the
expansion communitiesnew
and the addition of the 1997 Acquisition Properties with
higher occupancy percentages to the portfolio.
Utilityrenewing residents. Site development costs were approximately $9.7 million
and other income ($11.8 million) increased $3.0$7.9 million or 33.6%,
primarily due to an increase of $1.2 million attributed to the 1997 Acquisition
Properties, the collection of dividend income of $173,000 in the first quarter
of 1997, and increased utility income, real estate tax pass-ons and other
miscellaneous income at the Core Portfolio.
20
21
Interest income ($1.9 million) decreased $479,000 or 19.8%, primarily due
to the repayment of $13 million of notes receivable in August 1997, partially
offset by an increase in interest earned on short-term investments. Short-term
investments had average balances for the years ended December 31, 19972001 and 1996
of approximately $4.7 million2000, respectively,
and $3.4 million, respectively, which earned
interest income at an effective rate of 5.4% per annum in both years.
Property operating and maintenance expenses ($32.3 million) increased $3.9
million or 13.9% duerepresent costs to the impact of the 1997 Acquisition Properties and an
increase in property payroll, property general and administrative expenses and
insurance and other expenses at the Core Portfolio. Partially offsetting these
increases was a decrease in repairs and maintenance expense and utility expense
at the Core Portfolio. Property operating and maintenance expenses represented
26.2% of total revenues in 1997 and 27.0% in 1996.
Real estate taxes ($8.4 million) increased $405,000 or 5.1% due to the
impact of the 1997 Acquisition Properties, partially offset by a decrease in the
Core Portfolio due to lower than expected assessed valuesdevelop expansion sites at certain of the properties based on actual bills received. Real estate taxes represented 6.8% of
total revenues in 1997Company's
Properties.
EQUITY TRANSACTIONS
On March 26, 1999, the Operating Partnership repurchased and 7.6% in 1996.
Property management expenses ($5.1 million) increased $741,000 or 17.1%.
The increase was primarily due to an increase in management company payroll and
incremental costs associated with self managementcancelled
200,000 OP Units from a limited partner of the 1997 Acquisition
Properties. Property management expenses represented 4.1%Operating Partnership.
28
On September 30, 1999, the Operating Partnership completed a $125 million
private placement of total revenues in
both 19979.0% Series D Cumulative Perpetual Preferred Units ("POP
Units") to two institutional investors. The POP Units, which are callable by the
Company after five years, have no stated maturity or mandatory redemption. Net
proceeds from the offering of $121 million were used to repay amounts
outstanding under the Company's line of credit facility and 1996.
G&A ($4.6 million) increased $497,000 or 12.2%. The increase was primarily
due to increased payroll resulting from salary increases. G&A represented 3.7%
of total revenues in 1997 and 3.9% in 1996.
EBITDA increased $12.7 million or 21%. Approximately $7.6 million of the
increase related to the 1997 Acquisition Properties. The remaining increase
reflected increased base rental income and decreased repairs and maintenance
expense, utility expense and real estate tax expense, partially offset by
increased payroll expense, property general and administrative expense and
insurance andfor other expenses at the Core Portfolio.corporate
purposes.
In addition, corporate G&A
and property management expenses increased. EBITDA represented 59.2% of total
revenues in 1997 and 57.5% in 1996.
Interest and related amortization ($21.8 million) increased $4.0 million or
22.3%. The increase was due to higher weighted average outstanding debt balances
during the period. The weighted average outstanding debt balances for the years
ended December 31, 1997 and 1996 were $301.3 million and $234.9 million,
respectively. The effective interest rate was 7.1% in 1997 and 7.2% in 1996.
Interest and related amortization represented 17.6% of total revenues in 1997
and 16.9% in 1996.
On December 12,March 1997, the Company refinanced the $100.0 million mortgage
note (the "Original Mortgage Debt") withCompany's Board of Directors approved a $265.0 million mortgage note (see
discussion above). In October 1996,common stock
repurchase plan whereby the Company entered into an interest rate
swap agreement (the "1997 Swap") fixing LIBOR on the Original Mortgage Debt at
5.57% effective January 10, 1997 through March 3, 1998. The Company sold the
1997 Swap in December 1997 for approximately $26,000 in connection with the
refinancing.
Depreciation on corporate assets ($590,000) increased $102,000 or 20.9% duewas authorized to fixed asset additions in 1996 associated with the Company's conversion to a
new accounting software system. Depreciation on corporate assets represented
0.5%repurchase and retire
shares of total revenues in both 1997 and 1996.
Depreciation on real estate assets and other costs ($17.4 million)
increased $2.1 million or 13.9% as a resultits common stock. No shares of the 1997 Acquisition Properties.
In addition, the Company recognized a one-time gain of $18,000 representing
gains on the prepayment of notes receivable and the sale of certain assets
related to the Chateau Communities, Inc. merger attempt, partially offset by the
write-off of certain deferred compensation. Depreciation on real estate assets
and other costs represented 14.1% of total revenues in 1997 and 14.5% in 1996.
In the fourth quarter of 1997, the Company recognized an extraordinary item
for early extinguishment of the Original Mortgage Debt of $556,000.
21
22
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased $17.4 million from
$54.6 million forCommon Stock were repurchased during
the year ended December 31, 1997 to $72.02001. However, under the plan, the Company
repurchased approximately 2.2 million for the same
period in 1998. This increase reflected a $13.3 million increase in FFO, which
reflected increases in rental income as discussed in "Resultsshares of Operations"
above, andCommon Stock at an increase in accounts payable and real estate tax accruals and
rents received in advance related to the property acquisitions, partially offset
by increased prepaid expenses.
Net cash provided by operating activities increased $4.9 million from $49.7
million foraverage price
of $24.06 per share during the year ended December 31, 19962000 and 4.1 million
shares of Common Stock at an average price of $23.40 per share during the year
ended December 31, 1999, using proceeds from borrowings on the line of credit.
INFLATION
Substantially all of the leases at the Properties allow for monthly or
annual rent increases which provide the Company with the opportunity to $54.6 million forachieve
increases, where justified by the same
period in 1997. This increase reflected an $8.6 million increase in FFO, which
reflected increases in rental income and decreasesmarket, as each lease matures. Such types of
certain expenses as
discussed in "Resultsleases generally minimize the risk of Operations" above, and an increase in collection of
rents received in advance and security deposits relatedinflation to the property
acquisitions, partially offset by an increase in prepaid expenses and rents
receivable and decreased accounts payable accruals.Company.
FUNDS FROM OPERATIONS
FFO was definedredefined by NAREIT in March 1995October 1999, effective January 1, 2000, as
net income (computed in accordance with GAAP), before allocation to minority
interests, excluding gains (or losses) from sales of property, plus real estate
depreciation and after adjustments for significant non-recurring items, if any. In the first quarter of
1996, the Company adopted this new definition of FFO which was effective for
periods ending after December 31, 1995.unconsolidated partnerships and joint
ventures. The Company computes FFO in accordance with the NAREIT definition,
which may differ from the methodology for calculating FFO utilized by other
equity REITs and, accordingly, may not be comparable to such other REITs.REIT's
computations. Funds available for distribution ("FAD") is defined as FFO less
non-revenue producing capital expenditures.expenditures and amortization payments on mortgage
loan principal. The Company believes that FFO and FAD are useful to investors as
a measure of the performance of an equity REIT because, along with cash flows
from operating activities, financing activities and investing activities, they
provide investors an understanding of the ability of the Company to incur and
service debt and to make capital expenditures. FFO and FAD in and of themselves
do not represent cash generated from operating activities in accordance with
GAAP and therefore should not be considered an alternative to net income as an
indication of the Company's performance or to net cash flows from operating
activities as determined by GAAP as a measure of liquidity and are not
necessarily indicative of cash available to fund cash needs.
The following table presents a calculation of FFO and FAD for the years
ended December 31, 1998, 19972001, 2000 and 19961999 (amounts in thousands):
For the Years Ended
December 31,
------------------------------------------------
Computation of funds from operations: 1998 1997 1996
---------- --------- ----------2001 2000 1999
-------- -------- -------
COMPUTATION OF FUNDS FROM OPERATIONS:
Income before allocationextraordinary loss on early Extinguishment
of debt................................................ $ 32,083 $ 32,986 $27,772
Income allocated to minority interests
and extraordinary item...................... $ 35,663 $ 33,469 $ 26,943Common OP Units....................... 8,209 8,463 6,219
Depreciation on real estate assets and other costs.......................... 28,426 17,365 15,244costs........ 34,833 34,411 34,486
Gain on sale of assets.................... --- --- ---
---------- --------- ----------Properties and other...................... (8,168) (12,053) --
-------- -------- -------
Funds from operations.........................operations.................................. $ 64,08966,957 $ 50,834 $ 42,187
========= ========= ==========
Computation of funds available for distribution:63,807 $68,477
======== ======== =======
Weighted average Common Stock outstanding -- diluted...... 27,010 27,408 31,252
======== ======== =======
COMPUTATION OF FUNDS AVAILABLE FOR DISTRIBUTION:
Funds from operations.........................operations..................................... $ 64,08966,957 $ 50,834 $ 42,18763,807 $68,477
Non-revenue producing improvements -
rental properties...................... (8,005) (4,187) (3,402)
---------- --------- ----------to real estate......... (12,689) (7,855) (8,656)
-------- -------- -------
Funds available for distribution...................distribution....................... $ 56,08454,268 $ 46,647 $ 38,785
========= ========= ==========55,952 $59,821
======== ======== =======
Weighted average Common Stock outstanding -- diluted...... 27,010 27,408 31,252
======== ======== =======
Net cash used29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The Company's earnings are affected by changes in investing activities increased $23.3interest rates, as a
portion of the Company's outstanding indebtedness is at variable rates based on
LIBOR. The Company's $150 million from $239.4line of credit ($16.3 million for the year endedoutstanding at
December 31, 1997 to $262.8 million for the year
ended December 31, 1998, primarily due to the funding of notes receivable,
improvements made to acquisition properties, and collection of escrow proceeds
related to the acquisition of the Ellenburg Communities, partially offset by the
sale of project related assets in 1997.
22
23
Net cash used in investing activities increased $178.4 million from $61
million for the year ended December 31, 1996 to $239.4 million for the year
ended December 31, 1997, primarily due to increased payments for acquisitions in
19972001) bears interest at LIBOR plus 1.125% per annum and the
Company's investment in partnerships, partially offset$100 million Term Loan bears interest at LIBOR plus 1.0% per annum. If
LIBOR increased/decreased by the
collection of principal payments on notes receivable, net proceeds from the sale
of project related assets and 1.0% during 2001, interest expense would have
increased/decreased purchases of short-term investments, all
of which had maturitites of three months or less.
On September 4, 1997, the Company entered into a portfolio purchase
agreement (as amended by a supplemental agreement on December 17, 1997) to
acquire 38 manufactured home communities (the "Ellenburg Communities") from
partnerships having Ellenburg Capital Corporation ("ECC") as the general partner
for a purchase price in excess of $300 million. From December 17, 1997 through
December 31, 1998, the Company closedapproximately $1.4 million based on the acquisition of thirty-one of the
Ellenburg Communities for an aggregate purchase price of approximately $278
million and gained control of an additional five Ellenburg Communities with
acquisition advances of approximately $57 million to the partnerships which own
such Ellenburg Communities. The Company funded the acquisition advances with
borrowingscombined average
balance outstanding under the Company's line of credit and term bank facilities. In
addition, the Company assumed debt of approximately $32 million and issued OP
Units of approximately $4.9 million in connection with this transaction.
During 1998, the Company received approximately $14.3 million, including
approximately $365,000 of interest income, which was being held subject to the
completion of due diligence procedures on the Ellenburg Communities. The persons
appointed to windup the affairs of ECC have released the funds and have
presented a status report to the court. The $14.3 million has been recorded as a
liability until certain related issues are finalized at which point the final
liability will be relieved and the purchase price of the Ellenburg Communities
adjusted accordingly.
On January 6, 1998, the Company funded a $12.3 million loan (the "Meadows
Loan") to Meadows Preservation, Inc. The MeadowsTerm Loan is collateralized by The
Meadows manufactured home community located in Palm Beach Gardens, Florida,
bears interest at a nominal rate of 9%, subject to adjustment based on cash flow
of the property, and matures on April 30, 1999.
On January 8, 1998, the Company acquired Quail Meadows, located in
Riverbank, California, for a purchase price of approximately $4.7 million. The
acquisition was funded with a borrowing under the Company's line of credit.
Quail Meadows consists of approximately 146 developed sites.
On April 30, 1998, the Company acquired Sherwood Forest RV Resort, located
adjacent to one of the Ellenburg Communities in Kissimmee, Florida, for a
purchase price of approximately $7.0 million. The acquisition was funded with a
borrowing under the Company's line of credit. Sherwood Forest RV Resort consists
of approximately 512 developed sites and a 33 acre expansion parcel.
On May 14, 1998, the Company acquired Casa Del Sol Resort III, located
adjacent to one of the Company's communities in Peoria, Arizona, for a purchase
price of approximately $9.8 million. The acquisition was funded with a
borrowing under the Company's line of credit. Casa Del Sol Resort III consists
of 238 developed sites.
On June 4, 1998, the Company entered into a joint venture agreement with
Wolverine Investors L.L.C. to acquire the College Heights Communities. The
aggregate purchase price for the College Heights Communities was approximately
$89 million. The Company contributed approximately $19 million to the joint
venture, Wolverine Investors L.L.C. contributed approximately $2.0 million to
the joint venture and the remainder of the acquisition was funded with a
borrowing from a financial institution of approximately $68 million. The
Company's $19 million contribution to the joint venture was funded with a
borrowing under the Company's line of credit. Due to the Company's ability to
control the joint venture through its ownership percentage, the joint venture
has been consolidated with the Company for financial reporting purposes.
On August 13, 1998, the Company acquired Sunset Oaks, located in Plant
City, Florida, adjacent to one of the Company's existing properties, for a
purchase price of approximately $3.6 million. The acquisition was funded with a
borrowing under the Company's line of credit. Sunset Oaks consists of 168
developed sites.
23
24
Capital expenditures for improvements were approximately $14.2 million for the
year ended December 31, 2001.
In July 1998, compared to $6.4the Company entered into an interest rate swap agreement (the
"1998 Swap") fixing LIBOR on $100 million of the Company's floating rate debt at
6.4% for the year endedperiod 1998 through 2003. The cost of the 1998 Swap consisted only
of legal costs that were deemed immaterial. The value of the 1998 Swap was
impacted by changes in the market rate of interest. Had the 1998 Swap been
entered into on December 31, 1997. Of1999, the $14.2 million,applicable LIBOR swap rate would have
been approximately $8 million represented
improvements to existing sites including $3.5 million related to newly acquired
properties.6.57%. Each 0.01% increase or decrease in the applicable swap
rate for the 1998 Swap increases or decreases the value of the 1998 Swap versus
its current value by approximately $28,000. The Company anticipates spendingaccounted for the 1998
Swap as a hedge. Payments and receipts under the 1998 Swap were accounted for as
an adjustment to interest expense. On January 10, 2000, the Company unwound the
1998 Swap and received $1.0 million of proceeds which is amortized into interest
expense through March 2003.
On October 29, 2001, the Company entered into an interest rate swap
agreement, fixing LIBOR on $100 million of the Company's floating rate debt at
approximately $6.7 million3.7% for the period October 2001 through August 2004. The terms of
the swap require monthly settlements on improvements to existing sites during 1999.the same dates that interest payments
are due on the debt. In accordance with SFAS No. 133, the interest rate swap is
reflected at market value. The Company believes these
improvements are necessary in order to increase and/or maintain occupancy levelsthe swap is a perfectly
effective cash flow hedge per SFAS No. 133 and maintain competitive market rents for new and renewing residents. The
remaining $6.2 million represented costs to develop expansion sites at certainthere will be no effect on net
income as a result of the Company's Properties and other corporate headquarter costs.
Net cash provided by financing activities increased $18.1 million from
$185.4 million formark-to-market adjustment. The value of the year endedhedge as
of December 31, 1997 to $203.5 million for the
year ended December 31, 1998 primarily due to the issuance of common stock2001 was approximately $489,000 and is recorded as an asset and
included in other assets. Mark-to-market change in the second quarter of 1998, partially offset by decreased net proceeds from the
line of credit, term loan and mortgage notes payable.
Net cash provided by financing activities increased $174.6 million from
$10.9 million for the year ended December 31, 1996 to $185.4 million for the
year ended December 31, 1997 primarily due to the additionvalue of the New Mortgage
Debt whereby the Company borrowed an additional $165 million, increased
borrowings on the line of credit, and an increaseswap are
included in proceeds from the exercise
of stock options and issuance of common stock under the employee stock purchase
plan, partially offset by the purchase of 330,300 shares of the Company's common
stock under the common stock repurchase plan, increased distributions to common
stockholders and the payment of debt issuance costs related to the Debt
Refinancing.
On April 23, 1998, the Company completed an offering of 1,048,059 shares of
common stock (the "Unit Trust Offering") and sold the shares to Merrill Lynch,
Pierce, Fenner & Smith Incorporated (the "Underwriter"). The offering price per
share was $25.4375, the closing price for shares of the Company's common stock
on April 23, 1998, resulting in gross offering proceeds of approximately $26.7
million. Net of the Underwriter's discount and offering expenses, the Company
received approximately $25 million. The Underwriter deposited the shares of
common stock with the trustee of the Equity Investor Fund Cohen & Steers Realty
Majors Portfolio, a unit investment trust (the "Trust"), in exchange for units
in the Trust.
For the year ended December 31, 1998, the Company declared and paid
quarterly distributions totaling $1.45 per share. For the year ended December
31, 1997, the Company declared and paid quarterly distributions totaling $1.32
per share. Return of capital on a GAAP basis was $0.33, $0.15 and $0.24 for the
years ended December 31, 1998, 1997 and 1996, respectively.
Substantially all of the leases at the Properties allow for monthly or
annual rent increases which provide the Company with the opportunity to achieve
increases, where justified by the market, in rental income as each lease
matures. Such types of leases generally minimize the risk of inflation to the
Company.
The Company expects to meet its short-term liquidity requirements,
including its distributions, generally through its working capital, net cash
provided by operating activities and availability under the existing line of
credit. The Company expects to meet certain long-term liquidity requirements
such as scheduled debt maturities, property acquisitions and capital
improvements by long-term collateralized and uncollateralized borrowings
including borrowings under its existing line of credit and the issuance of debt
securities or additional equity securities in the Company, in addition to
working capital.other comprehensive income.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and
Hedging Activities", which is required to be adopted and its amendments, Statements 137 and 138 in years beginning after June 15,
1999.1999 and
June 2000, respectively. SFAS No. 133 permits early adoption as of the beginning
of any fiscal quarter after its issuance. The Company has not yet determinedIn June 1999, the FASB issued
Statement No. 137 which deferred the effective date at which
it will adopt SFAS No. 133.of SFAS No. 133 will requireto all
fiscal quarters for fiscal years beginning after June 15, 2000. The Company
adopted SFAS No. 133 effective January 1, 2001. SFAS No. 133 requires the
Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The
Company has not yet determined what the effect of SFAS No. 133 will be on the
earnings and financial position of the Company.
24
25
YEAR 2000
The year 2000 issue ("Year 2000") is the result of computer programs and
embedded processors ("Systems") failing to properly account for the end of 1999
and the rollover to the year 2000. The Year 2000 issue comes from three
date-related problems and practices. First some Systems define the year-portion
of date fields with two digits instead of four. As a result, programs and
equipment that have time-sensitive functions may interpret a date using "00" as
being 1900 rather than 2000. Second, the year 2000 is a leap year. There is a
possibility that some Systems may fail to account for the leap day properly.
Third, in practice, an artificial date of "9/9/99" is sometimes used as a
fictitious date when testing Systems. It is possible that some Systems will
reject the actual date of "September 9, 1999" as fictitious. Problems arising
from one or more of these problems and practices could result in failure of one
or more Systems causing a disruption of operations, including, among other
things, a temporary inability to process transactions, collect rents, or engage
in similar normal business activities.
Utilizing purchasing records, inventory listings, and direct communication
with employees, the Company is in the process of identifying all of its
information technology ("IT") and non-IT systems and assessing them for Year
2000 readiness. Critical systems include, but are not limited to: accounts
receivable, sales and inventory, human resources and payroll, accounts payable
and general ledger, Lotus Notes, Microsoft Office, tax preparation and filing
software, computers, data networking equipment, telephone systems, fax machines
and photocopiers, security and life safety systems (elevators, alarm systems),
process control systems (pool pumps and chlorine systems, sprinkler systems),
cable television systems, lift stations, and drinking water and waste water
treatment plants. The Company has completed the inventory and research phases of
its preparations for the Year 2000. Review of the research material continues in
the first quarter of 1999, as does on-site inspections of the utilities
(drinking water and waste water treatment plants, lift stations, and cable
television systems). The Company has retained consultants to handle assessment
of its drinking water, waste water treatment, lift station and cable television
facilities for which it is responsible. The Company has initiated formal
communications with all of its significant suppliers to determine the extent to
which the Company's interface systems are vulnerable to those third parties'
failure to remediate their own Year 2000 issues. The Company anticipates that
scheduled system upgrades to its accounts receivable system, accounts payable
and general ledger system, and payroll system will remediate current Year 2000
concerns. Remediation steps and development of contingency plans will be
completed in the second quarter of 1999. The Company has set a deadline for Year
2000 readiness of June 30, 1999. There can be no guarantee that the systems of
other companies on which the Company's Systems rely will be timely converted and
will not have an adverse effect on the Company's Systems.
Through December 31, 1998, the Company's costs associated with remediation
efforts have been immaterial. In 1998, the Company retained a full-time contract
employee to perform Year 2000 research and documentation at an annual fee of
approximately $45,000 and has budgeted to retain the employee through 1999. The
cost to retain a consultant to assess the waste water treatment and cable
television facilities has been budgeted at less than $50,000. The Company
expects that replacement of approximately 75 computers will be required with a
capital budget of approximately $200,000. The Company's total Year 2000 project
costs and estimates to complete do not include the estimated costs and time
associated with the impact of third-party Year 2000 issues. The total cost of
the Year 2000 project is estimated to be immaterial assuming third parties
remediate their own Year 2000 issues. This assumption is based on management's
best estimates, which were derived utilizing numerous assumptions of future
events, and there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated.
The Company has commenced its contingency planning for critical operational
areas that might be affected by the Year 2000 issue if compliance is delayed.
Aside from catastrophic failure of banks, governmental agencies, etc., the
Company believes that it could continue operations. For example, rent can be
collected and recorded by manual methods using hardcopy reports from previous
months; payroll can be processed by issuing manual checks relying on existing
payroll registers; bills can be paid as long as banks can process checks; and
basic financial statements can be prepared manually.
ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's earnings are affected by changes in interest rates as a
portion of the Company's outstanding indebtedness is at variable rates based on
LIBOR. The Company's $175 million line of credit ($145 million outstanding at
December 31, 1998) bears interest at LIBOR plus 1.125% and the Company's $100
million Term Loan bears interest at LIBOR plus 1.0%. The Company has the 1998
Swap which fixes LIBOR at 6.4% on $100 million of the Company's floating rate
debt for the period 1998 through 2003. If LIBOR increased/decreased by 1.0%
during 1998, interest expense would have increased/decreased by approximately
$1.0 million based on the average balance outstanding under the Company's line
of credit for the year ended December 31, 1998. Information relating to
quantitive and qualitive disclosure about market risk as it relates to the 1998
Swap is set forth in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, and in Note 9 "Long Term Borrowings" in the
Notes to Consolidated Financial Statements. Such information is incorporated
herein.
25
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Combined Financial Statements on page F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10, 11, 12, 13.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, EXECUTIVE COMPENSATION,
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 10, Item 11, Item 12, and Item 13 will be
contained in a definitive proxy statement which the Registrant anticipates
will be filed no later than April 28, 1999,2002, and thus this Part has been
omitted in accordance with General Instruction G(3) to Form 10-K.
30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)
(1&2) See Index to Financial Statements and Schedules on page F-1 of this
Form 10-K.
(3) Exhibits:
2(a) Admission Agreement between Equity Financial and Management
Co., Manufactured Home Communities, Inc. and MHC
Operating Partnership
3.1(a) Articles of Incorporation of Manufactured Home
Communities, Inc.
3.2(a) Articles of Amendment and Restatement of Manufactured Home
Communities, Inc.
3.3(a)
2(a) Admission Agreement between Equity Financial and Management Co.,
Manufactured Home Communities, Inc. and MHC Operating
Partnership
3.1(a) Articles of Incorporation of Manufactured Home Communities, Inc.
3.2(a) Articles of Amendment and Restatement of Manufactured Home
Communities, Inc.
3.3(g) Amended Bylaws of Manufactured Home Communities, Inc.
4 Not applicable
9 Not applicable
10.1(a) Amended and Restated Agreement of Limited Partnership of MHC
Operating Limited Partnership
10.2(a) Agreement of Limited Partnership of MHC Financing Limited
Partnership
10.3(a) Agreement of Limited Partnership of MHC Management Limited
Partnership
10.4(a) Property Management and Leasing Agreement between MHC Financing
Limited Partnership and MHC Management Limited Partnership
10.5(a) Property Management and Leasing Agreement between MHC Operating
Limited Partnership and MHC Management Limited Partnership
10.6(a) Services Agreement between Realty Systems, Inc. and MHC
Management Limited Partnership
10.7(a) Rate Protection Agreement
10.8(a) Revolving Credit Note made by Realty Systems, Inc. to Equity
Financial and Management Co.
10.9(a) Assignment to MHC Operating Limited Partnership of Revolving
Credit Note made by Realty Systems, Inc. to Equity Financial and
Management Co.
10.10(a) Stock Option Plan
10.11A(a) Indenture of Mortgage, Deed of Trust, Security Agreement,
Financing Statement, Fixture Filing and Assignment of Rents
10.11B(a) Promissory Note
10.11C(a) Assignment of Loan Documents
10.11D(a) Assignment of Leases, Rents and Security Deposits
10.11E(a) Swap Agreement Pledge and Security Agreement
10.11F(a) Cash Collateral Account Security, Pledge and Assignment
Agreement
10.11G(a) Assignment of Property Management and Leasing Agreement
10.11H(a) Trust Agreement
26
27
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K (CONTINUED)
(3) Exhibits (continued):
10.12(a) Form of Noncompetition Agreement
10.13(a) Form of Noncompetition Agreement
10.13A(a) Form of Noncompetition Agreement
10.14(a) General Electric Credit Corporation Commitment Letter
10.15(a) Administrative Services Agreement between Realty Systems, Inc.
and Equity Group Investments, Inc.
10.16(a) Registration Rights and Lock-Up Agreement with the Company (the
Original Owners, EF&M, Directors, Officers and Employees)
10.17(a) Administrative Services Agreement between the Company and Equity
Group Investments, Inc.
10.18(a) Form of Subscription Agreement between the Company and certain
officers and other individuals dated March 3, 1993
10.19(a) Form of Secured Promissory Note payable to the Company by
certain officers dated March 3, 1993
10.20(a) Form of Pledge Agreement between the Company and certain
officers dated March 3, 1993
10.21(a) Loan and Security Agreement between Realty Systems, Inc. and MHC
Operating Limited Partnership
10.22(a) Equity and Registration Rights Agreement with the Company (the
GM Trusts)
10.23(b) Agreement of Limited Partnership of MHC Lending Limited
Partnership
10.23(c) Agreement of Limited Partnership of MHC-Bay Indies Financing
Limited Partnership
10.24(c) Agreement of Limited Partnership of MHC-De Anza Financing
Limited Partnership
10.25(c) Agreement of Limited Partnership of MHC-DAG Management Limited
Partnership
10.26(d) Amendment No. 2 to MHC Operating Limited Partnership Amended and
Restated Partnership Agreement dated February 15, 1996
10.27(d) Form of Subscription Agreement between the Company and certain
members of management of the Company dated January 2, 1996
31
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
10.28(d) Form of Secured Promissory Note payable to the Company by
certain members of management of the Company dated January 2,
1996
10.29(d) Form of Pledge Agreement between the Company and certain members
of management of the Company dated January 2, 1996
10.30(e) Second Amended and Restated MHC Operating Limited Partnership
Agreement of Limited Partnership, dated as of March 15, 1996
10.31(f) Agreement of Limited Partnership of MHC Financing Limited
Partnership Two
10.32(g) $265,000,000 Mortgage Note dated December 12,1997
10.33(g) Second Amended and Restated Credit Agreement (Revolving
Facility) between the Company, MHC Operating Limited
Partnership, and certain lenders and agents, dated April 28,
1998
10.34(g) First Amendment to Second Amended and Restated Credit Agreement
(Revolving Facility) between the Company, MHC Operating Limited
Partnership, and certain lenders and agents, dated December 18,
1998
10.35(h) Second Amendment to Second Amended and Restated Credit Agreement
(Revolving Facility) between the Company, MHC Operating Limited
Partnership, and certain lenders and agents, dated August 9,
2000
10.36(g) Amended and Restated Credit Agreement (Term Loan) between the
Company, MHC Operating Limited Partnership, and certain lenders
and agent, dated April 28, 1998
10.36(h) First Amendment to Amended and Restated Credit Agreement (Term
Loan) between the Company, MHC Operating Limited Partnership,
and certain lenders and agent, dated November 21, 2000
10.36(g) Letter Agreement between the Company and Bank of America
National Trust and Savings Association confirming the $100
million swap transaction, dated July 11, 1995
10.39(h) $110,000,000 Amended, Restated and Consolidated Promissory Note
dated June 28, 2000
10.40(h) $15,750,000 Promissory Note Secured by Leasehold Deed of Trust
dated July 13, 2000
10.41(i) Credit Agreement (Term Loan) between the Company, MHC Operating
Limited Partnership and certain lenders and agents dated
February 9, 2002.
10.42(i) Third Amendment to Second Amended and Restated Credit Agreement
(Revolving Facility) between the Company, MHC Operating Limited
Partnership, and certain lenders and agents, dated February 9,
2002
10.43(i) $50,000,000 Promissory Note secured by Leasehold Deeds of Trust
(Stagecoach Mortgage) dated December 2, 2001.
11 Not applicable
12(i) Computation of Ratio of Earnings to Fixed Charges
13 Not applicable
16 Not applicable
18 Not applicable
21(i) Subsidiaries of the registrant
22 Not applicable
23(i) Consent of Independent Auditors
24.1(i) Power of Attorney for John F. Podjasek, Jr. dated March 27, 2002
24.2(i) Power of Attorney for Michael A. Torres dated March 19, 2002
24.3(i) Power of Attorney for Thomas E. Dobrowski dated March 15, 2002
24.4(i) Power of Attorney for Gary Waterman dated March 27, 2002
24.5(i) Power of Attorney for Donald S. Chisholm dated March 19, 2002
24.6(i) Power of Attorney for Louis H. Masotti dated March 15, 2002
27 Not applicable
12(g) Computation of Ratio of Earnings to Fixed Charges
13 Not applicable
16 Not applicable
18 Not applicable
21(g) Subsidiaries of the registrant
22 Not applicable
23(g) Consent of Independent Auditors
24.1(g) Power of Attorney for John F. Podjasek, Jr. dated
February 22, 1999
24.2(g) Power of Attorney for Michael A. Torres dated
February 19, 1999
24.3(g) Power of Attorney for Thomas E. Dobrowski dated
February 17, 1999
24.4(g) Power of Attorney for Gary Waterman dated
February 18, 1999
24.5(g) Power of Attorney for Donald S. Chisholm dated
February 17, 1999
24.6(g) Power of Attorney for Louis H. Masotti dated
February 19, 1999
27(g) Financial Data Schedule
28 Not applicable
- -------------------
(a) Included as an exhibit to the Company's Form S-11 Registration
Statement, File No. 33-55994, and incorporated herein by reference.
(b) Included as an exhibit to the Company's Report on Form 10-K dated
December 31, 1993, and incorporated herein by reference.
27
28
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
(3) Exhibits (continued):
(c) Included as an exhibit to the Company's Report on Form 10-K dated
December 31, 1994, and incorporated herein by reference.
(d) Included as an exhibit to the Company's Report on Form 10-Q for the
quarter ended March 31, 1996, and incorporated herein by reference.
32
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
(e) Included as an exhibit to the Company's Report on Form 10-Q for the
quarter ended June 30, 1996, and incorporated herein by reference.
(f) Included as an exhibit to the Company's Report on Form 10-K dated
December 31, 1997, and incorporated herein by reference.
(g) Included as an exhibit to the Company's Form S-3 Registration
Statement, File No. 333-90813, and incorporated herein by reference.
(h) Included as an exhibit to the Company's Report on Form 10-K dated
December 31, 2000, and incorporated herein by reference.
(i) Filed herewith.
(b) Reports on Form 8-K:
Form 8-K/A dated December 18, 1997, filed February 24, 1998,
relating to Item 2 - "Acquisition of Assets" and Item 7
"Financial Statements and Exhibits" on the acquisition of the
Ellenburg Communities.
Form 8-K dated June 4, 1998, filed June 18, 1998, relating to
Item 2 - "Acquisition of Assets" and Item 7 "Financial
Statements and Exhibits" on the acquisition of the College
Heights Communities.
Form 8-K/A dated June 4, 1998, filed August 11, 1998, relating
to Item 2 - "Acquisition of Assets" and Item 7 "Financial
Statements and Exhibits" on the acquisition of the College
Heights Communities.
Form 8-K dated January 22, 1999, filed February 4, 1999,
relating to Item 5 - "Other Matters" on certain litigation.None.
(c) Exhibits:
See Item 14 (a)14(a)(3) above.
(d) Financial Statement Schedules:
See Index to Financial Statements attached hereto on page F-1 of this Form
10-K.
2833
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
MANUFACTURED HOME COMMUNITIES, INC.,
a Maryland corporation
Date: March 2, 199929, 2002 By: /s/ HOWARD WALKER
-------------- ------------------------------------
Howard Walker
------------- -------------------------------------
Howard Walker
President and
Chief Executive Officer
Date: March 2, 199929, 2002 By: /s/ Thomas P. Heneghan
------------- -------------------------------------
Thomas P. HeneghanJOHN ZOELLER
-------------- ------------------------------------
John Zoeller
Executive Vice President, Treasurer
and Chief Financial Officer
Date: March 2, 199929, 2002 By: /s/ Judy A. Pultorak
------------- -------------------------------------
Judy A. PultorakMARK HOWELL
-------------- ------------------------------------
Mark Howell
Principal Accounting Officer
2934
30
MANUFACTURED HOME COMMUNITIES, INC. - SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Name Title DateNAME TITLE DATE
---- ----- ----
/s/ Howard Walker
- -------------------------------HOWARD WALKER Chief Executive Officer and President March 2, 199929, 2002
------------------------------------------ *Attorney-in-Fact --------------
Howard Walker
*Attorney-in-Fact ----------------------
Executive/s/ JOHN ZOELLER Vice President, Treasurer /s/ Thomas P. HeneghanMarch 29, 2002
------------------------------------------ and Chief Financial Officer March 2, 1999
- ---------------------------------------------
John Zoeller *Attorney-in-Fact
----------------------
Thomas P. Heneghan
/s/ Samuel ZellSAMUEL ZELL Chairman of the Board - ------------------------------- March 2, 199929, 2002
------------------------------------------ --------------
Samuel Zell
----------------------
/s/ SHELI Z. ROSENBERG Director March 29, 2002
------------------------------------------ --------------
Sheli Z. Rosenberg
/s/ DAVID A. HELFAND Director - -------------------------------
Sheli Z. Rosenberg March 2, 1999
----------------------
/s/29, 2002
------------------------------------------ --------------
David A. Helfand
*DONALD S. CHISHOLM Director - -------------------------------
David A. Helfand March 2, 1999
----------------------
*Donald S. Chisholm Director
- -------------------------------29, 2002
------------------------------------------ --------------
Donald S. Chisholm
*THOMAS E. DOBROWSKI Director March 2, 1999
----------------------
*Thomas E. Dobrowski Director
- -------------------------------29, 2002
------------------------------------------ --------------
Thomas E. Dobrowski
*LOUIS H. MASOTTI Director March 2, 1999
----------------------
*Louis H. Masotti Director
- -------------------------------29, 2002
------------------------------------------ --------------
Louis H. Masotti
*JOHN F. PODJASEK, JR. Director March 2, 1999
----------------------
*John F. Podjasek, Jr. Director
- -------------------------------29, 2002
------------------------------------------ --------------
John F. Podjasek, Jr.
*MICHAEL A. TORRES Director March 2, 1999
----------------------
*Michael A. Torres Director
- -------------------------------29, 2002
------------------------------------------ --------------
Michael A. Torres
*GARY L. WATERMAN Director March 2, 1999
----------------------
*Gary L. Waterman Director
- -------------------------------29, 2002
------------------------------------------ --------------
Gary L. Waterman March 2, 1999
----------------------
3035
31
INDEX TO FINANCIAL STATEMENTS
MANUFACTURED HOME COMMUNITIES, INC.
PAGE
----
Reports of Independent Auditors ........................................F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997............F-3
Consolidated Statements of Operations for the years ended December
31, 1998, 1997 and 1996.............................................F-4
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996........................F-5
Consolidated Statements of Cash Flows for the years ended December
31, 1998, 1997 and 1996.............................................F-6
Notes to Consolidated Financial Statements..............................F-7
Schedule II - Valuation and Qualifying Accounts.........................S-1
Schedule III - Real Estate and Accumulated Depreciation.................S-2
PAGE
----
Report of Independent Auditors....................................................................................... F-2
Consolidated Balance Sheets as of December 31, 2001 and 2000......................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999........................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2001, 2000 and 1999...... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999........................... F-6
Notes to Consolidated Financial Statements........................................................................... F-7
Schedule II -- Valuation and Qualifying Accounts..................................................................... S-1
Schedule III -- Real Estate and Accumulated Depreciation............................................................. S-2
Certain schedules have been omitted as they are not applicable to the
Company.
F-1
32
Report of Independent AuditorsREPORT OF INDEPENDENT AUDITORS
To the Board of Directors of Manufactured Home Communities, Inc.
We have audited the accompanying consolidated balance sheets of
Manufactured Home Communities, Inc. as of December 31, 19982001 and 1997,2000, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1998.2001. We have also audited the related financial statement schedules listed in
the accompanying index. These financial statements and schedules are the
responsibility of the management of Manufactured Home Communities, Inc. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted auditing
standards.in the United States. Those standards require that we plan and perform
the audits 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Manufactured
Home Communities, Inc. as ofat December 31, 19982001 and 19972000, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 19982001, in conformity with accounting principles
generally accepted accounting
principles.in the United States. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Chicago, Illinois
January 28, 1999,29, 2002, except for Note 1710
as to which the date is February 8, 2002 and
except for Note 18
1999as to which the date is February 22, 2002
F-2
33
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 19972001 and 2000
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
1998 1997
------------ ------------2001 2000
---------- ----------
ASSETS
Investment in rental property:
Land.........................................................real estate:
Land...................................................... $ 272,225271,871 $ 206,375271,822
Land improvements............................................ 865,720 612,670improvements......................................... 855,296 839,725
Buildings and other depreciable property..................... 95,669 90,870
Advances on rental property acquisitions..................... 3,817 26,403
------------ ------------
1,237,431 936,318property.................. 110,971 106,629
---------- ----------
1,238,138 1,218,176
Accumulated depreciation..................................... (118,021) (89,208)
------------ ------------depreciation.................................. (211,878) (181,580)
---------- ----------
Net investment in rental property........................ 1,119,410 847,110real estate.......................... 1,026,260 1,036,596
Cash and cash equivalents......................................... 13,657 909equivalents................................... 1,354 2,847
Notes receivable.................................................. 15,710 1,147receivable............................................ 1,506 4,984
Investment in and advances to affiliates.......................... 7,797 7,126affiliates.................... 34,387 21,215
Investment in joint ventures...................................... 7,584 ---ventures................................ 11,853 13,267
Rents receivable ................................................ 671 787receivable............................................ 1,966 1,440
Deferred financing costs, net..................................... 4,634 3,265net............................... 5,867 6,344
Prepaid expenses and other assets................................. 7,325 3,968
Due from affiliates............................................... 53 53
------------ ------------assets........................... 16,770 17,611
---------- ----------
Total assets................................................. $ 1,176,841 $ 864,365
============ ============assets.............................................. $1,099,963 $1,104,304
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable, net..................................payable.................................... $ 500,573590,371 $ 403,656556,578
Unsecured term loan..........................................loan....................................... 100,000 60,000100,000
Unsecured line of credit..................................... 145,000 25,000credit.................................. 16,250 59,900
Other notes payable.......................................... 5,276 6,516payable....................................... 2,236 3,206
Accounts payable and accrued expenses........................ 33,341 17,197expenses..................... 23,000 23,822
Accrued interest payable..................................... 4,911 1,536payable.................................. 4,582 5,116
Rents received in advance and security deposits.............. 6,495 2,299deposits........... 5,133 5,184
Distributions payable........................................ 294 55payable..................................... 12,062 11,100
Due to affiliates............................................ 42 78
------------ ------------affiliates......................................... 32 32
---------- ----------
Total liabilities........................................ 795,932 516,337
------------ ------------liabilities...................................... 753,666 764,938
Commitments and contingencies
Minority interests................................................ 70,468 67,453
------------ ------------Interest -- Common OP Units and other.............. 46,147 46,271
Minority Interest -- Perpetual Preferred OP Units........... 125,000 125,000
Stockholders' equity:
Preferred stock, $.01 par value 10,000,000 shares
authorized; none issued................ --- ---issued................................ -- --
Common stock,Stock, $.01 par value 50,000,000 shares authorized;
26,417,02921,562,343 and 24,771,18021,064,785 shares issued and outstanding
for 19982001 and 1997, respectively................................... 262 2482000, respectively........................ 215 210
Paid-in capital.............................................. 364,603 321,915capital........................................... 245,827 235,681
Deferred compensation........................................ (7,442) (2,885)compensation..................................... (4,062) (5,969)
Employee notes............................................... (4,654) (4,967)notes............................................ (3,841) (4,205)
Distributions in excess of accumulated earnings.............. (42,328) (33,736)
------------ ------------earnings........... (63,478) (57,622)
Accumulated other comprehensive income.................... 489 --
---------- ----------
Total stockholders' equity............................... 310,441 280,575
------------ ------------equity............................. 175,150 168,095
Total liabilities and stockholders' equity................... $ 1,176,841 $ 864,365
============ ============equity................ $1,099,963 $1,104,304
========== ==========
The accompanying notes are an integral part of the financial statements
F-3
34
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 19972001, 2000 AND 19961999
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
1998 1997 1996
---------- ---------- ----------2001 2000 1999
-------- -------- --------
REVENUES
Base rental income............................................ $ 165,340 $ 108,984 $ 93,109$195,644 $189,481 $181,672
RV base rental income......................................... 5,748 7,414 9,526
Utility and other income...................................... 25,372 11,785 8,82122,014 20,366 20,096
Equity in income of affiliates................................ 1,070 800 8531,811 2,408 2,065
Interest income............................................... 3,048 1,941 2,420
---------- ---------- ----------639 1,009 1,669
-------- -------- --------
Total revenues............................................ 194,830 123,510 105,203
---------- ---------- ----------revenues............................................. 225,856 220,678 215,028
-------- -------- --------
EXPENSES
Property operating and maintenance............................ 53,064 32,343 28,39962,008 59,199 58,038
Real estate taxes............................................. 14,470 8,352 7,94717,420 16,888 16,460
Property management........................................... 7,108 5,079 4,3388,984 8,690 8,337
General and administrative.................................... 4,668 4,091 3,3356,231 5,955 5,550
General and administrative - affiliates....................... 743-- affiliates...................... 456 468 727542
Interest and related amortization............................. 49,693 21,753 17,78251,305 53,280 53,775
Depreciation on corporate assets.............................. 995 590 4881,243 1,139 1,005
Depreciation on real estate assets and other costs............ 28,426 17,365 15,244
---------- ---------- ----------34,833 34,411 34,486
-------- -------- --------
Total expenses............................................ 159,167 90,041 78,260
---------- ---------- ----------expenses............................................. 182,480 180,030 178,193
-------- -------- --------
Income from operations........................................ 43,376 40,648 36,835
Gain on sale of Properties and other.......................... 8,168 12,053 --
-------- -------- --------
Income before allocation to minority interestsMinority Interests
and extraordinary loss on early extinguishment of debt........ 35,663 33,469 26,943
Incomedebt... 51,544 52,701 36,835
(Income) allocated to minority interests........................ (6,733) (4,373) (2,671)
---------- ---------- ----------Common OP Units......................... (8,209) (8,463) (6,219)
(Income) allocated to Perpetual Preferred OP Units............ (11,252) (11,252) (2,844)
-------- -------- --------
Income before extraordinary loss on early extinguishment
of debt................................................... 28,930 29,096 24,272debt.................................................... 32,083 32,986 27,772
Extraordinary loss on early extinguishment of debt
(net of $105$264 allocated to minority interests)..................... --- (451) ---
---------- ---------- ----------
Net income....................................................Minority Interests).............. -- 1,041 --
-------- -------- --------
NET INCOME................................................. $ 28,93032,083 $ 28,64531,945 $ 24,272
========== ========== ==========27,772
======== ======== ========
Net income per common shareCommon Share before extraordinary
item --- basic.............................................. $ 1.131.53 $ 1.181.54 $ .98
========== ========== ==========1.10
======== ======== ========
Net income per common shareCommon Share before extraordinary
item --- diluted............................................ $ 1.121.49 $ 1.161.51 $ .98
========== ========== ==========1.09
======== ======== ========
Net income per common share - basic...........................Common Share -- basic.......................... $ 1.131.53 $ 1.161.49 $ .98
========== ========== ==========1.10
======== ======== ========
Net income per common share - diluted.........................Common Share -- diluted........................ $ 1.121.49 $ 1.151.46 $ .98
========== ========== ==========1.09
======== ======== ========
Weighted average common sharesCommon Shares outstanding - basic............ 25,626 24,689 24,693
========== ========== ==========-- basic........... 21,036 21,469 25,224
======== ======== ========
Weighted average common sharesCommon Shares outstanding --- diluted
(Note 3) 31,962 28,762 27,546
========== ========== ==========................................................... 27,010 27,408 31,252
======== ======== ========
Distributions declared per common shareCommon Share outstanding........... $ 1.451.78 $ 1.66 $ 1.55
======== ======== ========
Tax status of distributions paid during the year:
Ordinary income............................................ $ 1.31 $ 1.32 $ 1.22
========== ========== ==========
Tax status of distributions:
Ordinary income...........................................1.16
======== ======== ========
Capital gain............................................... $ 1.14-- $ 1.12-- $ .90
========== ========== ==========
Capital gain.............................................. $ --- $ --- $ ---
========== ========== ==========--
======== ======== ========
Return of capital.........................................capital.......................................... $ .310.44 $ .200.31 $ .32
========== ========== ==========--
======== ======== ========
The accompanying notes are an integral part of the financial statements
F-4
35
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 19972001, 2000 AND 19961999
(AMOUNTS IN THOUSANDS)
1998 1997 1996
---------- ---------- ----------2001 2000 1999
--------- --------- ---------
PREFERRED STOCK, $.01 PAR VALUE.................................VALUE............................. $ ----- $ ----- $ ---
========== ========== ==========--
======== ======== ========
COMMON STOCK, $.01 PAR VALUE
Balance, beginning of year......................................year.................................. $ 248210 $ 249229 $ 244262
Issuance of common stock for employee notes................. --- --- 3
Issuance of common stockCommon Stock through restricted stock
awards........................................... 2 1 2
Retirement of treasury stock................................ --- --- (1)
Exercise of options.........................................grants................................................. 1 1 1
Issuance (repurchase)Exercise of common stock....................... 11 (3) ---
---------- ---------- ----------options....................................... 4 1 1
(Repurchase) issuance of Common Stock..................... -- (21) (35)
-------- -------- --------
Balance, end of year............................................year........................................ $ 262215 $ 248210 $ 249
========== ========== ==========229
======== ======== ========
PAID --- IN CAPITAL
Balance, beginning of year...................................... $ 321,915 $ 296,997 $ 288,613year.................................. $235,681 $275,664 $364,603
Issuance of common stockCommon Stock for employee notes................. 129 --- 4,689
Retirement of treasury stock................................ --- --- (1,986)notes............... -- -- --
Conversion of OP Units to common stock...................... 1,100 --- 23
Exercise of options......................................... 2,372 2,070 1,013Common Stock.................... 599 494 1,525
Issuance of common stockCommon Stock through exercise of options...... 7,743 2,719 2,034
Issuance of Common Stock through restricted stock
awards........................................... 6,118 2,468 4,645grants................................................. 1,627 3,310 1,507
Issuance of common stockCommon Stock through employee stock purchase
plan.......................................... 940 587 ---
Issuance (repurchase)plan................................................... 2,365 1,435 1,195
Repurchase of common stock....................... 24,613 (7,257) ---Common Stock................................ -- (53,112) (98,160)
Adjustment for minority interests ownershipCommon OP Unitholders in operating partnership............................... 7,416 27,050 ---
---------- ---------- ----------the Operating
Partnership............................................ (2,188) 5,171 2,960
-------- -------- --------
Balance, end of year............................................ $ 364,603 $ 321,915 $ 296,997
========== ========== ==========year........................................ $245,827 $235,681 $275,664
======== ======== ========
DEFERRED COMPENSATION
Balance, beginning of yearyear.................................. $ (2,885)(5,969) $ (3,485)(6,326) $ (80)(7,442)
Issuance of common stockCommon Stock through restricted stock
awards.... (5,692) (2,074) (4,356)grants................................................. (1,628) (3,311) (536)
Recognition of deferred compensation expense................ 1,135 2,674 951
========== ========== ==========expense.............. 3,535 3,668 1,652
-------- -------- --------
Balance, end of year............................................year........................................ $ (7,442)(4,062) $ (2,885)(5,969) $ (3,485)
========== ========== ==========
TREASURY STOCK
Balance, beginning of year...................................... $ --- $ --- $ (1,987)
Common stock retired, 109,728 shares........................ --- --- 1,987
---------- ---------- ----------
Balance, end of year............................................ $ --- $ --- $ ---
========== ========== ==========(6,326)
======== ======== ========
EMPLOYEE NOTES
Balance, beginning of year......................................year.................................. $ (4,967)(4,205) $ (6,158)(4,540) $ (1,565)(4,654)
Notes received for issuance of common stock................. (129) --- (4,692)Common Stock............... -- -- --
Principal payments.......................................... 442 1,191 99
---------- ---------- ----------payments........................................ 364 335 114
-------- -------- --------
Balance, end of year............................................year........................................ $ (4,654)(3,841) $ (4,967)(4,205) $ (6,158)
========== ========== ==========(4,540)
======== ======== ========
DISTRIBUTIONS IN EXCESS OF ACCUMULATED EARNINGS
Balance, beginning of year...................................... $ (33,736) $ (29,651) $ (23,725)year.................................. $(57,622) $(53,626) $(42,328)
Net income.................................................. 28,930 28,645 24,272
Distributions............................................... (37,522) (32,730) (30,198)
---------- ---------- ----------income................................................ 32,083 31,945 27,772
Other comprehensive income:
Unrealized holding gains on derivative instruments..... 489 -- --
-------- -------- --------
Comprehensive income................................. 32,572 31,945 27,772
-------- -------- --------
Distributions............................................. (37,939) (35,941) (39,070)
-------- -------- --------
Balance, end of year............................................ $ (42,328) $ (33,736) $ (29,651)
========== ========== ==========year........................................ $(62,989) $(57,622) $(53,626)
======== ======== ========
The accompanying notes are an integral part of the financial statements
F-5
36
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 19972001, 2000 AND 19961999
(AMOUNTS IN THOUSANDS)
1998 1997 19962001 2000 1999
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................income................................................ $ 28,93032,083 $ 28,64531,945 $ 24,27227,772
Adjustments to reconcile net income to cash provided by
operating activities:
Income allocated to minority interests............................ 6,733 4,268 2,671interests................ 19,461 19,451 9,063
Gain on sale of Properties and other.................. (8,168) (12,053) --
Depreciation and amortization expense............................. 29,680 19,018 16,720expense................. 37,184 36,511 33,871
Equity in income of Affiliates.................................... (1,070) (800) (853)affiliates and joint ventures..... (2,782) (2,928) (2,065)
Amortization of deferred compensation............................. 1,563 3,068 1,242
Writeoff of a management contractcompensation and project costs............... --- (575) ---
Decrease (increase)other....... 3,535 3,668 2,623
Increase in rents receivable........................... 116 (64) 212
(Increase)receivable.......................... (526) (102) (667)
Decrease (increase) in prepaid expenses and other
assets................... (3,359) (2,228) (109)
Increaseassets............................................. 1,330 (9,389) (844)
(Decrease) increase in accounts payable and accrued
expenses................. 5,188 2,847 5,400
Increaseexpenses........................................... (1,358) 2,545 2,491
(Decrease) increase in rents received in advance and
security deposits....... 4,196 402 105deposits.................................. (51) (1,647) 336
--------- --------- ---------
Net cash provided by operating activities............................. 71,977 54,581 49,660activities................. 80,708 68,001 72,580
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Redemption (purchase)Contributions to and distributions from Affiliates, net... (11,493) (7,250) (1,959)
Collections (funding) of short-term investments, net.................. --- 1,968 (286)
Sale (purchase)notes receivable................. 3,478 (700) 11,426
Distribution from (investment in) joint ventures.......... 1,697 (3,758) (2,279)
Proceeds from dispositions of project related assets............................. --- 11,147 (11,205)
Collectionassets...................... 24,209 46,490 --
(Funding) return of escrow proceeds on acquisition.......................... 14,295 --- ---
Advances on rental property acquisitions.............................. --- (22,811) ---
Distributions from Affiliates......................................... 399 388 5,004
(Funding) collections on notes receivable............................. (14,563) 16,342 126
Investment in joint ventures.......................................... (7,584) --- ---
Acquisitionfor acquisition of rental
properties...................................... (241,076) (240,083) (46,531)properties -- net....................................... (17,770) 4,581 (30,640)
Improvements:
Improvements - corporate.......................................... (1,487) (357) (844)-- corporate............................... (840) (498) (878)
Improvements --- rental properties.................................. (8,005) (4,187) (3,402)properties....................... (12,689) (7,855) (8,656)
Site development costs............................................ (4,741) (1,852) (3,816)costs.................................. (9,659) (7,908) (4,882)
--------- --------- ---------
Net cash used in(used in) provided by investing activities................................. (262,762) (239,445) (60,954)activities....... (23,067) 23,102 (37,868)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from stock options and employee stock
purchase plan ..... 3,313 2,658 1,014plan........................................... 10,112 4,142 3,229
Net proceeds from issuance of Perpetual Preferred OP
Units................................................... -- -- 121,890
Distributions to common stockholdersCommon Stockholders, Common OP
Unitholders and minority interests........... (46,491) (46,886) (33,070)
Issuance (repurchase)Perpetual Preferred OP Unitholders...... (58,111) (56,298) (40,445)
Repurchase of common stock................................. 24,623 (7,260) ---Common Stock and OP Units................... (41) (54,595) (99,847)
Collection of principal payments on employee notes.................... 442 1,191 99
Proceeds from linenotes........ 364 335 114
Line of credit, term loan, and mortgage notes payable... 266,847 510,731 52,100
Repayments on mortgage notes payable and line of credit............... (43,298) (272,674) (9,084)credit:
Proceeds................................................ 46,000 103,900 113,400
Repayments.............................................. (89,650) (151,900) (150,500)
Refinancing -- net proceeds............................... 37,870 65,998 16,248
Principal payments........................................ (5,047) (4,249) (4,733)
Debt issuance costs................................................... (1,903) (2,311) (201)costs....................................... (631) (2,265) (1,049)
--------- --------- ---------
Net cash provided byused in financing activities............................. 203,533 185,449 10,858activities..................... (59,134) (94,932) (41,693)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents....................... 12,748 585 (436)equivalents................. (1,493) (3,829) (6,981)
Cash and cash equivalents, beginning of year............................... 909 324 760year................ 2,847 6,676 13,657
--------- --------- ---------
Cash and cash equivalents, end of year.....................................year...................... $ 13,6571,354 $ 9092,847 $ 3246,676
========= ========= =========
SUPPLEMENTAL INFORMATION
Cash paid during the year for interest.....................................interest...................... $ 45,78550,781 $ 20,66752,947 $ 16,55752,323
========= ========= =========
The accompanying notes are an integral part of the financial statements
F-6
37
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 --- ORGANIZATION OF THE COMPANY AND BASIS OF PRESENTATION
Manufactured Home Communities, Inc. (together with its consolidated
subsidiaries, the "Company"), formed in March 1993, is a Maryland corporation
which has elected to be taxed as a real estate investment trust ("REIT"). The
Company owns or has a controlling interest in 154148 manufactured home communities
(the "Properties") located in 2623 states, consisting of 53,39150,761 sites. The Company
generally will not be subject to Federal income tax to the extent it distributes
its REIT taxable income to its stockholders.
The operations of the Company are conducted through certain entities whichthat
are owned or controlled by the Company. MHC Operating Limited Partnership (the
"Operating Partnership") is the entity through which the Company conducts
substantially all of its operations. The Company contributed the proceeds from
its initial public offering to the Operating Partnership for a general
partnership interest. The limited partners of the Operating Partnership (the
"Minority Interests""Common OP Unitholders") receive an allocation of net income which is based on
their respective ownership percentage of the Operating Partnership which is
shown on the Consolidated Financial Statements as Minority Interests.Interests -- Common
OP Units. As of December 31, 1998,2001, the Minority Interests -- Common OP Units
represented 5,976,7015,426,374 units of limited partnership interest ("OP Units") which
are convertible into an equivalent number of shares of the Company's Common
stock. The issuance of additional shares of common stock or common OP Units
changes the respective ownership of the Operating Partnership for both the
Minority Interests and the Company.
Sub-partnershipsSubsidiaries of the Operating Partnership werehave been created to (i)
facilitate mortgage financing (the "Financing Partnerships"); (ii) facilitate
the Company's ability to provide financing to owners of manufactured home
communities ("Lending Partnership"); (iii) own the management operations of the
Company ("Management Partnerships"Partnership"); and (iv) own the assets and operations of
certain utility companies which service the Company's propertiesProperties ("MHC
Systems").
The accompanying financial statements represent the consolidated financial
information of the Company and its subsidiaries. Due to the Company's ability as
general partner to control either through ownership or by contract the Operating
Partnership, the Financing Partnerships, the Lending Partnerships,Partnership, the Management
PartnershipsPartnership and MHC Systems, each such subsidiary has been consolidated with the
Company for financial reporting purposes.
In 1998, the Company adopted
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131") which was effective for fiscal years beginning after December
15, 1997. SFAS No. 131 supersed Statementrequires
certain disclosures of Financial Accounting Standards No.
14, "Financial Reporting for Segments of a Business Enterprise". SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in interimthe
annual financial reports. SFAS No. 131 also establishes standards forstatements and related disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS No. 131, in June
1998, did not affect the results of operations or financial position of the
Company. The Company manages operations on a property by property basis. Since
each property has similar economic and operational characteristics, the Company
has one reportable segment, which is the operation of manufactured home
communities. The Company has concentrations of Properties within the following
states: Florida (45(49 Properties), California (25 Properties), Arizona (19(17
Properties), Michigan (11 Properties) and Colorado (10 Properties). These
concentrations of Properties accounted for 34%36%, 17%19%, 11%8%, 4%, and 8%,
respectively, of the Company's total revenues for the year ended December 31,
1998.2001. The Company also has Properties located in the following areas of the
United States: Northeast, Northwest, Midwest, and Nevada/Utah/New Mexico. The
Company's largest Property, Bay Indies, located in Venice, Florida, accounted
for 3% of the Company's total revenues for the year ended December 31, 1998.2001. The
distribution of the Properties throughout the United States reflects the
Company's belief that geographic diversification helps insulate the portfolio
from regional economic influences. The Company intends to target new
acquisitions in or near markets where the Properties are located and will also
consider acquisitions of properties outside such markets.
NOTE 2 --- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Consolidation
The Company consolidates all majority owed subsidiaries due to its ability
to control the operations of the subsidiaries. All inter-company transactions
have been eliminated in consolidation.
F-7
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted accounting principlesin the United States 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 date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-7
38
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b)Rental Property
Rental property(c) Real Estate
Real estate is recorded at cost less accumulated depreciation. The Company
evaluates rental propertiesProperties for impairment when conditions exist which may
indicate that it is probable that the sum of expected future cash flows
(undiscounted) from a rental propertyProperty is less than its carrying value. Upon
determination that a permanent impairment has occurred, rental propertiesProperties are
reduced to fair value. For the year ended December 31, 1998
and 1997,2001, permanent
impairment conditions did not exist at any of the Company's properties.Properties. During
the year ended December 31, 2000, MHC Acquisition One L.L.C., a consolidated
subsidiary of the Company, recorded an impairment loss on the DeAnza Santa Cruz
water and wastewater service company business (see Notes 5 and 17). In August
2001, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment of Long-Lived
Assets" which is effective for fiscal years beginning after December 15, 2001.
The application of the provisions of this Statement is not expected to affect
the earnings and financial position of the Company.
Certain costs, including legal costs, relative to efforts by the Company to
effectively change the use and operations of several Properties are currently
recorded in other assets. These costs, to the extent these efforts are
successful, are capitalized to the extent of the established value of the
revised project and included in the net investment in real estate for the
appropriate Properties. To the extent these efforts are not successful, these
costs will be expensed.
Depreciation is computed on the straight-line basis over the estimated
useful lives of the assets. The Company uses a 30-year estimated life for
buildings acquired and structural and land improvements, a ten-to-fifteen
yearten-to-fifteen-year
estimated life for building upgrades and a three-to-seven yearthree-to-seven-year estimated life
for furniture, fixtures and equipment. Expenditures for ordinary maintenance
and repairs are expensed to operations as incurred and significant renovations
and improvements whichthat improve the asset and extend the useful life of the asset
are capitalized over their estimated useful life. Initial direct leasing costs
are expensed as incurred. Total depreciation expense was $29.1$36.1 million, $18.0$35.6
million and $15.3$35.5 million for the years ended December 31, 1998, 19972001, 2000 and 1996,1999,
respectively.
(c)(d) Cash and Cash Equivalents
The Company considers all demand and money market accounts and certificates
of deposit with a maturity when purchased of three months or less to be cash
equivalents.
(d)(e) Notes Receivable
Notes receivable generally are stated at their outstanding unpaid principal
balances net of any deferred fees or costs on originated loans, or unamortized
discounts.discounts or premiums. Interest income is accrued on the unpaid principal
balance. Discounts or premiums are amortized to income using the interest
method.
(e)(f) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" requires disclosures about the fair value
of financial instruments whether or not such instruments are recognized in the
balance sheet. The Company's financial instruments include short-term
investments, notes receivable, accounts receivable, accounts payable, other
accrued expenses, mortgage notes payable and interest rate hedge arrangements.
The fair valuevalues of all financial instruments, including notes receivable, were
not materially different from their carrying values at December 31, 19982001 and
1997, except the fair market
value of certain derivatives related to mortgage debt (see Note 10).
(f)2000.
F-8
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) Deferred Financing Costs
Deferred financing costs include fees and costs incurred to obtain
long-term financing. The costs are being amortized over the terms of the
respective loans on a level yield basis. Unamortized deferred financing fees
are written-off when debt is retired before the maturity date. Accumulated
amortization for such costs was $1,199,221$3.0 million and $717,112$1.9 million at December 31,
19982001 and 1997,2000, respectively.
(g)(h) Revenue Recognition
Rental income attributable to leases is recorded when earned from tenants.
F-8
39
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h)The Company will reserve for receivables when the Company believes the ultimate
collection is less than probable.
(i) Minority Interests
Net income is allocated to Minority InterestsCommon OP Unitholders based on their respective
ownership percentage of the Operating Partnership. An ownership percentage is
represented by dividing the number of Common OP Units held by the Minority
Interests (5,976,701Common OP
Unitholders (5,426,374 and 5,733,8155,514,330 at December 31, 19982001 and 1997,2000,
respectively) by OP Units and common stockCommon Stock outstanding. Issuance of additional
shares of Common Stock or common stock or OP Units changes the percentage ownership of
both the Minority Interests and the Company. Due in part to the exchange rights
(which provide for the conversion of Common OP Units into Common Stock on a
one-for-one basis), such transactions and the proceeds therefrom are treated as
capital transactions and result in an allocation between stockholders' equity
and Minority Interests to account for the change in the respective percentage
ownership of the underlying equity of the Operating Partnership.
(i)On September 30, 1999, the Operating Partnership completed a $125 million
private placement of 9.0% Series D Cumulative Perpetual Preferred Units ("POP
Units") with two institutional investors. The POP Units, which are callable by
the Company after five years, have no stated maturity or mandatory redemption,
have no voting rights and are not convertible into OP Units or Common Stock.
Income is allocated to the POP Units at a preferred rate per annum of 9.0% on
the original capital contribution of $125 million. Costs related to the
placement of $3.1 million were recorded as a reduction to additional paid-in
capital.
(j) Income Taxes
Due to the structure of the Company as a REIT, the results of operations
contain no provision for Federal income taxes. However, the Company may be
subject to certain state and local income, excise or franchise taxes. The
Company paid state and local taxes of approximately $50,000, $78,000 and
$40,000$85,000 during the years ended December 31, 19982001, 2000 and 1997.1999, respectively.
As of December 31, 1998,2001, net investment in rental propertyreal estate and notes receivable had
a federalFederal tax basis of approximately $747$710 million and $70$20 million,
respectively.
(j)Reclassifications
Certain 1997(k) Derivative Instruments and 1996 amounts have been reclassifiedHedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and
Hedging Activities" and its amendments, Statements 137 and 138 in June of 1999
and June of 2000, respectively. The Company adopted SFAS No. 133 effective
January 1, 2001. SFAS No. 133 requires the Company to conform to the 1998
financial presentation. Such reclassifications have no effectrecognize all derivatives
on the operationsbalance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will
either be offset against the change in fair value of the hedged assets,
liabilities or equity as originally presented.firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. On
October 29, 2001, the Company entered into a swap agreement. (see Note 10)
F-9
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 --- EARNINGS PER COMMON SHARE
Earnings per common share are based on the weighted average number of
common shares outstanding during each year. In 1997, theStatement of Financial Accounting
Standards
Board issued Statement No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No.
128 replaces defines the
calculation of primarybasic and fully diluted earnings per share. Basic and fully
diluted earnings per share with basicare based on the weighted average shares outstanding
during each year and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where appropriate, restated to
conform to the SFAS No. 128 requirements. The conversion of OP Units has
been excluded from the basic earnings per share calculation. The conversion of
an OP Unit to a share of common stock will havehas no material effect on earnings per
common share
since the allocation of earnings to an OP Unit is equivalent to earnings
allocated to a share of common stock.share.
The following table sets forth the computation of basic and diluted
earnings per share for the years ended December 31, 2001, 2000, 1999 (amounts
in thousands):
1998 1997 1996
--------- --------- --------2001 2000 1999
------- ------- -------
Numerator:NUMERATOR:
Numerator for basic earnings per share -- Net
income.................................... $ 28,930 $ 28,645 $ 24,272income............................................. $32,083 $31,945 $27,772
Effect of dilutive securities:
Income allocated to minority interests........ 6,733 4,373 2,671
--------- --------- --------Common OP Units (net of
extraordinary loss on early extinguishment of
debt)............................................ 8,209 8,199 6,219
------- ------- -------
Numerator for diluted earnings per share-
incomeshare --
Income available to common shareholders
afterCommon Stockholders
After assumed conversions.................. $ 35,663 $ 33,018 $ 26,943
========= ========= ========
Denominator:conversions........................ $40,292 $40,144 $33,991
======= ======= =======
DENOMINATOR:
Denominator for basic earnings per share -- Weighted
average shares outstanding........... 25,626 24,689 24,693Common Stock outstanding................... 21,036 21,469 25,224
Effect of dilutive securities:
Weighted average shares outstanding
assuming conversion ofCommon OP Units............ 5,955 3,749 2,715Units................... 5,466 5,592 5,704
Employee stock options........................ 381options............................. 508 347 324
138
--------- --------- --------------- ------- -------
Denominator for diluted earnings per share-
adjustedshare --
Adjusted weighted average shares andCommon Stock Outstanding
after assumed conversions........................ 31,962 28,762 27,546
========= ========= ========27,010 27,408 31,252
======= ======= =======
F-9
40
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 --- COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS
The following table presents the changes in the Company's outstanding
common stockCommon Stock for the years ended December 31, 1998, 19972001, 2000 and 19961999 (excluding OP
Units of 5,976,701, 5,733,8155,426,374, 5,514,330 and 2,714,8895,633,183 outstanding at December 31, 1998,
19972001,
2000 and 1996,1999, respectively):
1998 1997 19962001 2000 1999
---------- ---------- ----------
Shares outstanding at January 1,................................... 24,771,180 24,951,948 24,393,149.............................. 21,064,785 22,813,357 26,417,029
Common stock purchased by key employees of the Company........ 5,000 --- 270,000
Common stockStock issued through conversion of OP Units............ 99,552 --- 2,159Units.......... 87,956 59,190 143,637
Common stockStock issued through exercise of Options............... 141,403 107,147 75,497Options............. 387,115 138,029 126,565
Common stockStock issued through stock awards...................... 328,831 14,777 211,143grants.................... 57,000 92,070 95,666
Common stockStock issued through ESPP.............................. 44,804 27,608 ---Employee Stock Purchase Plan.... 98,987 68,739 59,060
Common stock issued through Unit Trust Offering .............. 1,048,059 --- ---
Common stockStock repurchased and retired.......................... (21,800) (330,300) ---retired........................ (133,500) (2,106,600) (4,028,600)
---------- ---------- ----------
Shares outstanding at December 31,................................. 26,417,029 24,771,180 24,951,948............................ 21,562,343 21,064,785 22,813,357
========== ========== ==========
As of December 31, 1998,2001, the Company's percentage ownership of the
Operating Partnership was 81%approximately 80%. The remaining 19%20% is owned by the
Minority
Interests.
The Company paid a $.3625 per share distribution on April 10, 1998, July
10, 1998, October 9, 1998 and December 30, 1998, for the quarters ended March
31, 1998, June 30, 1998, September 30, 1998 and December 31, 1998, respectively,
to stockholders of record on March 27, 1998, June 26, 1998, September 25, 1998
and December 16, 1998, respectively.Common OP Unitholders.
F-10
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 -- COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS (CONTINUED)
In March 1997, the Company's Board of Directors approved a common stockCommon Stock
repurchase plan whereby the Company iswas authorized to repurchase and retire
up to
1,000,000 shares of its common stock. SharesCommon Stock. No shares of common stockCommon Stock were repurchased and
retiredduring
the year ended December 31, 2001. However, under the plan, for the yearsCompany
repurchased approximately 2.1 million shares of Common Stock at an average price
of $24.06 per share during the year ended December 31, 19982000 and 1997approximately
4.0 million shares of Common Stock at an average price of $23.40 per share
during the year ended December 31, 1999, using proceeds from borrowings on the
line of credit.
During the year ended December 31, 2000, the Operating Partnership
repurchased and cancelled approximately 60,000 OP Units from various holders. On
March 26, 1999, the Operating Partnership repurchased and cancelled 200,000 OP
Units from a limited partner of the Operating Partnership.
On September 30, 1999, the Operating Partnership completed a $125 million
private placement of 9.0% Series D Cumulative Perpetual Preferred Units ("POP
Units") with two institutional investors. The POP Units, which are callable by
the Company after five years, have no stated maturity or mandatory redemption.
Net proceeds from the offering of $121 million were 21,800used to repay amounts
outstanding under the Company's line of credit facility and 330,300 respectively.for other corporate
purposes.
The following distributions have been declared and/or paid to common
stockholders and Minority Interests since January 1, 1999.
DISTRIBUTION FOR THE QUARTER SHAREHOLDER
AMOUNT PER SHARE ENDING RECORD DATE PAYMENT DATE
------------------- ---------------------- ------------------ ----------------
$0.3875 March 31, 1999 March 26, 1999 April 9, 1999
$0.3875 June 30, 1999 June 25, 1999 July 9, 1999
$0.3875 September 30, 1999 September 24, 1999 October 8, 1999
$0.3875 December 31, 1999 December 31, 1999 January 14, 2000
- -----------------------------------------------------------------------------------------------
$0.4150 March 31, 2000 March 31, 2000 April 14, 2000
$0.4150 June 30, 2000 June 30, 2000 July 14, 2000
$0.4150 September 30, 2000 September 29, 2000 October 13, 2000
$0.4150 December 31, 2000 December 29, 2000 January 12, 2001
- -----------------------------------------------------------------------------------------------
$0.4450 March 31, 2001 March 30, 2001 April 13, 2001
$0.4450 June 30, 2001 June 29, 2001 July 13, 2001
$0.4450 September 30, 2001 September 28, 2001 October 12, 2001
$0.4450 December 31, 2001 December 28, 2001 January 11, 2002
- -----------------------------------------------------------------------------------------------
The Operating Partnership pays distributions of 9.0% per annum on the $125
million of POP Units. Distributions on the POP Units were paid quarterly on the
last calendar day of each quarter beginning December 31, 1999.
The Company adopted, effective July 1, 1997, the 1997 Non QualifiedNon-Qualified
Employee Stock Purchase Plan ("ESPP"). Pursuant to the ESPP, certain employees
and directors of the Company may each annually acquire up to $100,000$250,000 of common
stockCommon
Stock of the Company. The aggregate number of shares of common stockCommon Stock available
under the ESPP shall not exceed 1,000,000, subject to adjustment by the Board of
Directors. The common stockCommon Stock may be purchased quarterlymonthly at a price equal to 85% of
the lesser of: (a) the closing price for a share of Common Stock on the last day
of such quarter;month; and (b) the greater of: (i) the closing price for a share of
Common Stock on the first day of such quarter,month, and (ii) the average closing price
for a share of Common Stock for all the business days in the quarter.month. Shares of
common stockCommon Stock issued through the ESPP for the years ended December 31, 19982001, 2000
and 19971999 were 44,80496,485, 68,739 and 27,60859,060, respectively.
On August 29, 1997, the Company, as general partner of the Operating
Partnership, approved the addition of new limited partners (the "MPW Limited
Partners") to the Operating Partnership in connection with the acquisition of
properties from limited partners and joint ventures affiliated with Mobileparks
West, a California limited partnership. The MPW Limited Partners received
3,018,926 OP Units which are exchangeable on a one-for-one basis for shares of
the Company's common stock.
During 1998, the Company, as general partner of the Operating Partnership,
approved the admission of new limited partners (the "1998 Acquisition Partners")
to the Operating Partnership in connection with certain acquisitions of rental
property and investments in joint ventures (see Notes 5 and 6). The 1998
Acquisition Partners received 342,438 OP Units which are exchangeable on a
one-for-one basis for shares of the Company's common stock.
On April 23, 1998, the Company completed an offering of 1,048,059 shares of
common stock (the "Unit Trust Offering") and sold the shares to Merrill Lynch,
Pierce, Fenner & Smith Incorporated (the "Underwriter"). The offering price per
share was $25.4375, the closing price for shares of the Company's common stock
on April 23, 1998, resulting in gross offering proceeds of approximately $26.7
million. Net of the Underwriter's discount and offering expenses, the Company
received approximately $25 million. The Underwriter deposited the shares of
common stock with the trustee of the Equity Investor Fund Cohen & Steers Realty
Majors Portfolio, a unit investment trust (the "Trust"), in exchange for units
in the Trust.
F-10F-11
41
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - RENTAL PROPERTY-- INVESTMENT IN REAL ESTATE
Land improvements consist primarily of improvements made to land such as grading,
landscaping and infrastructure.infrastructure items such as streets, sidewalks or water mains.
Depreciable property consists of permanent buildings in the communitiesProperties such as
clubhouses, laundry facilities, maintenance storage facilities, and furniture,
fixtures and equipment.
During the year ended December 31, 1996, the Company acquired three
communities for an aggregate purchase price of approximately $38 million and
funded a recourse first mortgage real estate loan for approximately $6 million
to the partnership which owned one community. For financial accounting purposes,
the Company accounts for the loan as an investment in real estate. These four
communities consist of 1,618 sites and 183 expansion sites. The acquisitions and
loan funding were funded with approximately $41.6 million in borrowings under
the Company's line of credit and $2.4 million in existing available cash.
During the year ended December 31, 1997, the Company acquired twenty-two
communities for an aggregate purchase price of approximately $156.4 million.
These acquisitions were funded with approximately $60.6 million in borrowings
under the Company's line of credit, issuance of approximately $64 million of OP
Units, assumption of approximately $13 million in debt, approximately $7.4
million of existing available cash, issuance of installment notes totaling
approximately $6 million and entry into a lease, accounted for as a capital
lease, valued at approximately $2.4 million. In connection with the acquisition
of one of the communities the Company issued an additional $1.1 million of OP
units in 1998.
On September 4, 1997, the Company entered into a portfolio purchase
agreement (as amended by a supplemental agreement on December 17, 1997) to
acquire 3837 manufactured home communities (the "Ellenburg Communities") from
partnerships having Ellenburg Capital Corporation ("ECC") as the general
partner, for a purchase price in excess of $300 million. During 1997 and 1998,
the Company closed on the acquisition of thirty-one31 of the Ellenburg Communities for an
aggregate purchase price of approximately $278 million and gained control of an
additional five Ellenburg Communities with acquisition advances of approximately
$57 million to the partnerships which ownowned such Ellenburg Communities. The Company fundedAll
fundings related to the acquisition advanceswere funded by the Company with borrowings
under the Company's line of credit, and term bank facilities. In addition, the Companyfacilities, assumed debt and the
issuance of approximately $32 million and issuedCommon OP Units of approximately
$4.9 million in connection with this transaction.
In connection with the supplemental agreement entered into in December
1997, on February 12, 1998, the Company exercised its right of first refusal to
purchase five of the Ellenburg Communities. A third party, backed by one of the
Company's competitors upon denial of a stay of the sale, has appealed certain
orders of the Superior Court for the State of California, County of Los Angeles
related to the Company's acquisition of the Ellenburg Communities, including the
order approving the supplemental agreement. The Company does not expect the
appeals to be successful, or if successful, to have a material impact on the
Company's acquisition of the Ellenburg Communities.Units.
During 1998, the Company received approximately $14.3 million, including
approximately $365,000 of interest income, which was being held subject to the
completion of due diligence procedures on the Ellenburg Communities. The persons
appointed to windup the affairs of ECC have released the funds and have
presented a status report to the court. The $14.3
million has beenwas initially recorded as a liability until 1999 when a settlement of
certain related issues are finalized at which pointwas substantially complete and accordingly, in a non-cash
transaction, relieved the final
liability will be relieved and adjusted the purchase price of the
Ellenburg Communities.
In April 2000, the California Superior Court approved a settlement
agreement (the "Settlement") in connection with the dissolution proceeding of
ECC and its affiliated partnerships. As part of the Settlement, the Company
received $13.5 million previously held in escrow in connection with the purchase
of the Ellenburg Communities adjusted accordingly.and recorded $3.0 million of interest income
related to these funds. In connection with the Settlement, the Company sold
three communities -- Mesa Regal RV Resort, Mon Dak and Naples Estates -- for an
aggregate sales price of $59.0 million, including cash proceeds of $40.0 million
and assumption of debt by the purchaser of $19.0 million. The Company recorded a
$9.1 million gain on the sale of these Properties. Proceeds from the Settlement
and property sales were used to pay down the Company's line of credit. See Note
17 for further discussion of the Settlement.
On January 8,6, 1998, the Company acquired Quailfunded a $12.3 million loan (the "Meadows
Loan") to Meadows Preservation, Inc. The Meadows Loan was collateralized by The
Meadows manufactured home community located in Riverbank, California,Palm Beach Gardens, Florida. On
April 1, 1999, the Company effectively exchanged the Meadows Loan for an equity
and debt interest in the partnership that owns The Meadows. The Company includes
The Meadows in investment in real estate and the related results of operations
in the statement of operations.
On July 23, 1999, the Company acquired Coquina Crossing, located in St.
Augustine, Florida, for a purchase price of approximately $4.7$10.4 million. The
acquisition was funded with a borrowing under the Company's line of credit.
Quail Meadows consistsCoquina Crossing is a 748-site senior community with 269 developed sites and
zoned expansion potential for 479 sites. In addition, Realty Systems, Inc.
purchased the model home inventory at the community for approximately $1.1
million.
In March 2000, in accordance with SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of ",
MHC Acquisition One L.L.C., a consolidated subsidiary of the Company, recorded
an impairment loss on the DeAnza Santa Cruz water and wastewater service company
business. Management's estimates indicated that the undiscounted future cash
flows from the business would be less than the carrying value of the business
and its related assets. The Company recorded an asset impairment loss of
$701,000 (or $0.03 per fully diluted share) which is included as a reduction of
other income in the accompanying statement of operations for the year ended
December 31, 2000. This loss represents the difference between the carrying
value of the DeAnza Santa Cruz water and wastewater service company business and
its related assets and their estimated fair market value.
On February 29, 2000, MHC Systems, Inc., a consolidated subsidiary of the
Company, disposed of the water and wastewater service company known as FFEC-Six
in a cash sale. Net proceeds from the sale of approximately 146 developed sites.$4.2 million were
used to pay down the Company's line of credit and a gain on the sale of $719,000
(or $0.03 per fully diluted share) was recorded in other income on the
accompanying statement of operations for the year ended December 31, 2000.
F-12
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -- INVESTMENT IN REAL ESTATE (CONTINUED)
On April 30, 1998,January 3, 2001, the Company acquired Sherwood Forest RV Resort, located
adjacent to one of the Ellenburg Communities in Kissimmee,two Florida communities, totaling
730 sites, for aan aggregate purchase price of approximately $7.0$17.3 million. The
Lakes at Countrywood is a 422-site community in Plant City, near Tampa, Florida
and includes approximately 23 acres for expansion. Grand Island is a 308-site
community in Grand Island, near Orlando, Florida, and includes a marina with 50
boat docks. The acquisition was funded with a borrowing under the Company's line
of credit.
Sherwood Forest RV Resort consists
of approximately 512 developed sites and a 33 acre expansion parcel.
F-11
42
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - RENTAL PROPERTY (CONTINUED)
On May 14, 1998,February 13, 2001, the Company acquired Casa Del Sol Resort III, located
adjacent to onecompleted the disposition of the
Company'sfollowing seven communities, totaling 1,281 sites, in Peoria, Arizona,Kansas, Missouri and
Oklahoma, for a purchasetotal sale price of approximately $9.8 million. The acquisition$17.4 million:
Dellwood Estates........ 136 sites
Briarwood............... 166 sites
Bonner Springs.......... 211 sites
Carriage Park........... 143 sites
North Star.............. 219 sites
Quivira Hills........... 142 sites
Rockwood................ 264 sites
A gain of $8.1 million was funded with a borrowing
underrecorded on the sale. Proceeds from the sale were
used to reduce the amount outstanding on the Company's line of credit.
Casa Del Sol Resort III consists of 238
developed sites.
OnEffective June 4, 1998,30, 2001, the Company entered intoterminated its lease to a joint venture agreement with
Wolverine Investors L.L.C. to acquire eighteen manufactured home communities
(the "College Heights Communities"). The aggregate purchase pricethird-party
operator for the College Heights Communities was approximately $89 million.campground and RV resort facilities at the Property known as
Bulow Plantation in Flagler Beach, Florida, and assumed operation of these
facilities directly. Beginning July 1, 2001 the Company no longer records lease
income from Bulow RV Resort, however, the results of operations for Bulow RV
Resort are included in the Company's results of operations.
On October 5, 2001, the Company finalized a settlement agreement between
MHC Lending Partnership, the Operating Partnership and the limited liability
company which owns Candlelight in Columbus, Indiana. In 1996, the Company funded
a recourse loan to the owner of Candlelight Village and accounted for the loan
as an investment in real estate. The Company contributed approximately $19received $10.8 million toin proceeds
from the joint venture, Wolverine Investors
L.L.C. contributed approximately $2.0 million tosettlement, which was accounted for as a sale of real estate and
recorded a $75,000 gain on the joint venture andsale. Proceeds from the remainder of the acquisition was funded with a borrowing from a financial
institution of approximately $68 million. The Company's $19 million contribution
to the joint venture was funded with a borrowing under the Company's line of
credit. Due to the Company's ability to control the joint venture through its
approximate 95% interest, the joint venture properties and related operations
have been consolidated for financial reporting purposes.
On August 13, 1998, the Company acquired Sunset Oaks, located in Plant
City, Florida, adjacent to one of the Company's existing properties, for a
purchase price of approximately $3.6 million. The acquisition was funded with a
borrowing under the Company's line of credit. Sunset Oaks consists of 168
developed sites.sale were used as working
capital.
The acquisitions have been accounted for utilizing the purchase method of
accounting and, accordingly, the results of operations of acquired assets are
included in the statementstatements of operations from the dates of acquisitions.acquisition. The
Company acquired all of the communitiesProperties from unaffiliated third parties.
During the year ended December 31, 2001, the Company capitalized
approximately $2.4 million of costs, including legal costs, relative to efforts
by the Company to effectively change the use and operations of several
Properties which are currently recorded in other assets. These costs will be
expensed if management determines these efforts will not be successful.
The Company is actively seeking to acquire additional manufactured home
communities and currently is engaged in negotiations relating to the possible
acquisition of a number of communities. At any time these negotiations are at
varying stages which may include contracts outstanding to acquire certain
manufactured home communities which are subject to satisfactory completion of
the Company's due diligence review.
The following unaudited summarized pro forma financial information presents
the effect of all material transactions which transpired from January 1, 1997 to
December 31, 1998. In management's opinion, the summarized pro forma financial
information does not purport to present what actual results would have been had
the above transactions occurred on January 1, 1997, or to project results for
any future period. The amounts presented in the following table are in
thousands, except for per share amounts:
For the Years Ended
1998 1997
---------- ----------
Total revenues $ 205,358 $ 196,996
Pro Forma net income $ 35,450 $ 23,024
Pro Forma net income per share - basic $ 1.12 $ .89
Pro Forma net income per share - fully diluted $ 1.11 $ .88
F-13
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 --- INVESTMENT IN JOINT VENTURE
On March 18, 1998, the Company joined Plantation Company, LLCL.L.C. and Trails
Associates, LLC,L.L.C., two 49%50% joint venture investments with the principals of
Meadows Management Company, to own two manufactured home communities known as
"Plantation on the Lake" and "Trails West", for approximately $6.5 million.
Plantation on the Lake is located in Riverside, California and consists of 385
developed sites and 122 expansion sites. Trails West is located in Tucson,
Arizona and consists of 488 developed sites and 294 expansion sites. The Company's investments were
funded with a $3.9 million borrowing under the Company's line of credit and with
the issuance of approximately $2.6 million in OP Units.
On December 28, 2000, the Company, through a joint venture with the
principals of Meadows Management Company (the "Voyager Joint Venture"), acquired
a 25% interest in Voyager RV Resort, a 1,576 site RV resort in Tucson, Arizona,
for total consideration of $4.0 million. Voyager RV Resort is adjacent to Trails
West. The Company's investment included cash of $3.0 million and its 50%
interest in land held through the Trails West joint venture valued at $2.0
million.
Due to the Company's inability to control over the joint ventures, the Company
accounts for its investment in the joint ventures onusing the equity method.
F-12
43
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSmethod of
accounting. The Company recorded approximately $283,000 and $8,000 of net income
from joint ventures in the years ended December 31, 2001 and 2000, respectively;
and received approximately $1.6 million and $400,000 in distributions.
NOTE 7 --- INVESTMENT IN AND ADVANCES TO AFFILIATES
Investment in and advances to affiliates consists principally of preferred
stock of Realty Systems, Inc. ("RSI") and LP Management Corp.its subsidiaries (collectively
"Affiliates") and advances under a line of credit between the Company and RSI.
The Company accounts for the investment in and advances to Affiliates using the
equity method of accounting.
Following is unaudited financial information for the Affiliates for the
yearyears ended December 31, 19982001 and 19972000 (amounts in thousands):
1998 1997
------------ ------------
Assets $ 16,906 $ 14,466
Liabilities, net of amounts due
to the Company (9,109) (7,340)
------------ ------------
Net investment in Affiliates $ 7,797 $ 7,126
============ ============
Home sales $ 24,662 $ 20,994
Cost of sales (18,999) (17,352)
Other revenues and expenses, net (4,593) (2,842)
------------ ------------
Equity in income of Affiliates $ 1,070 $ 800
============ ============
2001 2000
-------- --------
Assets $ 51,619 $ 37,501
Liabilities, net of amounts due
to the Company (17,232) (16,286)
-------- --------
Net investment in Affiliates $ 34,387 $ 21,215
======== ========
Home sales $ 38,621 $ 39,952
Cost of sales (30,657) (31,837)
Other revenues and expenses, net (6,153) (5,707)
-------- --------
Equity in income of Affiliates $ 1,811 $ 2,408
======== ========
F-14
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 --- NOTES RECEIVABLE
At December 31, 19982001 and 1997,2000, the Company had approximately $15.7$1.5 million
and $1.1$5.0 million in notes receivable, respectively. The Company has $1.1 million
in purchase money notes with monthly principal and interest payments at 7.0%,
maturing on July 31, 2001. On January 6, 1998, the Company funded a $12.3
million loan (the "Meadows Loan") to Meadows Preservation, Inc. The Meadows Loan
is collateralized by The Meadows manufactured home community located in Palm
Beach Gardens, Florida, bears interest at the lesser of 9% or the cash flow of
the property which for the year ended December 31, 1998 approximated 7%, and
matures on April 30, 1999, as amended.
On May 12, 1998, the Company entered into an agreement to loan $5.9 million
to Trails Associates, LLCL.L.C. (the "Trails West Loan") for development of the
propertyProperty known as Trails West. On May 12, 1998,Subsequently, the Company funded $1,750,000$3.2 million
under the Trails West Loan. This $1,750,000
portionIn December 2000, $1.2 million of the Trails West
Loan was repaid and during 2001, the remaining balance on the Trails West Loan
was repaid.
On December 28, 2000, the Company, in connection with the Voyager Joint
Venture, entered into an agreement to loan $3.0 million to certain principals of
Meadows Management Company. The notes are collateralized with a combination of
Common OP Units and partnership interests in this and other joint ventures. The
notes bear interest at prime plus 0.5% per annum, require quarterly interest
payments and mature on December 31, 2011. The outstanding balance on these notes
as of December 31, 2001 is $1.5 million.
NOTE 9 -- EMPLOYEE NOTES RECEIVABLE
As of December 31, 2001 and 2000, the Company had employee notes receivable
of approximately $3.8 million and $4.2 million respectively, collateralized by
the property knownCompany's Common Stock. These notes are presented as Trails West, bears interest at the ratea reduction of
8.5% and matures on June 1, 2003. The
Meadows Loan and Trails West Loan were funded with a borrowing under the
Company's line of credit.
NOTE 9 - EMPLOYEE NOTES RECEIVABLEStockholder's Equity.
In December 1992, certain directors, officers and other individuals each
entered into subscription agreements with the Company to acquire a total of
440,000 shares of the Company's common stock at $7.25 per share. The Company
received from these individuals notes (the "1993 Employee Notes") in exchange
for their shares. The 1993 Employee Notes accrue interest at 6.77%, per annum,
mature on March 2, 2003, and are recourse against the employees in the event the
pledged shares are insufficient to repay the obligations.
On January 2, 1996, certain members of management of the Company each
entered
into subscription agreements with the Company to acquire a total of 270,000
shares of the Company's common stockCommon Stock at $17.375 per share, the market price on
that date. The Company received from these individuals notes (the "1996 Employee
Notes") in exchange for their shares. The 1996 Employee Notes accrue interest at
5.91%, per annum, mature on January 2, 2005, and are recourse against the
employees in the event the pledged shares are insufficient to repay the
obligations.
In December 1997, the then Chief Executive Officer of the Company resigned
and paid off his 1993 Employee Note and 1996 Employee Note in the aggregate
amount of approximately $1 million.
F-13F-15
44
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - EMPLOYEE NOTES RECEIVABLE (CONTINUED)
On March 23, 1998, a member of management of the Company entered into a
subscription agreement with the Company to acquire a total of 5,000 shares of
the Company's common stock at $25.75 per share, the market price on that date.
The Company received from this individual a note in exchange for his shares. The
note accrues interest at 5.97%, matures on March 23, 2008, and is recourse
against the employee in the event the pledged shares are insufficient to repay
the obligation.
In June 1998, a member of management of the Company resigned and paid off
his 1993 Employee Note and 1996 Employee Note in the aggregate amount of
approximately $310,000.
NOTE 10 --- LONG-TERM BORROWINGS
As of December 31, 19982001 and 1997,December 31, 2000, the Company had outstanding
mortgage indebtedness of approximately $500.6$590.4 million and $403.7$556.6 million,
respectively, encumbering 7277 and 4373 of the Company's properties,Properties, respectively.
As of December 31, 19982001 and 1997,December 31, 2000, the carrying value of such
propertiesProperties was approximately $634$693 million and $493$631 million, respectively.
On August 3, 2001, the Company entered into a $50.0 million mortgage note
(the "Stagecoach Mortgage") collateralized by 7 Properties. The proceeds were
used to repay amounts under the Company's line of credit and for working capital
purposes.
The outstanding mortgage indebtedness as of December 31, 2001 consists in part of aof:
- A $265.0 million mortgage note (the "Mortgage Debt""$265 Million Mortgage")
collateralized by 29 propertiesProperties beneficially owned by MHC Financing
Limited Partnership. The $265 Million Mortgage Debt has a maturity date of
January 2, 2028 and pays interest at 7.015%. There is no principal
amortization until February 1, 2008, after which principal and interest
are to be paid from available cash flow and the interest rate iswill be
reset at a rate equal to the then 10-year U.S. Treasury obligations plus
2.0%. In connection withThe $265 Million Mortgage is presented net of a settled hedge of
$3.0 million (net of accumulated amortization of $137,000) which is being
amortized into interest expense over the acquisitionlife of the College Heights Communities, the joint venture formed by the
Company and Wolverine Investors L.L.C. borrowed approximately $68loan.
- A $65.9 million mortgage note (the "College Heights Debt"Mortgage")
collateralized by 18 Properties. The College Heights Mortgage bears
interest at an interesta rate of 7.19%, maturingamortizes beginning July 1, 1999 over 30
years and matures July 1, 2008.
- A $93.0 million mortgage note (the "DeAnza Mortgage") collateralized by 6
Properties beneficially owned by MHC-DeAnza Financing Limited
Partnership. The Company also has outstandingDeAnza Mortgage bears interest at a rate of 7.82%,
amortizes beginning August 1, 2000 over 30 years and matures July 1,
2010.
- A $49.9 million mortgage note (the "Stagecoach Mortgage") collateralized
by 7 Properties beneficially owed by MHC Stagecoach L.L.C. The Stagecoach
Mortgage bears interest at a rate of 6.98%, amortizes beginning September
1, 2001 over 10 years and matures September 1, 2011.
- A $22.5 million mortgage note (the "Bay Indies Mortgage") collateralized
by one Property beneficially owned by MHC-Bay Indies Financing Limited
Partnership. The Bay Indies Mortgage bears interest at a rate of 7.48%,
amortizes beginning August 1, 1994 over 27.5 years and matures July 1,
2004.
- A $15.6 million mortgage note (the "Date Palm Mortgage") collateralized
by one Property beneficially owned by MHC Date Palm, L.L.C. The Date Palm
Mortgage bears interest at a rate of 7.96%, amortizes beginning August 1,
2000 over 30 years and matures July 1, 2010.
- Approximately $78.5 million of mortgage debt on 23 properties in the aggregate amount of
approximately $169 million,15 other various
Properties, which was recorded at fair market value with the related
discount or premium being amortized over the life of the loan using the
effective interest rate. In addition, the Company recorded a $2.4 million loan
in connection with a direct financing lease entered into in May 1997. Scheduled maturities for the outstanding
indebtedness excluding the Mortgage Debt and
College Heights Debt, are at various dates through November 30, 2020, and fixed
interest rates range from 7.25%7.15% to 9.05%8.75%. TheIncluded in this debt, the
Company has ana $2.4 million loan recorded to account for a direct
financing lease entered into in May 1997.
On August 9, 2000, the Company amended its unsecured line of credit with a
bankgroup of banks (the "Credit Agreement") bearing interest at the London Interbank
Offered Rate ("LIBOR") plus 1.125%. On April 28, 1998,Among other things, the Company amendedamendment lowered
the total facility under the Credit Agreement increasing
the line of credit from $100 million to $150 million. On December 18, 1998, the
Company amended the Credit Agreement, increasing the line of credit from $150
million to $175 million. The Credit Agreement matures on August 17, 2000, at
which time the Company may extendand extended the
maturity date to August 17, 2002 and the
Credit Agreement would be converted to a term loan.9, 2003. The Company pays a quarterly fee on the average
unused amount of such credit equal to 0.15% of such amount. As of December 31,
1998, $1452001, $133.8 million was outstandingavailable under the Credit Agreement.
The
Company paid fees related to the amendments which were immaterial.F-16
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 -- LONG-TERM BORROWINGS (CONTINUED)
The Company has a $100 million unsecured term loan (the "Term Loan") with a
group of banks with interest only payable monthly at a rate of LIBOR plus 1.0%.
On April 28, 1998,
the Company amended the Term Loan to increase the borrowing from $60 million to
$100 million. The Term Loan matures on April 3, 2000 and may bematurity has been extended to April 3, 2002. TheOn February 8, 2002,
the Company usedentered into a term loan credit agreement with the $40 million in proceeds to repay a portionsame group of
the $50 million previously borrowed on April 7, 1998 underbanks, which extended the Term Loan. TheLoan to August 9, 2005.
On October 29, 2001, the Company paid fees related to this amendment which were immaterial.
The Company has approximately $5.3 million of installment notes payable,
secured by a letter of credit withentered into an interest rates of 7.5%, maturing September 1,
2002. Approximately $4rate swap
agreement, fixing at LIBOR on $100 million of the notes pay principal annually and interest
quarterly andCompany's floating rate debt
at approximately 3.7% for the remaining $1.3 millionperiod October 2001 through August 2004. The terms
of the notes payswap require monthly settlements on the same dates interest quarterly.payments are
due on the debt. In accordance with SFAS No. 133, the interest rate swap will be
reflected at market value. The Company believes the swap is a perfectly
effective cash flow hedge under SFAS No. 133 and there will be no effect on net
income as a result of the mark-to-market adjustment. As of December 31, 2001 the
swap had a market value of $489,000 which is included in other assets. The
effect of the mark-to-market adjustment, is reflected in other comprehensive
income.
In July 1995,1998, the Company entered into an interest rate swap agreement (the
"1998 Swap") fixing LIBOR on $100 million of the Company's floating rate debt at
6.4% for the period 1998 through 2003. The cost of the 1998 Swap consisted only
of legal costs which were deemed immaterial. The value of the 1998 Swap iswas impacted
by changes in the market rate of interest. Had the 1998 Swap been
entered into on December 31, 1998, the applicable LIBOR swap rate would have
been 4.56%. Each 0.01% increase or decrease in the applicable swap rate for the
1998 Swap increases or decreases the value of the 1998 Swap versus its current
value by approximately $39,000. The Company accountsaccounted for the 1998
Swap as a hedge. Payments and receipts under the 1998 Swap arewere accounted for as
an adjustment to interest expense. F-14
45
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTEOn January 10, - LONG-TERM BORROWINGS (CONTINUED)2000, the Company terminated
the 1998 Swap and received $1.0 million of proceeds which is being amortized as
an adjustment to interest expense through March 2003.
The Company has approximately $2.2 million of installment notes payable,
secured by a letter of credit, each with an interest rate of 6.5%, maturing
September 1, 2002. Approximately $900,000 of the notes pay principal annually
and interest quarterly and the remaining $1.3 million of the notes pay interest
only quarterly.
Aggregate payments of principal on long-term borrowings for each of the
next five years and thereafter are as follows (amounts in thousands):
Year Amount
---------- -----------
1999 $ 11,103
2000 4,074
2001 81,501
2002 252,813
2003 20,051
Thereafter 381,307
-----------
Total $ 750,849
===========
YEAR AMOUNT
---------- --------
2002 $ 6,190
2003 30,275
2004 33,231
2005 109,018
2006 20,384
Thereafter 509,759
--------
Total $708,857
========
F-17
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 --- LEASE AGREEMENTS
The leases entered into between the tenant and the Company for the rental
of a site are month-to-month or for a period of one to ten years, renewable upon
the consent of the parties or, in some instances, as provided by statute.
Non-cancelableNoncancelable long-term leases with remaining terms up to eleven years, are in effect at certain sites within eight22 of the
Properties. Rental rate increases at these propertiesProperties are primarily a function
of increases in the Consumer Price Index, taking into consideration certain
floors and ceilings. Additionally, periodic market rate adjustments are made as
deemed necessary. Future minimum rents are scheduled to be received under
noncancelable tenant leases at December 31, 1998 are2001 as follows (amounts in
thousands):
Year Amount
---------- ------------
1999 $ 16,211
2000 6,122
2001 6,245
2002 6,369
2003 6,497
Thereafter 17,863
-----------
Total $ 59,307
===========
YEAR AMOUNT
---------- --------
2002 $ 41,906
2003 29,654
2004 26,574
2005 25,339
2006 17,372
Thereafter 45,120
--------
Total $185,965
========
NOTE 12 --- GROUND LEASES
The Company leases land under noncancellable operating leases at certain of
the propertiesProperties expiring in various years from 2022 to 2031 with terms which
require twelve equal payments per year plus additional rents calculated as a
percent of gross revenues. For the yearyears ended December 31, 1998,2001, 2000 and 1999,
ground lease rent was $1.6 million. Minimum future rental payments under the
ground leaseleases are $1.6 million for each of the next five years and $32.7$27.9 million
thereafter.
NOTE 13 --- TRANSACTIONS WITH RELATED PARTIES
Equity Group Investments, Inc. ("EGI"), an entity controlled by Mr. Samuel
Zell, Chairman of the Board of Directors, and certain of its affiliates have
provided services such as administrative support, investor relations, corporate
secretarial, real estate tax evaluation services, market consulting and research
services, and computer and support services. Fees paid to EGI and its affiliates amounted to approximately $104,000, $140,000$2,000,
$26,000 and $708,000$74,000 for the years ended December 31, 1998, 19972001, 2000 and 1996,1999,
respectively. AmountsThere were no significant amounts due to these affiliates were approximately $7,000, $15,000 and $31,000 as of
December 31, 1998, 19972001 and 1996,2000, respectively.
F-15
46
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
Certain related entities, owned by persons affiliated with Mr. Zell, have
provided services to the Company. These entities include, but are not limited
to, Rosenberg & Liebentritt, P.C. which provided legal services including
property acquisition services;services in 1999; The Riverside Agency, Inc. which provided
insurance brokerage services;services. In addition, Equity Office Properties Trust, of
which providedMr. Zell is the Chairman of the Board, provides office space to the
Company; and Equity Properties & Development, LP which
provided accounting services.Company. Fees paid to these entities amounted to approximately $850,000, $459,000$454,000,
$442,000 and $527,000$473,000 for the years ended December 31, 1998, 19972001, 2000 and 1996,1999,
respectively. Amounts due to these affiliates were approximately $35,000, $63,000 and $74,000$32,000 as of
both December 31, 1998, 19972001 and 1996,2000, respectively. Of the amounts due to these affiliates as of December 31,
1998, 1997 and 1996, approximately $175,000, $105,000 and $67,000, respectively,
were capitalized.
Related party agreements or fee arrangements are generally for a term of
one year and approved by independent members of the Board of Directors.
F-18
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 --- STOCK OPTION PLAN AND STOCK GRANTS
A Stock Option Plan (the "Plan") was adopted by the Company in December
1992. Pursuant to the Plan, certain officers, directors, employees and
consultants of the Company may be offered the opportunity to acquire shares of
common stockCommon Stock through the grant of stock options ("Options"), including
non-qualified stock options and, for key employees, incentive stock options
within the meaning of Section 422 of the Internal Revenue Code. The Compensation
Committee will determine the vesting schedule, if any, of each Option and the
term, which term shall not exceed ten years from the date of grant. As to the
Options that have been granted through December 31, 1998,2001, generally, one-third
are exercisable one year after the initial grant, one-third are exercisable two
years following the date such Options were granted and the remaining one-third
are exercisable three years following the date such Options were granted. The
Plan allows for 10,000 Options to be granted annually to each director. The
common stockCommon Stock with respect to which the Options may be granted during any
calendar year to any grantee shall not exceed 250,000 shares. In addition, the
Plan provides for the granting of stock appreciation rights ("SARs") and
restricted stock awardsgrants ("Stock Awards"Grants"). A maximum of 4,000,000 shares of
common stockCommon Stock were available for grant under the Plan as of December 31, 1998.2001.
In 1998, 19972001, 2000 and 1996,1999, the Company issued 18,238, 14,7770, 19,181 and 13,14414,666 shares
related to Stock Awards,Grants, respectively, which represented a portion of certain
employeesemployee bonuses. The shares related to the Stock Awards shall be restricted
for a period of two years from the date of grant. The fair market value of these Stock AwardsGrants of approximately
$445,000 $394,361$0, $525,000 and $289,000$352,000 at the date of grant was recorded as compensation
expense by the Company in 1998, 19972001, 2000 and 1996,1999, respectively.
In 1996,1998, the Company awarded 198,000233,500 Stock AwardsGrants to certain members of
senior management of the Company. These Stock AwardsGrants vest over five years, but
may be restricted for a period of up to fifteenten years depending upon certain
performance benchmarks tied to increases in funds from operations being met. The
fair market value of these Stock Awards of approximately $4.4 million as of the
date of grant was treated in 1996 as deferred compensation. The Company
amortized approximately $616,000, $1.6 million and $871,000 related to these
Stock Awards in 1998, 1997 and 1996, respectively.
In 1997, the Company awarded 77,750 Stock Awards to certain members of
senior management of the Company. These Stock Awards vest over three years and
are dependent upon certain performance benchmarks tied to total returns to
shareholders being met. The fair market value of these Stock Awards of
approximately $2.1 million as of the date of grant was treated in 1997 as
deferred compensation. The Company amortized approximately $519,000 and $1.0
million related to these performance units in 1998 and 1997 respectively.
In 1998, the Company awarded 233,500 Stock Awards to certain members of
senior management of the Company. These Stock Awards vest over five years and
are dependent upon certain performance benchmarks tied to total returns to
shareholders being met. The fair market value of these Stock AwardsGrants of approximately $5.7 million as of the
date of grant was treated in 1998 as deferred compensation. F-16The Company
amortized approximately $2.0 million and $593,000 related to these Stock Grants
in 2001 and 2000, respectively. The balance of unamortized deferred compensation
related to these Stock Grants is $2,206,000 as of December 31, 2001.
In 1999, the Company awarded 65,000 Stock Grants to certain members of
senior management of the Company. These Stock Grants vest over three years with
one-half vesting in 1999. The fair market value of these Stock Grants of
approximately $1.5 million as of the date of grant was treated in 1999 as
deferred compensation. The Company amortized approximately $386,000 and $385,000
related to these Stock Grants in 2001 and 2000, respectively.
In 2000, the Company awarded 69,750 Stock Grants to certain members of
senior management of the Company. These Stock Grants vest over three years with
one-half vesting in 2000. The fair market value of these Stock Grants of
approximately $1.9 million as of the date of grant was treated in 2000 as
deferred compensation. The Company amortized approximately $478,000 and $955,000
related to these Stock Grants in 2001 and 2000 respectively. The balance of
unamortized deferred compensation related to these Stock Grants is $478,000 as
of December 31, 2001.
In 2001, the Company awarded 43,000 Stock Grants to certain members of
senior management of the Company. These Stock Grants vest over five years, but
may be restricted for a period of up to ten years depending upon certain
performance benchmarks tied to increases in funds from operations being met. The
fair market value of these Stock Grants of approximately $1.2 million as of the
date of grant was treated in 2001 as deferred compensation. The Company
amortized approximately $239,000 related to these Stock Grants in 2001. The
balance of unamortized deferred compensation related to these Stock Grants is
approximately $957,000 as of December 31, 2001.
In 1999, the Plan was amended to provide a Stock Grant of 2,000 shares
vesting over three years in lieu of the 10,000 Options granted after the
amendment to each director, if the director so elects. The fair market value of
Stock Grants awarded to directors of approximately $386,000, $401,000 and
$432,000 in 1999, 2000 and 2001 respectively, were treated as deferred
compensation. The Company amortized approximately $406,280 related to these
Stock Grants in 2001. The balance of unamortized deferred compensation
related to the 1999, 2000, and 2001 Stock Grants is $0, $134,000 and $288,000
respectively as of December 31, 2001.
F-19
47
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 --- STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its Options and Stock AwardsGrants because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123")
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's Options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized. Additionally, the amount
recognized as expense for the Stock AwardsGrants during any given year of the
performance period is dependent on certain performance benchmarks being met.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its Options and Restricted Stock AwardsGrants under the fair value method of that
Statement. The fair value for the Options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1998, 19972001, 2000 and 1996,1999, respectively: risk-free interest rates of
5.7%3.5%, 6.3%5.5% and 6.6%6.3%; dividend yields of 5.8%6.3%, 5.5%6.3% and 6.4%6.3%; volatility factors
of the expected market price of the Company's common stockStock of .23, .24.19, .20 and .27;.21;
and a weighted-average expected life of the Options of 5 years. The fair value
of the Stock AwardsGrants granted in 1996, 19972001, 2000 and 19981999 has been estimated asat
approximately 30% below the calculated fair market value on the date of grant
because these Stock AwardsGrants may remain restricted even after they become fully
vested.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's Options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of itsthe Company's Options. In addition, the existing
models are not representative of the effects on reported net income for future
years.
For purposes of pro forma disclosures, the estimated fair value of the
Options is amortized to expense over the Options' vesting period and the
estimated fair value of the Restricted Stock AwardsGrants is amortized to expense over the same
period. The pro forma effect of SFAS No. 123 on the Company's net income for the
years ended December 31, 1998, 19972001, 2000 and 19961999 was $225,000$648,000 ($0.010.02 per share),
$0$134,000 ($00.0 per share), and $66,000$138,000 ($00.0 per share), respectively.
A summary of the Company's stock option activity, and related information
for the years ended December 31, 1998, 19972001, 2000 and 19961999 follows:
Weighted Average
Shares Subject Exercise Price Per
to Option ShareWEIGHTED AVERAGE
SHARES SUBJECT EXERCISE PRICE
TO OPTIONS PER SHARE
-------------- ----------------------------------
Balance at December 31, 1995 1,340,634 $ 17.621998 1,899,379 $21.08
Options granted 307,350 21.01313,400 23.91
Options exercised (75,497) 14.14(126,565) 19.25
Options canceled (121,835) 20.19(66,767) 24.08
--------- -----------
Balance at December 31, 1996 1,450,652 18.311999 2,019,447 21.72
Options granted 404,450 25.37440,077 25.94
Options exercised (107,147) 18.82(250,092) 23.17
Options canceled (57,462) 19.75(101,227) 24.33
--------- -----------
Balance at December 31, 1997 1,690,493 19.912000 2,108,205 22.30
Options granted 378,986 22.04234,150 29.44
Options exercised (141,403) 18.07(387,115) 19.98
Options canceled (28,697) 24.09(69,891) 25.05
--------- -----------
Balance at December 31, 1998 1,899,379 $ 21.082001 1,885,349 23.57
========= ===========
F-17F-20
48
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 --- STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
On March 23, 2001, the Company's Board of Directors approved resolutions
amending and restating the Plan effective March 23, 2001 (the "Amended Plan") to
increase the number of Common Shares issuable thereunder by 2,000,000 shares of
Common Stock to an aggregate of 6,000,000 shares. On May 8, 2001, the Company's
shareholder's approved the Amended Plan.
As of December 31, 1998, 19972001, 2000 and 1996, 1,075,0911999, 1,252,344 shares, 1,755,532416,603 shares
and 116,957747,258 shares remained available for grant, respectively, and 1,269,9821,422,211
shares, 1,071,8901,562,074 shares and 874,3531,426,072 shares were exercisable, respectively.
Exercise prices for Options outstanding as of December 31, 19982001 ranged from
$12.875$12.88 to $26.750,$30.65, with the substantial majority of the exercise prices exceeding
$17.25. The remaining weighted-average contractual life of those Options was 7.46.2
years. The weighted average exercise price of outstanding and exercisable
options was $22.39 as of December 31, 2001.
NOTE 15 --- PREFERRED STOCK
The Company's Board of Directors is authorized under the Company's charter,
without further stockholder approval, to issue, from time to time, in one or
more series, 10,000,000 shares of $.01 par value preferred stock (the "Preferred
Stock"), with specific rights, preferences and other attributes as the Board may
determine, which may include preferences, powers and rights that are senior to
the rights of holders of the Company's common stock.Common Stock. However, under certain
circumstances, the issuance of preferred stock may require stockholder approval
pursuant to the rules and regulations of theThe New York Stock Exchange. As of
December 31, 19982001 and 1997,2000, no Preferred Stock was issued by the Company.
NOTE 16 --- SAVINGS PLAN
The Company has a qualified retirement plan, with a salary deferral feature
designed to qualify under Section 401 of the Code (the "401(k) Plan"), to cover
its employees and those of its Subsidiaries, if any. The 401(k) Plan permits
eligible employees of the Company and those of any Subsidiary to defer a portion
of their compensation up to 16%19%
of their eligible compensation on a pre-tax basis subject to certain maximum
amounts. In addition, the Company will match dollar-for-dollar the participant's
contribution up to 4% of the participant's eligible compensation.
In addition, amounts contributed by the Company will vest, on a prorated
basis, according to the participant's vesting schedule. After five years of
employment with the Company, the participants will be 100% vested for all
amounts contributed by the Company. Additionally, a discretionary profit sharing
component of the 401(k) Plan provides for a contribution to be made annually for
each participant in an amount, if any, as determined by the Company. All
employee contributions are 100% vested. The Company's contribution to the 401(k)
Plan was approximately $256,000, $262,000,$353,000, $315,000 and $201,000 and$385,000, for the years ended
December 31, 1998, 19972001, 2000 and 1996,1999, respectively. The Company's anticipated plan contribution
for the profit sharing component of the 401(k) Plan was
approximately $204,000is $139,000 for the year
ended December 31, 1998.2001.
NOTE 17 --- COMMITMENTS AND CONTINGENCIES
DEANZA SANTA CRUZ MOBILE ESTATES
The residents of DeAnza Santa Cruz Mobile Estates, a Propertyproperty located in
Santa Cruz, California (the "City") previously brought several actions opposing
certain fees and charges in connection with water service at the Property, specifically
opposingProperty. This
summary provides the history and reasoning underlying the Company's defense of
the residents' claims and explains the Company's decision to continue to defend
its position, which the Company believes is fair and accurate.
DeAnza Santa Cruz Mobile Estates is a monthly "readiness198-site Community overlooking the
Pacific Ocean. It is subject to serve" charge and tax thereon. One group of
residents, who have elected to be covered under the City's rent control ordinance ("Ordinance"), had their case heard before the City'swhich limits
annual rent control
board. On June 29, 1995, the City's hearing officer found that theincreases to 75% of CPI. The Company may
charge only its actual costs. In connection with the hearing officer's decision,
in 1997 the residents were awarded costs of approximately $100,000 and the
Company rebated amounts overcharged since its acquisition of thepurchased this Property in
August 1994 of approximately $36,400. The Company believed its actual costs
exceededfrom certain unaffiliated DeAnza entities ("DeAnza"). Prior to the
amountCompany's purchase in 1994, DeAnza made the decision to submeter and separately
bill tenants at the Property for both water and sewer in 1993 in the face of the
monthlyCity's rapidly rising utility costs.
F-21
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
Under California Civil Code Section 798.41, DeAnza was required to reduce
rent by an amount equal to the average cost of usage over the preceding 12
months. This was done. With respect to water charges, because DeAnza did not
want to be regulated by the California Public Utility Commission ("CPUC"),
DeAnza relied on California Public Utilities Code Section 2705.5 ("CPUC Section
2705.5") to determine what rates would be charged for water on an ongoing basis
without becoming a public utility. DeAnza and the Company interpreted the
statute as providing that in a submetered mobile home park, the property owner
is not subject to regulation and control of the CPUC so long as the users are
charged what they would be charged by the utility company if users received
their water directly from the utility company. In Santa Cruz, customers
receiving their water directly from the City's water utility were charged a
certain lifeline rate for the first 400 ccfs of water and a greater rate for
usage over 400 ccfs of water, a readiness to serve charge of $7.80 per month and
tax on the total. In reliance on CPUC Section 2705.5, DeAnza implemented its
billings on this schedule notwithstanding that it did not receive the discount
for the first 400 ccfs of water because it was a commercial and not a
residential customer.
A dispute with the residents ensued over the readiness to serve charge and
appealedtax thereon. The residents argued that California Civil Code Section 798.41
required that the Property owner could only pass through its actual costs of
water (and that the excess charges over the amount of the rent rollback were an
improper rent increase) and that CPUC Section 2705.5 was not applicable. DeAnza
unbundled the utility charges from rent consistent with California Civil Code
Section 798.41 and it has generally been undisputed that the rent rollback was
accurately calculated.
In August 1994, when the Company acquired the Property, the Company
reviewed the respective legal positions of the Santa Cruz Homeowners Association
("HOA") and DeAnza and concurred with DeAnza. DeAnza's reliance on CPUC Section
2705.5 made both legal and practical sense in that residents paid only what they
would pay if they lived in a residential neighborhood within the City and
permitted DeAnza to recoup part of the expenses of operating a submetered system
through the readiness to serve charge.
Over a period of 18 months from 1993 into May of 1995, a series of
complaints were filed by the HOA and Herbert Rossman, a resident, against
DeAnza, and later, the Company. DeAnza and the Company demurred to each of these
complaints on the grounds that the CPUC had exclusive jurisdiction over the
setting of water rates and that residents under rent control had to first
exhaust their administrative remedies before proceeding in a civil action. At
one point, the case was dismissed (with leave to amend) on the basis that
jurisdiction was with the CPUC and, at another point, Mr. Rossman was dismissed
from the case because he had not exhausted his administrative remedies.
On June 29, 1995, a hearing was held before a City rent control officer on
billing and submetering issues related to both water and sewer. The Company and
DeAnza prevailed on all issues related to sewer and the rent rollback related to
water, but the hearing officer determined that the Company could only pass
through its actual cost of water, i.e., a prorated readiness to serve charge and
tax thereon. The hearing officer did not deal with the subsidy being given to
residents through the quantity charge and ordered a rebate in a fixed amount per
resident. The Company and DeAnza requested reconsideration on this issue, among
others, which reconsideration was denied by the hearing officer.
The Company then took a writ of mandate (an appeal from an administrative
order) to the Superior Court and, pending this appeal, the residents, the
Company and the City agreed to stay the effect of the hearing officer's decision. Also,decision
until the Court rendered judgment.
In July 1996, the Superior Court affirmed the hearing officer's decision
without addressing concerns about the failure to take the subsidy on the
quantity charge into account.
F-22
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company requested that the City and the HOA agree to a further stay
pending appeal to the court of appeal, but they refused and the appeal court
denied the Company's request for a stay in Marchlate November 1996. Therefore, on
January 1, 1997, the Company reduced its water charges at this Property to
reflect a pass-through of only the readiness to serve charge and tax at the
master meter (approximately $0.73) and to eliminate the subsidy on the water
charges. On their March 1, 1997 rent billings, residents were credited for
amounts previously "overcharged" for readiness to serve charge and tax. The
amount of the rebate given by the Company and DeAnza was $36,400. In calculating
the rebate, the Company and DeAnza took into account the previous subsidy on
water usage although this issue had not yet been decided by the court of appeal.
The Company and DeAnza felt legally safe in so doing based on language in the
hearing officer's decision that actual costs could be passed through.
On March 12, 1997, the Company also filed an application with the California Public Utilities Commission ("PUC") requestingCPUC to
dedicate the PUCwater system at this Property to public use and have the CPUC set
cost basedcost-based rates for water atusage. The Company believed it was obligated to take
this Property. Inaction because of its consistent reliance on CPUC Section 2705.5 as a safe
harbor from CPUC jurisdiction. That is, when the Company could no longer charge
for water as the local serving utility would charge, it was no longer exempt
from the CPUC's jurisdiction and control under CPUC Section 2705.5.
On March 1997,20, 1998, the court of appealsappeal issued athe writ of mandate requested
by the Company rulingon the grounds that the hearing officer had improperly calculated
the amount of the rebate (meaning the Company had correctly calculated the rent
credits), but also ruling that the hearing officer was correct when he found
that the readiness to serve charge and tax thereon as charged by DeAnza and the
Company were an inappropriate rent increase. The decision primarily reflected
the court of appealsappeal's view that CPUC Section 2705.5 operated as a ceiling and
that California Civil Code Section 798.41 allowed for a charge based on actual
costs, including costs of administration, operation and maintenance of the
system, but that the Company had not to provide evidence of such costs. The
court of appeal further agreed with the Company that the City's hearing officer
did not have the authority under California Civil Code Section 798.41 to
establish rates that could be charged in the future.
In December 1998,Following this decision, the PUCCPUC granted the Company its certificate of
convenience and necessity on December 17, 1998 and approved cost basedcost-based rates and
charges for water that exceed what residents were paying. The PUCpaying under the Company's
reliance on CPUC Section 2705.5. Concurrently, the CPUC also issued an Order
Instituting Investigation ("OII") confirming its exclusive jurisdiction over the
issue of water rates in a submetered system and commencing an investigation into
the confusion and turmoil over billings in submetered properties. F-18
49
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Santa Cruz Homeowners Association ("HOA"), representing approximately
fifteen residents not coveredSpecifically,
the OII states: "The Commission has exclusive and primary jurisdiction over the
establishment of rates for water and sewer services provided by private
entities."
Specifically, the Ordinance, separately filed suit inCPUC ruling regarding the Superior CourtCompany's application stated:
"The ultimate question of the State of California (Case Number 128001) opposing the samewhat fees and charges in connection with water service and seeking damages, including
punitive damages, arising outmay or may not be assessed,
beyond external supplier pass-through charges, for in-park facilities when a
mobile home park does not adhere to the provisions of CPUC Section 2705.5, must
be decided by the imposition of the readiness to serve
charge.Commission."
After the court of appealsappeal decision, discussed above, the HOA brought all of its members back
into the underlying civil action for the purpose of determining damages,
including punitive damages, against the Company. AThe trial was heldcontinued from
July 1998 to January 1999 to give the CPUC time to act on the Company's
application. Notwithstanding the action taken by the CPUC in issuing the OII in
December 1998, the trial court denied the Company's motion to dismiss on
jurisdictional grounds and trial commenced before a jury in the Santa Cruz Superior Court commencing on January 11, 1999.
Not only did the trial court not consider the Company's motion to dismiss,
the trial court refused to allow evidence of the OII or the Company's CPUC
approval to go before the jury. Notwithstanding the Company's strenuous
objections, the judge also allowed evidence of the Company's and DeAnza's
litigation tactics to be used as evidence of bad faith and oppressive actions
(including evidence of the application to the CPUC requesting a $22.00 readiness
to serve charge). The Company's motion for a mistrial based upon these
evidentiary rulings was denied. On January 22, 1999, the jury returned a verdict
awarding $6$6.0 million of punitive damages against the Company.Company and DeAnza. The
Company is preparinghad previously agreed to bondindemnify DeAnza on the matter.
F-23
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company bonded the judgment pending appeal in accordance with
California procedural rules, which require a bond equal to 150% of the amount of
the judgment whichjudgment. Post-judgment interest will accrue at the statutory rate of 10.0%
per annum.
On April 19, 1999, the trial court denied all of the Company's and DeAnza's
post-trial motions for judgement notwithstanding the verdict, new trial and
remittur. The trial court also awarded $700,000 of attorneys' fees to
plaintiffs. The Company appealed the jury verdict and attorneys' fees award
(which also accrues interest at the statutory rate of 10.0% per annum.annum).
On December 21, 2001 the California Court of Appeal for the Sixth District
reversed the $6.0 million punitive damage award and the related award of
attorneys' fees on the basis that punitive damages are not available as a remedy
for a statutory violation of the MRL. The decision of the appellate court left
the HOA with the right to seek a new trial in which it must prove its
entitlement to either the statutory penalty and attorneys' fees available under
the MRL or punitive damages based on causes of action for fraud,
misrepresentation or other tort. The Company will appeal this
decision and dueexpects the HOA to seek a new trial
during 2002. The Company intends to vigorously defend itself.
In two related appeals, the uncertaintyCompany had argued that the trial court's
ability to enter an award of attorneys' fees in favor of the ultimate outcome becauseHOA and to take
certain other actions was preempted by the exercise of exclusive jurisdiction by
the CPUC over the issue of how to set rates for water in a submetered mobile
home park. During 2000, the California court of appeal rejected the Company's
preemption argument with respect to these prior rulings in favor of plaintiffs,
one of which had awarded plaintiffs approximately $100,000 of attorneys' fees.
The California Supreme Court declined to accept the case for review and the
Company paid the judgment, including post-judgment interest thereon, and
settled the matter for approximately $200,000 late in 2000.
In a separate matter, in December 2000 the HOA and certain individual
residents of the competing legal theories,Property filed a complaint in the Superior Court of California,
County of Santa Cruz (No. CV 139825) against the Company, certain affiliates of
the Company and certain employees of the Company. The new lawsuit seeks damages,
including punitive damages, for intentional infliction of emotional distress,
unfair business practices, and unlawful retaliation purportedly arising from
allegedly retaliatory rent increases which were noticed by the Company to
certain residents in September 2000. The Company believes that the residents who
received rent increase notices with respect to rent increases above those
permitted by the local rent control ordinance were not covered by the ordinance
either because they did not comply with the provisions of the ordinance or
because they are exempted by state law. On December 29, 2000, the Superior Court
of California, County of Santa Cruz enjoined such rent increases. The Company
intends to vigorously defend the matter, which may go to trial in the summer of
2002.
ELLENBURG COMMUNITIES
The Company and certain other parties entered into a settlement agreement
("the Settlement"), which was approved by the Los Angeles County Superior Court
in April 2000. The Settlement resolved substantially all of the litigation and
appeals involving the Ellenburg Properties, and transactions arising out of the
settlement closed on May 22, 2000 (see Note 5). Only the appeals of the two
entities remain, neither of which is unableexpected to estimatematerially affect the amountCompany.
In connection with the Ellenburg Acquisition, on September 8, 1999,
Ellenburg Fund 20 ("Fund 20") filed a cross complaint in the Ellenburg
dissolution proceeding against the Company and certain of loss,
if any,its affiliates
alleging causes of action for fraud and therefore no adjustments have been made to the accompanying
financial statements. The HOA is also seeking to recover attorneys feesother claims in connection with the
trial, including a multiplierEllenburg acquisition. The Company subsequently successfully had the cross
complaint against the Company and its affiliates dismissed with prejudice by the
California Superior Court. However, Fund 20 has appealed. This appeal was one
not resolved by the Settlement. The Company believes Fund 20's allegations are
without merit and will vigorously defend itself.
F-24
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
In October 2001, Fund 20 sued the Company and certain of such feesits affiliates
again, this time in Almeda County, California making substantially the same
allegations. The Company obtained an injunction preventing the case from
proceeding until the Fund 20 appeal is decided and other related proceedings in
Arizona (from which may result
in an attorneys fee awardthe Company has already been dismissed with prejudice) are
concluded.
CANDLELIGHT PROPERTIES, L.L.C
In 1996, 1997 and 1998, the Lending Partnership made loans to Candlelight
Properties, L.L.C. ("Borrower") in the rangeaggregate principal amount of $700,000$8,050,000
(collectively, the "Loan". The Loan was secured by a mortgage on Candlelight
Village ("Candlelight"), a Property in Columbus, Indiana, and was guaranteed by
Ronald E. Farren, the 99% owner of Borrower. The Company accounted for the Loan
as an investment in real estate and, accordingly, Candlelight's rental revenues
and operating costs were included with the Company's rental revenues and
operating costs for financial reporting purposes. Concurrently with the funding
of the Loan, Borrower granted the Operating Partnership the option to $900,000. This isacquire
Candlelight upon the maturity of the Loan. The Operating Partnership notified
Borrower that it was exercising its option to acquire Candlelight in additionMarch 1999,
and the Loan subsequently matured on May 3, 1999. However, Borrower failed to
repay the Loan and refused to convey Candlelight to the $100,000 award referredOperating Partnership.
Borrower filed suit in the Circuit Court of Bartholomew County, Indiana
("Court") on May 5, 1999, seeking declaratory judgment on the validity of the
exercise of the option. The Lending Partnership filed suit in the Court the next
day, seeking to above.foreclose its mortgage, and the suits were consolidated by the
Court.
On September 20, 2001, the parties entered into a settlement agreement
providing for a cash payment of $10.8 million to the Lending Partnership and
dismissal with prejudice of all litigation among the parties and their
affiliates, among other terms. The closing under the Settlement Agreement
occurred on October 5, 2001. The Company will vigorously
oppose such awardaccounted for the Settlement as a
disposition of attorney fees.the property.
WESTWINDS
The Company expectsOperating Partnership is the ground lessee ("Lessee") of certain
property in San Jose, California under ground leases ("Leases") from the
Nicholson Family Trust ("Lessor"). On February 13, 2001, Lessor filed a petition
for arbitration of disputes over whether certain items constitute "gross
revenue" under the Leases in which petition Lessor seeks damages and termination
of the Leases. Lessee responded on March 12, 2001 disputing Lessor's
contentions. Lessor claims that "gross revenue" for the purpose of calculating
percentage rent owing to incur $300,000Lessor under the ground leases includes certain amounts
Lessee has recouped from tenants of the Property (who are protected by rent
control) related to $500,000ground rent already paid to Lessor. Lessee has successfully
been able to pass-through to tenants at the property increases in costsground rent
under the Leases. Lessee contends that this pass-through results in
reimbursement of lease expense, not "gross revenue." Lessor also contends that
the "net income" of RSI from the Property should be included in the gross
revenue calculation. Lessee disputes this for many reasons, including, but not
limited to, the fact that RSI is not a lessee under the Leases, the sales
activity is not conducted by Lessee, and expenses over the next 15 months in connection with this
appeal.
InRSI is a separate matter,company from Lessee.
Lessor's motion for summary judgment on September 29, 1995, the United States
Environmental Protection Agency ("USEPA") issued its Findings of Violationspass-through issue was denied
by an arbitration panel on November 2, 2001. Lessor and Order for Compliance with respectLessee have agreed to
mediate the National Pollution Discharge
Elimination System ("NPDES") Permit governing the operation of the on-site waste
water treatment plant at one of the Company's properties. On October 6, 1995,
the USEPA issued its Findings of Violation and Order for Compliance with respectdispute prior to the NPDES Permit governing the operation of the on-site waste water treatment
plant at another of the Company's properties. The Company and USEPA have reached
a tentative agreement to resolve the matter in which the operation of the
remaining waste water treatment plant would be subject to a consent decree that
would provide for fines and penalties in the event of future violations and the
Company would contribute monies to a supplemental environmental project and pay
a fine. The tentative agreement has not yet been reduced to writing and
therefore remains subject to change.arbitration. The Company does not believe the impact of
the settlement will be material and the Company believes it has established
adequate reserves for any amounts that may be paid.
In another matter, in connection with the acquisition of the Ellenburg
Communities and pursuant to orders of the California Superior Court,
approximately $30 million of the
amounts paid by the Company have been deposited
with the court appointed winding up agents (the "Winding Up Agents"). The
deposited amounts relate to claims (the "Karno Claims") of Norton S. Karno (and
related entities) who at various times has been a creditor, advisor, lawyer and
shareholder of certain of the entities related to the Ellenburg Communities. The
Winding Up Agents have disputed the claims and have filed a complaint against
Mr. Karno (and related entities) requesting that the court determine that the
claims be reduced or eliminated.
On October 30, 1998, the Company received notice of a lawsuit filedin question are material even if resolved against the CompanyLessee and, certain Executive Officersbased
upon advice of the Company in the Los Angeles
Superior Court alleging, among other causes of action, that the Company breached
certain agreements in connection with the acquisition of the Ellenburg
Communities and claiming damages in excess of $50 million plus punitive damages.
Based upon jurisdictional issues, in February 1999 the claims against the
Executive Officers of the Company were dismissed. The Company believes most of
the claim relates to the disputed Karno Claims discussed above. The Company
believes the claims are without merit, intends to vigorously defend the
defendants in this matter andcounsel, does not believe that the impact of this matterLessor will be material.
In connection withsuccessful in
terminating the acquisition of the Ellenburg Communities, Mr. Karno
and others have appealed various court orders on which the Comany has relied.
The court of appeals has recently requested briefing on the issue of whether
certain appeals are moot. Mr. Karno has also sought before both the California
Superior Court and Court of Appeals to take control of ECC, but to date none of
his attempts have been successful.Leases.
OTHER
The Company is involved in various other legal proceedings arising in the
ordinary course of business. AllManagement believes that all proceedings herein
described or referred to, taken together, are not expected to have a material
adverse impact on the Company.
F-19F-25
50
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 --- SUBSEQUENT EVENTS
Effective January 1, 2002, the Company purchased all of the outstanding
Common Stock of RSI from affiliated and non-affiliated owners for approximately
$675,000. As a result, the Company owns and controls RSI and will consolidate
RSI as of January 1, 2002.
F-26
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is unaudited quarterly data for 19982001, 2000 and 19971999 (amounts
in thousands, except for per share amounts):
First Second Third Fourth
Quarter Quarter Quarter QuarterFIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
2001 3/31 6/30 9/30 12/31
----------- ----------- ----------- --------------- ------- ------- ------- -------
1998
- --------------------------------------------
Total revenues.............................. $ 44,872 $ 47,894 $ 50,809 $ 51,254
=========== ============ =========== ===========Revenues......................................... $57,532 $56,218 $55,536 $56,570
Income before allocation to minority interests.....................Minority Interests and
extraordinary loss on early extinguishment of debt... $18,739 $10,512 $10,468 $11,825
Net income available to common shareholders............ $12,644 $ 9,5866,135 $ 9,0666,097 $ 8,440 $ 8,570
=========== ============ =========== ===========
Net income.................................. $ 7,765 $ 7,343 $ 6,837 $ 6,984
=========== ============ =========== ===========7,207
Weighted average common shares
outstanding-basic (excluding OP Units).... 24,805 25,659 25,988 26,033
=========== ============ =========== ===========Common Shares outstanding -- Basic.... 20,793 20,969 21,108 21,266
Weighted average common sharesCommon Shares outstanding - diluted
(including OP Units)................... 31,095 32,095 32,339 32,382
=========== ============ =========== ===========
Weighted average OP Units................... 5,886 6,020 5,985 5,981
=========== ============ =========== ===========-- Diluted.. 26,771 26,898 27,071 27,293
Net income per common shareCommon Share outstanding - basic.......................-- Basic....... $ .310.61 $ .290.29 $ .260.29 $ .27
=========== ============ =========== ===========0.34
Net income per common shareCommon Share outstanding - diluted.....................-- Diluted..... $ .310.59 $ .280.29 $ .260.28 $ .26
=========== ============ =========== ===========
1997
- --------------------------------------------0.33
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
2000 3/31 6/30 9/30 12/31
---- ------- ------- ------- -------
Total revenues.............................. $ 28,529 $ 29,385 $ 31,153 $ 34,443
=========== ============ =========== ===========Revenues......................................... $57,148 $54,271 $53,875 $55,384
Income before allocation to minority interests.....................Minority Interests......... $10,743 $21,547 $ 7,7119,715 $10,696
Net income available to common shareholders............ $ 8,0516,331 $13,921 $ 8,7835,451 $ 8,368
=========== ============ =========== ===========
Net income.................................. $ 6,955 $ 7,253 $ 7,642 $ 6,795
=========== ============ =========== ===========6,244
Weighted average common shares
outstanding-basic (excluding OP Units).... 24,840 24,715 24,575 24,628
=========== ============ =========== ===========Common Shares outstanding -- Basic.... 22,297 21,871 21,166 20,559
Weighted average common sharesCommon Shares outstanding - diluted
(including OP Units)................... 27,840 27,660 28,735 30,781
=========== ============ =========== ===========
Weighted average OP Units................... 2,715 2,715 3,798 5,734
=========== ============ =========== ===========-- Diluted.. 28,242 27,809 27,077 26,520
Net income per common shareCommon Share outstanding - basic.......................-- Basic....... $ .280.28 $ .290.64 $ .310.26 $ .28
=========== ============ =========== ===========0.30
Net income per Common Share outstanding -- Diluted..... $ 0.28 $ 0.63 $ 0.25 $ 0.30
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1999 3/31 6/30 9/30 12/31
---- ------- ------- ------- -------
Total Revenues......................................... $54,390 $52,446 $53,537 $54,654
Income before allocation to Minority Interests......... $10,078 $ 8,477 $ 8,417 $ 7,056
Net income available to common shareshareholders............ $ 8,234 $ 6,968 $ 6,877 $ 5,693
Weighted average Common Shares outstanding - diluted.....................-- Basic.... 26,157 25,773 25,613 23,381
Weighted average Common Shares outstanding -- Diluted.. 32,340 31,829 31,586 29,281
Net income per Common Share outstanding -- Basic....... $ .280.31 $ .290.27 $ .310.27 $ .27
=========== ============ =========== ===========0.24
Net income per Common Share outstanding -- Diluted..... $ 0.31 $ 0.27 $ 0.27 $ 0.24
F-27
51
SCHEDULE II
MANUFACTURED HOME COMMUNITIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 199821, 2001
ADDITIONS
---------------------------------------------------
BALANCE AT CHARGED TO BALANCE
BEGINNING CHARGED TO BALANCEOTHER AT
BEGINNING INCOME OTHER END OF
OF PERIOD INCOME ACCOUNTS DEDUCTIONS(1) PERIOD
----------- ----------- ---------- --------------- ---------------------- ---------- ------------- ---------
For the year ended December 31, 1996:1999:
Allowance for doubtful accounts......... $200,000 $198,797accounts..... $250,000 $413,573 $ ----- ($148,797) $250,000363,573) $300,000
For the year ended December 31, 1997:2000:
Allowance for doubtful accounts......... $250,000 $150,985accounts..... $300,000 $322,574 $ ----- ($150,985) $250,000322,574) $300,000
For the year ended December 31, 1998:2001:
Allowance for doubtful accounts......... $250,000 $167,774accounts..... $300,000 $426,579 $ ----- ($167,774) $250,000426,579) $300,000
- ---------------
(1) Deductions represent tenant receivables deemed uncollectible.
S-1
52
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(IN2001
(AMOUNTS IN THOUSANDS)
Initial Cost to
Company
---------------------
Manufactured Home Depreciable
Communities Location Encumbrances Land PropertyCOSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO ACQUISITION
COMPANY (IMPROVEMENTS)
------------------------ --------------------
DEPRECIABLE DEPRECIABLE
REAL ESTATE LOCATION ENCUMBRANCES LAND PROPERTY LAND PROPERTY
- ----------------------------------------------------------------------------------------
APOLLO VILLAGE Apollo AZ 0 932 3,219
BRENTWOOD MANOR Mesa AZ 4,928 1,998 6,024
CASA DEL SOL NO. 3 Glendale AZ 0 2,450 7,452
CASA DEL SOL RESORT NO. 1 Phoenix AZ 6,778 2,215 6,467
CASA DEL SOL RESORT NO. 2 Phoenix AZ 6,911 2,104 6,283
CENTRAL PARK Phoenix AZ 7,175 1,612 3,784
HACIENDA DE VALENCIA Mesa AZ 8,410 833 2,701
PALM SHADOWS Glendale AZ 3,362 1,400 4,218
SEDONA SHADOWS Sedona AZ 1,542 1,096 3,431
SUNRISE HEIGHTS Phoenix AZ 0 999 3,016
THE MARK Mesa AZ 0 1,354 4,660
THE MEADOWS Tempe AZ 9,394 2,614 7,887
CALIFORNIA HAWAIIAN San Jose CA 17,953 5,825 17,755
CONCORD CASCADE Pacheco CA 10,369 985 3,016
CONTEMPO MARIN San Rafael CA 16,128 4,779 16,379
CORALWOOD Modesto CA 0 0 5,047
DATE PALM Cathedral City CA 9,621 4,138 14,064
DE ANZA SANTA CRUZ ESTATES Santa Cruz CA 4,396 2,103 7,204
FOUR SEASONS Fresno CA 0 756 2,348
GARDEN WEST OFFICE PLAZA Monterey CA 0 535 1,702
LAMPLIGHTER VILLAGE Spring Valley CA 9,382 633 2,201
MONTE DEL LAGO Castroville CA 2,626 3,150 9,469
NICHOLSON PLAZA San Jose CA 0 0 4,512
QUAIL MEADOWS Riverbank CA 0 1,155 3,469
RANCHO VALLEY El Cajon CA 4,640 685 1,902
ROYAL OAKS Visalia CA 0 602 1,921
SAN JOSE I, II, III AND IV San Jose CA 0 0 17,616
SEA OAKS Los Osos CA 0 871 2,703
SUNSHADOW San Jose CA 0 0 5,707
CIMARRON Broomfield CO 8,077 863 2,790
GOLDEN TERRACE SOUTH Golden CO 2,400 750 2,265
GOLDEN TERRACE VILLAGE Golden CO 8,031 826 2,415
GOLDEN TERRACE WEST Golden CO 9,724 1,694 5,065
HILLCREST VILLAGE Aurora CO 15,458 1,912 5,202
HOLIDAY HILLS VILLAGE Denver CO 19,412 2,159 7,780
HOLIDAY VILLAGE, CO Colorado CO 6,256 567 1,759
Springs
PUEBLO GRANDE VILLAGE Pueblo CO 3,471 241 1,069
WOODLAND HILLS Thornton CO 0 1,928 4,408
MARINER'S COVE Millsboro DE 0 990 2,971
NASSAU PARK Lewes DE 0 1,536 4,609
WATERFORD Wilmington DE 0 5,250 16,202
ARROWHEAD VILLAGE Lantana FL 0 5,325 15,420
BAY INDIES Venice FL 23,830 10,483 31,559
BAY LAKE ESTATES Nokomis FL 2,078 990 3,390
Costs Capitalized
Subsequent to Gross Amount Carried
Acquisition at Close of
(Improvements) Period 12/31/98
--------------------- -------------------------------
Manufactured Home Depreciable Depreciable Accumulated Date of
Communities Land Property Land Property Total Depreciation Acquisition
- ---------------------------------------------------------------------------------------------------------------------------- ----------------- ---- ------------ -------- ----------- ------ -----------
APOLLO VILLAGEApollo Village Phoenix AZ 5,284 932 3,219 0 268 932 3,487 4,419 500 1994
BRENTWOOD MANOR446
Brentwood Manor Mesa AZ 4,575 1,998 6,024 (1) 292
Carefree Manor Phoenix AZ 0 172 1,998 6,196 8,194 1,192 1993
CASA DEL SOL NO. 3706 3,307 0 (135)
Casa del Sol #1 Peoria AZ 6,786 2,215 6,467 0 329
Casa del Sol #2 Glendale AZ 6,920 2,104 6,283 (1) 270
Casa del Sol #3 Glendale AZ 6,631 2,450 7,452 0 166
Central Park Phoenix AZ 7,185 1,612 3,784 0 452
Desert Skies Phoenix AZ 0 792 3,629 0 (432)
Fairview Manor Tucson AZ 0 1,674 4,708 0 875
Hacienda De Valencia Mesa AZ 8,421 833 2,701 0 850
Palm Shadows Glendale AZ 3,121 1,400 4,218 0 356
Sedona Shadows Sedona AZ 2,645 1,096 3,431 0 286
Sunrise Heights Phoenix AZ 0 1,000 3,016 0 269
The Mark Mesa AZ 0 1,354 4,660 6 718
The Meadows Tempe AZ 9,260 2,613 7,887 0 439
Whispering Palms Phoenix AZ 0 670 2,399 0 (138)
California Hawaiian San Jose CA 17,976 5,825 17,755 0 813
Colony Park Ceres CA 0 890 4,513 0 (1,610)
Concord Cascade Pacheco CA 10,381 985 3,016 0 682
Contempo Marin San Rafael CA 16,149 4,788 16,379 (1) 1,851
Coralwood Modesto CA 0 0 2,450 7,452 9,902 124 1998
CASA DEL SOL RESORT NO.5,047 0 148
Date Palm Country Club Cathedral City CA 15,608 4,138 14,064 (23) 1,796
Four Seasons Fresno CA 0 756 2,348 0 126
Laguna Lake San Luis Obispo CA 5,570 2,845 7,640 1 (959)
Lamplighter Spring Valley CA 9,393 633 2,201 0 85 2,215 6,552 8,767 378 1996
CASA DEL SOL RESORT NO. 2502
Meadowbrook Santee CA 0 72 2,104 6,355 8,459 355 1996
CENTRAL PARK4,345 12,528 0 329 1,612 4,113 5,725 2,023 1983
HACIENDA DE VALENCIA924
Monte del Lago Castroville CA 8,160 3,150 9,469 0 733 833 3,434 4,267 1,579 1984
PALM SHADOWS 0 203 1,400 4,421 5,821 847 1993
SEDONA SHADOWS 0 267 1,096 3,698 4,794 156 1997
SUNRISE HEIGHTS 0 147 999 3,163 4,162 517 1994
THE MARK 5 277 1,359 4,937 6,296 716 1994
THE MEADOWS 0 257 2,614 8,144 10,758 1,337 1994
CALIFORNIA HAWAIIAN 0 63 5,825 17,818 23,643 1,042 1997
CONCORD CASCADE 0 538 985 3,554 4,539 1,663 1983
CONTEMPO MARIN 8 801 4,787 17,180 21,967 2,453 1994
CORALWOOD 0 49 0 5,096 5,096 226 1997
DATE PALM -23 628 4,115 14,692 18,807 2,144 1994
DE ANZA SANTA CRUZ ESTATES 0 116 2,103 7,320 9,423 1,066 1994
FOUR SEASONS 0 27 756 2,375 3,131 106 1997
GARDEN WEST OFFICE PLAZA 0 5 535 1,707 2,242 75 1997
LAMPLIGHTER VILLAGE 0 479 633 2,680 3,313 1,274 1983
MONTE DEL LAGO 0 123 3,150 9,592 12,742 429 1997
NICHOLSON PLAZA 0 1 0 4,513 4,513 200 1997
QUAIL MEADOWS 0629
Quail Meadows Riverbank CA 0 1,155 3,469 4,624 880 149
Nicholson Plaza San Jose CA 0 -- 4,512 0 44
Rancho Mesa El Cajon CA 0 2,130 6,616 0 (173)
Rancho Valley El Cajon CA 4,645 685 1,902 0 469
Royal Holiday Hemet CA 0 778 0 2,840
Royal Oaks Visalia CA 0 602 1,921 0 146
DeAnza Santa Cruz Santa Cruz CA 5,581 2,103 7,201 0 2,103
Santiago Estates Sylmar CA 0 3,562 14,205 0 (3,098)
Sea Oaks Los Osos CA 0 871 2,703 0 128
GROSS AMOUNT CARRIED
AT CLOSE OF PERIOD
12/31/01
-------------------------
DEPRECIABLE ACCUMULATED DATE OF
REAL ESTATE LAND PROPERTY TOTAL DEPRECIATION ACQUISITION
- ----------- -------- ----------- ---------- ------------ -----------
Apollo Village 932 3,665 4,597 (883) 1994
Brentwood Manor 1,997 6,316 8,313 (1,846) 1993
Carefree Manor 706 3,172 3,878 (425) 1998
RANCHO VALLEYCasa del Sol #1 2,215 6,796 9,011 (936) 1996
Casa del Sol #2 2,103 6,553 8,656 (875) 1996
Casa del Sol #3 2,450 7,618 10,068 (909) 1998
Central Park 1,612 4,236 5,848 (2,442) 1983
Desert Skies 792 3,197 3,989 (419) 1998
Fairview Manor 1,674 5,583 7,257 (720) 1998
Hacienda De Valencia 833 3,551 4,384 (1,931) 1984
Palm Shadows 1,400 4,574 5,974 (1,324) 1993
Sedona Shadows 1,096 3,717 4,813 (550) 1997
Sunrise Heights 1,000 3,285 4,285 (861) 1994
The Mark 1,360 5,378 6,738 (1,284) 1994
The Meadows 2,613 8,326 10,939 (2,204) 1994
Whispering Palms 670 2,261 2,931 (300) 1998
California Hawaiian 5,825 18,568 24,393 (2,880) 1997
Colony Park 890 2,903 3,793 (375) 1998
Concord Cascade 985 3,698 4,683 (2,019) 1983
Contempo Marin 4,787 18,230 23,017 (4,319) 1994
Coralwood 0 3085,195 5,195 (760) 1997
Date Palm Country Club 4,115 15,860 19,975 (3,774) 1994
Four Seasons 756 2,474 3,230 (370) 1997
Laguna Lake 2,846 6,681 9,527 (1,004) 1998
Lamplighter 633 2,703 3,336 (1,510) 1983
Meadowbrook 4,345 13,452 17,797 (1,677) 1998
Monte del Lago 3,150 10,098 13,248 (1,468) 1997
Quail Meadows 1,155 3,618 4,773 (454) 1998
Nicholson Plaza 0 4,556 4,556 (658) 1997
Rancho Mesa 2,130 6,443 8,573 (821) 1998
Rancho Valley 685 2,210 2,895 1,0642,371 3,056 (1,320) 1983
ROYAL OAKS 0 14Royal Holiday 778 2,840 3,618 (97) 1998
Royal Oaks 602 1,935 2,537 872,067 2,669 (301) 1997
SAN JOSE I, II, III AND IV 0 2229 0 19,845 19,845 842DeAnza Santa Cruz 2,103 9,304 11,407 (1,677) 1994
Santiago Estates 3,562 11,107 14,669 (1,233) 1998
Sea Oaks 871 2,831 3,702 (409) 1997
SEA OAKS 0 14 871 2,717 3,588 122 1997
SUNSHADOW 0 31 0 5,738 5,738 255 1997
CIMARRON 0 340 863 3,130 3,993 1,535 1983
GOLDEN TERRACE SOUTH 0 175 750 2,440 3,190 119 1997
GOLDEN TERRACE VILLAGE 0 163 826 2,578 3,404 1,221 1983
GOLDEN TERRACE WEST 0 571 1,694 5,636 7,330 2,172 1986
HILLCREST VILLAGE 289 1,494 2,201 6,696 8,897 3,035 1983
HOLIDAY HILLS VILLAGE 0 1,847 2,159 9,627 11,786 4,422 1983
HOLIDAY VILLAGE, CO 0 365 567 2,124 2,691 1,011 1983
PUEBLO GRANDE VILLAGE 0 293 241 1,362 1,603 668 1983
WOODLAND HILLS 0 1,863 1,928 6,271 8,199 1,034 1994
MARINER'S COVE 0 2,326 990 5,297 6,287 1,378 1987
NASSAU PARK 0 525 1,536 5,134 6,670 1,720 1988
WATERFORD 0 188 5,250 16,390 21,640 921 1996
ARROWHEAD VILLAGE 0 63 5,325 15,483 20,808 645 1997
BAY INDIES 0 403 10,483 31,962 42,445 5,277 1994
BAY LAKE ESTATES 0 205 990 3,595 4,585 543 1994
S-2
53
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
- CONTINUED
DECEMBER 31, 1998
(IN2001
(AMOUNTS IN THOUSANDS)
Initial Cost to
CompanyCOSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO ACQUISITION
COMPANY (IMPROVEMENTS)
------------------------ ----------------------
Manufactured Home Depreciable
Communities Location Encumbrances Land PropertyDEPRECIABLE DEPRECIABLE
REAL ESTATE LOCATION ENCUMBRANCES LAND PROPERTY LAND PROPERTY
- --------------------------------------------------------------------------------------------------- ---------------------- ------------ -------- ----------- ------ -----------
BUCCANEER ESTATES N. Ft. Myers FL 7,567 4,207 14,410
BULOW VILLAGE Flagler Beach FL 1,220 3,633 949
COLONIES OF MARGATE Margate FL 12,476 5,890 20,211
COUNTRY PLACE VILLAGE New Port FL 4,002 663 0
Richey
EAST BAY OAKS Largo FL 6,666 1,240 3,322
ELDORADO VILLAGE Largo FL 4,570 778 2,341
FFEC-SIX N. Ft. Myers FL 0 401 3,608
HERITAGE VILLAGE Vero Beach FL 0 2,403 7,259
LAKE FAIRWAYS N. Ft. Myers FL 0 6,075 18,134
LAKE HAVEN Dunedin FL 8,062 1,135 4,047
LAKEWOOD VILLAGE Melbourne FL 0 1,863 5,627
MID-FLORIDA LAKES Leesburg FL 12,580 5,997 20,635
OAK BEND Ocala FL 0 850 2,572
PINE LAKES N. Ft. Myers FL 0 6,306 14,579
SHERWOOD FOREST RV Kissimmee FL 0 3,437 3,621
SPANISH OAKS Ocala FL 0 2,250 6,922
SUNSET OAKS Plant City FL 0 1,111 2,513
THE HERITAGE N. Ft. Myers FL 0 1,438 4,371
WINDMILL VILLAGE N. Ft. Myers FL 9,057 1,417 5,440
WINDMILL VILLAGE NORTH Sarasota FL 9,248 1,523 5,063
WINDMILL VILLAGE SOUTH Sarasota FL 5,556 1,106 3,162
HOLIDAY VILLAGE, IA Sioux City IA 0 313 3,744
GOLF VISTA ESTATES Monee IL 0 2,843 4,719
WILLOW LAKE ESTATES Elgin IL 12,146 6,136 21,033
BURNS HARBOR ESTATES Chesterton IN 0 916 2,909
CANDLELIGHT VILLAGE Columbus IN 0 1,513 4,538
OAKTREE VILLAGE Portage IN 6,084 0 0
BONNER SPRINGS Bonner Springs KS 0 343 1,041
CARRIAGE PARK Kansas City KS 0 309 938
QUIVIRA HILLS Kansas City KS 0 376 1,139
PHEASANT RIDGE Mount Airy MD 0 376 1,779
CAMELOT ACRES Burnsville MN 6,994 527 2,058
BRIARWOOD Brookline MO 0 423 1,282
DELLWOOD ESTATES Warrensburg MO 0 300 912
NORTH STAR VILLAGE Kansas City MO 0 451 1,365
CASA VILLAGE Billings MT 8,029 1,011 3,109
DEL REY Albuquerque NM 0 1,926 5,800
BONANZA VILLAGE Las Vegas NV 9,975 908 2,643
CABANA Las Vegas NV 0 2,648 7,989
FLAMINGO WEST Las Vegas NV 0 1,732 5,266
VILLA BOREGA Las Vegas NV 2,401 2,896 8,774
ROCKWOOD VILLAGE Tulsa OK 12 645 1,622
FALCON WOOD Eugene OR 0 1,112 3,426
QUAIL HOLLOW Fairview OR 0 0 3,249
SHADOWBROOK Clackamas OR 0 1,197 3,693
Costs Capitalized
Subsequent to Gross Amount Carried
Acquisition at Close of
(Improvements) Period 12/31/98
--------------------- -------------------------------
Manufactured Home Depreciable Depreciable Accumulated Date of
Communities Land Property Land Property Total Depreciation Acquisition
- -----------------------------------------------------------------------------------------------------------------
BUCCANEER ESTATES 0 423 4,207 14,833 19,040 2,164 1994
BULOW VILLAGE 4 2,264 3,637 3,213 6,850 311 1994
COLONIES OF MARGATE 0 397 5,890 20,608 26,498 3,003 1994
COUNTRY PLACE VILLAGE 18 5,496 681 5,496 6,177 1,411 1986
EAST BAY OAKS 0 312 1,240 3,634 4,874 1,812 1983
ELDORADO VILLAGE 0 255 778 2,596 3,374 1,285 1983
FFEC-SIX 0 111 401 3,719 4,120 509 1994
HERITAGE VILLAGE 0 139 2,403 7,398 9,801 1,150 1994
LAKE FAIRWAYS 0 322 6,075 18,456 24,531 2,575 1994
LAKE HAVEN 0 402 1,135 4,449 5,584 2,185 1983
LAKEWOOD VILLAGE 0 176 1,863 5,803 7,666 897 1994
MID-FLORIDA LAKES 0 914 5,997 21,549 27,546 3,117 1994
OAK BEND 0 303 850 2,875 3,725 505 1993
PINE LAKES 0 4,447 6,306 19,026 25,332 2,482 1994
SHERWOOD FOREST RVSunshadow San Jose CA 0 0 3,437 3,621 7,058 71 1998
SPANISH OAKS5,707 0 168 2,250 7,090 9,340 1,223 1993
SUNSET OAKS89
Westwinds (4 properties) San Jose CA 0 0 1,111 2,513 3,624 2117,616 0 4,131
Bear Creek Sheridan CO 0 1,100 31,559 0 (28,094)
Cimarron Broomfield CO 8,086 863 2,790 0 464
Golden Terrace Golden CO 8,041 826 2,415 0 436
Golden Terrace South Golden CO 2,400 750 2,265 0 477
Golden Terrace West Golden CO 9,737 1,694 5,065 0 750
Hillcrest Village Aurora CO 15,476 1,912 5,202 290 1,967
Holiday Hills Denver CO 19,437 2,159 7,780 1 3,156
Holiday Village CO Co. Springs CO 6,264 567 1,759 0 588
Pueblo Grande Pueblo CO 3,476 241 1,069 0 334
Woodland Hills Denver CO 11,765 1,928 4,408 0 2,192
Aspen Meadows Rehoboth DE 0 1,148 4,543 0 (948)
Camelot Acres Rehoboth DE 7,003 527 2,058 0 574
Mariners Cove Millsboro DE 0 990 2,971 0 2,949
McNicol Rehoboth DE 0 563 2,106 0 (347)
Sweetbriar Rehoboth DE 0 498 3,027 1 (1,337)
Waterford Estates Bear DE 0 5,250 16,202 0 370
Whispering Pines Lewes DE 0 1,536 4,609 0 724
Maralago Cay Lantana FL 0 5,325 15,420 0 1,090
Bay Indies Venice FL 22,525 10,483 3,390 0 29,549
Bay Lake Estates Nokomis FL 4,651 990 3,304 0 495
Buccaneer N. Ft. Myers FL 19,532 4,207 14,410 0 756
Bulow Village Flagler Beach FL 1,110 3,637 949 0 4,186
Carriage Cove Daytona Beach FL 8,221 2,914 10,176 0 (1,168)
Coral Cay Margate FL 16,742 5,890 20,211 0 1,580
Coquina St Augustine FL 0 5,286 5,545 0 2,363
Meadows at Countrywood Plant City FL 0 4,514 13,175 0 1,442
Country Place New Port Richey FL 4,008 663 0 18 6,288
Country Side North Vero Beach FL 0 3,711 14,751 0 (2,646)
East Bay Oaks Largo FL 6,674 1,240 3,322 0 377
Eldorado Village Largo FL 4,576 778 0 0 2,669
Grand Island Grand island FL 0 1,723 5,208 38 629
Heritage Village Vero Beach FL 0 2,403 7,259 0 327
Hillcrest Clearwater FL 0 1,278 5,850 0 (1,624)
Holiday Ranch Largo FL 0 925 3,142 0 (155)
GROSS AMOUNT CARRIED
AT CLOSE OF PERIOD
12/31/01
------------------------
DEPRECIABLE ACCUMULATED DATE OF
REAL ESTATE LAND PROPERTY TOTAL DEPRECIATION ACQUISITION
- ----------- -------- ----------- ---------- ------------ -----------
Sunshadow 0 5,796 5,796 (848) 1997
Westwinds (4 properties) 0 21,747 21,747 (3,185) 1997
Bear Creek 1,100 3,465 4,565 (460) 1998
THE HERITAGE 0 1,470 1,438 5,841 7,279 949 1993
WINDMILL VILLAGE 0 684 1,417 6,124 7,541 2,926Cimarron 863 3,254 4,117 (1,864) 1983
WINDMILL VILLAGE NORTH 0 444 1,523 5,507 7,030 2,707Golden Terrace 826 2,851 3,677 (1,515) 1983
WINDMILL VILLAGE SOUTH 0 277 1,106 3,439 4,545 1,721Golden Terrace South 750 2,742 3,492 (399) 1997
Golden Terrace West 1,694 5,815 7,509 (2,753) 1986
Hillcrest Village 2,202 7,169 9,371 (3,903) 1983
HOLIDAY VILLAGE, IA 0 421 313 4,165 4,478 1,797Holiday Hills 2,160 10,936 13,096 (5,705) 1983
Holiday Village CO 567 2,347 2,914 (1,236) 1983
Pueblo Grande 241 1,403 1,644 (780) 1983
Woodland Hills 1,928 6,600 8,528 (1,767) 1994
Aspen Meadows 1,148 3,595 4,743 (495) 1998
Camelot Acres 527 2,632 3,159 (1,449) 1983
Mariners Cove 990 5,920 6,910 (2,071) 1987
McNicol 563 1,759 2,322 (232) 1998
Sweetbriar 499 1,690 2,189 (211) 1998
Waterford Estates 5,250 16,572 21,822 (1,969) 1996
Whispering Pines 1,536 5,333 6,869 (2,232) 1998
Maralago Cay 5,325 16,510 21,835 (2,291) 1997
Bay Indies 10,483 32,939 43,422 (8,621) 1994
Bay Lake Estates 990 3,799 4,789 (965) 1994
Buccaneer 4,207 15,166 19,373 (3,709) 1994
Bulow Village 3,637 5,135 8,772 (768) 1994
Carriage Cove 2,914 9,008 11,922 (1,199) 1998
Coral Cay 5,890 21,791 27,681 (5,185) 1994
Coquina 5,286 7,908 13,194 (404) 1999
Meadows at Countrywood 4,514 14,617 19,131 (1,948) 1998
Country Place 681 6,288 6,969 (1,973) 1986
GOLF VISTA ESTATES 0 1,132 2,843 5,851 8,694 321 1997
WILLOW LAKE ESTATES 2 457 6,138 21,490 27,628 3,107Country Side North 3,711 12,105 15,816 (1,597) 1998
East Bay Oaks 1,240 3,699 4,939 (2,156) 1983
Eldorado Village 778 2,669 3,447 (1,541) 1983
Grand Island 1,761 5,837 7,598 (170) 2001
Heritage Village 2,403 7,586 9,989 (1,946) 1994
BURNS HARBOR ESTATES 0 788 916 3,697 4,613 684 1993
CANDLELIGHT VILLAGE 250 1,776 1,763 6,314 8,077 331 1996
OAKTREE VILLAGE 569 3,315 569 3,315 3,884 761 1987
BONNER SPRINGS 0 165 343 1,206 1,549 357 1989
CARRIAGE PARK 0 364 309 1,302 1,611 391 1989
QUIVIRA HILLS 0 110 376 1,249 1,625 386 1989
PHEASANT RIDGE 0 113 376 1,892 2,268 1,061 1988
CAMELOT ACRES 0 366 527 2,424 2,951 1,186 1983
BRIARWOOD 0 147 423 1,429 1,852 439 1989
DELLWOOD ESTATES 0 77 300 989 1,289 307 1989
NORTH STAR VILLAGE 0 191 451 1,556 2,007 480 1989
CASA VILLAGE 181 1,210 1,192 4,319 5,511 1,827 1983
DEL REY 0 429 1,926 6,229 8,155 1,191 1993
BONANZA VILLAGE 0 430 908 3,073 3,981 1,434 1983
CABANA 0 79 2,648 8,068 10,716 1,232 1994
FLAMINGO WEST 0 109 1,732 5,375 7,107 823 1994
VILLA BOREGA 0 77 2,896 8,851 11,747 395 1997
ROCKWOOD VILLAGE 0 237 645 1,859 2,504 909 1983
FALCON WOOD 0 10 1,112 3,436 4,548 154 1997
QUAIL HOLLOW 0 27 0 3,276 3,276 146 1997
SHADOWBROOK 0 95 1,197 3,788 4,985 167 1997Hillcrest 1,278 4,226 5,504 (537) 1998
Holiday Ranch 925 2,987 3,912 (396) 1998
S-3
54
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
- CONTINUED
DECEMBER 31, 1998
(IN2001
(AMOUNTS IN THOUSANDS)
Initial Cost to
Company
---------------------
Manufactured Home Depreciable
Communities Location Encumbrances Land PropertyCOSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO ACQUISITION
COMPANY (IMPROVEMENTS)
------------------------ ----------------------
DEPRECIABLE DEPRECIABLE
REAL ESTATE LOCATION ENCUMBRANCES LAND PROPERTY LAND PROPERTY
- ---------------------------------------------------------------------------------------------------- ------------------------ ------------ -------- ----------- ------ -----------
GREEN ACRES
Holiday Village FL Vero Beach FL 0 350 1,792 0 (313)
Indian Oaks Rockledge FL 3,091 1,089 4,527 0 (518)
Lake Fairways N. Ft. Myers FL 0 6,075 18,134 0 810
Lake Haven Dunedin FL 8,071 1,135 4,047 0 763
Lakewood Village Melbourne FL 0 1,863 5,627 (1) 385
Landings Port Orange FL 0 2,446 8,496 0 (576)
Mid-Florida Lakes Leesburg FL 25,112 5,997 20,635 0 2,683
Oak Bend Ocala FL 0 850 2,572 0 605
Pickwick Port Orange FL 8,375 2,803 8,870 0 46
Pine Lakes N. Ft. Myers FL 0 6,306 14,579 0 4,770
Sherwood Forest Kissimmee FL 9,637 4,852 19,642 0 (2,849)
Sherwood Forest RV Park Kissimmee FL 0 2,870 3,621 568 636
Southern Palms Eustis FL 0 2,169 5,884 0 1,013
Spanish Oaks Ocala FL 7,445 2,250 6,922 0 509
Oaks at Countrywood Plant City FL 0 1,111 2,513 (340) 188
The Heritage N. Ft. Myers FL 0 1,438 4,371 249 2,046
The Lakes at Countrywood Plant city FL 0 2,377 7,086 37 627
The Meadows, FL Palm Beach Gardens FL 6,202 3,229 9,870 0 220
Windmill Manor Bradenton FL 6,282 2,153 6,125 (1) 874
Windmill Village -- Ft. Myers N. Ft. Myers FL 9,406 1,417 5,440 0 942
Windmill Village North Sarasota FL 9,069 1,523 5,063 0 580
Windmill Village South Sarasota FL 5,563 1,106 3,162 0 311
Five Seasons Cedar Rapids IA 0 1,053 5,361 0 (1,440)
Holiday Village, IA Sioux City IA 0 313 3,744 0 351
Golf Vistas Monee IL 0 2,843 4,719 0 3,529
Willow Lake Estates Elgin IL 21,392 6,138 21,033 0 1,953
Burns Harbor Estates Chesterton IN 0 916 2,909 0 1,469
Oak Tree Village Portage IN 6,092 0 0 569 3,465
Windsong Indianapolis IN 0 1,482 6,509 0 (1,916)
Pheasant Ridge Mt. Airy MD 0 376 1,779 0 356
Creekside Wyoming MI 0 1,109 3,646 0 (19)
Camelot Acres Burnsville MN 0 1,778 6,577 0 (901)
Casa Village Billings MT 8,040 1,011 3,109 181 1,913
Del Rey Albuquerque NM 0 1,926 5,800 0 677
Bonanza Las Vegas NV 9,988 908 2,643 0 613
Boulder Cascade Las Vegas NV 7,878 2,995 12,413 0 (2,756)
GROSS AMOUNT CARRIED
AT CLOSE OF PERIOD
12/31/01
------------------------
DEPRECIABLE ACCUMULATED DATE OF
REAL ESTATE LAND PROPERTY TOTAL DEPRECIATION ACQUISITION
- ----------- -------- ----------- ---------- ------------ -----------
Holiday Village FL 350 1,479 1,829 (176) 1998
Indian Oaks 1,089 4,009 5,098 (518) 1998
Lake Fairways 6,075 18,944 25,019 (4,500) 1994
Lake Haven 1,135 4,810 5,945 (2,645) 1983
Lakewood Village 1,862 6,012 7,874 (1,537) 1994
Landings 2,446 7,920 10,366 (1,068) 1998
Mid-Florida Lakes 5,997 23,318 29,315 (5,489) 1994
Oak Bend 850 3,177 4,027 (853) 1993
Pickwick 2,803 8,916 11,719 (1,161) 1998
Pine Lakes 6,306 19,349 25,655 (4,505) 1994
Sherwood Forest 4,852 16,793 21,645 (2,048) 1998
Sherwood Forest RV Park 3,438 4,257 7,695 (506) 1998
Southern Palms 2,169 6,897 9,066 (654) 1998
Spanish Oaks 2,250 7,431 9,681 (2,003) 1993
Oaks at Countrywood 771 2,701 3,472 (285) 1998
The Heritage 1,687 6,417 8,104 (1,657) 1993
The Lakes at Countrywood 2,414 7,713 10,127 (226) 2001
The Meadows, FL 3,229 10,090 13,319 (824) 1999
Windmill Manor 2,152 6,999 9,151 (939) 1998
Windmill Village -- Ft. Myers 1,417 6,382 7,799 (3,575) 1983
Windmill Village North 1,523 5,643 7,166 (3,230) 1983
Windmill Village South 1,106 3,473 4,579 (2,025) 1983
Five Seasons 1,053 3,921 4,974 (579) 1998
Holiday Village, IA 313 4,095 4,408 (2,074) 1986
Golf Vistas 2,843 8,248 11,091 (1,071) 1997
Willow Lake Estates 6,138 22,986 29,124 (5,432) 1994
Burns Harbor Estates 916 4,378 5,294 (1,236) 1993
Oak Tree Village 569 3,465 4,034 (1,268) 1987
Windsong 1,482 4,593 6,075 (621) 1998
Pheasant Ridge 376 2,135 2,511 (1,198) 1988
Creekside 1,109 3,627 4,736 (481) 1998
Camelot Acres 1,778 5,676 7,454 (761) 1998
Casa Village 1,192 5,022 6,214 (2,398) 1983
Del Rey 1,926 6,477 8,403 (1,883) 1993
Bonanza 908 3,256 4,164 (1,806) 1983
Boulder Cascade 2,995 9,657 12,652 (1,183) 1998
S-4
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2001
(AMOUNTS IN THOUSANDS)
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO ACQUISITION
COMPANY (IMPROVEMENTS)
------------------------ ----------------------
DEPRECIABLE DEPRECIABLE
REAL ESTATE LOCATION ENCUMBRANCES LAND PROPERTY LAND PROPERTY
- ----------- ------------------------ ------------ -------- ----------- ------ -----------
Cabana Las Vegas NV 8,425 2,648 7,989 0 174
Flamingo West Las Vegas NV 0 1,730 5,266 0 688
Villa Borega Las Vegas NV 7,470 2,896 8,774 0 186
Brook Gardens Lackawanna NY 0 3,828 10,310 0 1,099
Greenwood Village Manorville NY 0 3,667 9,414 485 2,814
Falcon Wood Village Eugene OR 4 1,112 3,426 0 109
Quail Hollow Fairview OR 0 0 3,249 0 102
Shadowbrook Clackamas OR 0 1,197 3,693 0 102
Green Acres Breinigsville PA 16,014 2,680 7,479 0 2732,149
Fun n Sun RV Park San Benito TX 0 GREEN ACRES PARK Breinigsville PA 15,994 2,407 7,479
ALL SEASONS2,533 0 0 8,414
All Seasons Salt Lake City UT 0 510 1,623 WESTWOOD0 163
Westwood Village Farr West UT 0 1,346 4,179 MEADOWS OF CHANTILLY0 1,030
Meadows of Chantilly Chantilly VA 0 5,430 16,440 KLOSHE ILLAHEE0 1,627
Kloshe Illahee Federal Way WA 3,2936,469 2,408 7,286 INDEPENDENCE HILL0 83
Independence Hill Morgantown WV 0 299 898 ELLENBURG COMMUNITIES0 259
College Heights Consolidated
(18 properties) Various 64,649 73,150 278,306
COLLEGE HEIGHTS Various 67,640 21,137 64,753
MANAGEMENT BUSINESS65,914 17,045 71,382 0 493
Management Business Chicago IL 0 0 436 -----------------------------------------
$500,573 $270,922 $906,275
=========================================
Costs Capitalized
Subsequent to Gross Amount Carried
Acquisition at Close of
(Improvements) Period0 7,542
-------- -------- -------- ------ -------
$589,954 $269,795 $871,001 $2,076 $95,266
======== ======== ======== ====== =======
GROSS AMOUNT CARRIED
AT CLOSE OF PERIOD
12/31/98
-------------------- -------------------------------
Manufactured Home Depreciable Depreciable Accumulated Date of
Communities Land Property Land Property Total Depreciation Acquisition01
------------------------
DEPRECIABLE ACCUMULATED DATE OF
REAL ESTATE LAND PROPERTY TOTAL DEPRECIATION ACQUISITION
- --------------------------------------------------------------------------------------------------------------------------- -------- ----------- ---------- ------------ -----------
GREEN ACRES LANDCabana 2,648 8,163 10,811 (2,075) 1994
Flamingo West 1,730 5,954 7,684 (1,416) 1994
Villa Borega 2,896 8,960 11,856 (1,315) 1997
Brook Gardens 3,828 11,409 15,237 (1,575) 1998
Greenwood Village 4,152 12,228 16,380 (1,482) 1998
Falcon Wood Village 1,112 3,535 4,647 (512) 1997
Quail Hollow 0 947 273 947 1,220 903,351 3,351 (490) 1997
Shadowbrook 1,197 3,795 4,992 (577) 1997
Green Acres 2,680 9,628 12,308 (4,016) 1988
Fun n Sun RV Park 2,533 8,414 10,947 (1,155) 1998
All Seasons 510 1,786 2,296 (274) 1997
Westwood Village 1,346 5,209 6,555 (745) 1997
Meadows of Chantilly 5,430 18,067 23,497 (4,707) 1994
GREEN ACRES PARKKloshe Illahee 2,408 7,369 9,777 (1,072) 1997
Independence Hill 299 1,157 1,456 (450) 1990
College Heights Consolidated
(18 properties) 17,045 71,875 88,920 (8,387) 1998
Management Business 0 906 2,407 8,385 10,792 2,938 1988
ALL SEASONS 0 57 510 1,680 2,190 76 1997
WESTWOOD 0 396 1,346 4,575 5,921 201 1997
MEADOWS OF CHANTILLY 0 1,008 5,430 17,448 22,878 2,733 1994
KLOSHE ILLAHEE 0 33 2,408 7,319 9,727 326 1997
INDEPENDENCE HILL 0 153 299 1,051 1,350 3177,978 7,978 (5,700) 1990
ELLENBURG COMMUNITIES 0 0 73,150 278,306 351,456 6,585 1998
COLLEGE HEIGHTS 0 0 21,137 64,753 85,890 893 1998
MANAGEMENT BUSINESS 0 5,245 0 5,681 5,681 2,391
--------------------------------------------------------------------------------
$1,303 $58,931 $272,225 $965,206 $1,237,431 $118,021
======================================================================-------- -------- ---------- ---------
$271,871 $966,267 $1,238,138 $(211,878)
======== ======== ========== =========
- ---------------
NOTES:
(1) For depreciable property, the Company uses a 30-year estimated life for
buildings acquired and structural and land improvements, a ten-to-fifteen
year estimated life for building upgrades and a three-to-seven year
estimated life for furniture and fixtures.
(2) The schedule excludes five Properties in which the Company has a
non-controlling joint venture interest and accounts for using the equity
method of accounting.
(3) The balance of furniture and fixtures included in the total amounts was
approximately $9.9$12.2 million as of December 31, 1998.
(3)2001.
(4) The aggregate cost of land and depreciable property for Federal income tax
purposes was approximately $1.1 billion, as of December 31, 1998.
(4)2001.
(5) All propertiesProperties were acquired, except for Country Place Village, which was
constructed.
S-4S-5
55
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
- CONTINUED
DECEMBER 31, 1998
(IN2001
(AMOUNTS IN THOUSANDS)
The changes in total real estate for the years ended December 31, 1998, 19972001,
2000 and 19961999 were as follows:
1998 1997 1996
---- ---- ----2001 2000 1999
---------- ---------- ----------
Balance, beginning of year.... $ 936,318 $597,650 $543,229
Acquisitions.............. 286,880 332,272 46,531
Improvements.............. 14,566 6,643 8,062
Dispositions$1,218,176 $1,264,343 $1,237,431
Acquisitions(1)............. 17,770 (4,581) 12,496
Improvements................ 23,140 16,261 16,700
Dispositions(2) and other.... (333) (247) (172)other... (20,948) (57,847) (2,284)
---------- -------- ------------------ ----------
Balance, end of year.......... $1,237,431 $936,318 $597,650$1,238,138 $1,218,176 $1,264,343
========== ======== ================== ==========
- ---------------
(1) Acquisitions for the year ended December 31, 2000 include return of escrow
proceeds.
(2) Dispositions for 2000 include the non-cash assumption of $19.0 million of
debt by the purchaser of a Property.
The changes in accumulated depreciation for the years ended December 31,
1998,
19972001, 2000 and 19961999 were as follows:
1998 1997 1996
---- ---- ----2001 2000 1999
-------- -------- --------
Balance, beginning of year.... $ 89,208 $ 71,481 $ 56,403$181,580 $150,757 $118,021
Depreciation expense...... 29,146 17,974 15,250expense........ 35,205 35,548 35,020
Dispositions and other.... (333) (247) (172)
----------other...... (4,907) (4,725) (2,284)
-------- -------- --------
Balance, end of year.......... $ 118,021 $ 89,208 $ 71,481
==========$211,878 $181,580 $150,757
======== ======== ========
S-5S-6