SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002.MARCH 31, 2003.
OR
[ ] Transition pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
COMMISSION FILE NUMBER 1-12616
SUN COMMUNITIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Maryland 38-2730780
(State of Incorporation) (I.R.S. Employer Identification No.)
31700 Middlebelt27777 Franklin Road
Suite 145
Farmington Hills,200
Southfield, Michigan 4833448034
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (248) 932-3100208-2500
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of shares of Common Stock, $.01 par value per share, outstanding
as of OctoberMarch 31, 2002: 18,111,398
Page 1 of 272003: 18,107,275
SUN COMMUNITIES, INC.
INDEX
PAGES
-----
PART I
- ------
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 2002 and
December 31, 2001 3
Consolidated Statements of Income for the Periods
Ended September 30, 2002 and 2001 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2002 and 2001 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-21
Item 3. Quantitative and Qualitative Disclosures about Market Risk 21-22
Item 4. Controls and Procedures 22
PART II
Item 6.(a) Exhibits required by Item 601 of Regulation S-K 23
Item 6.(b) Reports on Form 8-K 23
Signatures 24
Certifications 25-26
PAGES
PART I
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets as of March 31, 2003 and
December 31, 2002 3
Consolidated Statements of Income for the Periods
Ended March 31, 2003 and 2002 4
Consolidated Statements of Comprehensive Income for the
Three Months Ended March 31, 2003 and 2002 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2003 and 2002 6
Notes to Consolidated Financial Statements 7-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-23
Item 3. Quantitative and Qualitative Disclosures about Market Risk 24
Item 4. Controls and Procedures 25
PART II
Item 6.(a) Exhibits required by Item 601 of Regulation S-K 25
Item 6.(b) Reports on Form 8-K 25
Signatures 26
Certifications 27-28
2
SUN COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002MARCH 31, 2003 AND DECEMBER 31, 20012002
(IN THOUSANDS)
(UNAUDITED)
ASSETS 2003 2002 2001
--------------- -------------
Investment in rental property, net $ 872,094997,193 $ 813,334999,360
Cash and cash equivalents 1,948 4,5873,339 2,664
Notes and other receivables 136,527 91,37256,768 56,329
Investment in and advances to affiliates 75,635 55,45172,405 67,719
Other assets 27,861 29,70537,336 37,904
--------------- -------------
Total assets $ 1,114,0651,167,041 $ 994,4491,163,976
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Line of credit $ 75,00076,500 $ 93,00063,000
Debt 533,023 402,198595,833 604,373
Accounts payable and accrued expenses 17,945 17,68313,809 16,120
Deposits and other liabilities 7,206 8,9299,801 8,461
--------------- -------------
Total liabilities 633,174 521,810695,943 691,954
--------------- -------------
Minority interests 146,154 142,998155,857 152,490
--------------- -------------
Stockholders' equity:
Preferred stock, $.01 par value, 10,000 shares
authorized; no shares issued and outstanding -- --
Common stock, $.01 par value, 100,000 shares
authorized; 18,28118,309 and 17,70718,311 issued and
outstanding for 20022003 and 2001,2002, respectively 183 178183
Paid-in capital 417,367 399,789420,599 420,683
Officers' notes (10,775) (11,004)(10,632) (10,703)
Unearned compensation (8,942) (6,999)
Unrealized (losses) on interest rate swaps (1,344) --(8,301) (8,622)
Accumulated other comprehensive loss (2,290) (1,851)
Distributions in excess of accumulated earnings (55,368) (45,939)(77,934) (73,774)
Treasury stock, at cost, 202 shares (6,384) (6,384)
--------------- -------------
Total stockholders' equity 334,737 329,641315,241 319,532
--------------- -------------
Total liabilities and stockholders'
equity $ 1,114,0651,167,041 $ 994,4491,163,976
=============== =============
The accompanying notes are an integral part of the
consolidated financial statements.
3
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODSTHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2003 AND 2002 AND 2001
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,2003 2002
2001 2002 2001
------------ ----------- ----------- -------------------------- ---------------
Revenues:
Income from property $ 38,15241,755 $ 34,402 $ 114,282 $ 103,476
Equity in income (loss) from affiliates (1,457) 433 (2,639) 57239,171
Other income 2,691 3,390 7,487 11,249
------------ ----------- ----------- -----------2,942 1,919
--------------- ---------------
Total revenues 39,386 38,225 119,130 115,297
------------ ----------- ----------- -----------44,697 41,090
--------------- ----------------
Expenses:
Property operating and maintenance 8,612 7,566 24,500 21,86110,217 8,351
Real estate taxes 2,577 2,320 7,701 6,8943,026 2,552
Property management 541 640 1,856 2,076754 758
General and administrative 1,130 1,178 3,600 3,5201,619 1,319
Depreciation and amortization 9,661 8,123 28,129 24,09510,769 9,113
Interest 8,266 7,232 23,834 23,498
------------ ----------- ----------- -----------8,760 7,846
--------------- ---------------
Total expenses 30,787 27,059 89,620 81,944
------------ ----------- ----------- -----------35,145 29,939
--------------- ---------------
Income before gainloss from property dispositions,
net andequity affiliates,
minority interests 8,599 11,166 29,510 33,353
Gainand discontinued operations 9,552 11,151
Loss from property dispositions, net -- -- -- 4,275
------------ ----------- ----------- -----------equity affiliates (171) (222)
--------------- ---------------
Income before minority interest 8,599 11,166 29,510 37,628interests and discontinued operations 9,381 10,929
Less income allocated to minority interests:
Preferred OP Units 1,951 2,057 5,817 6,0742,128 1,919
Common OP Units 846 1,217 3,055 4,205
------------ ----------- ----------- -----------and others 910 1,176
--------------- ---------------
Income from continuing operations 5,802 7,892 20,638 27,3496,343 7,834
Income (loss) from discontinued operations -- (15) 280
(48)
------------ ----------- ----------- -------------------------- ---------------
Net income $ 5,8026,343 $ 7,877 $ 20,918 $ 27,301
============ =========== =========== ===========8,114
=============== ===============
Weighted average common shares outstanding:
Basic 17,789 17,322
=============== ===============
Diluted 17,915 17,538
=============== ===============
Basic earnings per share:
Continuing operations $ 0.330.36 $ 0.46 $ 1.17 $ 1.580.45
Discontinued operations -- -- 0.02
--
------------ ----------- ----------- --------------------------- ---------------
Net income $ 0.330.36 $ 0.46 $ 1.19 $ 1.58
============ =========== =========== ===========0.47
================ ===============
Diluted earnings per share:
Continuing operations $ 0.320.35 $ 0.45 $ 1.16 $ 1.560.44
Discontinued operations -- -- 0.02
--
------------ ----------- ----------- --------------------------- ----------------
Net income $ 0.320.35 $ 0.45 $ 1.18 $ 1.56
============ =========== =========== ===========
Weighted average common shares outstanding:
Basic 17,739 17,210 17,535 17,259
============ =========== =========== ===========
Diluted 17,921 17,516 17,740 17,515
============ =========== =========== ===========
Distributions declared per common
share outstanding $ 0.58 $ 0.55 $ 1.71 $ 1.63
============ =========== =========== ===========0.46
================ ================
The accompanying notes are an integral part of the
consolidated financial statements.
4
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
2003 2002
------ ------
Net income $6,343 $8,114
Unrealized losses on interest rate swaps (439) --
------ ------
Comprehensive income $5,904 $8,114
====== ======
The accompanying notes are an integral part of the
consolidated financial statements.
5
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2003 AND 2002 AND 2001
(IN THOUSANDS)
(UNAUDITED)
2003 2002 2001
------------- ------------
Cash flows from operating activities:
Net income $ 20,9186,343 $ 27,3018,114
Adjustments to reconcile net income to net
cash provided by operating activities:
Income allocated to minority interests 3,055 4,201
Gain from property dispositions, net -- (4,275)910 1,176
(Income) loss from discontinued operations -- (280) 48
Operating income included in discontinued operations -- 11 92
Depreciation and amortization 28,129 24,09910,769 9,113
Amortization of deferred financing costs 882 801318 247
Increase in other assets (1,389) (701)(1,745) (1,271)
Increase (decrease) in accounts payable and other liabilities (1,461) 3,850
--------- ---------(971) 1,775
------------- ------------
Net cash provided by operating activities 49,865 55,416
--------- ---------15,624 18,885
------------- ------------
Cash flows from investing activities:
Investment in rental properties (73,410) (53,215)(6,708) (42,728)
Proceeds related to property dispositions -- 3,288
17,331Investments in notes receivable, net (439) --
Investment in and advances to affiliates (21,050) (5,054)(4,937) 7,380
Repayments of (increases in) notes receivable, net (45,256) 8,580
--------- ----------- 4,744
Officers' notes 71 --
------------- ------------
Net cash used in investing activities (136,428) (32,358)
--------- ---------(12,013) (27,316)
------------- ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock
and OP units, net -- 1,891
Borrowings (repayments) on line of credit, net (18,000) 77,000
Proceeds from notes payable and other debt 139,428 --13,500 32,000
Repayments on notes payable and other debt (15,416) (76,120)(4,370) (14,227)
Payments for deferred financing costs (2,047)(83) --
Proceeds from issuance of common stock 14,746 --
Treasury stock and operating partnership unit purchases, net -- (5,587)
Distributions (34,787) (32,872)
--------- ---------(11,983) (11,095)
------------- ------------
Net cash provided by (used in) financing activities 83,924 (37,579)
--------- ---------(2,936) 8,569
------------- ------------
Net increase (decrease) in cash and cash equivalents (2,639) (14,521)675 138
Cash and cash equivalents, beginning of period 2,664 4,587
18,466
--------- ---------------------- ------------
Cash and cash equivalents, end of period $ 1,9483,339 $ 3,945
========= =========4,725
============= ============
Supplemental Information:
Preferred OP Units issuedCash paid for rental propertiesinterest including capitalized amounts of $664 and $675 for
the three months ended March 31, 2003 and
2002, respectively $ 4,5007,371 $ 4,6125,977
Noncash investing and financing activities:
Debt assumed for rental properties $ -- $ 6,813
Issuance of partnership units for rental properties $ 12,500
Restricted common stock issued as unearned
compensation, net-- $ 4,500
Issuance of cancellationspartnership units to retire capitalized lease
obligations $ 2,7674,170 $ 3,202--
The accompanying notes are an integral part of the
consolidated financial statements
5statements.
6
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
These unaudited condensed consolidated financial statements of Sun
Communities, Inc., a Maryland corporation, (the "Company"), have been
prepared pursuant to the Securities and Exchange Commission ("SEC") rules
and regulations and should be read in conjunction with the consolidated
financial statements and notes thereto of the Company as ofincluded in the
Annual Report on Form 10-K for the year ended December 31, 2001.2002. The
following notes to consolidated financial statements present interim
disclosures as required by the SEC. The accompanying consolidated
financial statements reflect, in the opinion of management, all
adjustments necessary for a fair presentation of the interim financial
statements. All such adjustments are of a normal and recurring nature.
2. INVESTMENTS IN AND ADVANCES TO AFFILIATES:
Sun Home Services, Inc. ("SHS") sells and rents new and used homes in our
communities, manages a golf course, and provides home salesactivities and other
services to current and prospective tenants.facilities for our residents. Through the Sun Communities
Operating Limited Partnership (the "Operating Partnership"), the Company
owns one hundred percent (100%) of the outstanding preferred stock of
SHS, and is entitled to ninety-five percent (95%) of the operating cash flow.flow,
and accounts for its investment utilizing the equity method of
accounting. The common stock is owned by one officer of the Company and
the estate of a former officer of the Company who collectively are
entitled to receive five percent (5%) of the operating cash flow.
ThroughBingham Financial Services Corporation ("BFSC") was formed by Sun in 1997
in response to demand for financing from purchasers and residents in the
Company's communities. As BFSC's business developed, its objectives and
opportunities expanded and the Company concluded that its business could
be operated and grown more effectively as a separate public entity.
BFSC's initial public offering occurred in November 1997. The Company has
continued to provide financial support to BFSC. In December 2001, the
Company, through SHS, made a $15 million equity investment in a newly
formed company Origen Financial, L.L.C., that was merged with Origen
Financial, Inc., subsidiary of BFSC, as part of the recapitalization of
BFSC. As a result of this equity investment, the Company owns
approximately a thirty percent (30%) (i.e., $15 million) interest in Origen Financial LLCthe surviving company
("Origen"), which company holds all of the operating assets of Bingham Financial Services
Corporation ("BFSC")BFSC and
its subsidiaries. BFSC owns approximately a
twenty percent (20%) interestThe Company wrote-off its remaining equity investment
in Origen of $13.6 million in the fourth quarter of 2002.
Through Sun Home Services, the Company and two other participants (one
unaffiliated and one affiliated with Gary A. Shiffman, the Company's
Chief Executive Officer and President) continue to provide financing to
Origen and are subject to the risks of being a lender. These risks
include the risks relating to borrower delinquency and default and the
Company (together withadequacy of the other investors in Origen) has certain rights to purchase its
pro-rata sharecollateral for such loans. This financing consists of BFSC's interest in Origen at fair value.
The Company and another unaffiliated lender provide a
$35$48 million
secured line of credit to Origen. The lineand a $10 million term loan of credit matures December
31, 2002 and is fully drawn at September 30, 2002. Pursuant to the
terms of the participation agreement between the Company and the other
lender,which the
Company's commitment is $35.5 million ($35.2 million and $33.6 million
was outstanding as of March 31, 2003 and December 31, 2002,
respectively). The line bears interest at a per annum rate equal to loan up700
basis points over LIBOR, with a minimum interest rate of 11 percent and a
maximum interest rate of 15 percent. Of the Company's $35.5 million
participation, $18 million is subordinate in all respects to $20the first
$40.0 million to Origenfunded under the facility by the three participants. This
line of credit is collateralized by a security interest in Origen's
assets, which is subordinate in all respects to all institutional
indebtedness of Origen, and the other lender is committed to loan up
to $15 million to Origen under the linea guaranty and pledge of credit. The parties
participate pari-passu in the first $30 million advanced under the line
of credit with additional fundings subordinated to the first $30
million.
Also included in Investment in and Advances to Affiliates is the
Company's investment in and advances to SunChamp LLC, a development
entity comprising eleven new communities. On October 15, 2002, the
Company entered into a preliminary agreement to acquire the ownership
interest of Champion Enterprises in SunChamp for approximately $5.5
million. Upon closing, the Company will own approximately 45% of
SunChamp. The Company owned 19.3% of SunChamp at September 30, 2002.
All of these investments are accounted for utilizing the equity method
of accounting.
6assets by BFSC.
7
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. INVESTMENTS IN AND ADVANCES TO AFFILIATES (CONTINUED):
Summarized combined financial information of the Company's equity
investments as of March 31, 2003, SHS and Origen, are presented below
before elimination of intercompany transactions.
Revenues $ 14,393
Expenses (16,364)
--------
Net income (loss) $ (1,971)
========
Sun's equity income (loss) $ (171)
========
3. RENTAL PROPERTY:
The following summarizes rental property (in thousands):
September 30, DecemberMARCH 31, DECEMBER 31,
2003 2002
2001------------- -------------- -----------------
Land $ 85,608103,590 $ 82,326101,926
Land improvements and buildings 878,381 818,0431,006,500 999,540
Furniture, fixtures, equipment 23,513 20,70026,517 26,277
Land held for future development 16,953 16,81033,343 34,573
Property under development 30,041 15,77711,595 12,521
------------- ---------------
1,034,496 953,656--------------
1,181,545 1,174,837
Accumulated depreciation (162,402) (140,322)(184,352) (175,477)
------------- -----------------------------
Rental property, net $ 872,094997,193 $ 813,334
==============999,360
============= ==============
During the ninethree months ended September 30, 2002,March 31, 2003, the Company acquired
two communities totaling 889 sites for approximately $37 million.
In January 2002, in conjunction with a property acquisition, the
Company issued 100,000 Series B-2 Preferred OP Units that bear interest
at the rate of 6.0 percent per annum for the first five years and 7.0
percent per annum thereafter. The Series B-2 Preferred Units are
convertible into Common OP Units in January 2005 at $45 per unit and
redeemable at $45 per unit in January 2007 and, upon certain
circumstances, at times thereafter.
In October 2001, the FASB issued FAS Statement No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. This statement
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement is effective for fiscal
years beginning after December 15, 2001 and interim periods within
those fiscal years. During the first quarter of 2002, the Company sold
one property with a net book value of approximately $2.9 million
resulting in a gain of approximately $0.4 million. The adoption of this
statement requires all dispositions of properties to be disclosed as
discontinued operations in the period in which they occur and prior
periods to be reclassified to conform with the current period
presentation. At December 31, 2001, this property was classified as
held for use.
7did not acquire
any rental properties.
8
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. NOTES AND OTHER RECEIVABLES (AMOUNTS IN THOUSANDS):
September 30, DecemberMARCH 31, DECEMBER 31,
2003 2002
2001
----------- -----------------------
Mortgage and other notes receivable, primarily with minimum monthly
interest payments at LIBOR based floating rates of approximately
LIBOR + 3.0%, maturing at various dates through June 2012,August 2008,
substantially collateralized by manufactured home communities $108,202communities. $ 63,40339,386 $ 38,420
Installment loans on manufactured homes with interest payable monthly
at a weighted average interest rate and maturity of 8.2% and 1920
years, respectively 11,098 13,474respectively. 11,431 11,633
Other receivables 17,227 14,495
-------- --------
$136,5275,951 6,276
----------- ------------
$ 91,372
======== ========56,768 $ 56,329
=========== ============
At September 30, 2002,March 31, 2003, the maturities of mortgages and other notes
receivables are approximately as follows: 2003-$1.5 million; 2004-$20.3
million; 2005-$52.819.4
million; 2006-$3.8 million; 20072008 and after- $29.8$14.7 million.
Officers' notes, presented as a reduction to stockholders' equity in the
balance sheet, are LIBOR + 1.75% notes, due in approximate equal amounts
in 2008, 2009 and 2010, with a minimum and maximum interest rate of 6%6
percent and 9%,9 percent, respectively, collateralized by 362,206 shares of
the Company's common stock and 127,794 OP Units with substantial personal
recourse.
9
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. DEBT:
The following table sets forth certain information regarding debt (in
thousands):
September 30, DecemberMARCH 31, DECEMBER 31,
2003 2002
2001--------------- -------------- -------------
Collateralized termBridge loan, due to FNMA, at variable interest rate (2.5%(2.617% at
September 30,December 31, 2002) due
May 2007, convertible to a 5 to 10 year fixed rate loan $ 139,427 $ --
Collateralized term loan, interest at 7.01%, due September 9, 2007 42,246 42,820April 30, 2003 $ 48,000 $ 48,000
Senior notes, interest at 7.625%, due May 1, 2003 85,000 85,000
Callable/redeemable notes, interest at 6.77%, due
May 14, 2015, callable/redeemable May 16, 2005 65,000 65,000
Senior notes, interest at 6.97%, due December 3, 2007 35,000 35,000
Senior notes, interest at 8.20%, due August 15, 2008 100,000 100,000
Collateralized term loan, due to FNMA, at variable
interest rate (2.17% at December 31, 2002) due
May 2007, convertible to a 5 to 10 year fixed rate loan 152,363 152,363
Collateralized term loan, interest at 7.01%,
due September 9, 2007 42,062 42,206
Capitalized lease obligations, interest at 6.1%, due
through December 2003 25,575 26,045January 1, 2004 9,804 16,438
Mortgage notes, other 40,775 48,33358,604 60,366
--------------- --------------
$ 533,023595,833 $ 402,198604,373
=============== ==============
8
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. DEBT, CONTINUED:The collateralized term loans totaling $194,425 at March 31, 2003 are
secured by 22 properties comprising approximately 10,600 sites. The
capitalized lease obligations and mortgage notes are collateralized by 12
communities comprising approximately 3,900 sites. At the lease expiration
date of the capitalized leases the Company has the right and intends to
purchase the properties for the amount of the then outstanding lease
obligation. One of the capitalized lease obligations matured on January 1,
2003 and was paid by the issuance of 41,700 Preferred OP Units, cash of
approximately $860,000 and the assumption of approximately $1,570,000 of
debt, which was immediately retired.
The initial term of the variable rate FNMA debt is five years, theyears. The Company
has the option to extend such variable rate borrowings for an additional
five years and the Company has the option toand/or convert such
variable rate borrowingsthem to fixed rate borrowings with a term of five
or ten years, provided that in no event can the term of the borrowings
exceed fifteen years.
The Company has a $105 million unsecured line of credit of which $28.5
million was available to be drawn at March 31, 2003. Borrowings under the
line of credit bear interest at the rate of LIBOR plus 0.85% and mature
July 2, 2005 with a one-year extension at the Company's option. The average
interest rate of outstanding borrowings under the line of credit at March
31, 2003 was 2.14 percent.
10
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. DEBT, CONTINUED:
Subsequent to March 31, 2003 the Company issued $150 million of 5.75
percent senior notes, due April 15, 2010, in a private offering and used
the proceeds from the offering to retire the bridge loan of $48 million and
senior notes of $85 million due on April 30 and May 1, 2003, respectively.
The remaining $17 million was used to pay down the Company's line of
credit. Subsequent to May 15, 2003, the Company intends to file a
registration statement to exchange the unregistered notes for registered
notes with substantially identical terms.
The Company is the guarantor of $22.7 million in personal bank loans
maturing in 2004, made to directors, employees and consultants to purchase
Company common stock and OP units pursuant to the Company's Stock Purchase
Plan. No compensation expense was recognized in respect to the guarantees
as the fair value thereof was not material nor have there been any
defaults.
6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:
The Company has entered into four derivative contracts consisting of three
derivative contracts.interest rate swap agreements and an interest rate cap agreement. The
Company's primary strategy in entering into derivative contracts is to
minimize the variability that changes in interest rates could have on its
future cash flows. The Company generally employs derivative instruments
that effectively convert a portion of its variable rate debt to fixed rate
debt.debt and to cap the maximum interest rate on its variable rate borrowings.
The Company does not enter into derivative instruments for speculative
purposes.
The Company has entered into three equal interest rate swap agreements
for an aggregate notional amount of $75 million. The agreements are effective April 2003, and have the effect of fixing
interest rates relative to the FNMA debt.a collateralized term loan due to FNMA. One swap
matures in July 2009, with an effective fixed rate of 4.93%.4.93 percent. A
second swap matures in July 2012, with an effective fixed rate of 5.37%.5.37
percent. The third swap matures in July 2007, with an effective fixed rate
of 3.97%.3.97 percent. The third swap is effective as long as LIBOR is 7%7 percent
or lower. The interest rate cap agreement is effective April 2003 at a cap
rate of 9.49 percent. The notional increases over three months from $12.9
million to a final notional of $152.4 million and has a termination date of
April 3, 2006.
The Company has designated the first two swaps and the interest rate cap as
cash flow hedges for accounting purposes. These twothree hedges were highly
effective and had minimal effect on income. The third swap does not qualify
as a hedge for accounting purposes and, accordingly, the entire change in
valuation of $0.486$0.21 million is reflected as a component of interest expense
in the statements of income.
Allincome for the three interest rate swaps totaling a liability of $1.8 million are
recorded in notesmonths ended March 31, 2003.
In accordance with SFAS No. 133, the "Accounting for Derivative Instruments
and other receivablesHedging Activities," which requires all derivative instruments to be
carried at fair value on the balance sheet, the Company has recorded a
liability of $3.0 million and $2.3 million as of September 30, 2002.March 31, 2003 and
December 31, 2002, respectively.
These valuation adjustments will only be realized if the Company terminates
the swaps prior to maturity. This is not the intent of the Company and,
therefore, the net of valuation adjustments through the various maturity
dates will approximate zero.
In July 2002, the Company refinanced its existing line of credit to an
$85 million facility. The Company had $10 million of this refinanced
facility available to borrow at September 30, 2002. Borrowings under
the line of credit bear interest at the rate of LIBOR plus 0.85% and
mature July 2, 2005 with a one-year optional extension.
6.11
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. OTHER INCOME:
The components of other income are as follows for the periodsthree months ended
September 30,March 31, 2003 and 2002 and 2001 (in thousands):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,2003 2002
2001 2002 2001
----------- --------- ---------- -------------------
Interest income $ 1,9622,763 $ 2,200 $ 5,380 $ 8,3211,258
Other income 729 1,190 2,107 2,928
-----------179 661
--------- ---------- -------------------
$ 2,6912,942 $ 3,390 $ 7,487 $ 11,249
===========1,919
========= ========== ===================
9
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7.8. EARNINGS PER SHARE (IN THOUSANDS):
For the Three Months
For the Nine Months
Ended September 30, Ended September 30,March 31,
2003 2002
2001 2002 2001
---- ---- ---- ------------- ---------
Earnings (loss) used for basic and diluted
earnings per share computation:
Continuing operationscomputation $ 5,8026,343 $ 7,892 $ 20,638 $27,3498,114
========= ======== ========== ==========
Discontinued operations $ -- $ (15) $ 280 $ (48)
========= ======== ========== ==========
Total shares used for basic earnings
per share 17,739 17,210 17,535 17,25917,789 17,322
Dilutive securities, principally
stock options 182 306 205 256126 216
--------- ------- ---------- -------------------
Total weighted average shares used for
diluted earnings per share computation 17,921 17,516 17,740 17,51517,915 17,538
========= ======== ========== ===================
Diluted earnings per share reflect the potential dilution that would
occur if dilutive securities were exercised or converted into common
stock.
8. NEW12
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. RECENT ACCOUNTING PRONOUNCEMENTS:
In MayApril 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities." The
statement amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives) and for
hedging activities under FASB Statements No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement is effective
for contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. In addition, all provisions
of this Statement should be applied prospectively. The provisions of this
Statement that relate to Statement 133 Implementation Issues that have been
effective for fiscal quarters that began prior to June 15, 2003, should
continue to be applied in accordance with their respective effective dates.
The adoption of this Statement is not expected to have a significant impact
on the financial position or results of the operations of the Company.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." The objective of this
interpretation is to provide guidance on how to identify a variable
interest entity ("VIE") and determine when the assets, liabilities,
non-controlling interests and results of operations of a VIE need to be
included in a company's consolidated financial statements. A company that
holds variable interests in an entity will need to consolidate the entity
if the company's interest in the VIE is such that the company will absorb a
majority of the VIE's expected losses and/or receive a majority of the
VIE's expected residual returns, if they occur. FIN 46 also requires
additional disclosures by primary beneficiaries and other significant
variable interest holders. The provisions of this interpretation became
effective upon issuance with respect to VIEs created after January 31, 2003
and to VIEs in which a company obtains an interest after that date. The
provisions of this interpretation apply in the first interim period
beginning after June 15, 2003 (i.e., third quarter of 2003) to VIEs in
which a company holds a variable interest that it acquired before February
1, 2003. The Company is in the process of assessing whether it has an
interest in any VIEs which may require consolidation in the third quarter
of 2003 pursuant to FIN 46. Entities that may be identified as VIEs include
SHS and Origen.
In December 2002, the FASB issued SFAS 145, Rescission148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," which provides guidance on how to
transition from the intrinsic value method of FAS Nos. 4, 44accounting for stock-based
employee compensation under APB 25 to SFAS 123's fair value method of
accounting, if a company so elects, and 64, Amendmentadds interim and annual disclosure.
The Company has elected not to adopt the fair value method of FAS 13,accounting
for stock-based employee compensation but has adopted the disclosure
requirements of SFAS 148.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Technical Corrections asDisclosure Requirements for Guarantees,
Including Indirect Guarantees of AprilIndebtedness of Others." FIN 45 clarifies
disclosures that are required to be made certain guarantees and establishes
a requirement to record a liability at fair value for certain guarantees at
the time of the guarantee's issuance. The disclosure requirements of FIN 45
have been applied in these financial statements. The requirement to record
a liability applies to guarantees issues or modified after December 31,
2002. The provisionsadoption of this Statement related to the rescission of Statement
4 shall be applied in fiscal years beginning after May 15, 2002. The
provisions related to Statement 13 shall be effective for transactions
occurring after May 15, 2002, with early application encouraged. All
other provisions of this Statement shall be effective for financial
statements issued on or after May 15, 2002, with early application
encouraged. Adoption of this statementstandard did not have a significant impact on
the financial position or results of operations of the Company.
13
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED:
In July 2002, the FASB issued FAS Statement No.SFAS 146, Accounting"Accounting for Costs Associated
with Exit or Disposal Activities." The statement requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal
plan. Examples of costs covered by the statement include lease termination
costs and certain employee severance costs that are associated with a with
restructuring, discontinued operation, plant closing or other exit or
disposal activity. The statement is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. The adoption of this
statement isdid not expected to have a significant impact on the financial position or
results of operations of the Company.
1010. CONTINGENCIES
On April 9, 2003, T.J. Holdings, LLC ("TJ Holdings"), a member of
Sun/Forest, LLC ("Sun/Forest") (which, in turn, owns an equity interest in
SunChamp LLC), filed a complaint against the Company, SunChamp LLC, certain
other affiliates of the Company and two directors of Sun Communities, Inc.
in the Superior Court of Guilford County, North Carolina. The complaint
alleges that the defendants wrongfully deprived the plaintiff of economic
opportunities that they took for themselves in contravention of duties
allegedly owed to the plaintiff and purports to claim damages of $13.0
million plus an unspecified amount for punitive damages. The Company
believes the complaint and the claims threatened therein have no merit and
will defend it vigorously.
The Company is involved in various other legal proceedings arising in the
ordinary course of business. All such proceedings, taken together, are not
expected to have a material adverse impact in our results of operations or
financial condition.
14
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis of the consolidated financial condition
and results of operations should be read in conjunction with the consolidated
financial statements and the notes thereto. Capitalized terms are used as
defined elsewhere in this Form 10-Q.
SIGNIFICANT ACCOUNTING POLICIES
The Company had identified significant accounting policies that, as a result of
the judgments, uncertainties, uniqueness and complexities of the underlying
accounting standards and operations involved, could result in material changes
to its financial condition or result of operations under different conditions or
using different assumptions. Details regarding the Company's significant
accounting policies are described fully in the Company's 20012002 Annual Report
filed with the Securities and Exchange Commission on Form 10-K. During the three
and nine months ended September 30, 2002,March 31, 2003, there have been no material changes to the
Company's significant accounting policies that impacted the Company's financial
condition or results of operations.
RESULTS OF OPERATIONS
Comparison of the three months ended September 30,March 31, 2003 and 2002 and 2001
For the three months ended September 30, 2002,March 31, 2003, income before gain from property
dispositions, net and minority interests and
discontinued operations decreased by 23.013.8 percent from $11.2$10.9 million to $8.6$9.4
million, when compared to the three months ended September 30,
2001.March 31, 2002. The decrease
was due to increased revenues of $1.2$3.6 million and a $0.1 million reduction in
loss from equity affiliates offset by increased expenses of $3.7$5.2 million as
described in more detail below.
Income from property increased by $3.8$2.6 million from $34.4$39.2 million to $38.2$41.8
million, or 10.96.6 percent, due to acquisitions ($3.31.2 million) made during 2002 and
rent increases and other community revenues ($0.51.4 million).
Income from affiliates decreased by $1.9 million to a loss of $1.5 million due
to losses at affiliates caused principally by reduced new home sales at SHS and
reduced loan originations and loan loss provisions at Origen. Other income
decreased by $0.7 million from $3.4 million to $2.7 million due primarily to a
decrease in interest income.
Property operating and maintenance expenses increased by $1.0$1.8 million from $7.6$8.4
million to $8.6$10.2 million, or 13.8 percent, primarily21.4 percent. The increase was due to acquisitionsthe expansion
of cable TV services ($0.40.1 million)., increases in property and casualty
insurance costs ($0.2 million), increases in employee benefits costs ($0.2
million), increases in utility costs ($0.3 million), and increase in repair and
maintenance expense ($0.2 million) which resulted from the severe winter.
Acquisitions and consolidation of development properties accounted for $0.6
million of the increase with the remainder, $0.2 million, representing a
reasonable increase in expenses in correlation with the increase in revenues
noted above.
Real estate taxes increased by $0.3$0.5 million from $2.3$2.5 million to $2.6$3.0 million,
or 20.0 percent, due to fourth quarter 2002 acquisitions ($0.10.2 million) and changesdue
to increases in certain assessments.
Property management expenses decreased by $0.1 million representing 1.4 percentassessments and 1.9 percent of income from property in 2002 and 2001, respectively.
11tax rates ($0.3 million).
15
SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS, CONTINUED:
General and administrative expenses decreased by $0.1 million from $1.2 million
to $1.1 million, representing 3.0 percent and 3.4 percent of total revenues in
2002 and 2001, respectively.
Earnings before interest, taxes, depreciation and amortization ("EBITDA", an
alternative financial performance measure that may not be comparable to
similarly titled measures reported by other companies, defined as total revenues
less property operating and maintenance, real estate taxes, property management,
and general and administrative expenses) remained constant at $26.5 million.
EBITDA as a percent of revenues was 67.3 percent in 2002 compared to 69.4
percent in 2001.
Depreciation and amortization increased by $1.6 million from $8.1 million to
$9.7 million, or 18.9 percent, due primarily to the net additional investment in
rental properties.
Interest expense increased by $1.1 million from $7.2 million to $8.3 million, or
15.2 percent, due primarily to an increase in outstanding debt.
Comparison of the nine months ended September 30, 2002 and 2001
For the nine months ended September 30, 2002, income before gain from property
dispositions, net and minority interests decreased by 11.5 percent from $33.4
million to $29.5 million, when compared to the nine months ended September 30,
2001. The decrease was due to increased revenues of $3.8 million offset by
increased expenses of $7.7 million as described in more detail below.
Income from property increased by $10.8 million from $103.5 million to $114.3
million, or 10.4 percent, due to acquisitions ($5.3 million) and rent increases
and other community revenues ($5.5 million).
Income from affiliates decreased from $0.6 million to a loss of $2.6 million due
to losses at affiliates caused principally by reduced new home sales at SHS and
reduced loan originations and loan loss provisions at Origen. Other income
decreased by $3.8 million from $11.3 million to $7.5 million due primarily to a
decrease in interest income.
Property operating and maintenance expenses increased by $2.6 million from $21.9
million to $24.5 million, or 11.9 percent, primarily due to acquisitions ($1.5
million).
Real estate taxes increased by $0.8 million from $6.9 million to $7.7 million
due to acquisitions ($0.35 million) and changes in certain assessments.
Property management expenses decreased by $0.2 million from $2.1 million to $1.9
million representing 1.6 percent and 2.0 percent of income from property in 2002
and 2001, respectively.
12
SUN COMMUNITIES, INC.ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS, CONTINUED:
General and administrative expenses increased by $0.1$0.3 million from $3.5$1.3 million
to $3.6$1.6 million, representing 3.0or 23.1 percent, due primarily to increased Michigan Single
Business taxes ($0.2 million) and 3.0 percentthe timing of total revenues in
2002 and 2001, respectively.
EBITDA increased by $0.6 million from $80.9 million to $81.5 million. EBITDA as
a percent of revenues was 68.4 percent in 2002 compared to 70.2 percent in 2001.payroll taxes ($0.1 million).
Depreciation and amortization increased by $4.0$1.7 million from $24.1$9.1 million to
$28.1$10.8 million, or 16.618.7 percent, due primarily to the net additional investment
in rental properties.
Interest expense increased by $0.3$1.0 million from $23.5$7.8 million to $23.8$8.8 million, or
1.4 percent.
The nine months ended September 30, 2001 also included a $4.3 million gain from
property dispositions, net.
1312.8 percent, due primarily to an increase in outstanding debt.
16
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS, CONTINUED:
SAME PROPERTY INFORMATION
The following table reflects property-level financial information as of and for
the ninethree months ended September 30, 2002March 31, 2003 and 2001.2002. The "Same Property" data
represents information regarding the operation of communities owned as of
January 1, 20012002 and September 30, 2002.March 31, 2003. Site, occupancy, and rent data for those
communities is presented as of the last day of each period presented. The "Total
Portfolio" column differentiates from the "Same Property" column by including
financial information for managed but not owned communities, new development and acquisition communities.
Same Property Total Portfolio
--------------------------- ---------------------------SAME PROPERTY TOTAL PORTFOLIO
----------------------------- -----------------------------
2003 2002 2001 2002 2001
-------- -------- -------- --------2003 2002(2)
----------- ----------- ----------- -----------
Income from property $ 96,38536,011 $ 92,001 $114,282 $103,476
-------- -------- -------- --------34,799 $ 41,755 $ 39,171
----------- ---------- ----------- -----------
Property operating expenses:
Property operating and maintenance 17,800 17,466 24,500 21,8616,781 6,467 10,217 8,351
Real estate taxes 7,149 6,738 7,701 6,894
-------- -------- -------- --------2,733 2,495 3,026 2,552
----------- ----------- ----------- -----------
Property operating expenses 24,949 24,204 32,201 28,755
-------- -------- -------- --------9,514 8,962 13,243 10,903
----------- ----------- ----------- -----------
Property EBITDAnet operating income(3) $ 71,43626,497 $ 67,79725,837 $ 82,08128,512 $ 74,721
======== ======== ======== ========28,268
=========== =========== ============ ===========
Number of operating properties 103 103 117 113109 109 129 116
Developed sites 36,667 36,321 41,394 39,10738,984 38,905 44,125 41,228
Occupied sites 33,690 33,683 37,835 35,95534,986 35,729 38,839 37,770
Occupancy % 93.8%(1) 94.9%(1) 93.2%91.4%(1) 93.9%(1) 89.3%(1) 93.5%(1)
Weighted average monthly rent per site $ 316(1)322(1) $ 301(1)308(1) $ 313(1)321(1) $ 299(1)306(1)
Sites available for development 2,232 2,545 4,258 4,6742,015 2,056 7,463 4,375
Sites planned for development in current year 77 157 229 26596 87 172 609
(1) Occupancy % and weighted average rent relates to manufactured housing sites,
excluding recreational vehicle sites.
(2) Excludes financial information related to properties sold in 2002.
(3) Investors in and analysts following the real estate industry utilize net
operating income ("NOI") as a supplemental performance measure. The Company
considers NOI, given its wide use by and relevance to investors and
analysts, an appropriate supplemental measure to net income because NOI
provides a measure of rental operations and does not factor in
depreciation/amortization and non-property specific expenses such as general
and administrative expenses.
On a same property basis, property EBITDAnet operating income increased by $3.6$0.7
million from $67.8$25.8 million to $71.4$26.5 million, or 5.42.7 percent. Property revenues
increased by $4.4$1.2 million from $92.0$34.8 million to $96.4$36.0 million, or 4.83.4 percent,
due primarily to increases in rents including water and property tax pass
through. Property operating expenses increased by $0.7$0.5 million from $24.2$9.0 million
to $24.9$9.5 million, or 5.6 percent, due primarily to increases in real estate
taxes, repair and maintenance and payroll.
1417
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity demands have historically been, and are
expected to continue to be, distributions to the Company's stockholders and the
Operating Partnership's unitholders, property acquisitions, development and
expansion of properties, capital improvements of properties and debt repayment.
The Company expects to meet its short-term liquidity requirements through its
working capital provided by operating activities and its line of credit, as
described below. The Company considers its ability to generate cash from
operations (anticipated to be approximately $70 million annually) to be adequate
to meet all operating requirements, including recurring capital improvements,
routinely amortizing debt and other normally recurring expenditures of a capital
nature, pay dividends to its stockholders to maintain qualification as a REIT in
accordance with the Internal Revenue Code and make distributions to the
Operating Partnership's unitholders.
The Company plans to invest approximately $25$5 million to $30$10 million annually in
developments consisting of expansions to existing communities and the
development of new communities. The Company expects to finance these investments
by using net cash flows provided by operating activities and by drawing upon its
line of credit.
Furthermore, the Company expects to invest in the range of $40 million to $60
million in the acquisition of properties in 2002,2003, depending upon market
conditions. The Company plans to finance these investments by using net cash
flows provided by operating activities and by drawing upon its line of credit.
Cash and cash equivalents decreasedincreased by $2.7$0.7 million to $1.9$3.3 million at September
30, 2002March 31,
2003 compared to $4.6$2.6 million at December 31, 20012002 because cash used in
investing activities exceeded cash provided by
operating activities exceeded cash used in investing and financing activities.
Net cash provided by operating activities decreased by $5.5$3.3 million to $49.9$15.6
million for the ninethree months ended September 30, 2002March 31, 2003 compared to $55.4$18.9 million for
the ninethree months ended September 30, 2001.March 31, 2002. This decrease was primarily due to
changes in accounts payable and other liabilities decreasing by $5.3$2.8 million and
changes in other assets increasing by $0.7 million offset by an
increase in income before minority interests, depreciation and amortization,
gain from property dispositions, net and discontinued operations of $0.5 million.
The Company's net cash flows provided by operating activities may be adversely
impacted by, among other things: (a) the market and economic conditions in the
Company's current markets generally, and specifically in metropolitan areas of
the Company's current markets; (b) lower occupancy and rental rates of the
Company's properties (the "Properties"); (c) increased operating costs,
including insurance premiums, real estate taxes and utilities, that cannot be
passed on to the Company's tenants; and (d) decreased sales of manufactured
homes. See "Risk Factors""Factors That May Affect Future Results" in the Company's Registration StatementAnnual
Report on S-3,
Amendment No. 1 (Registration No. 333-96769).
15Form 10-K for the year ended December 31, 2002.
18
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED:
In 2002,2003, the Company closed on a $139.4 million collateralized five year
variable rate (2.5% at September 30, 2002) debt facility with an option to
extend an additional five years at a variable rate debt facility, which is
convertible to a five to ten year fixed rate loan but not to exceed a total term
of fifteen years.
In July 2002, the Company refinancedincreased its existing line of credit to an $85$105 million
facility, which matures in July 2005, with a one-year optional extension. At
September 30, 2002,March 31, 2003, the average interest rate of outstanding borrowings under the
line of credit was 2.66%2.14 percent with $75$76.5 million outstanding and $10$28.5 million
available to be drawn under the refinanced facility. The line of credit facility contains
various leverage, debt service coverage, net worth maintenance and other
customary covenants all of which the Company was in compliance with at September 30, 2002.March 31,
2003.
In 1998, certain directors, employees and consultants of the Company purchased
approximately $25.5 million of newly issued shares of common stock of the
Company and common OP Units in Sun Communities Operating Limited Partnership in
accordance with the Company's 1998 Stock Purchase Plan (the "Purchase Plan").
The participants in the Purchase Plan financed these purchases by obtaining
personal loans from Bank One, N.A. (the "Bank") and the Company guaranteed the
repayment of all such loans. The participants have agreed to fully indemnify the
Company against all liabilities arising under such guaranty (the "Guaranty")
(the principal balance of which was approximately $22.7 million at September 30,
2002), which reimbursement obligations are secured by approximately 654,000 OP
Units valued at approximately $22.2 million (based on the closing sales price of
the Company's common stock on November 7, 2002)March 31,
2003).
The Guaranty contains, amongAmong other usual commercial provisions, the Guaranty requires that the Company
comply with certain financial covenants in respect of the Company.covenants. These covenants were initially designed
to be identical in all material respects with the financial covenants imposed on
the Company under its line of credit facility. Since 1998, as the covenants in
the Company's then applicable line of credit facility changed, the Guaranty has
also been similarly amended to remain consistent. In July 2002, the Company
entered into a replacement line of credit facility; however, conforming
amendments to the Guaranty were not made, resulting in differing and
inconsistent financial covenants in the line of credit facility as compared to
the Guaranty. As a consequence, as of September 30, 2002, the Company was not in
compliance with certain of the financial covenants contained in the Guaranty
(the "Differing Financial Covenants"). Because thisit was not the intention of the
parties to impose disparate requirements on the Guaranty and the Company's line
of credit, the Bank has agreed in writing that it would not declare a default, or
acceleratewaived any breach of the indebtedness due, under the Guaranty arising solely as a result
of the Company's non-compliance with the Differing Financial Covenants contained in the
Guaranty so long
as the Company remains in compliance with all of the terms and conditions of its
line of credit facility. 16As of March 31, 2003, the Company was in compliance
with the terms and conditions of its line of credit facility and, as a result,
the Company was in compliance with the terms and conditions of the Guaranty.
Section 402 of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") states
that it is "unlawful for any issuer...directly or indirectly, including through
any subsidiary, to extend or maintain credit, to arrange for the extension of
credit, or to renew an extension of credit, in the form of a personal loan to or
for any director or executive officer (or equivalent thereof) of that issuer."
Section 402 of the Sarbanes-Oxley Act provides an exception for certain
extensions of credit which are "maintained by the issuer on the date of
enactment of the Sarbanes-Oxley Act [July 30, 2002]..., provided that there is
no material modification to any term of any such extension of credit or any
renewal of any such extension of credit on or after that date of enactment."
Jaffe, Raitt, Heuer & Weiss, P.C. has delivered a reasoned opinion to the
Company to the effect that, based on various assumptions and qualifications set
forth in the opinion, a court could reasonably find that Section 402 of the
Sarbanes-Oxley Act does not apply to the waiver letter issued by the Bank and
that, even if a court determines that Section 402 applies to the Bank's waiver
letter, a court could reasonably conclude that the Guaranty fits within the
exception under Section 402 for extensions of credit maintained by the issuer
prior to July 30, 2002. Arthur A. Weiss, a stockholder of Jaffe, Raitt, Heuer &
Weiss, P.C., the Company's regular outside counsel, is a director of the Company
and received a personal loan to purchase common OP Units under the Purchase
Plan.
There is no case law directly on point, and we cannot assure you that a court
would not decide differently from the views expressed in counsel's opinion and
such opinion represents only the best judgment of counsel and is not binding in
the courts. It is unclear what the consequences to the Company would be if a
court determined the Bank's waiver letter constituted a material modification
of the terms of the Guaranty in violation of Section 402 of the Sarbanes-Oxley
Act and the Securities Exchange Act of 1934, as amended.
19
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED:
The Company's primary long-term liquidity needs are principal payments on
outstanding indebtedness. At September 30, 2002,March 31, 2003, the Company's outstanding
contractual obligations were as follows:
PAYMENTS DUE BY PERIOD
(IN THOUSANDS)
---------------------------------------------------------------------------------------------------------------------
CONTRACTUAL CASH OBLIGATIONS(1) TOTAL DUE 1 YEAR 2-3 YEARS 4-5 YEARS AFTER 5 YEARS
--------- -------------- --------- --------- -------------
Bridge loan $ 48,000 $ 48,000
Line of credit 76,500 $ 75,000 $ 75,00076,500
Collateralized term loan 42,24642,062 670 $ 647 $ 1,438 40,1611,489 39,903
Collateralized term loan 139,428 $ 139,428- FNMA 152,363 $152,363
Senior notesnotes(2) 285,000 85,000 65,000(2) 135,00065,000 35,000 100,000
Mortgage notes, other 40,774 658 9,204 9,306 21,60658,604 1,162 22,899 13,274 21,269
Capitalized lease obligations 25,575 15,902 9,6739,804 9,804
Redeemable Preferred OP Units 48,458 12,675 35,783
--------- ---------58,148 3,564 35,782 18,802
-------- -------- ---------
$ 656,481 $ 102,207 $ 85,315 $137,142 $ 331,817
========= =========-------- -------- --------
$730,481 $148,200 $125,170 $183,479 $273,632
======== ======== ================= ======== ========
(1) As noted above, the Company is the guarantor of $22.7 million in
personal bank loans, maturing in 2004, made to the Company's directors,
employees and consultants for the purpose of purchasing shares of
Company common stock or Operating Partnership OP Units pursuant to the
Purchase Plan. The Company is obligated under the Guaranty only in the
event that one or more of the borrowers cannot repay their loan when
due. This contingent liability is not reflected on the Company's
balance sheet.
(2) The provisions of the callable/redeemable $65 million notes are such
that the maturity date will likely be 2005 if the 10 year Treasury rate
is greater than 5.7 %percent on May 16, 2005. The maturity is reflected
in the above table based on that assumption.
1720
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED:
The Company anticipates meeting its long-term liquidity requirements, such as
scheduled debt maturities, large property acquisitions, Operating Partnership
unit redemptions and potential additional capital contributions to affiliates
(see FootnoteNote 2 Investments in and Advances to Affiliates), through the issuance of
debt or equity securities, including equity units in the Operating Partnership,
or from selective asset sales. The Company has maintained investment grade
ratings with Fitch ICBA, Moody's Investor Service and Standard & Poor's, which facilitates
access to the senior unsecured debt market. Since 1993, the Company has raised,
in the aggregate, $276.6 millionnearly $1.0 billion from the sale of shares of its common stock, (including 332,000 shares of common stock sold during
the nine months ended September 30, 2002 at an average price of $41 raising
$13.2 million in equity), $93.3 million from the
sale of OP units in the Operating Partnership and $569 million from the issuance of secured and
unsecured debt securities. In addition, at September 30, 2002, eighty-twoMarch 31, 2003, ninety-four of the
Properties were unencumbered by debt, therefore, providing substantial financial
flexibility. The ability of the Company to finance its long-term liquidity
requirements in such manner will be affected by numerous economic factors
affecting the manufactured housing community industry at the time, including the
availability and cost of mortgage debt, the financial condition of the Company,
the operating history of the Properties, the state of the debt and equity
markets, and the general national, regional and local economic conditions. See
"Risk Factors""Factors That May Affect Future Results" in the Company's Registration StatementAnnual Report on S-3, Amendment No. 1
(Registration No. 333-96769).Form
10-K for the year ended December 31, 2002. If the Company is unable to obtain
additional equity or debt financing on acceptable terms, the Company's business,
results of operations and financial condition will be harmed.
At September 30, 2002,March 31, 2003, the Company's debt to total market capitalization
approximated 41.444.1 percent (assuming conversion of all Common OP Units to shares
of common stock). The debt has a weighted average maturity of approximately 5.14.4
years and a weighted average interest rate of 5.65.3 percent.
Capital expenditures for the ninethree months ended September 30,March 31, 2003 and 2002 and 2001 included
recurring capital expenditures of $4.9$1.0 million and $3.7$1.0 million, respectively.
Net cash used in investing activities increaseddecreased by $104.0$15.3 million to $136.4$12.0
million compared to $32.4$27.3 million provided byused in investing activities for the ninethree
months ended September 30, 2001.March 31, 2002. This increasedecrease was due to a $20.2$36.0 million increasedecrease
in rental property acquisition activities, repayments from financing
notes receivable, net decreasingoffset by $53.8 million, a $14.0$3.3 million decrease in
proceeds related to property dispositions, and an increasea decrease of $16.0$12.3 million in
investment in and advances to affiliates.affiliates (primarily due to the write-off of the
investment in Origen in December 2002) and a $5.1 million decrease in repayments
of and investment in notes receivable, net.
Net cash provided by financing activities increaseddecreased by $121.5$11.5 million to $83.9
million from $37.6$2.9
million used in financing activities from $8.6 million provided by financing
activities for the ninethree months ended September 30, 2001.March 31, 2002. This increasedecrease was
primarily due to reduction of borrowings on line of credit by $18.5 million,
proceeds from notes
payable, netissuance of deferred financing costs, of $137.4common stock decreasing by $1.9 million and a $60.7$0.9
million increase in distributions, offset by a $9.8 million reduction of
repayments on notes payable and other debt and proceeds from
issuance of common stock increasing by $20.3 million including reduced treasury
stock purchases, offset by a $95.0 million increase in repayments on line of
credit, net and a $1.9 million increase in distributions.
18debt.
21
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OTHER
FundsSUPPLEMENTAL MEASURE
Investors in and analysts following the real estate industry utilize funds from
operations ("FFO") as a supplemental performance measure. While the Company
believes net income (as defined by generally accepted accounting principles) is
the most appropriate measure, it considers FFO, given its wide use by and
relevance to investors and analysts, an appropriate supplemental measure. FFO is
defined by the National Association of Real Estate Investment Trusts ("NAREIT")
as net income (computed in accordance with generally accepted accounting
principles) excluding gains (or losses) from sales of property, plus rental
property depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Industry analysts consider FFO to be an
appropriate supplemental measure of the operating performance of an equity REIT
primarily because the computation of FFO excludes historical cost depreciation
as an expense and thereby facilitates the comparison of REITs which have
different cost bases in their assets. Historical cost accounting for real estate
assets implicitly assumes that the value of real estate assets diminishes
predictably over time, whereas real estate values have instead historically
risen or fallen based upon market conditions. FFO does not represent cash flow
from operations as defined by generally accepted accounting principles and is a
supplemental measure of performance that does not replace net income as a
measure of performance or net cash provided by operating activities as a measure
of liquidity. In addition, FFO is not intended as a measure of a REIT's ability
to meet debt principal repayments and other cash requirements, nor as a measure
of working capital. The following table calculatesreconciles net income to FFO for both basic and diluted purposes for the
periods ended September 30,March 31, 2003 and 2002 and 2001 (in thousands):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,2003 2002
2001 2002 2001
------------ ----------- ----------- ------------------- --------
Income from continuing operationsNet income $ 5,8026,343 $ 7,892 $ 20,638 $ 27,349
FFO contributed by discontinued operations -- 32 11 92
Deduct gain from8,114
Adjustments:
Depreciation of rental property dispositions, net -- -- -- (4,275)
Add:
Minority interest in earnings to
common OP Unit holders 846 1,217 3,055 4,20510,509 9,041
Valuation adjustment (1) 487214 --
487Allocation of SunChamp losses (2) 850 --
Depreciation and amortization, netIncome allocated to Common OP units 910 1,176
(Gain) on sale of corporate office depreciation 9,589 8,048 27,913 23,870
------------ ----------- ----------- -----------
Funds from operationsproperties -- (269)
-------- -------
FFO $ 16,72418,826 $ 17,189 $ 52,104 $ 51,241
============ =========== =========== ===========18,062
======== ========
Weighted average common shares shares/OP Units outstanding used for basic per
share/unit data 20,323 19,863 20,126 19,935
Dilutive securities:
Stock options and awards 182 306 205 243
------------ ----------- ----------- -----------
Weighted average common shares and OP
Units used for diluted per share/unit data 20,505 20,169 20,331 20,178
============ =========== =========== ===========units outstanding:
Basic 20,342 19,921
======== ========
Diluted common shares and OP Units at
end of period 20,510 20,179 20,533 20,116
============ =========== =========== ===========20,468 20,137
======== ========
1922
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OTHER,SUPPLEMENTAL MEASURE, CONTINUED:
(1) The Company entered into three interest rate swaps forand an aggregate of $75
million, thereby substantially fixing for periods of 5 to 7 years rates which
were formerly floating.interest rate cap
agreement. The valuation adjustment reflects the theoretical noncash profit and
loss were those swapshedging transactions terminated at the balance sheet date. As
the Company has no expectation of terminating the swapstransactions prior to
maturity, the net of these noncash valuation adjustments will be zero at the
various maturities. As any imperfections related to hedging correlation in these
swaps is reflected currently in cash as interest, the valuation adjustments are
excluded from Funds From Operations. The valuation adjustment is included in
interest expense.
Special Note Regarding Forward-Looking Statements(2) The Company acquired the equity interest of another investor in SunChamp in
December 2002. Consideration consisted of a long-term note payable at net book
value. Although the adjustment for the allocation of the SunChamp losses is not
reflected in the accompanying financial statements, management believes that it
is appropriate to provide for this adjustment because the Company's payment
obligations with respect to the note are subordinate in all respects to the
return of the members' equity (including the gross book value of the acquired
equity) plus a preferred return. As a result, the losses that are allocated to
the Company under generally accepted accounting principles are effectively
reallocated to the note for purposes of calculating Funds from Operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q contains various "forward-looking statements" within the meaning
of the Securities Act of 1933 and the Securities Exchange Act of 1934, and the
Company intends that such forward-looking statements be subject to the safe
harbors created thereby. The words "may", "will", "expect", "believe",
"anticipate", "should", "estimate", and similar expressions identify
forward-looking statements. These forward-looking statements reflect the
Company's current views with respect to future events and financial performance,
but are based upon current assumptions regarding the Company's operations,
future results and prospects, and are subject to many uncertainties and factors
relating to the Company's operations and business environment which may cause
the actual results of the Company to be materially different from any future
results expressed or implied by such forward-looking statements. Please see the
section entitled "Risk Factors""Factors That May Affect Future Results" in the Company's
S-3, Amendment No. 1
(Registration No. 333-96769)Annual Report on Form 10-K for the year ended December 31, 2002 for a list of
uncertainties and factors.
Such factors include, but are not limited to, the following: (i) changes in the
general economic climate; (ii) increased competition in the geographic areas in
which the Company owns and operates manufactured housing communities; (iii)
changes in government laws and regulations affecting manufactured housing
communities; and (iv) the ability of the Company to continue to identify,
negotiate and acquire manufactured housing communities and/or vacant land which
may be developed into manufactured housing communities on terms favorable to the
Company. The Company undertakes no obligation to publicly update or revise any
forward-looking statements whether as a result of new information, future
events, or otherwise.
Recent Accounting Pronouncements:
In June 2001, the Financial Accounting Standards Board ("FASB") approved
Statement of Financial Accounting Standards ("SFAS") 141, "Business Combinations
and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires,
among other things, that the purchase method of accounting for business
combinations be used for all business combinations initiated after September 30,
2001. SFAS 142 addresses the accounting for goodwill and other intangible assets
subsequent to their acquisition. SFAS 142 requires, among other things, that
goodwill and other indefinite-lived intangible assets no longer be amortized and
that such assets be tested for impairment at least annually. SFAS 142 is
effective for fiscal years beginning after December 15, 2001. The adoption of
these statements did not have a significant impact on the financial position or
results of operations of the Company.
2023
SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OTHER, CONTINUED:
Recent Accounting Pronouncements, continued:
In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This Statement supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, and the accounting and reporting provisions of APB Opinion No.
30, Reporting the Results of Operations -- Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a business (as
previously defined in that Opinion). The provisions of this SFAS 144 are
effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years, with early
application encouraged. The provisions of this standard generally are to be
applied prospectively. The adoption of this statement requires all dispositions
of properties to be disclosed as discontinued operations in the period in which
they occur and prior periods to be reclassified to conform with the current
period presentation. The Company sold one property in the first quarter, which
has been presented accordingly. This implementation of the statement did not
have any other material effect on the Company.
In May 2002, the FASB issued SFAS 145, Rescission of FAS Nos. 4, 44 and 64,
Amendment of FAS 13, and Technical Corrections as of April 2002. The provisions
of this statement related to the rescission of Statement 4 shall be applied in
fiscal years beginning after May 15, 2002. The provisions related to Statement
13 shall be effective for transactions occurring after May 15, 2002, with early
application encouraged, All provisions of this Statement shall be effective for
financial statements issued on or after May 15, 2002, with early application
encouraged. Adoption of this statement did not have a significant impact on the
financial position or results of operations of the Company.
In July 2002, the FASB issued FAS Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. The statement requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the statement include lease termination costs and
certain employee severance costs that are associated a with restructuring,
discontinued operation, plant closing, or other exit or disposal activity. The
statement is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The adoption of this statement is not
expected to have a significant impact on the financial position or results of
operations of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's principal market risk exposure is interest rate risk. The Company
mitigates this risk by maintaining prudent amounts of leverage, minimizing
capital costs and interest expense while continuously evaluating all available
debt and equity resources and following established risk management policies and
procedures, which include the periodic use of derivatives. The Company's primary
strategy in entering into derivative contracts is to minimize the variability
that changes in interest rates could have on its future cash flows. The Company
generally employs derivative instruments that effectively convert a portion of
its variable rate debt to fixed rate debt. The Company does not enter into
derivative instruments for speculative purposes.
21
SUN COMMUNITIES, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK, CONTINUED:
The Company's variable rate debt totals $221.2$297.4 million and $131.8 million as of
September 30,March 31, 2003 and 2002, respectively, which bears interest at various
LIBOR/DMBS rates. If LIBOR/DMBS increased or decreased by 1.01.00 percent during
the ninethree months ended September 30,March 31, 2003 and 2002, and
2001, the Company believes its
interest expense would have increased or decreased by approximately $1.4$3.0 million
and $0.6$1.2 million based on the $143.6$300.3 million and $56.1$116.1 million average balance
outstanding under the Company's variable rate debt facilities for the ninethree
months ended September 30,March 31, 2003 and 2002, and
2001, respectively.
Additionally, the Company had $129.1$28.1 million and $90.2$35.2 million LIBOR based
variable rate mortgage and other notes receivables as of September 30,March 31, 2003 and
2002, and
2001.respectively. If LIBOR increased or decreased by 1.0 percent during the
ninethree months ended SeptemberMarch 31, 2003 and 2002, and 2001, the Company believes interest income
would have increased or decreased by approximately $0.7$0.3 million and $0.9$0.3 million
based on the $74.1$27.8 million and $90.6$34.7 million average balance outstanding on all
variable rate notes receivables for the ninethree months ended September 30,March 31, 2003 and
2002, and 2001,
respectively.
In September 2002, theThe Company has entered into three separate interest rate swap agreements effectively fixing, in the aggregate, $75 million of the Company's
variableand an
interest rate borrowings for a period commencing April 2003.cap agreement. One of these swap agreements fixes $25 million of
variable rate borrowings at 4.93%4.93 percent for the period April 2003 through July
2009, another of these swap agreements fixes $25 million of variable rate
borrowings at 5.37%5.37 percent for the period April 2003 through July 2012 and the
third swap agreement, which is only effective for so long as LIBOR is 7%7 percent
or less, fixes $25 million of variable rate borrowings at 3.97%3.97 percent for the
period April 2003 through July 2007. The interest rate cap agreement is
effective April 2003 at a cap rate of 9.49 percent. The notional increases over
three months from $12.9 million to a final notional of $152.4 million and has a
termination date of April 3, 2006.
24
SUN COMMUNITIES, INC.
ITEM 4. CONTROLS AND PROCEDURES
(a) The Chief Executive Officer, Gary A. Shiffman, and Chief Financial
Officer, Jeffrey P. Jorissen, evaluated the effectiveness of the
Company's disclosure controls and procedures as of a date within 90
days of filing this quarterly report (the "Evaluation Date"), and
concluded that, as of the Evaluation Date, the Company's disclosure
controls and procedures were effective to ensure that information the
Company is required to disclose in its filings with the Securities and
Exchange Commission under the Securities Exchange Act of 1934 (the
"Exchange Act") is recorded, processed, summarized and reported, within
the time periods specified in the Commission's rules and forms, and to
ensure that information required to be disclosed by the Company in the
reports that it files under the Exchange Act is accumulated and
communicated to the Company's management, including its principal
executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosure.
(b) There were no significant changes in the Company's internal controls or
in other factors that could significantly affect these controls
subsequent to the Evaluation Date, including any corrective actions
with regard to significant deficiencies and material weaknesses.
22
SUN COMMUNITIES, INC.
PART II
ITEM 6.(a) --- EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
See the attached Exhibit Index.
ITEM 6.(b) --- REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the period covered by
this Form 10-Q.
2325
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 19, 2002May 15, 2003
SUN COMMUNITIES, INC.
BY: /s/ Jeffrey P. Jorissen
------------------------------------------------------------------------------------------
Jeffrey P. Jorissen, Chief Financial
Officer and Secretary
(Duly authorized officer and principal
financial officer)
2426
CERTIFICATIONS
(As Adopted Under Section 302 of the Sarbanes-Oxley Act of 2002)
I, Gary A. Shiffman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Sun Communities,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 19, 2002Dated: May 15, 2003 /s/ Gary A. Shiffman
------------------------------------------------------------------------------------
Gary A. Shiffman, Chief Executive Officer
2527
CERTIFICATIONS
(As Adopted Under Section 302 of the Sarbanes-Oxley Act of 2002)
I, Jeffrey P. Jorissen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Sun Communities,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 19, 2002Dated: May 15, 2003
/s/ Jeffrey P. Jorissen
-----------------------------------------------------------------------------------
Jeffrey P. Jorissen, Chief Financial Officer
2628
SUN COMMUNITIES, INC.
EXHIBIT INDEX
Exhibit No. Description
10.1 First Amendment to Master Credit FacilityRegistration Rights Agreement dated as of
August 29, 2002, by and between Sun Secured Financing LLC,
Aspen-Ft. Collins Limited Partnership, Sun Secured Financing
Houston Limited Partnership and ARCS Commercial Mortgage Co.,
L.P.
10.2 First Amendment to Employment Agreement, dated as of July 15,
2002, by and between Sun Communities, Inc. and Gary A. Shiffman
10.3 Second Amended and Restated Promissory Note (Secured), dated as
of July 15, 2002, made by Gary A. Shiffman in favor of Sun Communities
Operating Limited Partnership, 10.4 First AmendedSun Communities, Inc., Lehman
Brothers Inc. and Restated Promissory Note (Unsecured),A.G. Edwards & Sons, Inc. dated as
of July 15, 2002, made by Gary A. Shiffman in favor ofApril 11,
2003
10.2 Purchase Agreement between Sun Communities Operating Limited
Partnership 10.5 First Amended and Restated Promissory Note (Secured)Lehman Brothers Inc., on behalf of the
Initial Purchasers, dated as of
July 15, 2002, made by Gary A. Shiffman in favor of Sun
Communities Operating Limited Partnership
10.6 Second Amended and Restated Promissory Note (Unsecured), dated as
of July 15, 2002, made by Gary A. Shiffman in favor of Sun
Communities Operating Limited Partnership
10.7 Second Amended and Restated Promissory Note (Secured), dated as
of July 15, 2002, made by Gary A. Shiffman in favor of Sun
Communities Operating Limited PartnershipApril 8, 2003
99.1 Certification pursuant to 18 U.S.C.U.S.C Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
27