SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003.2004.
OR
[ ] Transition pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
COMMISSION FILE NUMBER 1-12616
SUN COMMUNITIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Maryland 38-2730780
(State of Incorporation) (I.R.S. Employer Identification No.)
27777 Franklin RoadRd.
Suite 200
Southfield, Michigan 48034
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (248) 208-2500
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of shares of Common Stock, $.01 par value per share, outstanding
as of March 31, 2003: 18,107,2752004: 19,049,499
SUN COMMUNITIES, INC.
INDEX
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)
PAGES
-----
PART I
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets as of March 31, 2004 and
December 31, 2003 3
Consolidated Statements of Income for the three months
ended March 31, 2004 and 2003 4
Consolidated Statements of Comprehensive Income for the three
months ended March 31, 2004 and 2003 5
Consolidated Statements of Cash Flows for the three months
ended March 31, 2004 and 2003 6
Notes to Consolidated Financial Statements 7-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-22
Item 3. Quantitative and Qualitative Disclosures about Market Risk 23
Item 4. Controls and Procedures 24
PART II
Item 2.(A) Changes in Securities and Use of Proceeds 25
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
MARCH 31, 2003 AND2004 and DECEMBER 31, 2002
(IN2003
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
ASSETS(UNAUDITED)
2004 2003
2002
--------------- ------------------------ -----------
ASSETS
Investment in rental property, net $ 997,1931,006,253 $ 999,3601,010,484
Cash and cash equivalents 3,339 2,664
Notes and other receivables 56,768 56,32925,588 24,058
Inventory of manufactured homes 21,109 17,236
Investment in and advances to affiliates 72,405 67,719affiliate 50,460 50,667
Notes and other receivables 63,960 74,828
Other assets 37,336 37,904
--------------- -------------46,361 44,301
----------- -----------
Total assets $ 1,167,0411,213,731 $ 1,163,976
=============== =============1,221,574
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Line of credit $ 76,50097,000 $ 63,00099,000
Debt 595,833 604,373
Accounts payable and accrued expenses 13,809 16,120
Deposits and other668,946 674,328
Other liabilities 9,801 8,461
--------------- -------------31,015 24,833
----------- -----------
Total liabilities 695,943 691,954
--------------- -------------796,961 798,161
----------- -----------
Minority interests 155,857 152,490
--------------- -------------
Stockholders' equity:95,842 96,803
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 10,000 shares authorized; no shares- -
authorized, none issued and outstanding -- --
Common stock, $.01 par value, 100,000 shares
authorized; 18,309authorized, 19,251 and 18,31119,192 issued
in 2004 and outstanding for 2003, and 2002, respectively 183 183192 192
Paid-in capital 420,599 420,683
Officers'447,546 446,211
Officer's notes (10,632) (10,703)(10,136) (10,299)
Unearned compensation (8,301) (8,622)(7,016) (7,337)
Accumulated other comprehensive loss (2,290) (1,851)earnings (2,777) (1,294)
Distributions in excess of accumulated earnings (77,934) (73,774)(100,497) (94,479)
Treasury stock, at cost, 202 shares (6,384) (6,384)
--------------- ------------------------ -----------
Total stockholders' equity 315,241 319,532
--------------- -------------320,928 326,610
----------- -----------
Total liabilities and stockholders' equity $ 1,167,0411,213,731 $ 1,163,976
=============== =============1,221,574
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
3
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
AND 2002
(IN(AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
2004 2003
2002
--------------- -------------------------- -----------
Revenues:REVENUES
Income from rental property $ 41,75542,868 $ 39,171
Other41,013
Revenue from home sales 3,974 4,114
Ancillary revenues, net 597 441
Interest and other income 2,942 1,919
--------------- ---------------2,122 2,398
----------- -----------
Total revenues 44,697 41,090
--------------- ----------------
Expenses:49,561 47,966
----------- -----------
COSTS AND EXPENSES
Property operating and maintenance 10,217 8,35110,228 10,102
Cost of home sales 3,125 2,643
Real estate taxes 3,026 2,552
Property management 754 758
General3,166 2,937
Selling, general and administrative 1,619 1,3194,236 3,786
Depreciation and amortization 10,769 9,11311,283 10,612
Interest 8,760 7,846
--------------- ---------------9,265 8,823
----------- -----------
Total expenses 35,145 29,939
--------------- ---------------41,303 38,903
----------- -----------
Income before lossequity income (loss) from equity affiliates,affiliate,
discontinued operations, and minority interests and discontinued8,258 9,063
Equity income (loss) from affiliate 200 (63)
----------- -----------
Income from continuing operations 9,552 11,151
Loss from equity affiliates (171) (222)
--------------- ---------------
Income before 8,458 9,000
minority interests and discontinued operations 9,381 10,929
Less income allocated to minority interests:
Preferred OP Units 2,179 2,128 1,919
Common OP Units and others 910 1,176
--------------- ---------------709 863
----------- -----------
Income from continuing operations 6,343 7,8345,570 6,009
Income from discontinued operations -- 280
--------------- ---------------- 334
----------- -----------
Net income $ 5,570 $ 6,343
$ 8,114
=============== ========================== ===========
Weighted average common shares outstanding:
Basic 18,702 17,789
17,322
=============== ========================== ===========
Diluted 18,864 17,915
17,538
=============== ========================== ===========
Basic earnings per share:
Continuing operations $ 0.360.30 $ 0.450.34
Discontinued operations --- 0.02
---------------- -------------------------- -----------
Net income $ 0.30 $ 0.36
$ 0.47
================ ========================== ===========
Diluted earnings per share:
Continuing operations $ 0.350.30 $ 0.440.33
Discontinued operations --- 0.02
---------------- --------------------------- -----------
Net income $ 0.30 $ 0.35
$ 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, 20032004 AND 20022003
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
2004 2003
2002
------ -------------- --------
Net income $6,343 $8,114$ 5,570 $ 6,343
Unrealized lossesloss on interest rate swaps (1,483) (439)
--
------ ------------- -------
Comprehensive income $5,904 $8,114
====== ======$ 4,087 $ 5,904
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
5
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
AND 2002
(IN(AMOUNTS IN THOUSANDS)
(UNAUDITED)
2004 2003
2002
------------- --------------------- -------
Cash flows from operating activities:CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,3435,570 $ 8,1146,343
Adjustments to reconcile net income to net cash provided by operating activities:
Income allocated to minority interests 910 1,176
(Income)709 863
Income from discontinued operations -- (280)
Operating income included in discontinued operations -- 11allocated to minority interests - 47
Depreciation and amortization 10,769 9,11311,283 10,612
Depreciation allocated to income from discontinued operations - 157
Amortization of deferred financing costs 483 318
247Equity (income) loss from affiliate (200) 63
Increase in inventory and other assets (4,907) (1,745) (1,271)
Increase (decrease) in accounts payable and other liabilities 6,182 (971)
1,775
------------- --------------------- -------
Net cash provided by operating activities 15,624 18,885
------------- ------------
Cash flows from investing activities:19,120 15,687
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in rental properties (9,379) (6,708) (42,728)
Proceeds related to property dispositions -- 3,288
Investments in notes receivable, net (439) --
Investment in and advances to affiliates (4,937) 7,380
Repaymentsaffiliate 489 (5,000)
Sale of installment loans on manufactured homes 12,325 -
Increase in notes receivable and officers' notes, net -- 4,744
Officers' notes 71 --
------------- ------------(1,294) (368)
--------- -------
Net cash used inprovided by (used in) investing activities (12,013) (27,316)
------------- ------------
Cash flows from financing activities:2,141 (12,076)
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock and OP units, net -- 1,8911,312 -
Borrowings (repayments) on line of credit, net (2,000) 13,500 32,000
Repayments on notes payable and other debt, net (5,428) (4,370) (14,227)
Payments for deferred financing costs (518) (83)
--
Distributions (13,097) (11,983)
(11,095)
------------- --------------------- -------
Net cash provided by (used in)used in financing activities (19,731) (2,936)
8,569
------------- --------------------- -------
Net increase in cash and cash equivalents 1,530 675 138
Cash and cash equivalents, beginning of period 24,058 2,664
4,587
------------- --------------------- -------
Cash and cash equivalents, end of period $ 25,588 $ 3,339
$ 4,725
============= ============
Supplemental Information:========= =======
SUPPLEMENTAL INFORMATION:
Cash paid for interest including capitalized amounts of $664$216 and $675$664 for
the three months ended March 31, 20032004 and 2002,2003, respectively $ 7,3717,271 $ 5,9777,371
Noncash investing and financing activities:
Debt assumed for rental properties $ -- $ 6,813
Issuance of partnership units for rental properties $ -- $ 4,500
Issuance of partnership units to retire capitalized lease obligations $ 4,725 $ 4,170
Unrealized (losses) on interest rate swaps $ --(1,483) $ (439)
The accompanying notes are an integral part of the consolidated financial
statements.
6
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
These unaudited condensed consolidated financial statements of Sun
Communities, Inc., a Maryland corporation, (the "Company") and all
majority-owned and controlled subsidiaries including Sun Communities
Operating Limited Partnership (the "Operating Partnership"), SunChamp LLC
("SunChamp"), and Sun Home Services, Inc. ("SHS"), have been prepared
pursuant to the Securities and Exchange Commission ("SEC") rules and
regulations and should be read in conjunction with the consolidated
financial statements and notes thereto of the Company included in the
Annual Report on Form 10-K for the year ended December 31, 2002.2003. The
following notes to consolidated financial statements present interim
disclosures as required by the SEC. The accompanying consolidated
financial statements reflect, in the opinion of management, all
adjustments necessary for a fair presentation of the interim financial
statements. All such adjustments are of a normal and recurring nature.
Certain reclassifications have been made to prior periods' financial
statements in order to conform with current period presentation.
2. INVESTMENTS IN AND ADVANCES TO AFFILIATES:
Sun Home Services, Inc. ("SHS") sells and rents new and used homesRENTAL PROPERTY:
The following summarizes rental property (amounts in our
communities, manages a golf course, and provides activities and other
services and facilities for our residents. Through Sun Communities
Operating Limited Partnership (the "Operating Partnership"), the Company
owns one hundred percent (100%) of the outstanding preferred stock of
SHS, is entitled to ninety-five percent (95%) of the operating cash flow,
and accounts for its investment utilizing the equity method of
accounting. The common stock is owned by one officer of the Company and
the estate of a former officer of the Company who collectively are
entitled to receive five percent (5%) of the operating cash flow.
Bingham Financial Services Corporation ("BFSC") was formed by Sun in 1997
in response to demand for financing from purchasers and residents in the
Company's communities. As BFSC's business developed, its objectives and
opportunities expanded and the Company concluded that its business could
be operated and grown more effectively as a separate public entity.
BFSC's initial public offering occurred in November 1997. The Company has
continued to provide financial support to BFSC. In December 2001, the
Company, through SHS, made a $15 million equity investment in a newly
formed company Origen Financial, L.L.C., that was merged with Origen
Financial, Inc., subsidiary of BFSC, as part of the recapitalization of
BFSC. As a result of this equity investment, the Company owns
approximately a thirty percent (30%) interest in the surviving company
("Origen"), which company holds all of the operating assets of BFSC and
its subsidiaries. The Company wrote-off its remaining 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
adequacy of the collateral for such loans. This financing consists of a
$48 million line of credit and a $10 million term loan of which the
Company's commitment is $35.5 million ($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 700
basis points over LIBOR, with a minimum interest rate of 11 percent and a
maximum interest rate of 15 percent. Of the Company's $35.5 million
participation, $18 million is subordinate in all respects to the first
$40.0 million funded under the facility by the three participants. This
line of credit is collateralized by a security interest in Origen's
assets, which is subordinate in all respects to all institutional
indebtedness of Origen, and a guaranty and pledge of assets by BFSC.thousands):
MARCH 31, DECEMBER 31,
2004 2003
----------- -----------
Land $ 104,548 $ 104,541
Land improvements and buildings 1,054,164 1,048,576
Furniture, fixtures, and equipment 32,881 33,080
Land held for future development 32,360 31,409
Property under development 1,538 2,799
----------- -----------
1,225,491 1,220,405
Less accumulated depreciation (219,238) (209,921)
----------- -----------
Rental property, net $ 1,006,253 $ 1,010,484
=========== ===========
7
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. INVESTMENTS IN3. NOTES 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:OTHER RECEIVABLES:
The following summarizes rental property (intable sets forth certain information regarding notes and
other receivables (amounts in thousands):
MARCH 31, DECEMBER 31,
2004 2003
2002
------------- --------------
Land $ 103,590 $ 101,926
Land improvements and buildings 1,006,500 999,540
Furniture, fixtures, equipment 26,517 26,277
Land held for future development 33,343 34,573
Property under development 11,595 12,521
------------- --------------
1,181,545 1,174,837
Accumulated depreciation (184,352) (175,477)
------------- --------------
Rental property, net $ 997,193 $ 999,360
============= ==============
During the three months ended March 31, 2003, the Company did not acquire
any rental properties.
8
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. NOTES AND OTHER RECEIVABLES (AMOUNTS IN THOUSANDS):
MARCH 31, DECEMBER 31,
2003 2002
--------------------- ------------
Mortgage and other notes
receivable, primarily with minimum
monthly interest payments at LIBOR based
floating rates of approximatelyrat proximately LIBOR +
3.0%, maturing at various dates
through August 2008, substantially
collateralized by manufactured home
communities.communities $ 39,38642,466 $ 38,42041,736
Installment loans on manufactured
homes with interest payable monthly
at a weighted average 12,232 interest rate 12,232 24,802
and maturity of24,802 8.2% and 20 years, respectively. 11,431 11,633respectively 9,262 8,290
---------- ------------
Other receivables 5,951 6,276
----------- ------------
$ 56,76863,960 $ 56,329
===========74,828
========== ============
At March 31, 2003,2004, the maturities of mortgages and other notes receivablesreceivable
are approximately as follows: 2003-$1.5 million; 2004-$19.424 million; 2006-$3.8 million;
2008 and after- $14.72008-$14.7 million. Officers'In February 2004, $12.3 million of the installment
loans collateralized by manufactured homes were sold at book value to
Origen Financial, Inc. ("Origen, Inc.").
Officer's notes, presented as a reduction to stockholders' equity in the
balance sheet, are 10 year, LIBOR + 1.75% notes, due in approximate equal amounts
in 2008, 2009 and 2010, with a minimum and
maximum interest rate of 6
percent6% and 9 percent,9%, respectively, collateralized
by 362,206352,206 shares of the Company's common stock and 127,794 OP Units with
substantial personal recourse. 9The notes become due in three equal
installments on each of December 2008, 2009 and 2010.
4. INVESTMENT IN AND ADVANCES TO AFFILIATE:
Origen, Inc. is a real estate investment trust in the business of
originating, acquiring and servicing manufactured home loans. In October
2003, the Company purchased 5,000,000 shares of common stock (representing
approximately 33% of the issued and outstanding shares of common stock as
of December 31, 2003) of Origen, Inc. for $50 million. The Company's
investment in Origen, Inc. is accounted for using the equity method of
accounting. Equity earnings recorded during the first quarter of 2004 are
an estimate of the Company's portion of the anticipated first quarter
earnings of Origen, Inc.
8
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. DEBT:
The following table sets forth certain information regarding debt (in(amounts
in thousands):
MARCH 31, DECEMBER 31,
2004 2003
2002
--------------- ----------------------- ------------
Bridge loan, at variable interest rate (2.617% at
December 31, 2002), due April 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%6.770%, due May 14, $ 65,000 $ 65,000
2015, callable/redeemable May 16, 2005
65,000 65,000
Senior notes, interest at 6.97%6.970%, due December 3, 2007 35,000 35,000
Senior notes, interest at 8.20%8.200%, due August 15, 2008 100,000 100,000
Senior notes, interest at 5.750%, due April 15, 2010 150,000 150,000
Collateralized term loan due to FNMA, at variabledue May 2007, with a 152,363 152,363
weighted average interest rate (2.17%of 3.252% and 3.244% at March 31, 2004 and
December 31, 2002) due
May 2007,2003, respectively, convertible to a 5 to 10 year fixed rate
loan
152,363 152,363
Collateralized term loan, interest at 7.01%7.010%, due September 9, 41,375 41,547
2007
42,062 42,206Redeemable preferred OP units, average interest at 7.046%, 62,873 58,148
redeemable at various dates through January 2, 2014
Capitalized lease obligations,obligation, interest at 6.1%5.510%, duematured on - 9,606
January 1, 2004
9,804 16,438
Mortgage notes, other 58,604 60,366
--------------- --------------62,335 62,664
--------- ------------
$ 595,833668,946 $ 604,373
=============== ==============674,328
========= ============
The collateralized term loans totaling $194,425$193.7 million at March 31, 20032004
are secured by 22 properties comprising approximately 10,600 sites. The
capitalized lease obligations and mortgage notes are collateralized by 1213 communities comprising
approximately 3,9003,660 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 theA capitalized lease obligationsobligation matured onas of
January 1, 20032004 and was paid by the issuance of 41,70047,250 Preferred OP Units,
cash of approximately $860,000$1.2 and the assumption of approximately $1,570,000$4.2
million of debt, which was immediately retired.
The initial term of the variable rate FNMA debt is five years. The Company
has the option to extend such variable rate borrowings for an additional
five years and/or convert them to fixed rate borrowings with a term of
five or ten years, provided that in no event can the term of the
borrowings exceed fifteen years.
The Company has a $105 million unsecured line of credit of which $28.5$8
million was available to be drawn at March 31, 2003.2004. 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, 2004 was 1.94 percent.
Additional information regarding the Company's debt is contained in Note
13, Subsequent Events.
9
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. INTEREST AND OTHER INCOME:
The components of other income are as follows for the three months ended
March 31, 2004 and 2003 was 2.14 percent.(in thousands):
2004 2003
------- --------
Interest income $ 1,779 $ 2,193
Brokerage commissions 273 214
Other income (loss) 70 (9)
------- --------
$ 2,122 $ 2,398
======= ========
7. SEGMENT REPORTING (AMOUNTS IN THOUSANDS):
The consolidated operations of the Company can be segmented into
manufactured home sales and property operations segments. Following is a
presentation of financial information for the three months ended March 31,
2004:
PROPERTY MANUFACTURED
OPERATIONS HOME SALES COMBINED
----------- ------------ -----------
Revenues $ 42,868 $ 3,974 $ 46,842
Operating expenses 13,394 3,125 16,519
----------- ------------ -----------
Net operating income (3)/Gross profit 29,474 849 30,323
Adjustments to arrive at net income:
Other revenues 1,934 785 2,719
Selling, general and administrative (2,806) (1,430) (4,236)
Depreciation and amortization (10,943) (340) (11,283)
Interest expense (9,242) (23) (9,265)
Equity income from affiliate 200 - 200
Income allocated to minority interest (2,888) - (2,888)
----------- -------- -----------
Net income (loss) $ 5,729 $ (159) $ 5,570
=========== ======== ===========
Capital expenditures $ 3,138(1) $ 2,390 (2) $ 5,528
Identifiable assets:
Investment in rental property, net $ 973,743 $ 32,510 $ 1,006,253
Cash and cash equivalents 26,168 (580) 25,588
Inventory of manufactured homes - 21,109 21,109
Investments in and advances to affiliate 50,460 - 50,460
Notes and other receivables 62,545 1,415 63,960
Other assets 43,934 2,427 46,361
----------- -------- -----------
Total assets $ 1,156,850 $ 56,881 $ 1,213,731
=========== ======== ===========
(1) Capital expenditures of the Property Operations segment consist of lot
modifications, recurring projects, revenue producing projects, and
expenditures for acquisitions and expansions, net of asset disposal.
(2) Capital expenditures of the Manufactured Home Sales segment consist
primarily of acquisitions of rental homes.
(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.
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.
6.8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:
The Company has entered into four derivative contracts consisting of three
interest rate swap agreements and an interest rate cap agreement. The
Company's primary strategy in entering into derivative contracts is to
minimize the variability that changes in interest rates could have on its
future cash flows. The Company generally employs derivative instruments
that effectively convert a portion of its variable rate debt to fixed rate
debt and to cap the maximum interest rate on its variable rate borrowings.
The Company does not enter into derivative instruments for speculative
purposes.
The swap agreements are effective April 2003, and have the effect of fixing interest rates relative to a
collateralized term loan due to FNMA. One swap matures in July 2009, with
an effective fixed rate of 4.93 percent. A second swap matures in July
2012, with an effective fixed rate of 5.37 percent. The third swap matures
in July 2007, with an effective fixed rate of 3.97 percent. The third swap
is effective as long as 90-day LIBOR is 7 percent or lower. The three
swaps have an aggregate notional amount of $75.0 million. The interest
rate cap agreement is effective April 2003 athas a cap rate of 9.49 percent. Thepercent, a notional increases over three months from $12.9
million to a final notionalamount of
$152.4 million and has a termination date of April 3,03, 2006. Each of the
Company's derivative contracts is based upon 90-day LIBOR.
The Company has designated the first two swaps and the interest rate cap
as cash flow hedges for accounting purposes. These three hedges were
highly effective and had minimal effect on income. The third swap does not
qualify as a hedge for accounting purposes and, accordingly, the entire
change in valuation, of $0.21 millionwhether positive or negative, is reflected as a
component of interest expense
in the statements of incomeexpense. The valuation adjustment for the three
monthsmonth period ended March 31, 2003.2004 totals a positive $0.4 million.
In accordance with SFAS No. 133, the "Accounting for Derivative
Instruments and Hedging Activities," which requires all derivative
instruments to be carried at fair value on the balance sheet, the Company
has recorded a liability of $3.0$1.9 million and $2.3$0.9 million as of March 31,
20032004 and December 31, 2002,2003, respectively.
These valuation adjustments will only be realized if the Company
terminates the swaps prior to maturity. This is notIf held to maturity, the intent of the Company and,
therefore, the net of valuation
adjustments through the various maturity
dates will approximate zero.
11
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. OTHER INCOME:9. STOCK OPTIONS:
The components of otherCompany accounts for its stock options using the intrinsic value
method contained in APB Opinion No. 25. "Accounting for Stock Issued to
Employees." If the Company had accounted for options using the methods
contained in FASB Statement No. 123, "Accounting for Stock-Based
Compensation", net income areand earnings per share would have been presented
as follows for the three months ended March 31, 20032004 and 2002 (in thousands):2003:
2004 2003
2002
--------- ----------------- --------
InterestNet income, as reported $ 5,570 $ 6,343
Stock-based compensation expense under fair value method (19) (121)
-------- --------
Pro forma net income $ 2,7635,551 $ 1,258
Other income 179 661
--------- ---------6,222
======== ========
Earnings per share (Basic), as reported $ 2,9420.30 $ 1,919
========= =========0.36
======== ========
Earnings per share (Basic), pro forma $ 0.30 $ 0.35
======== ========
Earnings per share (Diluted), as reported $ 0.30 $ 0.35
======== ========
Earnings per share (Diluted), pro forma $ 0.29 $ 0.35
======== ========
8.10. EARNINGS PER SHARE (IN THOUSANDS):
For the three months ended March 31, 2004 and 2003:
For the Three Months
Ended March 31,2004 2003
2002
--------- ----------------- --------
Earnings used for basic and diluted earnings per share computationshare:
Continuing operations $ 6,3435,570 $ 8,114
========= =========
Total6,009
======== ========
Discontinued operations $ - $ 334
======== ========
Weighted average shares used for basic earnings per share 18,702 17,789
17,322
Dilutive securities, principally
stocksecurities:
Stock options and other 162 126
216
--------- ---------
Total weighted-------- --------
Weighted average shares used for diluted
earnings per share computation18,864 17,915
17,538
========= ================= ========
Diluted earnings per share reflect the potential dilution that would occur if
dilutive securities were exercised or converted into common stock.
12
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9.11. RECENT ACCOUNTING PRONOUNCEMENTS:
In April 2003,On March 31, 2004, the Financial Accounting Standards Board ("FASB")(FASB) issued
a proposed Statement, Share-Based Payment an Amendment 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, "Accounting123 and APB No. 95, that addresses the accounting for Derivative Instruments and Hedging Activities." This Statement is effectiveshare-based
payment transactions in which an enterprise receives employee services in
exchange for contracts entered into(a) equity instruments of the enterprise 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(b) liabilities
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 impactare based on the financial position or resultsfair value 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/enterprise's equity instruments 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 identifiedsettled by the issuance of such equity instruments. Under the
FASB's proposal, all forms of share-based payments to employees, including
employee stock options, would be treated the same as VIEs include
SHS and Origen.
In December 2002,other forms of
compensation by recognizing the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," which provides guidance on how to
transition fromrelated cost in the intrinsic value methodincome statement. The
expense of accounting for stock-based
employee compensation under APB 25 to SFAS 123's fair value method of
accounting, if a company so elects, and adds interim and annual disclosure.
The Company has elected not to adopt the fair value method of 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 Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 clarifies
disclosures that are required toaward would generally be made certain guarantees and establishes
a requirement to record a liabilitymeasured at fair value for certain guarantees at the
time ofgrant date. Current accounting guidance requires that the guarantee's issuance. The disclosure requirements of FIN 45
have been appliedexpense relating
to so-called fixed plan employee stock options only be disclosed in thesethe
footnotes to the financial statements. The requirementproposed Statement would
eliminate the ability to record
a liability appliesaccount for share-based compensation transactions
using APB Opinion No. 25, Accounting for Stock Issued to guarantees issues or modified after December 31,
2002. The adoption of this standard 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 SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities." The statement requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal
plan. Examples of costs covered by the statement include lease termination
costs and certain employee severance costs that are associated with a
restructuring, discontinued operation, plant closing or other exit or
disposal activity. The statement is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. The adoption of this
statement did not have a significant impact on the financial position or
results of operations of the Company.
10. CONTINGENCIESEmployees.
12. CONTINGENCIES:
On April 9, 2003, T.J. Holdings, LLC ("TJ Holdings"), a member of
Sun/Forest, LLC ("Sun/Forest") (which, in turn, owns an equity interest in
SunChamp LLC), filed a complaint against the Company, SunChamp LLC,
certain other affiliates of the Company and two directors of Sun
Communities, Inc. in the Superior Court of Guilford County, North
Carolina. The complaint alleges that the defendants wrongfully deprived
the plaintiff of economic opportunities that they took for themselves in
contravention of duties allegedly owed to the plaintiff and purports to
claim damages of $13.0 million plus an unspecified amount for punitive
damages. The Company believes the complaint and the claims threatened
therein have no merit and will defend it vigorously.
The 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 inon our results of operations or
financial condition.
13. SUBSEQUENT EVENTS:
Subsequent to quarter end the Company announced its plan to initiate a
tender offer for all of its $350 million of unsecured notes. The tender
offer was completed on May 5, 2004 resulting in the Company's purchase of
approximately $345 million in unsecured notes. In connection with the
tender offer, the Company paid approximately $398 million in satisfaction
of the outstanding principal amounts, a premium to par and associated
fees.
On April 29, 2004, the Company closed on $237 million of additional
secured financing with Fannie Mae. This amount is in addition to the
existing $152 million of secured debt with Fannie Mae. Approximately $175
million of the additional funding was used to pay amounts associated with
the tender offer. Approximately $60 million remains undrawn pending future
uses. The term of the additional Fannie Mae funding is nine years bearing
interest at a weighted average rate of approximately 4.62%, with an option
by the Company to extend the loan for a tenth year at an interest rate of
LIBOR plus 240 basis points. The Fannie Mae loan is secured by
manufactured housing communities owned by the Operating Partnership or its
affiliates.
13
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
13. SUBSEQUENT EVENTS, CONTINUED:
In addition, the Company has secured a commitment for a collateralized
mortgage backed securities transaction with Bank of America CMBS Capital
Markets, totaling up to $500 million (the "CMBS Loan"). The CMBS Loan will
be secured by manufactured housing communities owned by the Operating
Partnership and its affiliates. The CMBS Loan consists of three traunches:
$100 million with a seven-year term, $200 million with a ten-year term and
$180 million with a twelve-year term. The CMBS Loan has an average blended
interest rate of 4.98%. The Company expects to close on the CMBS loans
within the next forty five (45) days. The Company has entered into
agreements to effectively fix the interest rates on substantially all of
the CMBS Loan.
The Company also closed on a $450 million bridge loan from Bank of
America, N.A. as interim financing until the CMBS Loan closes. Proceeds
from the bridge loan were used to repay the Company's existing credit
facility and to retire the unsecured notes as discussed above.
Approximately $115 million of the bridge loan facility remains undrawn.
The Company plans to use the remaining proceeds of these financing
transactions to acquire additional properties, to repurchase the Company's
outstanding stock and for general corporate purposes. The Company is
currently negotiating a new revolving line of credit.
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 20022003 Annual Report
filed with the Securities and Exchange Commission on Form 10-K. During the three
months ended March 31, 2003,2004, there have been no material changes to the
Company's significant accounting policies that impacted the Company's financial
condition or results of operations.
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 20032004 and 20022003
For the three months ended March 31, 2003,2004, income from continuing operations
before minority interests and
discontinued operationsinterest decreased by 13.8 percent$0.5 million from $10.9$9.0 million to $9.4$8.5
million, when compared to the three months ended March 31, 2002.2003. The decrease
was due to increased revenues of $3.6$1.6 million and a $0.1increased equity income from
affiliates of $0.3 million reduction in
loss from equity affiliates offset by increased expenses of $5.2$2.4 million as
described in more detail below.
Income from rental property increased by $2.6$1.9 million from $39.2$41.0 million to
$41.8$42.9 million, or 6.64.6 percent, due to acquisitions ($1.2 million) made during 2002 and
rent increases, and other community revenues,
($1.4 million).and an increase in seasonal recreational vehicle revenue during the first
quarter of 2004.
Interest and other income decreased by $0.3 million from $2.4 million to $2.1
million, or 12.5 percent, due primarily to a decrease in interest earning notes
and receivables.
The decrease in revenue from home sales and increase in ancillary revenues
relate to operations of the manufactured home sales segment which is discussed
in detail below.
Property operating and maintenance expenses increased by $1.8$0.1 million from $8.4$10.1
million to $10.2 million, or 21.4 percent. The increase was due to the expansion
of cable TV services ($0.1 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 $0.5 million from $2.5 million to $3.0 million,
or 20.01.0 percent, due to fourth quarter 2002 acquisitions ($0.2 million) and due to increases in assessments and tax rates ($0.3 million).utility expenses.
15
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS, CONTINUED:
GeneralReal estate taxes increased by $0.3 million from $2.9 million to $3.2 million,
or 10.3 percent, due primarily to increases in assessments and tax rates.
Selling, general, and administrative expenses increased by $0.3$0.4 million from
$1.3$3.8 million to $1.6$4.2 million, or 23.1 percent, due to an increase in compensation expense,
including benefits, primarily related to increased Michigan Single
Business taxes ($0.2 million)the systems conversion and compliance
with the timing of payroll taxes ($0.1 million).Sarbanes-Oxley Act.
Depreciation and amortization increased by $1.7$0.7 million from $9.1$10.6 million to
$10.8$11.3 million, or 18.76.6 percent, due primarily to the net additional investment in rental
properties.property.
Interest expense increased by $1.0$0.5 million from $7.8$8.8 million to $8.8$9.3 million, or
12.85.7 percent, due primarily to increased debt levels somewhat offset by lower interest
rates ($0.9 million), a decrease in capitalized interest ($0.2 million), and
reduced by a positive valuation adjustment related to a swap to fix interest
rates in the current period ($0.6 million).
Equity income from affiliates of $0.2 million represents an estimate of the
Company's one-third interest in the operations of Origen, Inc. for the three
months ended March 31, 2004.
The remaining cost of home sales increase of $0.5 million is discussed in detail
below.
Sun Home Services
The following table summarizes certain financial and statistical data for Sun
Home Services for the three months ended March 31, 2004 and 2003:
Three Months Ended March 31, Increase/
2004 2003 (Decrease) Percent Change
---------- ------------- ---------- --------------
New home sales revenues $ 2,363 $ 3,480 $ (1,117) -32.1%
Cost of sales 1,809 2,306 (497) -21.6%
---------- ------------- ---------- --------------
Gross profit 554 1,174 (620) -52.8%
========== ============= ========== ==============
Pre-owned home sales revenues $ 1,611 $ 634 $ 977 154.1%
Cost of sales 1,316 337 979 290.5%
---------- ------------- ---------- --------------
Gross profit 295 297 (2) -0.7%
========== ============= ========== ==============
Ancillary revenue, net $ 597 $ 441 $ 156 35.4%
========== ============= ========== ==============
Home sales volumes:
New homes 45 72 (27) -37.5%
Pre-owned homes 82 41 41 100.0%
16
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS, CONTINUED:
Sun Home Services
The margin on new homes has declined due to consumer demand shifting to
pre-owned homes which are available in substantial quantities. This shift in
demand was more than offset by the supply of pre-owned homes, thereby reducing
margins.
The increase in outstanding debt.
16ancillary revenue, net, is primarily due to increased activity
in the Company's rental home program.
17
w
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 three months ended March 31, 20032004 and 2002.2003. The "Same Property" data
represents information regarding the operation of communities owned as of
January 1, 20022003 and March 31, 2003.2004. Site, occupancy, and rent data for those
communities is presented as of the last day of each period presented. The "Total
Portfolio" column differentiatesdiffers from the "Same Property" column by including financial
and statistical information for new development and acquisition communities.
SAME PROPERTY TOTAL PORTFOLIO
----------------------------- ----------------------------------------------------------------- ----------------------------------
2004 2003 20022004 2003
2002(2)
----------- ----------- ----------- --------------------------- ---------------- ---------------- ---------------
(in thousands) (in thousands)
Income from rental property $ 36,01138,351 $ 34,79936,929 $ 41,75542,868 $ 39,17141,013
----------- ---------- ----------- ----------- ----------
Property operating expenses:
Property operating and maintenance 6,781 6,467 10,217 8,3517,378 7,438 10,228 10,102
Real estate taxes 2,733 2,495 3,026 2,5522,858 2,711 3,166 2,937
----------- ----------- ----------- ---------------------
Property operating expenses 9,514 8,962 13,243 10,90310,236 10,149 13,394 13,039
----------- ----------- ----------- ---------------------
Property net operating income(3)income (3) $ 26,49728,115 $ 25,83726,780 $ 28,51229,474 $ 28,26827,974
=========== =========== ============ =========== ==========
Number of operating properties 109 109 129 116108 108 127 125
Developed sites 38,984 38,905 44,125 41,22839,746 39,744 43,912 43,394
Occupied sites 34,986 35,729 38,839 37,77034,975 35,748 37,439 38,173
Occupancy % 91.4%(1) 93.9%(1) 89.3%(1) 93.5%(1) (4) 91.6% (4) 86.1% (4) 89.2% (4)
Weighted averageAverage monthly rent per site $ 322(1)335 (4) $ 308(1)321 (4) $ 321(1)335 (4) $ 306(1)
Sites321 (4)
available for development 1,538 2,015 2,0566,848 7,463 4,375
Sites
planned for development in currentnext year 23 96 8769 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.
(4) Occupancy % and weighted average rent relates to manufactured housing sites,
excluding recreational vehicle sites.
On a same property basis, property net operating income increased by $0.7$1.3
million from $25.8$26.8 million to $26.5$28.1 million, or 2.75.0 percent. Property revenuesIncome from
property increased by $1.2$1.5 million from $34.8$36.9 million to $36.0$38.4 million, or 3.44.0
percent, due primarily to increases in rents including water and property tax
pass through. Property operating expenses increased by $0.5$0.1 million from $9.0$10.1
million to $9.5$10.2 million, or 5.61.0 percent, due primarily to increases in real
estate taxes, repair and maintenance, and payroll.
1718
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
unitholders of the Operating Partnership's unitholders,Partnership, 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$60 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 $5 million to $10 million annually in developments
consisting of expansions to existing communities and the development of new
communities.communities during 2004. 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 $40may acquire approximately $360 million to $60
million in the acquisition of properties in
2003,2004, depending upon market
conditions.a number of factors. The Company plans towill finance these
investments by using net cash
flows provided by operating activitiesthe proceeds from anticipated secured financing transactions
as discussed in further detail below and by drawing upon its linethrough the assumption of credit.existing debt
on the properties.
Cash and cash equivalents increased by $0.7$1.5 million to $3.3$25.6 million at March
31, 20032004 compared to $2.6$24.1 million at December 31, 2002 because cash provided by
operating activities exceeded cash used in investing and financing activities.2003. Net cash provided by
operating activities decreasedincreased by $3.3$3.4 million to $15.6$19.1 million for the three
months ended March 31, 20032004 compared to $18.9$15.7 million for the three months ended
March 31, 2002. This decrease was2003. The increase resulted primarily due to
changesfrom increase in accounts
payable and other liabilities, decreasingoffset by $2.8 milliondecrease in net income and changesincrease in
other assets increasing by $0.5 million.assets.
The Company's net cash flows provided by operating activities may be adversely
impacted by, among other things: (a) the market and economic conditions in the
Company's current markets generally, and specifically in metropolitan areas of
the Company's current markets; (b) lower occupancy and rental rates of the
Company's properties (the "Properties"); (c) increased operating costs,
including insurance premiums, real estate taxes and utilities, that cannot be
passed on to the Company's tenants; and (d) decreased sales of manufactured
homes. See "Factors That May Affect Future Results" in the Company's Annual
Report on Form 10-K for the year ended December 31, 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 2003, the2003.
The Company increased its existinghad a $105.0 million line of credit to an $105 million
facility, which matures in July 2005, with a one-year optional extension. Atat March 31, 2003, the2004 with an
average interest rate of outstanding borrowings under the
line of credit was 2.141.94 percent, with $76.5$97.0 million outstanding and $28.5$8.0
million available to be drawn under the facility. The line of credit facility
containscontained various leverage, debt service coverage, net worth maintenance and
other customary covenants all of which the Company was in compliance with at 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 March 31,
2003).
Among other usual commercial provisions, the Guaranty requires that the Company
comply with certain financial covenants. These covenants were initially designed
to be identical in all material respects with the financial covenants imposed on
the Company under its line of credit facility. Since 1998, as the covenants in
the Company's then applicable line of credit facility changed, the Guaranty has
also been similarly amended to remain consistent. In July 2002, the Company
entered into a replacement line of credit facility; however, conforming
amendments to the Guaranty were not made, resulting in differing and
inconsistent financial covenants in the line of credit facility as compared to
the Guaranty. As a consequence, as of September 30, 2002, the Company was not in
compliance with certain of the financial covenants contained in the Guaranty
(the "Differing Financial Covenants"). Because it was not the intention of the
parties to impose disparate requirements on the Guaranty and the Company's line
of credit, the Bank waived any breach of the Guaranty arising solely as a result
of the Company's non-compliance with the Differing Financial Covenants so long
as the Company remains in compliance with all of the terms and conditions of its
line of credit facility. As of 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. Atcovenants all of which the Company was in compliance with at 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 $ 76,500
Collateralized term loan 42,062 670 $ 1,489 39,903
Collateralized term loan - FNMA 152,363 $152,363
Senior notes(2) 285,000 85,000 65,000 35,000 100,000
Mortgage notes, other 58,604 1,162 22,899 13,274 21,269
Capitalized lease obligations 9,804 9,804
Redeemable Preferred OP Units 58,148 3,564 35,782 18,802
-------- -------- -------- -------- --------
$730,481 $148,200 $125,170 $183,479 $273,632
======== ======== ======== ======== ========
(1) As noted above,2004.
Subsequent to quarter end, the Company isrepaid the guarantorline of $22.7 million in
personal bank loans,credit and replaced it
with a bridge loan bearing interest at LIBOR plus 1.0 percent and maturing in
2004, made to the Company's directors,
employees and consultants for the purposeMay of purchasing shares of
Company common stock or Operating Partnership OP Units pursuant to the
Purchase Plan.2004. The Company is obligated under the Guaranty onlyintends to negotiate and announce terms of a new
revolving line of credit 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.
20
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED:coming months.
The Company anticipates meeting its long-term liquidity requirements, such as
scheduled debt maturities, large property acquisitions, and Operating
Partnership unit redemptions and potential additional capital contributions to affiliates
(see Note 2 Investments in and Advances to Affiliates), through the issuancecollateralization of debt or equity securities, includinga significant
portion of its Properties. From time to time, the Company may also issue equity
units in the Operating Partnership or from selective asset sales.sell selected assets. The Company has
maintained investment grade
ratings with Moody's Investor Serviceobtained commitments for secured financing totaling up to $740.0 million.
Proceeds from these transactions will be used to retire $350.0 million of
unsecured notes, pay the related costs of this debt retirement, repay the
Company's existing line of credit, acquire additional properties, repurchase the
Company's outstanding equity securities and Standard & Poor's, which facilitates
access to the senior unsecured debt market. Since 1993, the Company has raised,
in the aggregate, nearly $1.0 billion from the sale of its common stock, the
sale of OP units in the Operating Partnership and the issuance of secured and
unsecured debt securities. In addition, at March 31, 2003, ninety-four of the
Properties were unencumbered by debt, therefore, providing substantial financial
flexibility.for general corporate purposes. The
ability of the Company to finance its long-term liquidity requirements in such
manner will be affected by numerous economic factors affecting the manufactured
housing community industry at the time, including the availability and cost of
mortgage debt, the financial condition of the Company, the operating history of
the Properties, the state of the debt and equity markets, and the general
national, regional and local economic conditions. See "Factors That May Affect
Future Results" in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002.2003. If the Company is unable to close these secured financings or
obtain additional equitydebt or debtequity financing on acceptable terms, the Company's
business, results of operations and financial condition will be harmed.impacted.
At March 31, 2003,2004, the Company's debt to total market capitalization
approximated 44.144.2 percent (assuming conversion of all Common OP Units to shares
of common stock). The debt has a weighted average maturity of approximately 4.45.0
years and a weighted average interest rate of 5.35.4 percent.
Capital expenditures for the three months ended March 31, 20032004 and 20022003 included
recurring capital expenditures of $1.0$1.1 million and $1.0 million, respectively.
Net cash used inprovided by investing activities decreasedincreased by $15.3$14.2 million to $12.0$2.1
million for the three months ended March 31, 2004 compared to $27.3$12.1 million used
in investing activities for the three months ended March 31, 2002.2003. This decreaseincrease
was due to a $36.0$12.3 million decrease
in rental property acquisition activities, offset bysale of notes receivable to Origen, Inc. and a $3.3$5.5
million decrease in
proceeds related to property dispositions, a decrease of $12.3 million in investment in and advances to affiliates (primarily due to the write-off of the
investment in Origen in December 2002) andan affiliate, offset by a $5.1$0.9
million decrease in repayments
of and investmentincrease in notes receivable net.and officers' notes, net, and a $2.7
million increase in rental property investment activities.
Net cash provided by financing activities decreased by $11.5 million to $2.9
million used in financing activities increased by $16.8 million to $19.7
million for the quarter ended March 31, 2004 from $8.6$2.9 million provided byused in financing
activities for the three months ended March 31, 2002.2003. This decreaseincrease was
primarily due to reduction of borrowingsa $15.5 million increase in repayments on the line of credit, by $18.5 million,
proceeds from issuance of common stock decreasing by $1.9 million and a
$0.9$1.1 million increase in distributions, offset by a $9.8 million reduction of repayments on notes payable and other debt.
21debt, net, a $1.1
million increase in distributions, and a $0.4 million increase in payments for
deferred financing costs, offset by a $1.3 million increase of proceeds from
issuance of common stock.
20
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SUPPLEMENTAL MEASUREMEASURE:
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 reconciles net income to FFO for the
periods ended March 31, 20032004 and 20022003 (in thousands):
2004 2003 2002
-------- --------
Net income $ 6,3435,570 $ 8,1146,343
Adjustments:
Depreciation of rental propertyand amortization 10,841 10,509
9,041
Valuation adjustment (1)adjustment(6) (407) 214 --
Allocation of SunChamp losses (2)losses(7) 300 850 --
Income allocated to Common OP unitscommon minority interests 709 910
1,176
(Gain) on sale of properties -- (269)
-------- -------
FFO--------
Funds from operations (FFO) $ 17,013 $ 18,826 $ 18,062
======== ========
Weighted average common shares/OP unitsUnits outstanding:
Basic 21,175 20,342 19,921
======== ========
Diluted 21,337 20,468
20,137======== ========
FFO per weighted average Common Share/OP Unit - Basic 0.80 0.93
======== ========
FFO per weighted average Common Share/OP Unit - Diluted 0.80 0.92
======== ========
22
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SUPPLEMENTAL MEASURE, CONTINUED:
(1)(6) The Company entered into three interest rate swaps and an interest rate
cap agreement. The valuation adjustment reflects the theoretical noncash
profit and loss were those hedging transactions terminated at the balance
sheet date. As the Company has no expectation of terminating the transactions prior to
maturity, the net of these noncash valuation adjustments will be zero at the
various maturities. As any imperfections related to hedging correlation in these
swaps is reflected currently in cash as interest, the valuation
adjustments are excluded from Funds From Operations.funds from operations. The valuation
adjustment is included in interest expense.
(2)(7) 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 Fundsfunds from Operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSoperations. At March 31,
2004, there is no remaining balance on the SunChamp note.
21
SUN COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAFE HARBOR STATEMENT
This Form 10-Q contains various "forward-looking statements" within the meaning
of the Securities Act of 1933 and the Securities Exchange Act of 1934, and the
Company intends that such forward-looking statements will be subject to the safe
harbors created thereby. The words "may",For this purpose, any statements contained in this
filing that relate to prospective events or developments are deemed to be
forward-looking statements. Words such as "believes," "forecasts,"
"anticipates," "intends," "plans," "expects," "will", "expect", "believe",
"anticipate", "should", "estimate", and similar expressions are
intended to identify forward-looking statements. These forward-looking
statements reflect the Company's current views with respect to future events and
financial performance, but are based upon current assumptions regarding the Company's operations,
future resultsinvolve known and prospects,unknown risks and are subject to many uncertainties,
both general and factors
relatingspecific to the Company's operationsmatters discussed in this filing. These risks
and business environment whichuncertainties may cause the actual results of the Company to be materially
different from any future results expressed or implied by such forward-lookingforward looking
statements. Please seeSuch risks and uncertainties include the sectionnational, regional and
local economic climates, the ability to maintain rental rates and occupancy
levels, competitive market forces, changes in market rates of interest, the
ability of manufactured home buyers to obtain financing, the level of
repossessions by manufactured home lenders and those referenced under the
headings entitled "Factors That May Affect Future Results" or "Risk Factors"
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002 for a list2003 and the Company's filings with the Securities and Exchange
Commission. The forward-looking statements contained in this Form 10-Q speak
only as of uncertaintiesthe date hereof and factors.
Such factors include, but are not limitedthe Company expressly disclaims any obligation to
the following: (i)provide public updates, revisions or amendments to any forward-looking
statements made herein to reflect 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 abilityCompany's expectations 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.
23events.
22
SUN COMMUNITIES, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's principal market risk exposure is interest rate risk. The Company
mitigates this risk by maintaining prudent amounts of leverage, minimizing
capital costs and interest expense while continuously evaluating all available
debt and equity resources and following established risk management policies and
procedures, which include the periodic use of derivatives. The Company's primary
strategy in entering into derivative contracts is to minimize the variability
that changes in interest rates could have on its future cash flows. The Company
generally employs derivative instruments that effectively convert a portion of
its variable rate debt to fixed rate debt. The Company does not enter into
derivative instruments for speculative purposes.
The Company's variable rate debt totals $297.4$197.1 million and $131.8$303.3 million as of
March 31, 20032004 and 2002,2003, respectively, which bears interest at various
LIBOR/DMBS rates. If LIBOR/DMBS increased or decreased by 1.00 percent during
the three months ended March 31, 20032004 and 2002,2003, the Company believes its
interest expense would have increased or decreased by approximately $3.0$2.0 million
and $1.2$ 3.1 million based on the $300.3$204.9 million and $116.1$307.5 million average balance
outstanding under the Company's variable rate debt facilities for the three
months ended March 31, 20032004 and 2002,2003, respectively.
Additionally, the Company had $28.1$32.4 million and $35.2$28.1 million LIBOR based
variable rate mortgage and other notes receivables as of March, 31,2004 and 2003, and
2002,
respectively. If LIBOR increased or decreased by 1.0 percent during the three
months ended March 31, 20032004 and 2002,2003, the Company believes interest income would
have increased or decreased by approximately $0.3 million and $0.3 million based
on the $27.8$32.3 million and $34.7$27.8 million average balance outstanding on all
variable rate notes receivablesreceivable for the three months ended March 31, 20032004 and
2002,2003, respectively.
The Company has entered into three separate interest rate swap agreements and an
interest rate cap agreement. One of these swap agreements fixes $25 million of
variable rate borrowings at 4.93 percent for the period April 2003 through July
2009, another of these swap agreements fixes $25 million of variable rate
borrowings at 5.37 percent for the period April 2003 through July 2012 and the
third swap agreement, which is only effective for so long as 90-day LIBOR is 7
percent or less, fixes $25 million of variable rate borrowings at 3.97 percent
for the period April 2003 through July 2007. The interest rate cap agreement is
effective April 2003 athas
a cap rate of 9.49 percent. Thepercent, a notional increases over
three months from $12.9 million to a final notionalamount of $152.4 million and has a
termination date of April 3,13, 2006. 24Each of the Company's derivative contracts
is based upon 90-day LIBOR.
23
SUN COMMUNITIES, INC.
ITEM 4. CONTROLS AND PROCEDURES
(a) TheUnder the supervision and with the participation of the Company's
management, including the Chief Executive Officer, Gary A. Shiffman,
and Chief Financial Officer, Jeffrey P. Jorissen, the Company
evaluated the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of a date within 90
daysthe end of filingthe
period covered by this quarterly report, pursuant to Rule 13a-15 of
the Securities Exchange Act of 1934 (the "Evaluation Date""Exchange Act"),. Based upon
that evaluation, the Company's Chief Executive Officer and Chief
Financial Officer 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 werehave been no significant changes in the Company's internal
controlscontrol over financial reporting during the quarterly period ended
March 31, 2004, that have materially affected, or in other factors that could significantlyare reasonably
likely to materially affect, these controls
subsequent to the Evaluation Date, including any corrective actions
with regard to significant deficiencies and material weaknesses.Company's internal control over
financial reporting.
24
SUN COMMUNITIES, INC.
PART II
ITEM 2. - CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended March 31, 2004, the Company issued an aggregate of
6,300 shares of its common stock upon exchange of an aggregate of 6,300 OP Units
of the Operating Partnership. All of these shares of common stock were issued in
private placements in reliance on Section 4(2) of the Securities Act of 1933, as
amended, including Regulation D promulgated thereunder. No underwriters were
used in connection with any of such issuances.
ITEM 6.(a) --(A) - EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
See the attached Exhibit Index.
ITEM 6.(b) --(B) - REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K, duringdated February 19, 2004, furnished for the period covered by
thispurpose of reporting, under
Item-12-Results of Operations and Financial Condition, Sun's 2003 fourth quarter
and fiscal year ended December 31, 2003 earnings and results of operations.
Form 10-Q.8-K, dated April 15, 2004, filed to report that the Company launched a
tender offer to purchase any or all of the $350 million principal amount of its
outstanding unsecured notes.
25
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: May 15, 200310, 2004
SUN COMMUNITIES, INC.
BY: /s/ Jeffrey P. Jorissen
---------------------------------------------------------------------------------------
Jeffrey P. Jorissen, Chief Financial
Officer and Secretary
(Duly authorized officer and principal
financial officer)
26
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.
Dated: May 15, 2003 /s/ Gary A. Shiffman
-------------------------------------------
Gary A. Shiffman, Chief Executive Officer
27
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.
Dated: May 15, 2003
/s/ Jeffrey P. Jorissen
---------------------------------------------
Jeffrey P. Jorissen, Chief Financial Officer
28
SUN COMMUNITIES, INC.
EXHIBIT INDEX
Exhibit No. Description
10.1 Registration Rights Agreement between Sun Communities
Operating Limited Partnership, Sun Communities, Inc., Lehman
Brothers Inc. and A.G. Edwards & Sons, Inc. dated April 11,
2003
10.2 Purchase Agreement between Sun Communities Operating Limited
Partnership and Lehman Brothers Inc., on behalf of the
Initial Purchasers, dated April 8, 2003
99.1
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------
31.1 Certification of Chief Executive Officer pursuant to
Securities Exchange Act Rules 13a-14(a)/15(d)-14(a),
as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to
Securities Exchange Act Rules 13a-14(a)/15(d)-14(a),
as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.0 Certification pursuant to 18 U.S.C Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.