1
                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


 [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

                 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997MARCH 31, 1998.

                                       OR

 [ ] Transition pursuant to Section 13 or 15(d) of the Securities Exchange Act
     of 1934


                          COMMISSION FILE NUMBER 1-126161-2616


                              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 Middlebelt Road                           48334   
               Suite 145                                 (Zip Code)
      Farmington Hills, Michigan                               48334                         
(Address of Principal Executive Offices)                     (Zip Code)                 
                                           
                                               
                                           

       Registrant's telephone number, including area code: (248) 932-3100

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 [ ]

                      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:

     16,557,25216,853,211 shares of Common Stock, $.01 par value as of October 31, 1997April 30, 1998



                                  Page 1 of 1614


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                              SUN COMMUNITIES, INC.

                                      INDEX
___________


PAGES ----- PART I - ------ PART I Item 1. Financial Statements: Consolidated Balance Sheets as of September 30, 1997March 31, 1998 and December 31, 19961997 3 Consolidated Statements of Income for the Periods Ended September 30,March 31, 1998 and 1997 and 1996 4 Consolidated Statements of Cash Flows for the NineThree Months Ended September 30,March 31, 1998 and 1997 and 1996 5 Notes to Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-139-12 PART II - ------- Item 5. Ratios of Earnings to Fixed Charges 1413 Item 6.(a) Exhibits required by Item 601 of Regulation S-K 1413 Item 6.(b) Reports on Form 8-K 1413 Signatures 1514
2 3 SUN COMMUNITIES, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1997MARCH 31, 1998 AND DECEMBER 31, 19961997 (IN THOUSANDS) __________
ASSETS1998 1997 1996 ------------------- ---------- ASSETS Investment in rental property, net $ 586,342695,898 $ 558,278634,737 Cash and cash equivalents 1,730 9,23610,792 2,198 Investment in affiliates 18,030 5,10321,872 16,559 Mortgage notes receivable 17,918 4,17615,293 19,269 Other assets 14,324 8,263 ---------- ----------16,949 18,151 --------- --------- Total assets $ 638.344760,804 $ 585,056 ========== ==========690,914 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Line of credit $ 20,00054,000 $ --17,000 Debt 195,000 185,000272,890 247,264 Accounts payable and accrued expenses 13,230 7,71812,285 8,765 Deposits and other liabilities 7,990 9,12310,352 8,853 Distributions payable 9,3939,956 -- ------------------- --------- Total liabilities 245,613 201,841 ----------359,483 281,882 --------- --------- Minority interests 80,533 82,283 ----------82,785 82,252 --------- --------- Stockholders' equity: Preferred stock, $.01 par value, 10,000 shares authorized, noneauthorized; no shares issued and outstanding -- -- Common stock, $.01 par value, 100,000 shares authorized, 16,294authorized; 16,852 and 15,38916,587 issued and outstanding in 1998 and 1997, and 1996, respectively 163 154168 166 Paid-in capital 355,127 328,321364,557 364,050 Officers' notes (11,773) (9,173)(11,773) Distributions in excess of accumulated earnings (31,319) (18,370) ----------(34,416) (25,663) --------- --------- Total stockholders' equity 312,198 300,932 ----------318,536 326,780 --------- --------- Total liabilities and stockholders' equity $ 638,344 $585,056 ==========760,804 $ 690,914 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 3 4 SUN COMMUNITIES, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIODSTHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 1998 AND 1997 AND 1996 (IN THOUSANDS) --------
FOR THE NINE FOR THE THREE MONTHS ENDED MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------- --------------1998 1997 1996 1997 1996 ---- ---- ---- ----------- ------- Revenues: Income from property $68,632 $50,128 $23,177 $20,279 Interest and other$28,605 $22,987 Other income 2,111 1,325 940 583 ------ -----1,751 406 ------- ------- Total revenues 70,743 51,453 24,117 20,86230,356 23,393 ------- ------- ------ ------ Expenses: Property operating and maintenance 15,620 11,204 5,423 4,7216,419 5,147 Real estate taxes 5,578 3,987 1,838 1,7212,167 1,863 General and administrative 3,312 2,407 1,116 8821,316 1,078 Depreciation and amortization 14,927 10,530 5,150 4,0205,940 4,821 Interest 10,397 7,944 3,598 3,2405,578 3,445 ------- ------- ------ ------ Total expenses 49,834 36,072 17,125 14,58421,420 16,354 ------- ------ ------ ------ Income before extraordinary item and minority interests 20,909 15,381 6,992 6,278 Extraordinary item, early extinguishment of debt -- (6,896) -- ------- ------ ------ ------ Income before minority interest 20,909 8,485 6,992 6,278interests 8,936 7,039 Less income allocated to minority interests: Preferred OP Units 1,879 1,043 627626 626 Common OP Units 2,442 968 792 6401,009 845 ------- ------ ------ ------ Net income $16,588 $6,474 $5,573 $5,012 ======= ====== ====== ====== Earnings per share: Income before extraordinary item $ 1.04 $.95 $.34 $.33 Extraordinary item -- (.46) -- -- ------- ------ ------ ------ Net income $ 1.04 $.49 $.34 $.337,301 $ 5,568 ======= ====== ====== ============= Earnings per common share: Basic $ 0.44 $ 0.36 ======= ======= Diluted $ 0.43 $ 0.35 ======= ======= Weighted average common shares outstanding 16,682 15,632 ======= ======= Distributions declared per common share outstanding $1.865 $1.81 $.47 $.455$ .49 $ .47 ======= ====== ====== ====== Weighted average common shares outstanding 15,933 13,198 16,243 15,092 ======= ====== ====== ======
The accompanying notes are an integral part of the consolidated financial statements. 4 5 SUN COMMUNITIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 1998 AND 1997 AND 1996 (IN THOUSANDS) __________
1998 1997 1996 ---- ------------- --------- Cash flows from operating activities: Net income $ 16,5887,301 $ 6,4745,568 Adjustments to reconcile net income to net cash provided by operating activities: Income allocated to minority interests 2,442 968 Extraordinary item, net of prepayment penalties1,009 845 Gain related to mortgage notes receivable (937) -- 1,390 Depreciation and amortization 14,927 10,5305,940 4,821 Deferred financing costs 116 195137 39 (Increase) decrease in other assets (4,599) 402748 (669) Increase in accounts payable and other liabilities 5,025 7,9075,019 4,171 -------- -------- Net cash provided by operating activities 34,499 27,86619,217 14,775 -------- -------- Cash flows from investing activities: Investment in rental properties (42,214) (67,265)(39,135) (9,277) Investment in affiliates (12,927) (366) Mortgage(5,313) (4,489) Proceeds related to mortgage notes receivable (13,742) -- Officer note (2,600)4,913 -- -------- -------- Net cash used in investing activities (71,483) (67,631)(39,535) (13,766) -------- -------- Cash flows from financing activities: Distributions (24,982) (18,206)(8,278) (7,886) Proceeds from borrowings 30,000 180,000 Repayments37,000 -- Repayment on borrowings (246) -- (238,490) Net proceeds from sale of common stock -- 117,921 Stock options and dividend reinvestment plan 26,815 8,333509 8,209 Payments for deferred financing costs (2,355) (209)(73) (16) -------- -------- Net cash provided by financing activities 29,478 49,34928,912 307 -------- -------- Net increase (decrease) in cash and cash equivalents (7,506) 9,5848,594 1,316 Cash and cash equivalents, beginning of period 2,198 9,236 121 -------- -------- Cash and cash equivalents, end of period $ 1,73010,792 $ 9,70510,552 ======== ======== Supplemental Information: OP units issued for rental properties -- $ 39,9591,704 -- Debt assumed for rental properties $ 16,393 -- 131,435 Issuance of common stockCapitalized lease obligation for officer notesrental properties $ 9,479 -- 523
The accompanying notes are an integral part of the consolidated financial statements 5 6 SUN COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ________ 1. BASIS OF PRESENTATION: These unaudited condensed consolidated financial statements of Sun Communities, Inc., a Maryland corporationCorporation, (the "Company"), have been prepared pursuant to the Securities and Exchange Commission ("SEC") rules and regulations and should be read in conjunction with the financial statements and notes thereto of the Company as of December 31, 1996.1997. 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 the prior period financial statements to conform with current period presentation. 2. PORTFOLIO GROWTH: As of September 30, 1997, the Company has acquired or financed 8 communities comprising 2,948 developed sites and 338 development sites for $41.2 million. 3. RENTAL PROPERTY: The following summarizes rental property (in thousands):
September 30,March 31, December 31, 1998 1997 1996 ---------------------- ----------- Land $ 62,48179,662 $ 58,94367,677 Land improvements and buildings 546,005 510,726654,272 598,699 Furniture, fixtures, equipment 11,463 9,82613,575 12,676 Property under development 11,078 9,318 ---------- ------------ 631,027 588,8134,023 5,769 -------- ------- 751,532 684,821 Accumulated depreciation (44,685) (30,535) ---------- ------------55,634 50,084 -------- -------- Rental property, net $695,898 $634,737 ======== ========
During the first quarter of 1998, the Company acquired eight communities comprising 1,800 developed sites and 650 sites suitable for development for approximately $60 million. 3. DEBT: The following table sets forth certain information regarding debt (in thousands):
March 31, December 31, 1998 1997 --------- ------------ Collateralized term loan, interest at 7.01%, due September 9, 2007 $ 586,34244,776 $ 558,278 ========== ============44,889 Senior notes, interest at 7.375%, due May 1, 2001 65,000 65,000 Senior notes, interest at 7.625%, due May 1, 2003 85,000 85,000 Senior notes, interest at 6.97%, due December 3, 2007 35,000 35,000 Collateralized lease obligations, interest ranging from 6.1% to 6.3%, due March 10, 2001 through December 1, 2002 26,747 17,375 Mortgage note, interest at 8.24%, due April 1, 2006 7,037 -- Mortgage note, interest at 8.0%, due May 1, 2017 8,351 -- Mortgage note, other 979 -- -------- -------- $272,890 $247,264 ======== ========
The Company had $21 million available borrowings under its $75 million line of credit at March 31, 1998. The Company is negotiating an increase to its line of credit facility to $100 million. In May 1998, the Company will repay line of credit borrowings using proceeds received from the issuance of $65 million of senior notes which bear interest at 6.77% and mature May 14, 2015. 6 7 SUN COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ________ 4. NOTES RECEIVABLE: Notes receivable consisted of the following (amounts in thousands):
September 30,March 31, December 31, 1998 1997 1996 --------- ---------------------- MotgageMortgage notes receivable with minimum monthly interest payments at 7%, maturing June 30, 2012, collateralized by manufactured housing/ recreational vehicle communities located in Dover, DE (a)DE(a) $ 13,742 $ --15,293 $15,093 Second mortgage and third shared appreciation mortgage notes with monthly interest payments at an average rate of 17 percent and excess interest as defined, collateralized by manufactured housing communities located in Alberta, Canada -- 4,176 4,176 --------- ------------------ ------- $ 17,918 $ 4,176 ========= ==========15,293 $19,269 ======== =======
(a) The stated interest rate is capped at 12%. The excess of the interest earned at the stated rate over the pay rate is added to the principal balance and will also accrue interest at the stated rate. The officer notes are 10 year, LIBOR + 1.75% notes, with a minimum and maximum interest rate of 6% and 9%, respectively, collateralized by 500,000372,206 shares of the Company's common stock and 127,794 OP Units with substantial personal liability up to approximately $7.2 million.recourse. 5. DEBT:OTHER INCOME: The following table sets forth certain information regarding debtcomponents of other income are as follows for the three months ended March 31, 1998 and 1997 (in thousands):
September 30, December 31,1998 1997 1996 ---------- ---------------- ---- Secured term loan, interest at 7.01% due November 10, 2007Interest $ 45,000 $447 $436 Gain from mortgage notes receivable 937 -- Secured term loan, interest at LIBOR plus 1.50%, due November 1, 1997Equity earnings - SHS 175 43 Other, principally brokerage commissions 192 -- 35,000 Senior notes, interest at 7.375%, due May 1, 2001 65,000 65,000 Senior notes, interest at 7.625%, due May 1, 2003 85,000 85,000 ---------- --------- $ 195,000 $ 185,000 ========== =========------ ---- $1,751 $479 ====== ====
The Company had $55 million available borrowings under its $75 million linegain from mortgage notes receivable results from the repayment of credit at September 30, 1997.the Company's shared appreciation mortgages on two Canadian communities. 7 8 SUN COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ________ 6. OTHER INCOME: The components of interest and other income are as follows (in thousands):EARNINGS PER SHARE:
Nine Months Ended Three Months Ended September 30, September 30,March 31, 1998 1997 1996 1997 1996 -------- --------- ------- ------------ ---- InterestEarnings used for basic and diluted earnings per share computation $ 1,0277,301 $ 1,095 $ 328 $ 383 Equity earnings: Sun Home Services, Inc. ("SHS") 875 230 493 200 Bingham Financial Services Corporation, a subsidiary of SHS 209 -- 119 -- -------- ---------5,568 ======= ======== Total shares used for basic earnings per share 16,682 15,632 Dilutive securities: Stock options 203 160 ------- -------- $ 2,111 $ 1,325 $ 940 $ 583 ======== =========Total shares used for diluted earnings per share computation 16,885 15,792 ======= ========
Diluted earnings per share reflect the potential dilution that would occur if securities were exercised or converted into common stock. Convertible preferred limited partnership interests in Sun Communities Operating Limited Partnership ("POP Units") are excluded from the computations as their inclusion would have an antidilutive effect on earnings per share in 1998 and 1997. 8 9 SUN COMMUNITIES, INC. 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 Notesthe notes thereto. Capitalized terms are used as defined elsewhere in this Form 10-Q. RESULTS OF OPERATIONS Comparison of the ninethree months ended September 30,March 31, 1998 and 1997 and 1996 For the ninethree months ended September 30, 1997, netMarch 31, 1998, income before extraordinary item and minority interests increased by 35.926.9 percent from $15.4$7.0 million to $20.9$8.9 million, when compared to the ninethree months ended September 30, 1996.March 31, 1997. The increase was due to increased revenues of $19.3$7.0 million while expenses increased by $13.8$5.1 million. Income from property increased by $18.5$5.6 million from $50.1$23.0 million to $68.6$28.6 million or 36.924.4 percent, due to acquisitions ($15.44.0 million), lease up of manufactured home sites ($1.1.5 million) and increases in rents and other community revenues ($2.01.1 million). Interest and otherOther income increased by $.8$1.3 million from $1.3$.4 million to $2.1$1.7 million. The three months ended March 31, 1998 include a $.9 million or 59.3 percent due primarilygain from the repayment of the Company's shared appreciation mortgages on two Canadian communities. $.3 million of the increase in other income relates to the improved results atof SHS, and the inception of operations at Bingham Financial Services Corporation.including brokerage commissions. Property operating and maintenance increased by $4.4$1.3 million from $11.2$5.1 million to $15.6$6.4 million or 39.424.7 percent due primarily to acquisitions ($3.6.9 million). Real estate taxes increased by $1.6$.3 million from $4.0$1.9 million to $5.6$2.2 million or 39.916.3 percent due primarily to acquisitions ($1.4.2 million). General and administrative expenses increased by $.9$.2 million from $2.4$1.1 million to $3.3$1.3 million or 37.622.1 percent due primarily to increased staffing to manage the growth of the company. General and administrative expenses as a percentage of total revenues remained constant atincome from property declined from 4.7 percent.percent to 4.6 percent as a result of economies of scale resulting from the company's growth. Earnings before interest, taxes, depreciation and amortization ("EBITDA") increased by $12.3$5.1 million from $33.9$15.3 million to $46.2$20.4 million or 36.6 percent. EBITDA declined slightly as a percentage of revenues from 65.833.4 percent due primarily to 65.4 percent.acquisitions. Depreciation and amortization increased by $4.4$1.1 million from $10.5$4.8 million to $14.9$5.9 million or 41.823.2 percent due primarily to acquisitions. Interest expense increased by $2.5$2.1 million from $7.9$3.5 million to $10.4$5.6 million or 30.961.9 percent primarily due to increased average debt outstanding. The extraordinary item in the nine months ended September 30, 1996 results from the early extinguishment of debt and includes prepayment penalties and related deferred financing costs. 9 10 SUN COMMUNITIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ________ Comparison of the Three Months Ended September 30, 1997 and 1996 Income from property increased by $2.9 million from $20.3 million to $23.2 million or 14.3 percent, due to acquisitions ($1.7 million), lease up of sites ($.4 million) and increases in rents and other community revenues ($.8 million). Interest and other income increased by $.3 million from $.6 million to $.9 million or 61.2 percent due primarily to improved results at SHS and the inception of operations at Bingham Financial Services Corporation. Property operating and maintenance increased by $.7 million from $4.7 million to $5.4 million or 14.9 percent, due primarily to acquisitions ($.5 million). Real estate taxes increased by $.1 million from $1.7 million to $1.8 million or 6.8 percent due to acquisitions. General and administrative expenses increased by $.2 million from $.9 million to $1.1 million or 26.5 percent, due primarily to increased staffing to manage the growth of the company. General and administrative expenses as a percentage of total revenues increased from 4.2 percent to 4.6 percent. Earnings before interest, taxes, depreciation and amortization ("EBITDA") increased by $2.2 million from $13.5 million to $15.7 million or 16.3 percent. EBITDA increased as a percentage of revenues from 64.9 percent to 65.3 percent. Depreciation and amortization increased by $1.1 million from $4.0 million to $5.1 million or 28.1 percent due primarily to acquisitions. Interest expense increased by $.4 million from $3.2 million to $3.6 million or 11.0 percent due to increased debt outstanding. 10 11 SUN COMMUNITIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ________ SAME PROPERTY INFORMATION The following table reflects property-level financial information as of and for the ninethree months ended September 30, 1997March 31, 1998 and 1996.1997. The "Same Property" data represents information regarding the operation of communities owned as of January 1, 1996.1997. Site, occupancy, and rent data for those communities is presented as of the last day of each period presented. The table includes sites where the Company's interest is in the form of shared appreciation mortgage notes or where the Company is providing financing and managing the properties. Such amounts relate to 1,243the total portfolio data and include 923 and 1,187 sites in 19961998 and 2,040 sites in 1997, and were formerly classified in other income.respectively.
SAME PROPERTY TOTAL PORTFOLIO ------------------ ---------------------------------- --------------- 1998 1997 19961998 1997 1996 ------ ------ ------ ----------- ---- ---- ---- Income from property $37,911 $ 35,618 $ 68,632 $ 50,128$19,123 $17,815 $28,605 $22,987 ------- -------- -------- --------------- ------- ------- Property operating expenses: Property operating and maintenance 7,569 7,183 15,620 11,2043,410 3,268 6,419 5,147 Real estate taxes 2,893 2,696 5,578 3,9871,680 1,561 2,167 1,863 ------- -------- -------- --------------- ------- ------- Property operating expenses 10,462 9,879 21,198 15,191 -------- -------- -------- --------5,090 4,829 8,586 7,010 ------- ------- ------- ------- Property EBITDA $ 27,449 $ 25,739 $ 47,434 $ 34,937 ======== ======== ======== ========$14,033 $12,986 $20,019 $15,977 ======= ======= ======= ======= Number of properties 54 54 95 7974 74 104 86 Developed sites 18,744 18,351 33,326 28,77724,798 24,239 36,720 30,700 Occupied sites 17,786 17,256 30,965 26,86723,622 22,921 34,122 28,500 Occupancy % 94.9%95.3 (1) 94.0%94.6 (1) 95.2%94.3 (1) 94.8%94.7 (1) Weighted average monthly rent per site $ 249(1)262 (1) $ 239(1)251 (1) $ 256(1)263 (1) $ 248254 (1) Sites available for development 1,728 2,277 3,288 3,4612,200 2,667 4,700 3,552 Sites in development 319 681 762 662684 579 1,269 849
(1) Occupancy % and weighted average rent relates to manufactured housing sites, excluding recreational vehicle sites. On a same property basis, property revenues increased by $2.3$1.3 million from $35.6$17.8 million to $37.9$19.1 million, or 6.47.3 percent, due primarily to increases in rents and occupancy related charges including water and property tax pass through. Also contributing to revenue growth was the increase of 530701 leased sites at September 30, 1997March 31, 1998 compared to September 30, 1996.March 31, 1997. Property operating expenses increased by $.6$.3 million from $9.9$4.8 million to $10.5$5.1 million or 5.95.4 percent, due to increased occupancies and costs and increases in assessments and millage rates by local taxing authorities. Property EBITDA increased by $1.7$1.0 million from $25.7$13.0 million to $27.4$14.0 million, or 6.68.1 percent. 11Sites available for development in the total portfolio increased by 1,148 from 3,552 to 4,700 primarily in conjunction with land acquisitions for new communities to be developed in Michigan, Texas and Nevada. 10 1211 SUN COMMUNITIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ________ LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreasedincreased by $7.5$8.6 million to $1.7$10.8 million at September 30, 1997March 31, 1998 compared to $9.2$2.2 million at December 31, 19961997 primarily because cash provided by operating and financing activities exceeded cash used in investing activities exceeded cash provided by operating activities and financing activities. Net cash provided by operating activities increased by $6.6$4.4 million to $34.5$19.2 million for the ninethree months ended September 30, 1997March 31, 1998 compared to $27.9$14.8 million for the same period in 1996. Net income1997. Income before minority interests, depreciation and amortization minority interests and extraordinary itemgain related to mortgage notes receivable increased by $14.6$2.1 million whichand the remaining balance was offset by $8.0 million dueattributable to changes in other assets and liabilities.working capital. Net cash used in investing activities increased by $3.9$25.7 million to $71.5$39.5 million from $67.6$13.8 million due to reduced investments in rental properties more than$29.9 million related to acquisition activities offset by increased investments in affiliates and$4.9 million from the collection of mortgage and officer notes.notes receivable. Net cash provided by financing activities was $29.5increased by $28.6 million to $28.9 million for the ninethree months ended September 30, 1997 primarily dueMarch 31, 1998 compared to $27.6$.3 million of proceeds received from debt borrowings, net of financing costs, and the proceeds from the sale of common stock pursuant to the Company's Dividend Reinvestment Plan exceeding the distributions paid to Common OP Unit holders. Forfor the same period in 1996, net cash provided1997. $37.0 million of this increase was due to additional debt borrowings offset by financing activities was $49.3a $7.7 million due toreduction in the proceeds received from the sale of stock options and debt offset by debt repayments.dividend reinvestment plan. The Company expects to meet its short-term liquidity requirements generally through its working capital provided by operating activities and proceeds from the Company's Dividend Reinvestment Plan. The Company considers these sources to be adequate and anticipates they will continue to be adequate to meet operating requirements, capital improvements, investment in site development, and payment of distributions by the Company in accordance with REIT requirements in both the short and long term.activities. The Company expects to meet certain long-term liquidity requirements such as scheduled debt maturities and property acquisitions through the issuance of equity or debt securities, or interests in the Sun Communities Operating Limited Partnership. The Company considers these sources to be adequate and anticipates they will continue to be adequate to meet operating requirements, capital improvements, investment in development, and payment of distributions by the Company in accordance with REIT requirements in both the short and long term. The Company can also meet these short-term and long-term requirements by utilizing its $75 million line of credit which bears interest at LIBOR plus 1.25%.90% and is due November 1, 1999. The Company is negotiating an increase to its line of credit facility to $100 million. In May 1998, the Company issued $65 million of senior notes which bear interest at 6.77% and mature May 14, 2015. Proceeds from this debt issuance will be used to repay line of credit borrowings. At September 30, 1997,March 31, 1998, the Company's debt to total market capitalization approximated 23%32% (assuming conversion of all Common and Preferred OP Units to shares of common stock), with a weighted average maturity of approximately 5.95.5 years and a weighted average interest rate of 7.4%7.2%. Recurring capital expenditures approximated $3.8 million, including $.4$1.0 million for corporate office expansion, for the ninethree months ended September 30, 1997.March 31, 1998. 11 12 13 SUN COMMUNITIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ________ OTHER Funds from operations ("FFO") is defined by the National Association of Real Estate Investment Trusts ("NAREIT") as "net income (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring and sales of property, plus 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 calculates FFO for the periods ended September 30,March 31, 1998 and 1997 and 1996:(in thousands):
(IN THOUSANDS) FOR THE NINE MONTHS FOR THE THREE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 301998 1997 1996 1997 1996 ------ ------ ------ ------ Income before allocation to minority interests 20,909 15,381interest $ 6,9928,936 $ 6,2787,039 Add depreciation and amortization, net of corporate office depreciation 14,837 10,475 5,120 4,0005,898 4,791 Deduct distribution to Preferred OP Units (1,879) (1,043) (627) (626) (626) Deduct gain from mortgage notes receivable (937) -- -------- ------- ------- --------------- Funds from operations $ 33,867 $24,813 $11,48513,271 $ 9,65211,204 ======== ======= ======= =============== Weighted average shares and common OP unitsUnits outstanding 18,296 15,049 18,602 17,018 ======== ======= ======= =======used for basic FFO per share/unit 19,017 18,005 Dilutive securities: Stock options 203 160 Convertible preferred OP Units 1,197 1,283 -------- --------- Weighted average OP Units used for diluted FFO per share/unit 20,417 19,448 ======== ======== FFO, per share/unit: Basic $ 1.85 $ 1.650.70 $ 0.62 ======== ======== Diluted $ 0.570.68 $ 0.61 ======== ======= ======= ===============
12 13 14SUN COMMUNITIES, INC. PART II ITEM 5. - RATIOS OF EARNINGS TO FIXED CHARGES The Company's ratios of earnings to fixed charges for the years December 31, 1992, 1993, 1994, 1995, and 1996, and 1997, and the ninethree months ended September 30, 1997March 31, 1998 were 1.05:1, 1.05:1, 2.79:1, 3.03:1, 2.49:1, 2.40:1, and 2.46:2.28:1, respectively. ITEM 6.(A)(a) - EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K EXHIBIT NO. DESCRIPTION - ----------- ----------- 12.1 Ratios of Earnings to Fixed Charges 27 Financial Data Schedule ITEM 6.(B)(b) - REPORTS ON FORM 8-K The Company did not file any reportsfiled a report on Form 8-K, duringdated December 31, 1997, with the period coveredSecurities and Exchange Commission on January 7, 1998 relating to 1997 acquisitions, as amended by thisa Report on Form 10-Q.8-K/A filed on March 16, 1998 to include financial data for such acquisitions. 13 14 15 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 12, 1997May 11, 1998 SUN COMMUNITIES, INC. BY: /s/Gary A. Shiffman ------------------------------------ Gary A. Shiffman, President BY: /s/Jeffrey P. Jorissen -------------------------------------------------------------------------- Jeffrey P. Jorissen, Chief Financial Officer andAnd Secretary 14 15 16SUN COMMUNITIES, INC. EXHIBIT INDEX PAGE FILED NUMBER EXHIBIT NO. DESCRIPTION HEREWITH HEREIN - ----------- ----------- -------- ------
PAGE FILED NUMBER EXHIBIT NO. DESCRIPTION HEREWITH HEREIN 12.1 Ratio of Earnings to Fixed Charges X 16 27 Financial Data Schedule X 16
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