1
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, 2001.
OR
[ ] Transition pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER 1-2616
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
Suite 145
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:
Number of shares of Common Stock, $.01 par value per share, outstanding
as of April 30, 2001: 17,489,151
Page 1 of 16
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SUN COMMUNITIES, INC.
INDEX
PAGES
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PART I
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Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 2001 and
December 31, 2000 3
Consolidated Statements of Income for the Three Months
Ended March 31, 2001 and 2000 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2001 and 2000 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
PART II
- -------
Item 2. Changes in Securities and Use of Proceeds 15
Item 6.(a) Exhibits required by Item 601 of Regulation S-K 15
Item 6.(b) Reports on Form 8-K 15
Signatures 16
SUN COMMUNITIES, INC.
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3
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
ASSETS 2001 2000
--------- ---------
Investment in rental property, net $ 751,936 $ 751,820
Cash and cash equivalents 18,465 18,466
Notes and other receivables 135,609 156,349
Investment in and advances to affiliate 8,802 7,930
Other assets 31,108 32,063
--------- ---------
Total assets $ 945,920 $ 966,628
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Line of credit $ -- $ 12,000
Debt 442,384 452,508
Accounts payable and accrued expenses 20,245 16,304
Deposits and other liabilities 10,070 8,839
--------- ---------
Total liabilities 472,699 489,651
--------- ---------
Minority interests 141,201 140,943
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value, 10,000 shares
authorized; no shares issued and outstanding -- --
Common stock, $.01 par value, 100,000 shares
authorized; 17,591 and 17,516 issued and
outstanding for 2001 and 2000, respectively 176 175
Paid-in capital 393,799 393,771
Officers' notes (11,172) (11,257)
Unearned compensation (4,525) (4,746)
Distributions in excess of accumulated earnings (39,874) (41,688)
Treasury stock, at cost, 202 and 7 shares for 2001 and
2000, respectively (6,384) (221)
--------- ---------
Total stockholders' equity 332,020 336,034
--------- ---------
Total liabilities and stockholders'
equity $ 945,920 $ 966,628
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
SUN COMMUNITIES, INC.
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4
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
2001 2000
------- -------
Revenues:
Income from property $34,625 $33,129
Other income 4,466 2,751
------- -------
Total revenues 39,091 35,880
------- -------
Expenses:
Property operating and maintenance 7,411 7,172
Real estate taxes 2,256 2,247
Property management 784 740
General and administrative 1,142 1,051
Depreciation and amortization 7,854 7,546
Interest 8,380 6,694
------- -------
Total expenses 27,827 25,450
------- -------
Income before other, net and minority interests 11,264 10,430
Other, net gain from property dispositions 3,517 --
------- -------
Income before minority interest 14,781 10,430
Less income allocated to minority interests:
Preferred OP Units 1,976 1,915
Common OP Units 1,701 1,158
------- -------
Net income $11,104 $ 7,357
======= =======
Earnings per common share:
Basic $ 0.64 $ 0.43
======= =======
Diluted $ 0.64 $ 0.42
======= =======
Weighted average common shares outstanding:
Basic 17,365 17,286
======= =======
Diluted 17,474 17,345
======= =======
Distributions declared per common
share outstanding $ 0.51 $ 0.51
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
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5
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(IN THOUSANDS)
2001 2000
-------- --------
Cash flows from operating activities:
Net income $ 11,104 $ 7,357
Adjustments to reconcile net income to net
cash provided by operating activities:
Income allocated to minority interests 1,701 1,158
Net gain from property dispositions (3,517) --
Depreciation and amortization 7,854 7,546
Amortization of deferred financing costs 273 201
Increase in other assets (197) (1,843)
Increase in accounts payable and other liabilities 5,172 2,925
-------- --------
Net cash provided by operating activities 22,390 17,344
-------- --------
Cash flows from investing activities:
Investment in rental properties (19,632) (8,090)
Proceeds related to property dispositions 16,212 --
Investment in and advances to affiliate (872) (18,541)
Repayments of (investments in) notes receivable, net 20,825 (1,468)
-------- --------
Net cash provided by (used in) investing activities 16,533 (28,099)
-------- --------
Cash flows from financing activities:
Borrowings (repayments) on line of credit, net (12,000) 23,000
Repayments on notes payable and other debt (10,124) (710)
Net proceeds from issuance of common stock 77 33
Treasury stock purchases (6,163) --
Distributions (10,714) (10,270)
Payments for deferred financing costs -- (79)
-------- --------
Net cash provided by (used in) financing activities (38,924) 11,974
-------- --------
Net increase (decrease) in cash and cash equivalents (1) 1,219
Cash and cash equivalents, beginning of period 18,466 11,330
-------- --------
Cash and cash equivalents, end of period $ 18,465 $ 12,549
======== ========
Supplemental Information:
Debt assumed for rental properties $ -- $ 1,700
Cancellation of common stock previously issued as
unearned compensation $ 48 $ --
The accompanying notes are an integral part of the consolidated financial
statements
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SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
These unaudited condensed consolidated financial statements of Sun
Communities, Inc., a Maryland corporation, (the "Company"), have been
prepared pursuant to the Securities and Exchange Commission ("SEC")
rules and regulations and should be read in conjunction with the
financial statements and notes thereto of the Company as of December
31, 2000. 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.
The Company owns 100 percent of the preferred stock of an affiliate,
Sun Home Services, Inc. ("Sun Homes"), is entitled to 95 percent of the
operating cash flow of Sun Homes, and accounts for its investment
utilizing the equity method of accounting. The common stock is owned by
two officers of the Company and the estate of a former officer of the
Company who are entitled to receive five percent of the operating cash
flow.
2. RENTAL PROPERTY:
The following summarizes rental property (in thousands):
March 31, December 31,
2001 2000
------------------ ---------------------
Land $ 75,871 $ 76,120
Land improvements and buildings 741,464 739,858
Furniture, fixtures, equipment 17,504 17,498
Land held for future development 14,090 12,042
Property under development 22,222 21,859
------------------ ---------------------
871,151 867,377
Accumulated depreciation (119,215) (115,557)
------------------- ----------------------
Rental property, net $ 751,936 $ 751,820
================== =====================
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SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. NOTES RECEIVABLE:
Notes receivable consisted of the following (in thousands):
March 31, December 31,
2001 2000
-------- --------
Mortgage notes receivable with minimum monthly interest payments at
LIBOR based floating rates of approximately LIBOR +3.0%,
maturing at various dates from September 2001 through June
2012, collateralized by manufactured home communities $ 65,461 $ 60,491
Note receivable, subordinated, collateralized by all assets of
the borrower, bears interest at LIBOR + 2.35%
and payable on demand 25,966 35,849
Note receivable, subordinated, bears interest at 9.75%
and matures September 2005 4,000 4,000
Installment loans on manufactured homes with interest payable monthly
at a weighted average interest rate
and maturity of 11% and 20 years, respectively 15,841 32,426
Other receivables 24,341 23,583
-------- --------
$135,609 $156,349
======== ========
Officers' notes, presented as a reduction to stockholders' equity in the
balance sheet, are 10 year, LIBOR + 1.75% notes, with a minimum and
maximum interest rate of 6% and 9%, respectively, collateralized by
366,206 shares of the Company's common stock and 127,794 OP Units with
substantial personal recourse.
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SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. DEBT:
The following table sets forth certain information regarding debt (in
thousands):
March 31, December 31,
2001 2000
-------- --------
Collateralized term loan, interest at 7.01%,
due September 9, 2007 $ 43,253 $ 43,393
Senior notes, interest at 8.20%, due August 15, 2008 100,000 100,000
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
Senior notes, interest at 6.97%, due December 3, 2007 35,000 35,000
Callable/redeemable notes, interest at 6.77%, due
May 14, 2015, callable/redeemable May 16, 2005 65,000 65,000
Capitalized lease obligations, interest at 6.1%, due
through December 2003 26,475 36,009
Mortgage notes, other 22,656 23,106
-------- --------
$442,384 $452,508
======== ========
The Company's entire $125 million line of credit was available to borrow
at March 31, 2001. Borrowings under the line of credit bear interest at
the rate of LIBOR plus 1.0% and mature January 1, 2003. The Company
retired the $65 million of senior notes maturing May 1, 2001 by drawing
from its line of credit.
5. OTHER INCOME:
The components of other income are as follows for the periods ended
March 31, 2001 and 2000 (in thousands):
2001 2000
------- -------
Interest income $ 3,453 $ 2,071
Income (loss) from affiliate 165 (81)
Other income 848 761
------- -------
$ 4,466 $ 2,751
======= =======
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SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. EARNINGS PER SHARE (IN THOUSANDS):
For the Three Months
Ended March 31,
2001 2000
------- -------
Earnings used for basic and diluted earnings per
share computation $11,104 $ 7,357
======= =======
Total shares used for basic earnings per share 17,365 17,286
Dilutive securities, principally stock options 109 59
------- -------
Total weighted average shares used for diluted earnings
per share computation 17,474 17,345
======= =======
Diluted earnings per share reflect the potential dilution that would
occur if dilutive securities were exercised or converted into common
stock. Convertible POP Units are excluded from the computations as their
inclusion would have an anti-dilutive effect on earnings per share in
2001 and 2000.
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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 the notes thereto. Capitalized terms are used as
defined elsewhere in this Form 10-Q.
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 2001 and 2000
For the three months ended March 31, 2001, income before other, net and minority
interests increased by 8.0 percent from $10.4 million to $11.2 million, when
compared to the three months ended March 31, 2000. The increase was due to
increased revenues of $3.2 million while expenses increased by $2.4 million.
Income from property increased by $1.5 million from $33.1 million to $34.6
million, or 4.5 percent, due to rent increases and other community revenues
($1.8 million) and acquisitions ($0.8 million), offset by a revenue reduction of
$1.1 million due to property dispositions.
Other income increased by $1.7 million from $2.8 million to $4.5 million due
primarily to a $1.4 million increase in interest income.
Property operating and maintenance expenses increased by $0.2 million from $7.2
million to $7.4 million, or 3.3 percent, due to acquisitions ($0.1 million) and
other community expenses, net.
Real estate taxes remained constant at $2.2 million for both periods.
Property management expenses remained constant at approximately $0.8 million for
both periods representing 2.3 percent and 2.2 percent of income from property in
2001 and 2000, respectively.
General and administrative expenses increased by $0.1 million from $1.0 million
to $1.1 million, representing 2.9 percent of total revenues in 2001 and 2000.
Earnings before interest, taxes, depreciation and amortization ("EBITDA", an
alternative financial performance measure that may not be comparable to
similarly titled measures reported by other companies, defined as total revenues
less property operating and maintenance, real estate taxes, property management,
and general and administrative expenses) increased by $2.8 million from $24.7
million to $27.5 million. EBITDA as a percent of revenues increased to 70.3
percent in 2001 compared to 68.8 percent in 2000.
Depreciation and amortization increased by $0.3 million from $7.5 million to
$7.8 million, or 4.1 percent due primarily to the net additional investment in
rental properties.
Interest expense increased by $1.7 million from $6.7 million to $8.4 million due
primarily to financing the additional investments in rental property and notes
receivable.
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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 three months ended March 31, 2001 and 2000. The "Same Property" data
represents information regarding the operation of communities owned as of
January 1, 2000 and March 31, 2001. Site, occupancy, and rent data for those
communities is presented as of the last day of each period presented. The "Total
Portfolio" column differentiates from the "Same Property" column by including
financial information for managed but not owned communities, recreational
vehicle communities, new development and acquisition communities.
SAME PROPERTY TOTAL PORTFOLIO
---------------------- ---------------------
2001 2000 2001 2000
------- ------- ------- -------
Income from property $25,909 $24,572 $34,625 $33,129
------- ------- ------- -------
Property operating expenses:
Property operating and maintenance 4,574 4,452 7,411 7,172
Real estate taxes 1,951 1,860 2,256 2,247
------- ------- ------- -------
Property operating expenses 6,525 6,312 9,667 9,419
------- ------- ------- -------
Property EBITDA $19,384 $18,260 $24,958 $23,710
======= ======= ======= =======
Number of operating properties 90 90 109 109
Developed sites 30,209 29,976 38,028 38,313
Occupied sites 28,724 28,563 35,338 35,636
Occupancy % 95.1% 95.3% 95.0%(1) 95.1%(1)
Weighted average monthly rent per site $ 296 $ 283 $ 294(1) $ 282(1)
Sites available for development 1,913 2,163 4,476 5,938
Sites planned for development in current year 185 438 593 1,351
(1) Occupancy % and weighted average rent relates to manufactured housing sites,
excluding recreational vehicle sites.
On a same property basis, property EBITDA increased by $1.1 million from $18.3
million to $19.4 million, or 6.2 percent. Property revenues increased by $1.3
million from $24.6 million to $25.9 million, or 5.4 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 161
leased sites at March 31, 2001 compared to March 31, 2000.
Property operating expenses increased by $0.2 million from $6.3 million to $6.5
million or 3.4 percent, due to increased occupancies and costs.
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SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents remained approximately $18.5 million at March 31, 2001
and December 31, 2000 because cash provided by operating and investing
activities approximated cash used in financing activities.
Net cash provided by operating activities increased by $5.0 million to $22.4
million for the three months ended March 31, 2001 compared to $17.3 million for
the same period in 2000. This increase was primarily due to accounts payable and
other liabilities increasing by $2.2 million, other assets decreasing by $1.7
million and a $1.1 million increase in income before minority interests,
depreciation and amortization and net gain from property dispositions.
Net cash provided by investing activities was $16.5 million for the three months
ended March 31, 2001 compared to $28.1 million used in investing activities
during the same period in 2000. This change was primarily due to a $22.3 million
increase in investments in notes receivable, net, proceeds related to property
dispositions of $16.2 million and $17.7 million related to investments in and
advances to affiliates offset by a $11.6 million increase in rental property
acquisition activities.
Net cash used in financing activities was $38.9 million for the three months
ended March 31, 2001 compared to $12.0 million provided by financing activities
during the same period in 2000. This change was primarily because of a $35.0
million reduction in borrowings on the line of credit, $9.3 million repayments
on notes payable and other debt, net of financing costs, treasury stock
purchases of $6.2 million and distributions increasing by $0.4 million.
The Company expects to meet its short-term liquidity requirements generally
through its working capital provided by operating 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 Operating 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 may also meet these short-term and
long-term requirements by utilizing its $125 million line of credit which bears
interest at LIBOR plus 1.0% and is due January 1, 2003. The Company retired the
$65 million of senior notes maturing May 1, 2001 by drawing from its line of
credit.
At March 31, 2001, the Company's debt to total market capitalization
approximated 36.1% (assuming conversion of all Common and Preferred OP Units to
shares of common stock). The debt has a weighted average maturity of
approximately 5.9 years and a weighted average interest rate of 7.4%.
Recurring capital expenditures approximated $0.9 million and $1.0 million for
the three months ended March 31, 2001 and 2000, respectively.
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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 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
calculates FFO for both basic and diluted purposes for the three months ended
March 31, 2001 and 2000 (in thousands):
2001 2000
-------- --------
Net income $ 11,104 $ 7,357
Deduct other, net (3,517) --
Add:
Minority interest in earnings to
common OP Unit holders 1,701 1,158
Depreciation and amortization, net
of corporate office depreciation 7,779 7,481
-------- --------
Funds from operations $ 17,067 $ 15,996
======== ========
Weighted average common shares and OP Units
outstanding used for basic per share/unit data 20,025 20,006
Dilutive securities:
Stock options and awards 109 59
-------- --------
Weighted average common shares and OP Units
used for diluted per share/unit data 20,134 20,065
======== ========
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SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OTHER CONTINUED:
Special Note Regarding Forward-Looking Statements
This Form 10-Q contains various "forward-looking statements" within the meaning
of the Securities Act of 1933 and the Securities Exchange Act of 1934, and the
Company intends that such forward-looking statements be subject to the safe
harbors created thereby. The words "may", "will", "expect", "believe",
"anticipate", "should", "estimate", and similar expressions identify
forward-looking statements. These forward-looking statements reflect the
Company's current views with respect to future events and financial performance,
but are based upon current assumptions regarding the Company's operations,
future results and prospects, and are subject to many uncertainties and factors
relating to the Company's operations and business environment which may cause
the actual results of the Company to be materially different from any future
results expressed or implied by such forward-looking statements. Please see the
section entitled "Factors That May Affect Future Results" of the Company's
Annual Report on Form 10-K for the year ended December 31,2000 filed with the
Securities and Exchange Commission for a list of uncertainties and factors.
Such factors include, but are not limited to, the following: (i) changes in the
general economic climate; (ii) increased competition in the geographic areas in
which the Company owns and operates manufactured housing communities; (iii)
changes in government laws and regulations affecting manufactured housing
communities; and (iv) the ability of the Company to continue to identify,
negotiate and acquire manufactured housing communities and/or vacant land which
may be developed into manufactured housing communities on terms favorable to the
Company. The Company undertakes no obligation to publicly update or revise any
forward-looking statements whether as a result of new information, future
events, or otherwise.
Recent Accounting Pronouncements
In June 1998, FASB issued SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. The Company adopted SFAS 133 as amended
by SFAS 137 and 138 effective January 1, 2001. There was no effect from the
application of SFAS 133 on the earnings and financial position of the Company as
the Company had no derivative instruments at March 31, 2001 and December 31,
2000.
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SUN COMMUNITIES, INC.
PART II
ITEM 2. - CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended March 31, 2001, the Company issued an aggregate of
64,186 shares of Common Stock to partners of the Operating Partnership, all of
whom were accredited investors as defined in Rule 501 of Regulation D, in
exchange for Common OP Units in the Operating Partnership.
All of the 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 there under.
ITEM 6.(a) - EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
None
ITEM 6.(b) - REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the period covered by
this Form 10-Q.
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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 14, 2001
SUN COMMUNITIES, INC.
BY: /s/ Jeffrey P. Jorissen
---------------------------------------------
Jeffrey P. Jorissen, Chief Financial Officer
and Secretary
(Duly authorized officer and principal
financial officer)
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