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, 2002.
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, 2002: 17,737,922
Page 1 of 21
SUN COMMUNITIES, INC.
INDEX
PAGES
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PART I
- ------
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 2002 and
December 31, 2001 3
Consolidated Statements of Income for the Three Months
Ended March 31, 2002 and 2001 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2002 and 2001 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-19
PART II
- -------
Item 6.(a) Exhibits required by Item 601 of Regulation S-K 19
Item 6.(b) Reports on Form 8-K 19
Signatures 20
2
SUN COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND DECEMBER 31, 2001
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
ASSETS 2002 2001
--------------- -------------
Investment in rental property, net $ 856,892 $ 813,334
Cash and cash equivalents 4,725 4,587
Notes and other receivables 86,552 91,372
Investment in and advances to affiliates 47,845 55,451
Other assets 29,732 29,705
--------------- -------------
Total assets $ 1,025,746 $ 994,449
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Line of credit $ 125,000 $ 93,000
Debt 394,784 402,198
Accounts payable and accrued expenses 18,385 17,683
Deposits and other liabilities 10,002 8,929
--------------- -------------
Total liabilities 548,171 521,810
--------------- -------------
Minority interests 147,279 142,998
--------------- -------------
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; 17,866 and 17,763 issued and
outstanding for 2002 and 2001, respectively 179 178
Paid-in capital 401,702 399,789
Officers' notes (10,970) (11,004)
Unearned compensation (6,747) (6,999)
Distributions in excess of accumulated earnings (47,484) (45,939)
Treasury stock, at cost, 202 shares (6,384) (6,384)
--------------- --------------
Total stockholders' equity 330,296 329,641
--------------- -------------
Total liabilities and stockholders'
equity $ 1,025,746 $ 994,449
=============== =============
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, 2002 AND 2001
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
2002 2001
----------- -----------
Revenues:
Income from property $ 38,397 $ 34,543
Equity in income (loss) from affiliates (222) 165
Other income 2,508 4,301
----------- -----------
Total revenues 40,683 39,009
----------- -----------
Expenses:
Property operating and maintenance 8,171 7,362
Real estate taxes 2,547 2,248
Property management 758 784
General and administrative 1,319 1,142
Depreciation and amortization 9,113 7,805
Interest 7,846 8,380
----------- -----------
Total expenses 29,754 27,721
----------- -----------
Income before gain from property dispositions, net
and minority interests 10,929 11,288
Gain from property dispositions, net -- 3,517
----------- -----------
Income before minority interest 10,929 14,805
Less income allocated to minority interests:
Preferred OP Units 1,919 1,976
Common OP Units 1,176 1,704
----------- -----------
Income from continuing operations 7,834 11,125
Income (loss) from discontinued operations 280 (21)
----------- -----------
Net income $ 8,114 $ 11,104
=========== ===========
Basic earnings per share:
Continuing operations $ 0.45 $ 0.64
Discontinued operations 0.02 --
----------- -----------
Net income $ 0.47 $ 0.64
=========== ===========
Diluted earnings per share:
Continuing operations $ 0.44 $ 0.64
Discontinued operations 0.02 --
----------- -----------
Net income $ 0.46 $ 0.64
=========== ===========
Weighted average common shares outstanding:
Basic 17,322 17,365
=========== ===========
Diluted 17,538 17,474
=========== ===========
Distributions declared per common
share outstanding $ 0.55 $ 0.53
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
4
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(IN THOUSANDS)
2002 2001
------------- ------------
Cash flows from operating activities:
Net income $ 8,114 $ 11,104
Adjustments to reconcile net income to net
cash provided by operating activities:
Income allocated to minority interests 1,176 1,704
Gain from property dispositions, net -- (3,517)
(Income) loss from discontinued operations (280) 21
Operating income included in discontinued operations 11 25
Depreciation and amortization 9,113 7,805
Amortization of deferred financing costs 247 273
Increase in other assets (1,271) (197)
Increase in accounts payable and other liabilities 1,775 5,172
------------- ------------
Net cash provided by operating activities 18,885 22,390
------------- ------------
Cash flows from investing activities:
Investment in rental properties (42,728) (19,632)
Proceeds related to property dispositions 3,288 16,212
Investment in and advances to affiliates 7,380 (872)
Repayments of notes receivable, net 4,744 20,825
------------- ------------
Net cash provided by (used in) investing activities (27,316) 16,533
------------- ------------
Cash flows from financing activities:
Borrowings (repayments) on line of credit, net 32,000 (12,000)
Repayments on notes payable and other debt (14,227) (10,124)
Proceeds from issuance of common stock 1,891 --
Treasury stock and operating partnership unit purchases, net -- (6,086)
Distributions (11,095) (10,714)
------------- ------------
Net cash provided by (used in) financing activities 8,569 (38,924)
------------- ------------
Net increase (decrease) in cash and cash equivalents 138 (1)
Cash and cash equivalents, beginning of period 4,587 18,466
------------- ------------
Cash and cash equivalents, end of period $ 4,725 $ 18,465
============= ============
Supplemental Information:
Preferred OP Units issued for rental properties $ 4,500 $ --
Debt assumed for rental properties $ 6,813 $ --
Cancellation of common stock previously issues as
unearned compensation $ -- $ 48
The accompanying notes are an integral part of the consolidated
financial statements
5
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, 2001. The
following notes to consolidated financial statements present interim
disclosures as required by the SEC. The accompanying consolidated financial
statements reflect, in the opinion of management, all adjustments necessary
for a fair presentation of the interim financial statements. All such
adjustments are of a normal and recurring nature.
2. INVESTMENTS IN AND ADVANCES TO AFFILIATES:
Sun Home Services ("SHS") provides home sales and other services to current
and prospective tenants. Through the 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.
The Company owns approximately a thirty percent (30%) interest in Origen
Financial LLC ("Origen"), which company holds all of the operating assets
of Bingham Financial Services Corporation ("BFSC") and its subsidiaries.
BFSC owns approximately a twenty percent (20%) interest in Origen and the
Company (together with the other investors in Origen) has certain rights
to purchase its pro-rata share of BFSC's interest in Origen at fair value.
Also included in Investments in Affiliates is the Company's investment
in and advances to SunChamp, a development entity comprising eleven new
communities. The Company owns approximately fourteen percent (14%) of
SunChamp at March 31, 2002.
6
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RENTAL PROPERTY:
The following summarizes rental property (in thousands):
March 31, December 31,
2002 2001
-------------- -----------------
Land $ 84,968 $ 82,326
Land improvements and buildings 860,180 818,043
Furniture, fixtures, equipment 21,871 20,700
Land held for future development 16,938 16,810
Property under development 20,036 15,777
------------- ---------------
1,003,993 953,656
Accumulated depreciation (147,101) (140,322)
------------- ---------------
Rental property, net $ 856,892 $ 813,334
============= ===============
During the first quarter of 2002, the Company acquired two communities
totaling 889 sites for approximately $37 million.
In January 2002, in conjunction with a property acquisition, the Company
issued 100,000 Series B-2 Preferred OP Units that bear interest at the rate
of 6.0 percent per annum for the first five years and 7.0 percent per annum
thereafter. The Series B-2 Preferred Units are convertible into Common OP
Units in January 2005 at $45 per unit and redeemable at $45 per unit in
January 2007 and, upon certain circumstances, at times thereafter.
In October 2001, the FASB issued FAS Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement is effective for fiscal years beginning
after December 15, 2001 and interim periods within those fiscal years.
During the first quarter of 2002, the Company sold one property with a net
book value of approximately $2.9 million resulting in a gain of
approximately $0.4 million. The adoption of this statement requires all
dispositions of properties to be disclosed as discontinued operations in
the period in which they occur and prior periods to be reclassified to
conform with the current period presentation. At December 31, 2001, this
property was classified as held for use.
7
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. NOTES AND OTHER RECEIVABLES (AMOUNTS IN THOUSANDS):
March 31, December 31,
2002 2001
----------- ------------
Mortgage and other notes receivable, primarily with minimum monthly
interest payments at LIBOR based floating rates of approximately
LIBOR + 3.0%, maturing at various dates through June 2012,
substantially collateralized by manufactured home communities. $ 57,332 $ 63,403
Installment loans on manufactured homes with interest payable monthly
at a weighted average interest rate
and maturity of 8.5% and 20 years, respectively. 12,672 13,474
Other receivables 16,548 14,495
----------- ------------
$ 86,552 $ 91,372
=========== ============
At March 31, 2002, the maturities of mortgages and other notes receivables
are approximately as follows: 2002-$18.6 million; 2003-$1.5 million;
2004-$3.6 million; 2005-and after $33.6 million.
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 364,206 shares
of the Company's common stock and 127,794 OP Units with substantial
personal recourse.
5. DEBT:
The following table sets forth certain information regarding debt (in
thousands):
March 31, December 31,
2002 2001
-------------- --------------
Collateralized term loan, interest at 7.01%,
due September 9, 2007 $ 42,671 $ 42,820
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
Senior notes, interest at 8.20%, due August 15, 2008 100,000 100,000
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 25,891 26,045
Mortgage notes, other 41,222 48,333
--------------- ---------------
$ 394,784 $ 402,198
=============== ===============
8
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. DEBT, CONTINUED:
The Company had $25 million of its $150 million line of credit available to
borrow at March 31, 2002. Borrowings under the line of credit bear interest
at the rate of LIBOR plus 1.0% and mature January 1, 2003.
6. OTHER INCOME:
The components of other income are as follows for the three months ended
March 31, 2002 and 2001 (in thousands):
2002 2001
---------- ----------
Interest income $ 1,847 $ 3,453
Other income 661 848
---------- ----------
$ 2,508 $ 4,301
========== ==========
7. EARNINGS PER SHARE (IN THOUSANDS):
For the Three Months
Ended March 31,
2002 2001
----------- -----------
Earnings (loss) used for basic and diluted
earnings per share computation:
Continuing operations $ 7,834 $ 11,125
============ ===========
Discontinued operations $ 280 $ (21)
============ ===========
Total shares used for basic earnings
per share 17,322 17,365
Dilutive securities, principally
stock options 216 109
------------ -----------
Total weighted average shares used for
diluted earnings per share computation 17,538 17,474
============ ===========
Diluted earnings per share reflect the potential dilution that would occur
if dilutive securities were exercised or converted into common stock.
9
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. NEW ACCOUNTING PRONOUNCEMENTS:
In May 2002, the FASB issued SFAS 145, Rescission of FAS Nos. 4, 44 and 64,
Amendment of FAS 13, and Technical Corrections as of April 2002. The
provisions of this Statement related to the rescission of Statement 4 shall
be applied in fiscal years beginning after May 15, 2002. The provisions
related to Statement 13 shall be effective for transactions occurring after
May 15, 2002, with early application encouraged. All other provisions of
this Statement shall be effective for financial statements issued on or
after May 15, 2002, with early application encouraged. Adoption of this
statement is not expected to have a significant impact on the financial
position or results of operations of the Company.
10
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.
SIGNIFICANT ACCOUNTING POLICIES
The Company had identified significant accounting policies that, as a result of
the judgements, 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 2001 Annual Report
filed with the Securities and Exchange Commission on Form 10-K. During the first
quarter of 2002, 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, 2002 and 2001
For the three months ended March 31, 2002, income before gain from property
dispositions, net and minority interests decreased by 3.2 percent from $11.3
million to $10.9 million, when compared to the three months ended March 31,
2001. The decrease was due to increased revenues of $1.7 million and increased
expenses of $2.0 million.
Income from property increased by $3.9 million from $34.5 million to $38.4
million, or 11.2 percent, due to acquisitions ($2.1 million) and rent increases
and other community revenues ($1.8 million).
Income from affiliates decreased from $0.2 million to a loss of $0.2 million.
Other income decreased by $1.8 million from $4.3 million to $2.5 million due
primarily to a decrease in interest income.
Property operating and maintenance expenses increased by $0.8 million from $7.4
million to $8.2 million, or 11.0 percent, primarily due to acquisitions ($0.5
million).
Real estate taxes increased by $0.3 million from $2.2 million to $2.5 million
due to acquisitions ($0.15 million) and changes in certain assessments.
Property management expenses remained constant at $0.8 million representing 2.0
percent and 2.3 percent of income from property in 2002 and 2001, respectively.
11
SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS, CONTINUED:
General and administrative expenses increased by $0.2 million from $1.1 million
to $1.3 million, representing 3.2 percent and 2.9 percent of total revenues in
2002 and 2001, respectively.
Earnings before interest, taxes, depreciation and amortization ("EBITDA", an
alternative financial performance measure that may not be comparable to
similarly titled measures reported by other companies, defined as total revenues
less property operating and maintenance, real estate taxes, property management,
and general and administrative expenses) increased by $0.4 million from $27.5
million to $27.9 million. EBITDA as a percent of revenues was 68.5 percent in
2002 compared to 70.4 percent in 2001.
Depreciation and amortization increased by $1.3 million from $7.8 million to
$9.1 million, or 16.8 percent, due primarily to the net additional investment in
rental properties.
Interest expense decreased by $0.5 million from $8.4 million to $7.9 million, or
6.4 percent, due primarily to decreasing rates on variable rate debt.
The three months ended March 31, 2001 also included a $3.5 million gain from
property dispositions, net.
12
SUN COMMUNITIES, INC.
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, 2002 and 2001. The "Same Property" data
represents information regarding the operation of communities owned as of
January 1, 2001 and March 31, 2002. Site, occupancy, and rent data for those
communities is presented as of the last day of each period presented. The "Total
Portfolio" column differentiates from the "Same Property" column by including
financial information for managed but not owned communities, new development and
acquisition communities.
Same Property Total Portfolio
------------------------ -----------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Income from property $ 33,257 $ 31,732 $ 38,397 $ 34,543
--------- --------- --------- ---------
Property operating expenses:
Property operating and maintenance 6,092 6,041 8,171 7,362
Real estate taxes 2,383 2,246 2,547 2,248
--------- --------- --------- ---------
Property operating expenses 8,475 8,287 10,718 9,610
--------- --------- --------- ---------
Property EBITDA $ 24,782 $ 23,445 $ 27,679 $ 24,933
========= ========= ========= =========
Number of operating properties 103 103 116 109
Developed sites 36,504 36,304 41,228 38,028
Occupied sites 33,696 33,869 37,770 35,338
Occupancy % 94.4% 95.5% 93.5%(1) 95.0%(1)
Weighted average monthly rent per site $ 309 $ 296 $ 306(1) $ 294(1)
Sites available for development 2,354 1,913 4,375 4,476
Sites planned for development in current year 252 185 609 593
(1) Occupancy % and weighted average rent relates to manufactured housing sites,
excluding recreational vehicle sites.
On a same property basis, property EBITDA increased by $1.3 million from $23.4
million to $24.8 million, or 5.7 percent. Property revenues increased by $1.5
million from $31.7 million to $33.2 million, or 4.8 percent, due primarily to
increases in rents including water and property tax pass through.
13
SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity demands have historically been, and
are expected to continue to be, distributions to the Company's stockholders and
the Operating Partnership's unitholders, property acquisitions, development and
expansion of properties, capital improvements of properties and debt repayment.
The Company expects to meet its short-term liquidity requirements
through its working capital provided by operating activities and its line of
credit, as described below. The Company considers its ability to generate cash
from operations (anticipated to be approximately $70 million annually) to be
adequate to meet all operating requirements, including recurring capital
improvements, routinely amortizing debt and other normally recurring
expenditures of a capital nature, pay dividends to its stockholders to maintain
qualification as a REIT in accordance with the Internal Revenue Code and make
distributions to the Operating Partnership's unitholders.
The Company plans to invest approximately $25 to $30 million annually
in developments consisting of expansions to existing communities and the new or
continuing development of new communities. The Company expects to finance these
investments by using net cash flows provided by operating activities and by
drawing upon its line of credit.
Furthermore, the Company expects to invest in the range of $40 to $60
million in the acquisition of properties in 2002, depending upon market
conditions. The Company plans to finance these investments by using net cash
flows provided by operating activities and by drawing upon its line of credit.
Cash and cash equivalents increased by $0.1 million to $4.7 million at
March 31, 2002 compared to $4.6 million at December 31, 2001 because cash
provided by operating activities and financing activities exceeded used in
investing activities. Net cash provided by operating activities decreased by
$3.5 million to $18.9 million for the three months ended March 31, 2002 compared
to $22.4 million for the three months ended March 31, 2001. This decrease was
primarily due to accounts payable and other liabilities decreasing by $3.4
million and other assets increasing by $1.1 million offset by an increase in
income before minority interests, depreciation and amortization, gain from
property dispositions, net and discontinued operations increasing by $1.0
million.
The Company's net cash flows provided by operating activities may be
adversely impacted by, among other things: (a) the market and economic
conditions in the Company's current markets generally, and specifically in
metropolitan areas of the Company's current markets; (b) lower occupancy and
rental rates of the Company's properties (the "Properties"); (c) increased
operating costs, including insurance premiums, real estate taxes and utilities,
that cannot be passed on to the Company's tenants; and (d) decreased sales of
manufactured homes. See "Factors that May Affect Future Results" in the
Company's 2001 Form 10-K.
14
SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED:
The Company's $150 million unsecured line of credit, which expires in January
2003, bears interest at the annual rate of LIBOR plus 1.0%. At March 31, 2002,
the average interest rate of outstanding borrowings under the line of credit was
2.91%, $125 million was outstanding and $25 million was available to be drawn.
The line of credit facility contains various leverage, debt service coverage,
net worth maintenance and other customary covenants all of which the Company was
in compliance with at March 31, 2002.
The Company's primary long-term liquidity needs are principal payments
on outstanding indebtedness. At March 31, 2002, 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
--------- ------ --------- --------- -------------
Line of credit $ 125,000 $ 125,000
Collateralized term loan 42,671 $ 1,389 $ 1,597 $ 39,060
625
Senior notes 285,000 85,000 200,000
Mortgage notes, other 41,222 9,155 9,317 21,927
823
Capitalized lease obligations 25,891 16,087 9,804
Redeemable Preferred OP Units 48,458 8,064 40,394
--------- --------- --------- -------- ---------
$ 568,242 $ 142,535 $ 105,348 $ 18,978 $ 301,381
========= ========= ========= ======== =========
(1) The Company is the guarantor of $23.2 million in personal bank loans which
is not reflected in the balance sheet, maturing in 2004, made to the
Company's directors, employees and consultants for the purpose of
purchasing shares of Company common stock or Operating Partnership OP Units
pursuant to the Company's Stock Purchase Plan. The Company is obligated
under the Guaranty only in the event that one or more of the borrowers
cannot repay their loan when due.
The Company anticipates meeting its long-term liquidity requirements,
such as scheduled debt maturities, large property acquisitions and Operating
Partnership unit redemptions, through the issuance of debt or equity securities,
including equity units in the Operating Partnership, or from selective asset
sales. Along with Origen LLC's other investors, the Company may be requested to
make additional capital contributions to maintain its respective ownership
interest. The Company has maintained investment grade ratings with Fitch ICBA,
Moody's Investor Service and Standard & Poor's, which facilitates access to the
senior unsecured debt market. Since 1993, the Company has raised, in the
aggregate, $263.4 million from the sale of shares of its common stock, $84.2
from the sale of OP units in the Operating Partnership and $430 million from the
issuance of secured and unsecured debt securities. In addition, at March 31,
2002, ninety-six of the Properties were unencumbered by debt, therefore,
providing substantial financial flexibility.
15
SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED:
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 2001 Form 10-K. If the Company is unable
to obtain additional equity or debt financing on acceptable terms, the Company's
business, results of operations and financial condition will be harmed.
At March 31, 2002, the Company's debt to total market capitalization
approximated 36.5 percent (assuming conversion of all Common OP Units to shares
of common stock). The debt has a weighted average maturity of approximately 4.6
years and a weighted average interest rate of 6.3 percent.
Capital expenditures for the three months ended March 31, 2002 and 2001
included recurring capital expenditures of $1.0 million and $0.9 million,
respectively.
Net cash used in investing activities increased by $43.8 million to
$27.3 million compared to $16.1 million provided by investing activities for the
three months ended March 31, 2002. This increase was due to a $23.1 million
increase in rental property acquisition activities, repayments from financing
notes receivable, net decreasing by $16.1 million, a $12.9 million decrease in
proceeds related to property dispositions offset by an increase of $8.3 million
increase in investment in and advances to affiliates.
Net cash provided by financing activities increased by $47.5 million to
$8.6 million from $38.9 million used in financing activities for the three
months ended March 31, 2002. This increase was primarily due to a $44.0 million
increase in borrowings on the line of credit, proceeds from issuance of common
stock increasing by $8.0 million including reduced treasury stock purchases
offset by a $4.1 million increase in repayments on notes payable.
16
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, 2002 and 2001 (in thousands):
2002 2001
----------- ------------
Income from continuing operations $ 7,834 $ 11,125
FFO contributed by discontinued operations 11 25
Deduct gain from property dispositions, net -- (3,517)
Add:
Minority interest in earnings to
common OP Unit holders 1,176 1,704
Depreciation and amortization, net
of corporate office depreciation 9,041 7,730
----------- ------------
Funds from operations $ 18,062 $ 17,067
=========== ============
Weighted average common shares and OP
Units outstanding used for basic per
share/unit data 19,921 20,025
Dilutive securities:
Stock options and awards 216 109
----------- ------------
Weighted average common shares and OP Units
used for diluted per share/unit data 20,137 20,134
=========== ============
Common shares and OP Units at end of
period 20,254 19,867
=========== ============
17
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, 2001 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 2001, the Financial Accounting Standards Board ("FASB") approved
Statement of Financial Accounting Standards ("SFAS") 141, "Business Combinations
and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires,
among other things, that the purchase method of accounting for business
combinations be used for all business combinations initiated after September 30,
2001. SFAS 142 addresses the accounting for goodwill and other intangible assets
subsequent to their acquisition. SFAS 142 requires, among other things, that
goodwill and other indefinite-lived intangible assets no longer be amortized and
that such assets be tested for impairment at least annually. SFAS 142 is
effective for fiscal years beginning after December 15, 2001. The adoption of
these statements did not have a significant impact on the financial position or
results of operations of the Company.
In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This Statement supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, and the accounting and reporting provisions of APB Opinion No.
30, Reporting the Results of Operations -- Reporting the Effects of
18
SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED:
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a segment of a business
(as previously defined in that Opinion). The provisions of this SFAS 144 are
effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years, with early
application encouraged. The provisions of this standard generally are to be
applied prospectively. The adoption of this statement requires all dispositions
of properties to be disclosed as discontinued operations in the period in which
they occur and prior periods to be reclassified to conform with the current
period presentation. The Company sold one property in the quarter, which has
been presented accordingly. This implementation of the statement did not have
any other material effect on the Company.
In May 2002, the FASB issued SFAS 145, Rescission of FAS Nos. 4, 44 and 64,
Amendment of FAS 13, and Technical Corrections as of April 2002. The provisions
of this statement related to the rescission of Statement 4 shall be applied in
fiscal years beginning after May 15, 2002. The provisions related to Statement
13 shall be effective for transactions occurring after May 15, 2002, with early
application encouraged, All provisions of this Statement shall be effective for
financial statements issued on or after May 15, 2002, with early application
encouraged. Adoption of this statement is not expected to have a significant
impact on the financial position or results of operations of the Company.
PART II
ITEM 6.(a) - EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
See the attached Exhibit Index.
ITEM 6.(b) - REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the period covered by
this Form 10-Q.
19
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, 2002
SUN COMMUNITIES, INC.
BY: /s/ Jeffrey P. Jorissen
---------------------------------------
Jeffrey P. Jorissen, Chief
Financial Officer and Secretary
(Duly authorized officer and
principal financial officer)
20
SUN COMMUNITIES, INC.
EXHIBIT INDEX
Exhibit No. Description
10.1 Amended and Restated Participation Agreement, dated as
of March 22, 2002, by and between the Operating
Partnership and Woodward Holding, LLC.
21