SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 of 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 333-2522-01
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in its Charter)
Michigan 38-3144240
(State of Organization) (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 [ ]
Page 1 of 20
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
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 6-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-19
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 OPERATING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND DECEMBER 31, 2001
(IN THOUSANDS)
ASSETS 2002 2001
------------- -------------
Investment in rental property, net $ 856,892 $ 813,334
Cash and cash equivalents 4,725 4,587
Notes and other receivables 89,152 93,972
Investment in and advances to affiliates 47,845 55,451
Other assets 29,732 29,705
----------- -----------
Total assets $ 1,028,346 $ 997,049
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
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
----------- -----------
Series B Cumulative Preferred Operating Partnership Units ("Series B Units"),
mandatory redeemable, 182 and 82 issued and outstanding for 2002 and 2001,
respectively 12,675 8,175
Preferred Operating Partnership Units ("POP Units"),
convertible, redeemable, 1,326 issued and outstanding 35,783 35,783
Partners' Capital:
Series A Perpetual Preferred Operating Partnership Units
("Series A Units"), unlimited authorized,
2,000 issued and outstanding 50,000 50,000
Operating Partnership Units ("OP Units"), unlimited authorized; 20,254 and
20,173 issued and outstanding for 2002 and 2001, respectively
General partner 339,643 339,240
Limited partners 48,821 49,040
Unearned compensation (6,747) (6,999)
----------- -----------
Total partners' capital 431,717 431,281
----------- -----------
Total liabilities and partners' capital $ 1,028,346 $ 997,049
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
3
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
-------
Revenues: 2002 2001
------------ -----------
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 distribution to Preferred OP Units 10,929 11,288
Gain from property dispositions, net -- 3,517
----------- -----------
Income before distribution to Preferred OP Units 10,929 14,805
Less distribution to Preferred OP Units 1,919 1,976
----------- -----------
Income from continuing operations 9,010 12,829
Income (loss) from discontinued operations 322 (24)
----------- -----------
Earnings attributed to OP Units $ 9,332 $ 12,805
=========== ===========
Earnings attributed to:
Continuing operations:
General partner $ 7,834 $ 11,125
Limited partner 1,176 1,704
Discontinued operations:
General partner 280 (21)
Limited partner 42 (3)
----------- -----------
$ 9,332 $ 12,805
=========== ===========
Basic earnings per OP Units:
Continuing operations $ 0.45 $ 0.64
Discontinued operations 0.02 --
----------- -----------
Net income $ 0.47 $ 0.64
=========== ===========
Diluted earnings per OP Unit outstanding:
Continuing operations $ 0.44 $ 0.64
Discontinued operations 0.02 --
----------- -----------
Net income $ 0.46 $ 0.64
=========== ===========
Weighted average OP Units outstanding:
Basic 19,921 20,025
=========== ===========
Diluted 20,137 20,134
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
4
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(IN THOUSANDS)
2002 2001
------------- ------------
Cash flows from operating activities:
Earnings attributable to OP Units $ 9,332 $ 12,805
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain from property dispositions, net -- (3,517)
Operating income included in discontinued operations 11 25
Income (loss) from discontinued operations (322) 24
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 (investments in) 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)
Capital contribution (withdrawals) 1,891 (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 restricted common stock issued
as unearned compensation by the general partner $ -- $ 48
The accompanying notes are an integral part of the consolidated financial
statements
5
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
These unaudited condensed consolidated financial statements of Sun
Communities Operating Limited Partnership (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.
Sun Communities, Inc. ("Sun"), a self-administered and self-managed REIT
with no independent operations of its own, is the sole general partner of
the Company. As general partner, Sun has unilateral control and complete
responsibility for management of the Company. The balance sheet of Sun as of
March 31, 2002 is identical to the accompanying Company balance sheet,
except as follows:
As Presented
Herein Sun Communities, Inc.
March 31, 2002 Adjustments March 31, 2002
-------------- ----------- --------------
(in thousands)
Notes and other receivables................$ 89,152 $ (2,600) $ 86,552
================= ============== ================
Total assets...............................$ 1,028,346 $ (2,600) $ 1,025,746
================= ============== ================
Minority interests......................... $ 147,279 $ 147,279
================
Series B Units.............................$ 12,675 (12,675)
POP Units.................................. 35,783 (35,783)
Series A Units............................. 50,000 (50,000)
General partner............................ 339,643 (339,643)
Limited partners........................... 48,821 (48,821)
Common stock............................... 179 $ 179
Additional paid-in capital................. 401,702 401,702
Distributions in excess of
accumulated earnings................... (47,484) (47,484)
Officers' notes............................ (10,970) (10,970)
Unearned compensation...................... (6,747) -- (6,747)
Treasury Stock............................. -- (6,384) (6,384)
----------------- -------------- ----------------
Partners' capital/Stockholders'
equity.............................$ 431,717 $ (2,600) $ 330,296
================= ============== ================
Total liabilities and partners'
capital/Stockholders' equity...........$ 1,028,346 $ (2,600) $ 1,025,746
================= ============== ================
6
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO AFFILIATES: Sun Home Services ("SHS")
provides home sales and other services to current and prospective tenants.
Through the Operating Partnership, the Company owns 100 percent 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 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 investment 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.
7
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
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.
8
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
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
10 year note receivable from an officer of the general partner bearing
interest at LIBOR + 1.75%, with a minimum and maximum interest rate
of 6% and 9%, respectively, collateralized by 80,000 shares of
Sun's common stock with personal liability up to $1.3 million 2,600 2,600
----------- ----------
$ 89,152 $ 93,972
=========== ==========
At March 31, 2002, the maturities of mortgage 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.
9
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
============= ===============
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
========== ==========
10
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. EARNINGS PER OP UNIT (IN THOUSANDS):
For the Three Months
Ended March 31,
2002 2001
--------- ---------
Earnings (loss) used for basic and diluted earnings per
OP unit computation:
Continuing operations $ 9,332 $ 12,805
========== ==========
Discontinued operations $ 322 $ (24)
========== ==========
Total units used for basic earnings per OP unit 19,921 20,025
Dilutive securities, principally Sun's stock options 216 109
---------- ----------
Total shares used for diluted earnings per OP unit
computation 20,137 20,134
========== ==========
Diluted earnings per OP unit reflect the potential dilution that would occur
if securities were exercised or converted into OP units.
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.
11
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
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.
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 distribution to Preferred OP Units 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
while expenses increased by $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 increased 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.
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.
12
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS, CONTINUED:
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 to primarily to decreasing rates on variable rate debt.
The three months ended March 31, 2002 also included a $3.5 million gain from
property disposition, net.
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 OPERATING LIMITED PARTNERSHIP
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 Sun's stockholders and the
Company'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 distributions to Sun's stockholders to
maintain Sun's 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, 2001 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
earnings attributed to OP Units before 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 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.
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
14
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED:
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
Sun's and the Company's directors, employees and consultants for the
purpose of purchasing shares of Sun's common stock or the Company's OP
Units pursuant to Sun'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 Sun's common stock, $84.2
from the sale of OP units in the Company 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. 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.
15
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED:
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 capital
contributions increasing by $8.0 million net of capital withdrawals offset by a
$4.1 million increase in repayments on notes payable.
16
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
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
----------- ------------
Earnings attributed to OP Units $ 9,010 $ 12,829
FFO contributed by discontinued operations 11 25
Deduct gain from property dispositions, net -- (3,517)
Add:
Depreciation and amortization, net
of corporate office depreciation 9,041 7,730
----------- ------------
Funds from operations $ 18,062 $ 17,067
=========== ============
Weighted average OP Units outstanding
used for basic per OP unit data 19,921 20,025
Dilutive securities:
Stock options and awards 216 109
----------- ------------
Weighted average OP Units
used for diluted per OP unit data 20,137 20,134
=========== ============
OP Units at end of period 20,254 19,867
=========== ============
17
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
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.
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 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).
18
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OTHER , CONTINUED:
RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED:
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 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.
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 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 OPERATING LIMITED PARTNERSHIP
BY: Sun Communities, Inc., General Partner
BY: /s/ Jeffrey P. Jorissen
----------------------------------------------------------------------
Jeffrey P. Jorissen, Chief Financial Officer
and Secretary
(Duly authorized officer and principal financial officer)
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
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