UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 333-2522-01
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
STATE OF MICHIGAN 38-3144240
State of Organization I.R.S. Employer I.D. No.
27777 FRANKLIN ROAD
SUITE 200
SOUTHFIELD, MICHIGAN 48034
(248) 208-2500
(Address of principal executive offices and telephone number)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[X]
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes __ No X
As of June 30, 2003, the aggregate market value of the Registrant's partnership
units held by non-affiliates of the Registrant was approximately $67.5 million
based on the closing sales price of one share of Sun Communities, Inc. common
stock (into which the partnership units are convertible on a one-for-one basis)
on such date.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive Proxy Statement to be filed by Sun
Communities, Inc. for its 2004 Annual Meeting of Shareholders are incorporated
by reference into Part III of this Report.
As used in this report, "Company", "Us", "We", "Our" and similar terms
means Sun Communities Operating Limited Partnership, a Michigan limited
partnership, and one or more of its Subsidiaries, (as defined below).
PART I
ITEM 1. BUSINESS
GENERAL
We own, operate, develop and finance manufactured housing communities
concentrated in the midwestern and southeastern United States. Sun Communities,
Inc., a Maryland corporation and our sole general partner ("General Partner"),
is a fully integrated real estate company which, together with its affiliates
and predecessors, has been in the business of acquiring, operating and expanding
manufactured housing communities since 1975. As of December 31, 2003, we owned
and operated a portfolio of 127 properties located in seventeen states (the
"Properties"), including 115 manufactured housing communities, five recreational
vehicle communities, and seven properties containing both manufactured housing
and recreational vehicle sites. As of December 31, 2003, the Properties
contained an aggregate of 43,875 developed sites comprised of 38,797 developed
manufactured home sites and 5,078 recreational vehicle sites and an additional
6,756 manufactured home sites suitable for development. In order to enhance
property performance and cash flow, the Company, through Sun Home Services,
Inc., a Michigan corporation ("SHS"), actively markets, sells and leases new and
pre-owned manufactured homes for placement in the Properties.
Our executive and principal property management office is located at
27777 Franklin Road, Suite 200, Southfield, Michigan 48034 and our telephone
number is (248) 208-2500. We have regional property management offices located
in Austin, Texas; Dayton, Ohio; Grand Rapids, Michigan; Elkhart, Indiana; and
Orlando, Florida, and we employed an aggregate of 611 people as of December 31,
2003.
Our website address is www.suncommunities.com and we make available,
free of charge, on or through our website all of our periodic reports, including
our annual report on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K, as soon as reasonably practicable after we file such
reports with the Securities and Exchange Commission.
RECENT DEVELOPMENTS
Acquisitions. During 2003, we acquired one community in Michigan for
approximately $4.5 million comprised of $2.2 million in cash and $2.3 million in
debt. When fully developed, the property will consist of 242 manufactured
housing sites.
In 2004, we entered into an agreement with certain affiliates of
Property Asset Management Inc. ("PAMI") to acquire all of the equity interests
in partnerships that directly and indirectly own and operate 19 properties and
entered into a real estate purchase agreement to acquire 7 other properties. The
properties are recreational vehicle communities, some of which include
manufactured home sites. The portfolio consists of 11,331 sites, including
10,586 developed sites and 745 expansion recreational vehicle sites. Completion
of the purchases is subject to customary closing conditions.
PAMI, the seller under the purchase agreements, is the sole general
partner and owns a substantial majority of the equity interests in the
partnerships that own the properties subject to
2
the purchase agreements. PAMI has exercised its rights under the relevant
partnership agreements to acquire the equity interests of its minority partner.
PAMI has informed us that its minority partner has disputed PAMI's rights to
purchase its interests under the partnership agreements. As a result, PAMI has
filed suit in the Delaware Chancery Court requesting, among other things, that
the court specifically enforce PAMI's right to purchase the minority interests.
The minority partner in the partnerships has filed an answer and counterclaim in
the case requesting that the court find that the minority partner has the right
to buy PAMI's interests under the partnership agreements.
PAMI believes that it will be successful in the litigation and we
expect to complete the acquisition of the partnership interests and properties.
However, due to the uncertain nature of litigation and the other conditions to
closing, we can provide no assurance that we will be able to successfully
complete the proposed acquisitions and cannot reliably predict the timing of the
resolution of these matters.
Dispositions. The Company closed on the sale of four properties during
2003 realizing gross proceeds of approximately $24.8 million. The properties
were located in Michigan and Illinois and comprised 731 sites of which 659, or
90 percent, were occupied.
Origen. Previously, we, along with two other participants, provided
financing (a line of credit and term loan) to Origen Financial, LLC ("Origen"),
a financial services company that provides and services loans used by consumers
to finance the purchase of manufactured homes. In October of 2003, Origen
completed a $150.0 million private equity offering and repaid its line of credit
and term loan in full. We have no continuing obligation to provide financing to
Origen. Concurrent with this transaction, we invested $50.0 million in Origen's
parent, Origen Financial, Inc. ("Origen, Inc") and agreed to sell Origen, Inc.
various interests in manufactured home loans previously acquired from Origen,
none of which have been sold as of December 31, 2003. As of December 31, 2003,
our investment in Origen, Inc. approximated a one third ownership interest which
was accounted for using the equity method of accounting for periods ending after
September 30, 2003.
STRUCTURE OF THE COMPANY
Our General Partner is a self-administered and self-managed real estate
investment trust, or REIT. The Company is structured as an umbrella partnership
REIT, or UPREIT, and is the entity through which our General Partner conducts
substantially all of its operations, and which owns, either directly or
indirectly, through subsidiaries (the "Subsidiaries"), all of the General
Partner's assets. This UPREIT structure enables the General Partner to comply
with certain complex requirements under the Federal tax rules and regulations
applicable to REITs, and to acquire manufactured housing communities in
transactions that defer some or all of the sellers' tax consequences. Our
Subsidiaries include SHS, which provides manufactured home sales and other
services to current and prospective tenants of the Properties. Along with
several other subsidiaries, SHS wholly owns Sun Water Oak Golf, Inc., which was
organized to own and operate the golf course, restaurant and related facilities
located on the Water Oak Property that was acquired in December 1993.
3
THE MANUFACTURED HOUSING COMMUNITY INDUSTRY
A manufactured housing community is a residential subdivision designed
and improved with sites for the placement of manufactured homes and related
improvements and amenities. Manufactured homes are detached, single-family homes
which are produced off-site by manufacturers and installed on sites within the
community. Manufactured homes are available in a wide array of designs,
providing owners with a level of customization generally unavailable in other
forms of multifamily housing.
Modern manufactured housing communities, such as the Properties,
contain improvements similar to other garden-style residential developments,
including centralized entrances, paved streets, curbs and gutters, and parkways.
In addition, these communities also often provide a number of amenities, such as
a clubhouse, a swimming pool, shuffleboard courts, tennis courts, laundry
facilities and cable television service.
The owner of each home on our Properties leases the site on which the
home is located. We own the underlying land, utility connections, streets,
lighting, driveways, common area amenities and other capital improvements and
are responsible for enforcement of community guidelines and maintenance. Some of
the Properties provide water and sewer service through public or private
utilities, while others provide these services to residents from on-site
facilities. Each owner within our Properties is responsible for the maintenance
of his or her home and leased site. As a result, capital expenditure needs tend
to be less significant, relative to multi-family rental apartment complexes.
PROPERTY MANAGEMENT
Our property management strategy emphasizes intensive, hands-on
management by dedicated, on-site district and community managers. We believe
that this on-site focus enables us to continually monitor and address tenant
concerns, the performance of competitive properties and local market conditions.
Of the 611 Company employees, 522 are located on-site as property managers,
support staff, or maintenance personnel.
Our community managers are overseen by Brian W. Fannon, our General
Partner's Chief Operating Officer, who has 34 years of property management
experience, four Vice Presidents of Operations and seventeen Regional Vice
Presidents. In addition, the Regional Vice Presidents are responsible for
semi-annual market surveys of competitive communities, interaction with local
manufactured home dealers and regular property inspections.
Each district or community manager performs regular inspections in
order to continually monitor the Property's physical condition and provides
managers with the opportunity to understand and effectively address tenant
concerns. In addition to a district or community manager, each district or
property has an on-site maintenance personnel and management support staff. We
hold periodic training sessions for all property management personnel to ensure
that management policies are implemented effectively and professionally.
4
HOME SALES AND LEASING
SHS offers manufactured home sales services to tenants and prospective
tenants of our Properties. Since tenants often purchase a home already on-site
within a community, such services enhance occupancy and property performance.
Additionally, because many of the homes on the Properties are sold through SHS,
better control of home quality in our communities can be maintained than if
sales services were conducted solely through third-party brokers. SHS also
leases homes to prospective tenants.
REGULATIONS AND INSURANCE
General. Manufactured housing community properties are subject to
various laws, ordinances and regulations, including regulations relating to
recreational facilities such as swimming pools, clubhouses and other common
areas. We believe that each Property has the necessary operating permits and
approvals.
Insurance. Our management believes that the Properties are covered by
adequate fire, flood, property and business interruption insurance provided by
reputable companies with commercially reasonable deductibles and limits. We
maintain a blanket policy that covers all of our Properties. We have obtained
title insurance insuring fee title to the Properties in an aggregate amount
which we believe to be adequate.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Our prospects are subject to certain uncertainties and risks. Our
future results could differ materially from our current results, and our actual
results could differ materially from those projected in forward-looking
statements as a result of certain risk factors. These risk factors include, but
are not limited to, the risk factors set forth in the General Partner's Annual
Report on Form 10-K for the fiscal year ended December 31, 2003 (which are
incorporated herein by reference), other one-time events and other important
factors disclosed previously and from time to time in the Company's or the
General Partner's other filings with the Securities and Exchange Commission.
This report contains certain forward-looking statements.
5
ITEM 2. PROPERTIES
General. As of December 31, 2003, the Properties consisted of 115
manufactured housing communities, five recreational vehicle communities, and
seven properties containing both manufactured housing and recreational vehicle
sites located in seventeen states concentrated in the midwestern and
southeastern United States. As of December 31, 2003, the Properties contained
43,875 developed sites comprised of 38,797 developed manufactured home sites and
5,078 recreational vehicle sites and an additional 6,756 manufactured home sites
suitable for development. Most of the Properties include amenities oriented
towards family and retirement living. Of the 127 Properties, 61 have more than
300 developed manufactured home sites, with the largest having 913 developed
manufactured home sites.
As of December 31, 2003, the Properties had an occupancy rate of 89.5
percent in stabilized communities and 58.7 percent in development communities
and the aggregate occupancy rate was 86 percent excluding recreational vehicle
sites. Since January 1, 2003, the Properties have averaged an aggregate annual
turnover of homes (where the home is moved out of the community) of
approximately 3.9 percent and an average annual turnover of residents (where the
home is sold and remains within the community, typically without interruption of
rental income) of approximately 7.4 percent.
We believe that our Properties' high amenity levels contribute to low
turnover and generally high occupancy rates. All of the Properties provide
residents with attractive amenities with most offering a clubhouse, a swimming
pool, laundry facilities and cable television service. Many Properties offer
additional amenities such as sauna/whirlpool spas, tennis, shuffleboard and
basketball courts and/or exercise rooms.
We have tried to concentrate our communities within certain geographic
areas in order to achieve economies of scale in management and operation. The
Properties are principally concentrated in the midwestern and southeastern
United States. We believe that geographic diversification will help insulate the
portfolio from regional economic influences.
The following table sets forth certain information relating to the
properties owned as of December 31, 2003:
DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/2003 12/31/01(1) 12/31/02(1) 12/31/03(1)
--------------------- ----------- ----------- ----------- -----------
MIDWEST
MICHIGAN
Academy/West Pointe 441 98% 98% 96%
Canton, MI
Allendale Meadows Mobile Village 352 96% 93% 88%
Allendale, MI
Alpine Meadows Mobile Village 403 96% 96% 94%
Grand Rapids, MI
Bedford Hills Mobile Village 339 98% 95% 91%
Battle Creek, MI
Brentwood Mobile Village 195 99% 96% 94%
Kentwood, MI
6
DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/2003 12/31/01(1) 12/31/02(1) 12/31/03(1)
--------------------- ----------- ----------- ----------- -----------
Byron Center Mobile Village 143 98% 98% 95%
Byron Center, MI
Candlewick Court Manufactured Housing Community 211 97% 97% 93%
Owosso, MI
College Park Estates Manufactured Housing Community 230 95% 92% 85%
Canton, MI
Continental Estates Manufactured Housing Community 385 84% 79% 70%
Davison, MI
Continental North Manufactured Housing Community 474 89% 84% 75%
Davison, MI
Country Acres Mobile Village 182 96% 95% 93%
Cadillac, MI
Country Meadows Mobile Village 577 99% 98% 94%
Flat Rock, MI
Countryside Village Manufactured Housing Community 359 98% 96% 91%
Perry, MI
Creekwood Meadows Mobile Home Park 336 88% 85% 74%
Burton, MI
Cutler Estates Mobile Village 259 97% 96% 90%
Grand Rapids, MI
Davison East Manufactured Housing Community 190 80% 88% 81%
Davison, MI
Falcon Pointe (8) 62 (3) (3) 26%(8)
East Lansing, MI
Fisherman's Cove Manufactured Housing Community 162 95% 94% 90%
Flint, MI
Grand Mobile Estates 230 93% 95% 89%
Grand Rapids, MI
Hamlin Manufactured Housing Community (4) 170 99% 85%(4) 88%(4)
Webberville, MI
Kensington Meadows Mobile Home Park 290 98% 92% 84%
Lansing, MI
Kings Court Mobile Village 639 100% 98% 97%
Traverse City, MI
Knollwood Estates 161 97% 94% 89%
Allendale, MI
Lafayette Place 254 97% 98% 96%
Metro Detroit, MI
Lincoln Estates Mobile Home Park 191 96%, 95% 95%
Holland, MI
Meadow Lake Estates Manufactured Housing Community 425 100% 97% 93%
White Lake, MI
Meadowbrook Estates Manufactured Housing Community 453 98% 97% 96%
Monroe, MI
Presidential Estates Mobile Village 364 99% 95% 89%
Hudsonville, MI
Richmond Place 117 97% 100% 100%
Metro Detroit, MI
River Haven Village 721 78% 79% 77%
Grand Haven, MI
Scio Farms Estates 913 99% 99% 98%
Ann Arbor, MI
Sherman Oaks Manufactured Housing Community 366 97% 94% 88%
Jackson, MI
St. Clair Place 100 100% 99% 98%
Metro Detroit, MI
Sunset Ridge (8) 144 13%(8) 45%(8) 71%(8)
Portland Township, MI
7
DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/2003 12/31/01(1) 12/31/02(1) 12/31/03(1)
--------------------- ----------- ----------- ----------- -----------
Timberline Estates Manufactured Housing Community 296 96% 94% 90%
Grand Rapids, MI
Town & Country Mobile Village 192 99% 99% 99%
Traverse City, MI
Village Trails 100 77% 80% 71%
Howard City, MI
White Lake Mobile Home Village (4) 315 85%(4) 96% 96%
White Lake, MI
White Oak Estates 480 88% 86% 84%
Mt. Morris, MI
Windham Hills Estates (4) 402 91% 82%(4) 73%(4)
Jackson, MI
Woodhaven Place 220 100% 98% 98%
------ --- --- ---
Metro Detroit, MI
MICHIGAN TOTAl 12,843 94% 92% 88%
====== === === ===
INDIANA
Brookside Mobile Home Village 570 93% 88% 81%
Goshen, IN
Carrington Pointe 320 81% 81% 78%
Ft. Wayne, IN
Clear Water Mobile Village 227 90% 86% 78%
South Bend, IN
Cobus Green Mobile Home Park 386 87% 81% 75%
Elkhart, IN
Deerfield Run Manufactured Home Community (4) 175 60%(4) 73%(4) 73%(4)
Anderson, IN
Four Seasons Mobile Home Park 218 98% 95% 94%
Elkhart, IN
Holiday Mobile Home Village 326 97% 95% 93%
Elkhart, IN
Liberty Farms Communities 220 98% 99% 98%
Valparaiso, IN
Maplewood Mobile Home Park 207 91% 97% 88%
Lawrence, IN
Meadows Mobile Home Park 330 89% 85% 79%
Nappanee, IN
Pebble Creek(8) (9) 258 (9) 76%(8) 79%(8)
Greenwood, IN
Pine Hills Mobile Home Subdivision 129 96% 95% 84%
Middlebury, IN
Roxbury Park 398 92% 94% 94%
Goshen, IN
Timberbrook Mobile Home Park 567 90% 84% 75%
Bristol, IN
Valley Brook Mobile Home Park 799 95% 88% 85%
Indianapolis, IN
West Glen Village Mobile Home Park 552 98% 96% 88%
Indianapolis, IN
Woodlake Estates (4) 338 69%(4) 72%(4) 62%(4)
Ft. Wayne, IN
Woods Edge Mobile Village (4) 598 84%(4) 74%(4) 71%(4)
--- -- -- --
West Lafayette, IN
INDIANA TOTAL 6,618 90% 86% 81%
====== == == ==
8
DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/2003 12/31/01(1) 12/31/02(1) 12/31/03(1)
--------------------- ----------- ----------- ----------- -----------
OTHER
Apple Creek Manufactured Home Community and Self Storage 176 91% 94% 93%
Cincinnati, OH
Autumn Ridge Mobile Home Park 413 99% 98% 98%
Ankeny, IA
Bell Crossing Manufactured Home Community (4) 239 53%(4) 41%(4) 33%(4)
Clarksville, TN
Boulder Ridge (4) 527 98% 85%(4) 69%(4)
Pflugerville, TX
Branch Creek Estates 392 100% 98% 95%
Austin, TX
Byrne Hill Village Manufactured Home Community 236 97% 96% 100%
Toledo, OH
Candlelight Village Mobile Home Park 309 98% 95% 93%
Chicago Heights, IL
Casa del Valle (1) 112/408 100% 100% 100%
Alamo, TX
Catalina Mobile Home Park 462 83% 83% 73%
Middletown, OH
Chisholm Point Estates 416 98% 94% 89%
Pflugerville, TX
Comal Farms(8) (9) 349 (9) 43%(8) 48%(8)
New Braunfels, TX
Creekside(8) (9) 47 (9) 66%(8) 72%(8)
Reidsville, NC
Desert View Village (8) 93 25%(8) 40%(8) 48%(8)
West Wendover, NV
Eagle Crest (8) 318 84%(8) 97%(8) 62%(8)
Firestone, CO
East Fork(8) (9) 197 (9) 88%(8) 79%(8)
Batavia, OH
Edwardsville Mobile Home Park 634 97% 92% 84%
Edwardsville, KS
Forest Meadows 76 83% 92% 91%
Philomath, OR
Glen Laurel(8) (9) 261 (9) 18%(8) 25%(8)
Concord, NC
High Pointe 411 93% 95% 93%
Frederica, DE
Kenwood RV and Mobile Home Plaza (7) (1) 36/289 100% 100% 100%
LaFeria, TX
Meadowbrook(8) (9) 177 (9) 80%(8) 76%(8)
Charlotte, NC
North Point Estates (8) 108 38%(8) 50%(8) 35%(8)
Pueblo, CO
Oak Crest (8) 335 (2) 84%(8) 63%(8)
Austin, TX
Oakwood Village (4) 511 73%(4) 74%(4) 77%(4)
Dayton, OH
Orchard Lake Manufactured Home Community 147 97% 97% 97%
Cincinnati, OH
9
DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/2003 12/31/01(1) 12/31/02(1) 12/31/03(1)
--------------------- ----------- ----------- ----------- -----------
Pecan Branch (8) 69 67%(8) 74%(8) 83%(8)
Williamson County, TX
Pheasant Ridge 553 (2) 99% 100%
Manor Township, PA
Pin Oak Parc Mobile Home Park 502 99% 97% 95%
O'Fallon, MO
Pine Ridge Mobile Home Park 245 98% 95% 94%
Petersburg, VA
River Ranch (8) (9) 121 (9) (8) 15%(8)
Austin, TX
River Ridge (8) 337 (2) 89%(8) 85%(8)
Austin, TX
Saddle Brook (8) 258 (2) 39%(8) 40%(8)
Austin, TX
Sea Air (7) (1) 370/527 99% 100% 99%
Rehoboth Beach, DE
Snow to Sun (7) (1) 177/492 100% 99% 100%
Weslaco, TX
Southfork Mobile Home Park 477 95% 90% 84%
Belton, MO
Stonebridge(8) (9) 340 (9) 83%(8) 59%(8)
San Antonio, TX
Summit Ridge(8) (9) 252 (9) 91%(8) 56%(8)
Converse, TX
Sunset Ridge(8) (9) 173 (9) 71%(8) 69%(8)
Kyle TX
Sun Villa Estates 324 100% 99% 99%
Reno, NV
Timber Ridge Mobile Home Park 585 99% 98% 97%
Ft. Collins, CO
Westbrook Village (6) 344 99% 97% 93%
Toledo, OH
Westbrook Senior Village 112 94% 99% 99%
Toledo, OH
Willowbrook Place 266 98% 98% 96%
Toledo, OH
Woodlake Trails(8) (9) 133 (9) 44%(8) 79%(8)
San Antonio, TX
Woodland Park Estates 399 98% 94% 92%
Eugene, OR
Woodside Terrace Manufactured Home Community 439 98% 96% 95%
Holland, OH
Worthington Arms Mobile Home Park 224 99% 96% 96%
------ -- -- --
Delaware, OH
OTHER TOTAL 14,703 93% 86% 81%
====== == == ==
SOUTHEAST
FLORIDA
Arbor Terrace RV Park 402 (5) (5) (5)
Bradenton, FL
Ariana Village Mobile Home Park 208 86% 88% 88%
Lakeland, FL
Bonita Lake Resort 167 (5) (5) (5)
Bonita Springs, FL
10
DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/2003 12/31/01(1) 12/31/02(1) 12/31/03(1)
--------------------- ----------- ----------- ----------- -----------
Buttonwood Bay (7) (1) 407/942 100% 100% 100%
Sebring, FL
Gold Coaster Manufactured Home Community (7) (1) 323/546 100% 98% 100%
Florida City, FL
Groves RV Resort 298 (5) (5) (5)
Lee County, FL
Holly Forest Estates 402 100% 100% 100%
Holly Hill, FL
Indian Creek Park (7) (1) 353/1534 100% 100% 100%
Ft. Myers Beach, FL
Island Lakes Mobile Home Park 301 100% 100% 100%
Merritt Island, FL
Kings Lake Mobile Home Park 245 99% 100% 100%
Debary, FL
Lake Juliana Landings Mobile Home Park 285 74% 77% 81%
Auburndale, FL
Lake San Marino RV Park 412 (5) (5) (5)
Naples, FL
Leesburg Landing 95 68% 69% 73%
Lake County, FL
Meadowbrook Village Mobile Home Park 257 99% 99% 98%
Tampa, FL
Orange Tree Village Mobile Home Park 246 100% 100% 100%
Orange City, FL
Royal Country Mobile Home Park 864 99% 100% 100%
Miami, FL
Saddle Oak Club Mobile Home Park 376 100% 100% 100%
Ocala, FL
Siesta Bay RV Park 839 (5) (5) (5)
Ft. Myers Beach, FL
Silver Star Mobile Village 408 98% 99% 98%
Orlando, FL
Water Oak Country Club Estates 884 100% 100% 100%
Lady Lake, FL ------ --- --- ---
Florida Total 9,711 96% 97% 98%
====== === === ===
TOTAL/AVERAGE 43,875 93% 90% 86%
====== === === ===
TOTAL STABILIZED COMMUNITIES 39,678 94% 92% 89%
====== === === ===
TOTAL DEVELOPMENT COMMUNITIES 4,197 45% 65% 59%
====== === === ===
(1) Occupancy percentage relates to manufactured housing sites, excluding
recreational vehicle sites. Data presented MH Sites/Total Sites.
(2) Acquired in 2002.
(3) Acquired in 2003.
(4) Occupancy in these properties reflects the fact that these communities
are in their initial lease-up phase following an expansion.
(5) This Property contains only recreational vehicle sites.
(6) The Company formerly leased this Property and the Company purchased
this Property in January 2004.
(7) This Property contains recreational vehicle sites.
(8) Occupancy in these properties reflects the fact that these communities
are newly developed from the ground up.
(9) This Property is owned by an affiliate of Sunchamp LLC, an entity in
which the Company owns approximately a 66 percent equity interest as of
December 31, 2003. Prior to 2002, the Company held a minority interest
in Sunchamp LLC and, therefore, did not treat this Property as a
Property owned by the Company. As a result, the Company did not report
any information in respect of this Property for such periods.
11
Leases. The typical lease we enter into with a tenant for the rental of
a site is month-to-month or year-to-year, renewable upon the consent of both
parties, or, in some instances, as provided by statute. In some cases, leases
are for one-year terms, with up to ten renewal options exercisable by the
tenant, with rent adjusted for increases in the consumer price index. These
leases are cancelable for non-payment of rent, violation of community rules and
regulations or other specified defaults. During the past five years, on average
3.3 percent of the homes in our communities have been removed by their owners
and 7.8 percent of the homes have been sold by their owners to a new owner who
then assumes rental obligations as a community resident. The small percentage of
homes removed from our communities is impacted by the $3,000 to $8,000 cost to
move a home. The above experience can be summarized as follows: the average
resident remains in our communities for approximately nine years, while the
average home, which gives rise to the rental stream, remains in our communities
for approximately thirty years. See "Regulations and Insurance."
ITEM 3. LEGAL PROCEEDINGS
On April 9, 2003, T.J. Holdings, LLC ("TJ Holdings"), a member of
Sun/Forest, LLC ("Sun/Forest") (which, in turn, owns an equity interest in
SunChamp LLC), filed a complaint against the Company, SunChamp LLC, certain
other affiliates of the Company and two directors of Sun Communities, Inc. in
the Superior Court of Guilford County, North Carolina. The complaint alleges
that the defendants wrongfully deprived the plaintiff of economic opportunities
that they took for themselves in contravention of duties allegedly owed to the
plaintiff and purports to claim damages of $13.0 million plus an unspecified
amount for punitive damages. The Company believes the complaint and the claims
threatened therein have no merit and will defend it vigorously.
The Company is involved in various other legal proceedings arising in
the ordinary course of business. All such proceedings, taken together, are not
expected to have a material adverse impact on our results of operations or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
12
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
There is no established public market for any class of the Company's
equity securities. On March 1, 2004, partnership units of the Company were held
by approximately 110 holders of record.
The General Partner's Common Stock has been listed on the New York
Stock Exchange ("NYSE") since December 8, 1993 under the symbol "SUI." On March
1, 2004, the closing sales price of the Common Stock was $40.97 and the Common
Stock was held by approximately 608 holders of record. The following table sets
forth the high and low closing sales prices per share for the Common Stock for
the periods indicated as reported by the NYSE and the distributions paid by the
General Partner with respect to each such period (we paid equivalent
distributions per common operating partnership unit to our limited partners
during such periods).
High Low Distribution
------- ----- ------------
FISCAL YEAR ENDED DECEMBER 31, 2002
First Quarter of 2002 40.19 36.73 0.55
Second Quarter of 2002 42.60 39.00 0.58
Third Quarter of 2002 41.93 33.50 0.58
Fourth Quarter of 2002 37.00 32.25 0.58
FISCAL YEAR ENDED DECEMBER 31, 2003
First Quarter of 2003 37.92 32.87 0.58
Second Quarter of 2003 40.46 35.75 0.61
Third Quarter of 2003 41.00 37.56 0.61
Fourth Quarter of 2003 40.65 35.78 0.61
RECENT SALES OF UNREGISTERED SECURITIES
On January 2, 2003, we issued 41,700 Series B-3 Preferred Units to the
members of Willowbrook Co., Ltd, paid approximately $0.9 million in cash and
assumed approximately $1.6 million of debt, which was immediately retired, in
exchange for property with a net agreed upon value of $6.6 million. On January
5, 2004, we issued 47,250 Series B-3 Preferred Units to the members of Westbrook
Co., Ltd, paid approximately $1.2 million in cash and assumed approximately $4.2
million of debt, which was immediately retired, in exchange for property with a
net agreed upon value of $10.1 million. Holders of the Series B-3 Units may
redeem the Series B-3 Units (a) within the ninety (90) day period following each
of the fifth, sixth, seventh, eighth, ninth and tenth anniversaries of the
issuance date, (b) in the event of the death of a holder, and (c) at any time
after the tenth anniversary. The redemption price is $100 per Series B-3 Unit.
We have the right to redeem the Series B-3 Units at any time after the tenth
anniversary.
In 2003, our General Partner issued an aggregate of 97,416 shares of
its common stock upon conversion of an aggregate of 97,416 partnership units.
All of the above partnership units and shares of common stock were
issued in private placements in reliance on Section 4(2) of the Securities Act
of 1933, as amended, including Regulation D promulgated thereunder. No
underwriters were used in connection with any of such issuances.
13
EQUITY COMPENSATION PLAN INFORMATION
The following table reflects information about the securities
authorized for issuance under our General Partner's equity compensation plans as
of December 31, 2003.
- ---------------------------- -------------------- --------------------- -----------------------
(a) (b) (c)
- ---------------------------- -------------------- --------------------- -----------------------
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES FUTURE ISSUANCE UNDER
TO BE ISSUED UPON WEIGHTED-AVERAGE EQUITY COMPENSATION
EXERCISE OF EXERCISE PRICE OF PLANS (EXCLUDING
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN a)
- ---------------------------- -------------------- --------------------- -----------------------
Equity compensation 723,094 $29.04 364,513
plans approved by
shareholders
- ---------------------------- -------------------- --------------------- -----------------------
Equity compensation
plans not approved
by shareholders (1) 87,657 $32.75 0
- ---------------------------- -------------------- --------------------- -----------------------
TOTAL 810,751 $29.44 364,513
- ---------------------------- -------------------- --------------------- -----------------------
(1) On May 29, 1997, our General Partner established a Long Term Incentive
Plan (the "LTIP") pursuant to which all full-time salaried and
full-time commission only employees of the General Partner, excluding
the General Partner's officers, were entitled to receive options to
purchase shares of the General Partner's common stock at $32.75 per
share (i.e., the average of the highest and lowest selling prices for
the common stock on May 29, 1997), on January 31, 2002. In accordance
with the terms of the LTIP, (a) the General Partner granted the
eligible participants options to purchase 167,918 shares of common
stock; and (b) each eligible participant received an option to purchase
a number of shares of common stock equal to the product of 167,918 and
the quotient derived by dividing such participant's total compensation
during the period beginning on January 1, 1997 and ending on December
31, 2001 (the "Award Period") by the aggregate compensation of all of
the eligible participants during the Award Period.
14
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2003 (c) 2002 (b) 2001 (b) 2000 (b) 1999 (b)
---------- ---------- ---------- ---------- ----------
(amounts in thousands except for per unit)
REVENUES
Income from rental property $ 159,115 $ 149,875 $ 136,969 $ 129,279 $ 122,385
Revenues from home sales 19,516 - - - -
Ancillary revenue, net 3,409 - - - -
Interest 11,354 7,990 10,305 9,386 6,101
Other income (loss) (4,256) 2,304 3,695 4,112 1,703
---------- ---------- ---------- ---------- ----------
Total revenues 189,138 160,169 150,969 142,777 130,189
COSTS AND EXPENSES
Property operating and maintenance 39,837 33,751 29,258 27,832 26,574
Cost of home sales 13,879 - - - -
Real estate taxes 11,746 10,217 9,162 8,768 8,579
Selling, general and administrative 18,181 7,722 7,373 7,013 6,320
Depreciation and amortization 44,120 37,900 32,716 29,900 27,829
Interest 36,680 32,375 31,016 29,651 27,289
---------- ---------- ---------- ---------- ----------
Total expenses 164,443 121,965 109,525 103,164 96,591
Equity income (loss) from affiliates 667 (16,627)(a) 131 607 1,726
---------- ---------- ---------- ---------- ----------
Income from operations 25,362 21,577 41,575 40,220 35,324
Less distributions to Preferred OP Units 8,537 7,803 8,131 7,826 3,663
---------- ---------- ---------- ---------- ----------
Income from continuing operations, net 16,825 13,774 33,444 32,394 31,661
Income from discontinued operations 10,163 1,863 5,671 6,084 2,111
---------- ---------- ---------- ---------- ----------
Earnings attributable to OP Units $ 26,988 $ 15,637 $ 39,115 $ 38,478 $ 33,772
========== ========== ========== ========== ==========
Earnings attributable to:
Continuing Operations:
General Partner $ 13,742 $ 11,972 $ 28,425 $ 27,383 $ 27,156
Limited Partner 3,083 1,802 5,019 5,011 4,505
Discontinued Operations:
General Partner $ 9,972 $ 1,620 $ 5,485 $ 5,911 $ 1,933
Limited Partner 191 243 186 173 178
---------- ---------- ---------- ---------- ----------
$ 26,988 $ 15,637 $ 39,115 $ 38,478 $ 33,772
========== ========== ========== ========== ==========
Weighted average OP Unit outstanding:
Basic 20,717 20,177 19,907 19,999 19,961
========== ========== ========== ========== ==========
Diluted 20,856 20,363 20,089 20,085 20,113
========== ========== ========== ========== ==========
Basic earnings per OP Unit outstanding:
Continuing operations $ 0.81 $ 0.68 $ 1.68 $ 1.62 $ 1.59
Discontinued operations 0.49 0.09 0.28 0.30 0.10
---------- ---------- ---------- ---------- ----------
Earnings attributable to OP Units $ 1.30 $ 0.77 $ 1.96 $ 1.92 $ 1.69
========== ========== ========== ========== ==========
Diluted earnings per OP Unit outstanding:
Continuing operations $ 0.80 $ 0.68 $ 1.67 $ 1.62 $ 1.58
Discontinued operations 0.49 0.09 0.28 0.30 0.10
---------- ---------- ---------- ---------- ----------
Earnings attributable to OP Units $ 1.29 $ 0.77 $ 1.95 $ 1.92 $ 1.68
========== ========== ========== ========== ==========
Distribution per OP Unit 2.41 2.29 2.18 2.10 2.02
========== ========== ========== ========== ==========
15
ITEM 6. SELECTED FINANCIAL DATA, CONTINUED
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
(In thousands except for per unit and other data)
BALANCE SHEET DATA:
Rental property, $1,220,405 $1,174,837 $ 969,936 $ 867,377
before accumulated
depreciation
Total assets $1,221,574 $1,163,976 $ 994,449 $ 966,628
Total debt $ 773,328 $ 667,373 $ 495,198 $ 464,508
Redeemable $ -- $ 53,978 $ 43,958 $ 39,347
Preferred OP Units
Partners' capital $ 423,413 $ 418,044 (d) $ 428,681 (d) $ 437,630 (d)
OTHER DATA (AT END OF PERIOD):
Total properties 127 129 116 109
Total Sites 43,875 43,959 40,544 38,282
(a) Included in equity income (loss) from affiliates in 2002 is a $13.6
million valuation adjustment of the Company's investment in Origen.
(b) Revenues and expenses for the years ended December 31, 2002, 2001, 2000
and 1999 have been restated to reflect the reclassifications required
under SFAS No. 144 for the four properties sold in 2003.
(c) Selected financial data for 2003 includes amounts from SHS which was
consolidated during 2003.
(d) $2.6 million of officers' notes was reclassified from notes and other
receivables to partners' capital.
16
ITEM 7. 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 notes thereto elsewhere herein.
The Company owns, operates, develops and finances manufactured housing
communities concentrated in the midwestern and southeastern United States. Sun
Communities, Inc. ("General Partner), a self-administered and self-managed Real
Estate Investment Trust is the sole general partner of the Company. As of
December 31, 2003, the Company owned and operated a portfolio of 127 developed
properties located in seventeen states, including 115 manufactured housing
communities, five recreational vehicle communities, and seven properties
containing both manufactured housing and recreational vehicle sites.
During 2003, the Company acquired one manufactured housing community
located in East Lansing, Michigan, comprising 62 developed sites and 182 sites
suitable for development for $4.5 million, and the Company sold four
manufactured housing communities located in Michigan and Illinois which
comprised 731 sites for $24.8 million.
The Company has been experiencing increased vacancies due primarily to
the glut of repossessed homes caused by lax credit standards in the mid to late
1990's. As lenders recognize their problems and repossess homes, the Company's
vacancies rise. Industry estimates are that such conditions are abating and the
number of repossessed homes in 2004 will approximate 60,000, roughly one-half of
the number in recent years. This abatement should have positive effects on new
home sales which fill sites in the Company's communities.
17
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results
of Operations discusses the Company's consolidated financial statements, which
have been prepared in accordance with generally accepted accounting principles.
The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the dates
of the financial statements and the reported amounts of revenues and expenses
during the reporting periods. In preparing these financial statements,
management has made its best estimates and judgment of certain amounts included
in the financial statements. Nevertheless, actual results may differ from these
estimates under different assumptions or conditions.
Management believes the following significant accounting policies,
among others, affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements:
Impairment of Long-Lived Assets. Rental property is recorded at cost,
less accumulated depreciation. Management evaluates the recoverability of its
investment in rental property whenever events or changes in circumstances, such
as recent operating results, expected net operating cash flow and plans for
future operations, indicate that full asset recoverability is questionable. If
such assets were deemed to be impaired as a result of this measurement, the
impairment that would be recognized is measured by the amount by which the
carrying amount of the asset exceeds the fair value of the asset as determined
on a discounted net cash flow basis.
Notes Receivable. The Company evaluates the recoverability of its notes
receivable whenever events occur or there are changes in circumstances such that
management believes it is probable that it will be unable to collect all amounts
due according to the contractual terms of the loan agreement. The loan is then
measured based on the present value of the expected future cash flow discounted
at the loan's effective interest rate or the fair value of the collateral if the
loan is collateral dependent.
Depreciation. Depreciation is computed on a straight-line basis over
the estimated useful lives of the assets. The Company uses a thirty year useful
life for land improvements and buildings and a seven to fifteen year useful life
for furniture, fixtures and equipment.
Revenue Recognition. Rental income attributable to leases is recorded
on a straight-line basis when earned from tenants. Leases entered into by
tenants generally range from month-to-month to one year and are renewable by
mutual agreement of the Company and the resident.
Capitalized Costs. The Company capitalizes certain costs (including
interest and other costs) incurred in connection with the development,
redevelopment, capital enhancement and leasing of its properties. Management is
required to use professional judgment in determining whether such costs meet the
criteria for immediate expense or capitalization. The amounts are dependent on
the volume and timing of such activities and the costs associated with such
activities. Maintenance, repairs and minor improvements to properties are
expensed when incurred. Renovations and improvements to properties are
capitalized and depreciated over their estimated useful lives and construction
costs related to the development of new community or expansion sites are
capitalized until the property is substantially complete. Certain expenditures
18
to dealers and residents related to obtaining lessees in our communities are
capitalized and amortized over a seven year period; shorter than the average
resident's occupancy in the home and the average term that the home is in our
community. Costs associated with implementing the Company's new computer systems
are capitalized and amortized over the estimated useful lives of the related
software and hardware.
Derivative Instruments and Hedging Activities. The Company has entered
into three interest rate swap agreements to offset interest rate risk. The
Company does not enter into derivative transactions for speculative purposes.
The Company adjusts its balance sheet on an ongoing quarterly basis to reflect
current fair market value of its derivatives. Changes in the fair value of
derivatives are recorded each period in earnings or comprehensive income, as
appropriate. The ineffective portion of the hedge is immediately recognized in
earnings to the extent that the change in value of a derivative does not
perfectly offset the change in value of the instrument being hedged. The
unrealized gains and losses held in accumulated other comprehensive income will
be reclassified to earnings over time and occurs when the hedged items are also
recognized in earnings. The Company uses standard market conventions to
determine the fair values of derivative instruments, including the quoted market
prices or quotes from brokers or dealers for the same or similar instruments.
All methods of assessing fair value result in a general approximation of value
and such value may never actually be realized.
Deferred Tax Assets. SHS currently has significant deferred tax assets,
which are subject to periodic recoverability assessments. SHS has recognized
deferred tax assets of $2.0 million, net of a valuation reserve of $3.0 million.
Realization of these deferred tax assets is principally dependent upon SHS's
achievement of expected future taxable income. Judgments regarding future
profitability may change due to future market conditions, SHS's ability to
continue to successfully execute its business plan, and other factors.
RESULTS OF OPERATIONS
Comparison of year ended December 31, 2003 to year ended December 31, 2002
For the year ended December 31, 2003, income from operations increased
by $3.8 million from $21.6 million to $25.4 million, when compared to the year
ended December 31, 2002. The increase was due to increased revenues of $29.0
million and increased results from affiliates of $17.3 million partially offset
by increased expenses of $42.5 million. The year 2003 included SHS on a
consolidated basis as discussed below.
Income from rental property increased by $9.2 million from $149.9
million to $159.1 million, or 6.2 percent, due to rent increases and other
community revenues ($3.4 million) and acquisitions ($5.8 million).
Interest income increased by $3.4 million from $8.0 million to $11.4
million, or 42.1 percent, due principally to larger outstanding balances of
notes and investments at higher rates of interest.
Other operating income decreased by $6.6 million from $2.3 million to
($4.3) million, due primarily to reduced development fee income and a $4.9
million write down of an impaired asset.
The remaining revenue increases of $22.9 million relate to the
consolidation of Sun Home Services which is discussed in detail below.
19
Property operating and maintenance expenses increased by $6.1 million
from $33.7 million to $39.8 million, or 18.0 percent. The increase was primarily
due to increases in utility costs ($1.8 million) and increases in repair and
maintenance expenses ($1.3 million). Acquisitions during 2002 and the
consolidation of SunChamp properties accounted for the remaining increase of
$3.0 million.
Real estate taxes increased by $1.5 million from $10.2 million to $11.7
million, or 15.0 percent due to acquisitions made in 2002 ($0.7 million) and
increases in assessments and tax rate ($0.8 million).
Selling, general, and administrative expenses increased by $10.4
million from $7.7 million to $18.1 million, due to the consolidation of Sun Home
Services ($7.6 million), professional fees ($0.4 million), expenses related to
office relocation ($0.2 million), Michigan Single Business tax ($0.2 million),
compensation expenses, including benefits, primarily related to the SunChamp
acquisition and a systems conversion ($1.7 million), and assorted other minor
increases ($0.3 million).
Depreciation and amortization increased by $6.2 million from $37.9
million to $44.1 million, or 16.4 percent, due primarily to the consolidation of
Sun Home Services ($1.0 million) and additional investment in rental property.
Interest expense increased by $4.3 million from $32.4 million to $36.7
million, or 13.3 percent, due to increased debt levels partially offset by lower
interest rates ($1.5 million), decreased capitalized interest ($0.8 million), an
increase in financing costs ($0.6 million), and an increase in interest rates
related to fixing rates on $75.0 million of debt ($2.7 million). These increases
were partially offset by $1.3 million of income related primarily to the change
in market value of an interest rate swap contract that does not qualify for
hedge accounting.
Equity income from affiliates of $0.7 million represents the Company's
one-third interest in the operations of Origen for its initial operating period
after a recapitalization in October, 2003.
The remaining expense increase of $13.9 million relates to the
consolidation of Sun Home Services which is discussed in detail below.
Sun Home Services
Prior to January 1, 2003, the results of operations of Sun Home
Services were accounted for using the equity method and reported as a single
line item called equity in income from affiliates. As the Company is the primary
beneficiary of the results of operations of Sun Home Services, it is appropriate
to consolidate Sun Home Services at December 31, 2003. This has no effect on
previously reported net income.
20
The following table summarizes certain financial and statistical data
for Sun Home Services for the years ended December 31, 2003 and 2002:
INCREASE/
2003 2002 (DECREASE) PERCENT CHANGE
-------- -------- ---------- --------------
(Pro Forma)
New home sales revenues $ 13,169 $ 15,890 $ (2,721) (17.1%)
Cost of sales 9,159 12,907 (3,748) (29.0%)
-------- -------- -------- --------
Gross profit 4,010 2,983 1,027 34.4%
======== ======== ======== ========
Pre-owned home sales revenues $ 6,347 $ 3,214 $ 3,133 97.5%
Cost of sales 4,720 2,586 2,134 82.5%
-------- -------- -------- --------
Gross profit 1,627 628 999 159.1%
======== ======== ======== ========
Ancillary revenue, net $ 3,409 $ 1,519 $ 1,890 124.4%
======== ======== ======== ========
Home sales volumes:
New homes 257 286 (29) (10.1%)
Pre-owned homes 283 174 109 62.6%
New home sales declined by 10.1 percent, while revenues and costs of
sales declined by 17.1 percent and 29.0 percent, respectively. Gross profit
increased by 34.4 percent as cost of sales declined by more than revenues due to
the purchase of new homes at a substantial discount. Pre-owned home unit sales
increased by 62.6 percent while revenues and cost of sales increased by 97.5
percent and 82.5 percent, respectively. Gross profit increased by 159.1 percent
as revenues grew more than cost of sales due to strong demand for the value in
pre-owned homes.
The increase in ancillary revenue, net, is primarily due to increased
activity in the Company's rental home program.
Comparison of year ended December 31, 2002 to year ended December 31, 2001
For the year ended December 31, 2002, income from operations decreased
by $20.0 million from $41.6 million to $21.6 million, when compared to the year
ended December 31, 2001. The decrease was due to increased expenses of $12.5
million, increased revenues of $9.2 million and increased loss from affiliates
of $16.7 million as described in more detail below.
Income from rental property increased by $12.9 million from $137.0
million to $149.9 million, or 9.4 percent, due to rent increases and other
community revenues ($5.9 million) and acquisitions ($7.0 million).
Interest income decreased by $2.3 million from $10.3 million to $8.0
million, or 22.5 percent, due primarily to a decrease in interest earning notes
and receivables.
Other income decreased by $1.4 million from $3.7 million to $2.3
million, or 37.8 percent, due primarily to reduced development fee income.
21
Property operating and maintenance expenses increased by $4.4 million
from $29.3 million to $33.7 million, or 15.0 percent, due to acquired
communities ($1.9 million) and increases in costs including payroll ($1.2
million), workers' compensation ($0.5 million), and cable television ($0.3
million), and other expenses ($0.5 million).
Real estate taxes increased by $1.0 million from $9.2 million to $10.2
million, or 11.5 percent due to acquired communities ($0.5 million) and changes
in certain assessments.
General and administrative expenses increased by $0.3 million from $7.4
million to $7.7 million, representing 4.8 percent and 4.9 percent of total
revenues in 2002 and 2001, respectively.
Depreciation and amortization increased by $5.2 million from $32.7
million to $37.9 million, due primarily to the net additional investments in
rental properties.
Interest expense increased by $1.4 million from $31.0 million to $32.4
million due primarily to financing additional investments in rental property
($6.0 million), offset by decreasing rates on variable rate debt ($4.9 million).
Equity loss from affiliates increased by $16.7 million from income of
$0.1 million to a loss of $16.6 million primarily due to equity losses at SHS
($0.7 million), SunChamp ($0.4 million) and Origen ($1.7 million) and the
valuation adjustment of the Company's investment in Origen ($13.6 million) and a
technology investment ($0.3 million).
22
SAME PROPERTY INFORMATION
The following table reflects property-level financial information as of
and for the years ended December 31, 2003 and 2002. The "Same Property" data
represents information regarding the operation of communities owned as of
January 1, 2002 and December 31, 2003. 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 properties acquired after January 1, 2002 and new
development communities.
SAME PROPERTY (3) TOTAL PORTFOLIO
---------------------------- ----------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
(in thousands) (in thousands)
Income from property $ 135,220 $ 132,100 $ 159,115 $ 149,875
---------- ---------- ---------- ----------
Property operating expenses
Property operating and maintenance 26,663 24,865 39,837 33,751
Real estate taxes 10,578 9,892 11,746 10,217
---------- ---------- ---------- ----------
Property operating expenses 37,241 34,757 51,583 43,968
---------- ---------- ---------- ----------
Property net operating income (2) $ 97,979 $ 97,343 $ 107,532 $ 105,907
========== ========== ========== ==========
Number of properties 105 105 127 129
Developed sites 38,255 38,253 43,875 43,959
Occupied sites 33,533 34,514 36,361 38,940
Occupancy % 89.1% 92.0% 86.1% 89.9%
Weighted Average monthly rent per site $ 328 (1) $ 315 (1) $ 328 (1) $ 315 (1)
Sites available for development 1,545 2,018 6,756 7,642
Sites planned for development in next year 30 99 258 175
(1) Occupancy % and weighted average rent relates to manufactured housing
sites, excluding recreational vehicle sites.
(2) Investors in and analysts following the real estate industry utilize
net operating income ("NOI") as a supplemental performance measure. The
Company considers NOI, given its wide use by and relevance to investors
and analysts, an appropriate supplemental measure to net income because
NOI provides a measure of rental operations and does not factor in
depreciation/amortization and non-property specific expenses such as
general and administrative expenses.
(3) Same property information does not include properties sold during the
year ended December 31, 2003.
On a same property basis, property net operating income increased by $0.6
million from $97.3 million to $97.9 million, or 0.6 percent. Income from
property increased by $3.1 million from $132.1 million to $135.2 million, or 2.3
percent, due primarily to increases in rents including water and property tax
pass through.
Property operating expenses increased by $1.8 million from $24.9 million to
$26.7 million, or 7.2 percent, due to increases in real estate taxes ($0.7
million), repair and maintenance ($0.9 million), and payroll ($0.2 million).
23
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity demands have historically been, and
are expected to continue to be, distributions to the General Partner'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) 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 the General Partner's stockholders to maintain the
General Partner's qualification as a REIT in accordance with the Internal
Revenue Code and make distributions to the Company's unitholders.
The Company plans to invest approximately $5 million 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 $20 to $40
million in the acquisition of individual properties in 2004, 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 $21.4 million to $24.1 million
at December 31, 2003 compared to $2.7 million at December 31, 2002 due to the
net proceeds received from the sale of four properties. Net cash provided by
operating activities increased by $12.3 million to $63.3 million for the year
ended December 31, 2003 compared to $51.0 million for the year ended December
31, 2002. The increase resulted primarily from increased net income, higher
depreciation, the effect of consolidating SHS, and changes in other
miscellaneous asset and liabilities accounts.
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 markets; (b) lower occupancy 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 October 2003, the Company acquired a community in East Lansing, MI
and financed the acquisition with a mortgage for $2.3 million and the remainder
in cash.
The Company entered into a $25 million loan facility in September of
2003, of which $25 million was available to be borrowed at December 31, 2003.
Borrowings bear an interest rate of Federal Funds Effective Rate plus .85% and
mature on March 24, 2004.
In April 2003 the Company issued $150 million of 5.75 percent senior
notes, due April 15, 2010, and used the proceeds from the offering to retire the
bridge loan of $48 million and senior notes of $85 million which matured on
April 30 and May 1, 2003, respectively. The remaining proceeds paid down the
Company's line of credit.
24
The Company has a $105 million unsecured line of credit facility, which
matures in July 2005, with a one-year optional extension. At December 31, 2003,
the average interest rate of outstanding borrowings under the line of credit was
2.05%, $99 million was outstanding and $6 million was available to be drawn
under the facility. 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 December 31, 2003.
The Company's primary long-term liquidity needs are principal payments
on outstanding indebtedness. At December 31, 2003, the Company's outstanding
contractual obligations were as follows:
PAYMENTS DUE BY PERIOD
(IN THOUSANDS)
----------------------------------------------------------
CONTRACTUAL CASH OBLIGATIONS TOTAL DUE 1 YEAR 2-3 YEARS 4-5 YEARS AFTER 5 YEARS
------------ ------------ ------------ ------------ -------------
Line of credit $ 99,000 $ - $ 99,000 $ - $ -
Collateralized term loan 41,547 706 1,569 39,272 -
Collateralized term loan - FNMA 152,363 - - - 152,363
Senior notes (1) 350,000 - 65,000 135,000 150,000
Mortgage notes, other 62,664 24,823 12,276 8,008 17,557
Capitalized lease obligations 9,606 9,606 - - -
Redeemable Preferred OP Units 58,148 - 8,176 4,500 45,472
------------ ------------ ------------ ------------ -------------
$ 773,328 $ 35,135 $ 186,021 $ 186,780 $ 365,392
============ ============ ============ ============ =============
(1) The provisions of the callable/redeemable $65 million notes are such
that the maturity date will likely be 2005 if the 10-year treasury rate
is greater than 5.7% on May 16, 2005. The maturity is reflected in the
above table based on that assumption.
The Company anticipates meeting its long-term liquidity requirements,
such as scheduled debt maturities, large property acquisitions and OP unit
redemptions, through the issuance of debt or equity securities, including equity
units in the Company, or from selective asset sales. Since 1993, the General
Partner and the Company have raised, in the aggregate, nearly $1 billion from
the sale of the General Partner's shares of common stock, from the issuance of
OP units in the Company and from the issuance of secured and unsecured debt
securities. In addition, at December 31, 2003, 92 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. See "Factors that May
Affect Future Results". 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.
Included in the Balance Sheet are $35.8 million of Preferred OP Units
which would require collateralization were the Company to no longer be
classified as investment grade by the rating agencies.
At December 31, 2003, the Company's debt to total market capitalization
approximated 46.0 percent. The debt has a weighted average maturity of
approximately 4.6 years and a weighted average interest rate of 5.4 percent.
25
Capital expenditures for the years ended December 31, 2003 and 2002
included recurring capital expenditures of $6.5 million (excluding $1.7 million
related to a main office relocation and $3.4 million related to a software
conversion) and $7.1 million, respectively.
Net cash used in investing activities was $59.3 million for the year
ended December 31, 2003 compared to $169.2 million in the prior year. The
differences are due to: decreased investment in rental properties of $37.0
million; increased proceeds from property disposition of $19.2 million;
increased repayments of notes receivables of $49.5 million; and decreased
investment in and advances to affiliates of $4.2 million. Included in proceeds
from property dispositions is $22.5 million of proceeds deposited with an
intermediary for Section 1031 exchange purposes. These sales proceeds will be
disbursed as the Company exchanges properties under Section 1031 of the Internal
Revenue Code.
Net cash provided by financing activities was $17.4 million for the
year ended December 31, 2003, compared to $116.3 million in the prior year. The
differences were primarily due to changes in net proceeds from notes payable,
inclusive of borrowings on line of credit, of $109.6 million, increased
distributions of $2.4 million, offset by changes in capital contributions of
$12.5 million and changes in payments of deferred financing costs of $0.6
million.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the years ended
December 31, 2003, 2002, and 2001 was 1.29:1, 1.68:1 and 1.73:1 respectively.
INFLATION
Most of the leases allow for periodic rent increases which provide the
Company with the opportunity to achieve increases in rental income as each lease
expires. Such types of leases generally minimize the risk of inflation to the
Company.
SAFE HARBOR STATEMENT
This Form 10-K contains various "forward-looking statements" within the
meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934,
and the Company intends that such forward-looking statements will be subject to
the safe harbors created thereby. For this purpose, any statements contained in
this press release that relate to prospective events or developments are deemed
to be forward-looking statements. Words such as "believes," "forecasts,"
"anticipates," "intends," "plans," "expects," "will" and similar expressions are
intended to identify forward-looking statements. These forward-looking
statements reflect the Company's current views with respect to future events and
financial performance, but involve known and unknown risks and uncertainties,
both general and specific to the matters discussed in this press release. These
risks and uncertainties may cause the actual results of the Company to be
materially different from any future results expressed or implied by such
forward looking statements. Such risks and uncertainties include the national,
regional and local economic climates, the ability to maintain rental rates and
occupancy levels, competitive market forces, changes in market rates of
interest, the ability of manufactured home buyers to obtain financing, the level
of repossessions by manufactured home lenders and those referenced under the
headings entitled "Factors That May Affect Future Results" or "Risk Factors"
contained in this Form 10-K and the Company's filings with the Securities and
Exchange Commission. The forward-looking statements contained in this Form 10-K
speak only as of the date hereof and the Company
26
expressly disclaims any obligation to provide public updates, revisions or
amendments to any forward-looking statements made herein to reflect changes in
the Company's expectations of future events.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" which establishes standards for how financial instruments that have
characteristics of both liabilities and equity instruments should be classified
on the balance sheet. The requirements of SFAS 150 generally outline that
financial instruments that give the issuer a choice of settling an obligation
with a variable number of securities or settling an obligation with a transfer
of assets or any mandatorily redeemable security should be classified as a
liability on the balance sheet. The Company has reclassified mandatorily
redeemable preferred operating partnership units of $58.1 million into debt as
of December 31, 2003. The reclassification had no effect on the Company's
compliance with the covenant requirements of its credit agreements.
In April 2003, FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." The statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statements No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement is effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships designated after June 30,
2003. In addition, all provisions of this Statement should be applied
prospectively. The provisions of this Statement that relate to Statement 133
Implementation Issues that have been effective for fiscal quarters that began
prior to June 15, 2003, should continue to be applied in accordance with their
respective effective dates. The adoption of this Statement did not have a
significant impact on the financial position or results of the operations of the
Company.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." The objective of this
interpretation is to provide guidance on how to identify a variable interest
entity ("VIE") and determine when the assets, liabilities, non-controlling
interests and results of operations of a VIE need to be included in a company's
consolidated financial statements. A company that holds variable interests in an
entity will need to consolidate the entity if the company's interest in the VIE
is such that the company will absorb a majority of the VIE's expected losses
and/or receive a majority of the VIE's expected residual returns, if they occur.
FIN 46 also requires additional disclosures by primary beneficiaries and other
significant variable interest holders. The provisions of this interpretation
apply to the end of the first interim period or annual period ending after
December 15, 2003 (i.e., December 31, 2003) to VIEs in which a company holds a
variable interest that it acquired before February 1, 2003. The Company has
consolidated SHS in its financial reporting beginning December 31, 2003.
27
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
reconciles net income to FFO and calculates FFO data for both basic and diluted
purposes for the years ended December 31, 2003, 2002, 2001 (in thousands):
28
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
RECONCILIATION OF EARNINGS TO FUND FROM OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE/OP UNIT AMOUNTS)
2003 2002 2001
-------- -------- --------
Earnings attributable to OP Units $ 26,988 $ 15,637 $ 39,115
Adjustments:
Depreciation of rental property 43,458 38,262 33,050
Valuation adjustment (1) (879) 449 --
Allocation of SunChamp losses (2) 4,548 1,315 --
(Gain) loss on dispositions and impairments, net (3,658) 13,570 (4,079)
-------- -------- --------
Funds from Operations (FFO) $ 70,457 $ 69,233 $ 68,086
======== ======== ========
FFO - Continuing Operations $ 68,537 $ 67,055 $ 65,889
======== ======== ========
FFO - Discontinued Operations $ 1,920 $ 2,178 $ 2,197
======== ======== ========
Weighted average common shares/OP Units outstanding:
Basic 20,717 20,177 19,907
======== ======== ========
Diluted 20,856 20,363 20,089
======== ======== ========
Continuing Operations:
FFO per weighted average Common Share/OP Unit - Basic $ 3.31 $ 3.32 $ 3.31
======== ======== ========
FFO per weighted average Common Share/OP Unit - Diluted $ 3.29 $ 3.29 $ 3.28
======== ======== ========
Discontinued Operations:
FFO per weighted average Common Share/OP Unit - Basic $ 0.09 $ 0.11 $ 0.11
======== ======== ========
FFO per weighted average Common Share/OP Unit - Diluted $ 0.09 $ 0.11 $ 0.11
======== ======== ========
Total Operations:
FFO per weighted average Common Share/OP Unit - Basic $ 3.40 $ 3.43 $ 3.42
======== ======== ========
FFO per weighted average Common Share/OP Unit - Diluted $ 3.38 $ 3.40 $ 3.39
======== ======== ========
(1) The Company entered into three interest rate swaps and an interest rate cap
agreement. The valuation adjustment reflects the theoretical noncash profit
and loss were those hedging transactions terminated at the balance sheet
date. As the Company has no expectation of terminating the transactions
prior to maturity, the net of these noncash valuation adjustments will be
zero at the various maturities. As any imperfection related to hedging
correlation in these swaps is reflected currently in cash as interest, the
valuation adjustments are excluded from Funds from Operations. The valuation
adjustment is included in interest expense.
(2) The Company acquired the equity interest of another investor in SunChamp in
December 2002. Consideration consisted of a long-term note payable at net
book value. Although the adjustment for the allocation of the SunChamp
losses (based on SunChamp as a stand-alone entity) is not reflected in the
accompanying financial statements, management believes that it is
appropriate to provide for this adjustment because the Company's payment
obligations with respect to the note are subordinate in all respects to the
return of the members' equity (including the gross book value of the
acquired equity) plus a preferred return. As a result, the losses that are
allocated to the Company from SunChamp as a stand-alone entity under
generally accepted accounting principles are effectively reallocated to the
note for purposes of calculating Funds from Operations. At December 31,
2003, the remaining balance on the SunChamp note is approximately $0.3
million.
29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's principal market risk exposure is interest rate risk. The
Company mitigates this risk by maintaining prudent amounts of leverage,
minimizing capital costs and interest expense while continuously evaluating all
available debt and equity resources and following established risk management
policies and procedures, which include the periodic use of derivatives. The
Company's primary strategy in entering into derivative contracts is to minimize
the variability that changes in interest rates could have on its future cash
flows. The Company generally employs derivative instruments that effectively
convert a portion of its variable rate debt to fixed rate debt. The Company does
not enter into derivative instruments for speculative purposes.
The Company has entered into three separate interest rate swap
agreements and an interest rate cap agreement. One of these swap agreements
fixes $25 million of variable rate borrowings at 4.93 percent for the period
April 2003 through July 2009, another of these swap agreements fixes $25 million
of variable rate borrowings at 5.37 percent for the period April 2003 through
July 2012 and the third swap agreement, which is only effective for so long as
90-day LIBOR is 7 percent or less, fixes $25 million of variable rate borrowings
at 3.97 percent for the period April 2003 through July 2007. The interest rate
cap agreement has a cap rate of 9.49 percent, a notional amount of $152.4
million and a termination date of April 13, 2006. Each of the Company's
derivative contracts is based upon 90-day LIBOR.
The Company's remaining variable rate debt totals $196.6 million as of
December 31, 2003 which bears interest at various LIBOR or FNMA Discounted
Mortgage Backed Securities ("DMBS") rates. If LIBOR or DMBS increased or
decreased by 1.0 percent during the years ended December 31, 2003 and 2002, the
Company believes its interest expense would have increased or decreased by
approximately $2.2 million and $1.7 million, respectively, based on the $215.3
million and $171.3 million average balance outstanding under the Company's
variable rate debt facilities for the year ended December 31, 2003 and 2002,
respectively.
Additionally, the Company had $32.1 million and $27.3 million LIBOR
based variable rate mortgage and other notes receivable as of December 31, 2003
and 2002. If LIBOR increased or decreased by 1.0 percent during the years ended
December 31, 2003 and 2002, the Company believes interest income would have
increased or decreased by approximately $0.30 million and $0.37 million,
respectively, based on the $30.2 million and $36.7 million average balance
outstanding on all variable rate notes receivable for the year ended December
31, 2003 and 2002, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements and supplementary data are filed herewith under
Item 15.
30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
We have previously reported the information required by this item in a
current report on Form 8-K initially filed with the SEC on July 16, 2003, as
amended by Form 8-K/A filed with the SEC on July 18, 2003.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Under the supervision and with the participation of the
General Partner's management, including the General Partner's Chief Executive
Officer, Gary A. Shiffman, and Chief Financial Officer, Jeffrey P. Jorissen, the
Company evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures as of the end of the period covered by this
Form 10-K, pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the
"Exchange Act"). Based upon that evaluation, the General Partner's Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective to ensure that information the
Company is required to disclose in its filings with the Securities and Exchange
Commission under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Commission's rules and forms,
and to ensure that information required to be disclosed by the Company in the
reports that it files under the Exchange Act is accumulated and communicated to
the Company's management, including its principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.
(b) There have been no significant changes in the Company's
internal control over financial reporting during the quarterly period ended
December 31, 2003 that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
PART III
The information required by ITEMS 10, 11, 12, 13, AND 14 will be
included in the General Partner's proxy statement for its 2004 Annual Meeting of
Shareholders, and is incorporated herein by reference.
31
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed herewith as part of this
Form 10-K:
(1) A list of the financial statements required to be
filed as a part of this Form 10-K is shown in the "Index to the Consolidated
Financial Statements and Financial Statement Schedule" filed herewith.
(2) A list of the financial statement schedules required
to be filed as a part of this Form 10-K is shown in the "Index to the
Consolidated Financial Statements and Financial Statement Schedule" filed
herewith.
(3) A list of the exhibits required by Item 601 of
Regulation S-K to be filed as a part of this Form 10-K is shown on the "Exhibit
Index" filed herewith.
(b) Reports on Form 8-K:
None
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 15, 2004
SUN COMMUNITIES OPERATING LIMITED
PARTNERSHIP
By: Sun Communities, Inc., General Partner
By: /s/ Gary A. Shiffman
--------------------------------
Gary A. Shiffman, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
Chief Executive Officer, President and
/s/ Gary A. Shiffman Chairman of the Board of Directors of the March 15, 2004
- --------------------------- General Partner
Gary A. Shiffman
Executive Vice President, Chief Financial
/s/ Jeffrey P. Jorissen Officer, Treasurer, Secretary and Principal March 15, 2004
- --------------------------- Accounting Officer of the General Partner
Jeffrey P. Jorissen
/s/ Paul D. Lapides Director of the General Partner March 15, 2004
- ---------------------------
Paul D. Lapides
/s/ Ted J. Simon Director of the General Partner March 15, 2004
- ------------------
Ted J. Simon
/s/ Clunet R. Lewis Director of the General Partner March 15, 2004
- ---------------------------
Clunet R. Lewis
/s/ Ronald L. Piasecki Director of the General Partner March 15, 2004
- ----------------------
Ronald L. Piasecki
/s/ Arthur A. Weiss Director of the General Partner March 15, 2004
- ---------------------------
Arthur A. Weiss
33
EXHIBIT INDEX
EXHIBIT METHOD OF
NUMBER DESCRIPTION FILING
- ------ ----------- ------
2.1 Form of Sun Communities, Inc.'s Common Stock Certificate (1)
3.1 Amended and Restated Articles of Incorporation of Sun Communities, Inc (1)
3.2 Bylaws of Sun Communities, Inc. (2)
4.1 Indenture, dated as of April 24, 1996, among Sun Communities, Inc., Sun (3)
Communities Operating Limited Partnership (the "Operating Partnership") and
Bankers Trust Company, as Trustee
4.2 Form of Note for the 2001 Notes (3)
4.3 Form of Note for the 2003 Notes (3)
4.4 First Supplemental Indenture, dated as of August 20, 1997, by and between the (7)
Operating Partnership and Bankers Trust Company, as Trustee
4.5 Form of Medium-Term Note (Floating Rate) (7)
4.6 Form of Medium-Term Note (Fixed Rate) (7)
4.7 Articles Supplementary of Board of Directors of Sun Communities, Inc. (9)
Designating a Series of Preferred Stock and Fixing Distribution and other
Rights in such Series
4.8 Articles Supplementary of Board of Directors of Sun Communities, Inc. (11)
Designating a Series of Preferred Stock
10.1 Second Amended and Restated Agreement of Limited Partnership of Sun Communities (6)
Operating Limited Partnership
10.2 Second Amended and Restated 1993 Stock Option Plan (10)
10.3 Amended and Restated 1993 Non-Employee Director Stock Option Plan (6)
10.4 Form of Stock Option Agreement between Sun Communities, Inc. and certain (1)
directors, officers and other individuals#
10.5 Form of Non-Employee Director Stock Option Agreement between Sun Communities, (4)
Inc. and certain directors#
10.6 Employment Agreement between Sun Communities, Inc. and Gary A. Shiffman# (6)
10.7 Amended and Restated Loan Agreement between Sun Communities Funding Limited (7)
Partnership and Lehman Brothers Holdings Inc.
10.8 Amended and Restated Loan Agreement among Miami Lakes Venture Associates, Sun (7)
Communities Funding Limited Partnership and Lehman Brothers Holdings Inc.
10.9 Form of Indemnification Agreement between each officer and director of Sun (7)
Communities, Inc. and Sun Communities, Inc.
10.10 Loan Agreement among the Operating Partnership, Sea Breeze Limited Partnership (7)
and High Point Associates, LP.
10.11 Option Agreement by and between the Operating Partnership and Sea Breeze (7)
Limited Partnership
10.12 Option Agreement by and between the Operating Partnership and High Point (7)
Associates, LP
10.13 Stock Pledge Agreement between Gary A. Shiffman and the Operating Partnership (5)
for 94,570 shares of Common Stock
10.14 Stock Pledge Agreement between Gary A. Shiffman and the Operating Partnership (5)
for 305,430 shares of Common Stock
10.15 Stock Pledge Agreement between Gary A. Shiffman and the Operating Partnership (7)
with respect to 80,000 shares of Common Stock
10.16 Employment Agreement between Sun Communities, Inc. and Jeffrey P. Jorissen# (9)
10.17 Long Term Incentive Plan (7)
34
EXHIBIT METHOD OF
NUMBER DESCRIPTION FILING
- ------ ----------- ------
10.18 Restricted Stock Award Agreement between Sun Communities, Inc. and Gary A. (9)
Shiffman, dated June 5, 1998#
10.19 Restricted Stock Award Agreement between Sun Communities, Inc. and Jeffrey P. (9)
Jorissen, dated June 5, 1998#
10.20 Restricted Stock Award Agreement between Sun. Communities, Inc. and Jonathan M. (9)
Colman, dated June 5, 1998#
10.21 Restricted Stock Award Agreement between Sun Communities, Inc. and Brian W. (9)
Fannon, dated June 5, 1998#
10.22 Sun Communities, Inc. 1998 Stock Purchase Plan# (9)
10.23 Facility and Guaranty Agreement among Sun Communities, Inc., the Operating (9)
Partnership, Certain Subsidiary Guarantors and First National Bank of Chicago,
dated December 10, 1998
10.24 Rights Agreement between Sun Communities, Inc. and State Street Bank and Trust (8)
Company, dated April 24, 1998
10.25 Contribution Agreement, dated as of September 29, 1999, by and among the Sun (11)
Communities, Inc., the Operating Partnership, Belcrest Realty Corporation and
Belair Real Estate Corporation
10.26 One Hundred Third Amendment to Second Amended and Restated Limited Partnership (11)
Agreement of the Operating Partnership
10.27 One Hundred Eleventh Amendment to Second Amended and Restated Limited (12)
Partnership Agreement of the Operating Partnership
10.28 One Hundred Thirty-Sixth Amendment to Second Amended and Restated Limited (12)
Partnership Agreement of the Operating Partnership
10.29 One Hundred Forty-Fifth Amendment to Second Amended and Restated Limited (12)
Partnership Agreement of the Operating Partnership
10.30 Restricted Stock Award Agreement between Sun Communities, Inc. and Gary A. (12)
Shiffman, dated March 30, 2001#
10.31 Restricted Stock Award Agreement between Sun Communities, Inc. and Jeffrey P. (12)
Jorissen, dated March 30, 2001#
10.32 Restricted Stock Award Agreement between Sun Communities, Inc. and Jonathan M. (12)
Colman, dated March 30, 2001#
10.33 Restricted Stock Award Agreement between Sun Communities, Inc. and Brian W. (12)
Fannon, dated March 30, 2001#
10.34 Second Amended and Restated Subordinated Loan Agreement, dated December 4, (15)
2002, by and between Origen Financial L.L.C. and the Operating Partnership
10.35 Subordinated Term Loan Agreement, dated December 4, 2002, by and between Origen (15)
Financial L.L.C. and the Operating Partnership
10.36 First Amendment to Second Amended and Restated Subordinated Loan Agreement, (15)
dated December 30, 2002, by and between Origen Financial L.L.C. and Sun Home
Services
10.37 First Amendment to Subordinated Term Loan Agreement, dated December 30, 2002, (15)
by and between Origen Financial L.L.C. and Sun Home Services
10.38 Seventh Amended and Restated Promissory Note, dated December 30, 2002, made by (15)
Origen Financial L.L.C. in favor of Sun Home Services
10.39 First Amended and Restated Subordinated Term Promissory Note, dated December (15)
30, 2002, made by Origen Financial L.L.C. in favor of Sun Home Services
10.40 First Amended and Restated Security Agreement, dated December 30, 2002, by and (15)
between Origen Financial L.L.C. and Sun Home Services
35
EXHIBIT METHOD OF
NUMBER DESCRIPTION FILING
- ------ ----------- ------
10.41 Second Amended and Restated Stock Pledge Agreement, dated December 30, 2002, by (15)
and between Origen Financial L.L.C. and Sun Home Services
10.42 First Amended and Restated Limited Liability Company Interest Security and (15)
Pledge Agreement, dated December 30, 2002, by and between Origen Financial
L.L.C. and Sun Home Services
10.43 Second Amended and Restated Guaranty, dated December 30, 2002, by Bingham in (15)
favor of the Operating Partnership
10.44 Second Amended and Restated Security Agreement, dated December 30, 2002, by and (15)
between Bingham and Sun Home Services.
10.45 Amended and Restated Stock Pledge Agreement, dated December 30, 2002, by and (15)
between Bingham and Sun Home Services
10.46 Amended and Restated Membership Pledge Agreement, dated December 30, 2002, by (15)
and between Bingham and Sun Home Services.
10.47 Second Amended and Restated Participation Agreement, dated December 30, 2002, (15)
by and among Sun Home Services, the Milton M. Shiffman Spouse's Marital Trust
and Woodward Holding LLC
10.48 Master Credit Facility Agreement, dated as of May 29, 2002, by and between Sun
Secured Financing LLC, Aspen-Ft. Collins Limited Partnership, Sun Secured (13)
Financing Houston Limited Partnership and ARCS Commercial Mortgage Co., L.P.
10.49 Credit Agreement, dated as of July 3, 2002, by and between the Operating
Partnership, Sun Communities, Inc., Banc One Capital Markets, Inc., Bank One, (13)
N.A. and other lenders which are signatories thereto
10.50 First Amendment to Master Credit Facility Agreement, dated as of August 29,
2002, by and between Sun Secured Financing LLC, Aspen-Ft. Collins Limited (14)
Partnership, Sun Secured Financing Houston Limited Partnership and ARCS
Commercial Mortgage Co., L.P.
10.51 First Amendment to Employment Agreement, dated as of July 15, 2002, by and (14)
between Sun Communities, Inc. and Gary A. Shiffman#
10.52 Second Amended and Restated Promissory Note (Secured), dated as of July 15,
2002, made by Gary A. Shiffman in favor of the Operating Partnership (14)
10.53 First Amended and Restated Promissory Note (Unsecured), dated as of July 15,
2002, made by Gary A. Shiffman in favor of the Operating Partnership (14)
10.54 First Amended and Restated Promissory Note (Secured), dated as of July 15,
2002, made by Gary A. Shiffman in favor of the Operating Partnership (14)
10.55 Second Amended and Restated Promissory Note (Unsecured), dated as of July 15,
2002, made by Gary A. Shiffman in favor of the Operating Partnership (14)
10.56 Second Amended and Restated Promissory Note (Secured), dated as of July 15,
2002, made by Gary A. Shiffman in favor of the Operating Partnership (14)
10.57 Employment Agreement, dated as of January 1, 2003, by and between Brian W. (15)
Fannon and Sun Home Services, Inc.#
10.58 Employment Agreement, dated as of January 1, 2003, by and between Brian W. (15)
Fannon and Sun Communities, Inc.#
10.59 Lease, dated November 1, 2002, by and between the Operating Partnership as (15)
Tenant and American Center LLC as Landlord
10.60 Term Loan Agreement, dated as of October 10, 2002, among Sun Financial, LLC, (15)
Sun Financial Texas Limited Partnership, the Operating Partnership, Sun
Communities, Inc. and Lehman Commercial Paper, Inc.
36
EXHIBIT METHOD OF
NUMBER DESCRIPTION FILING
- ------ ----------- ------
10.61 Concurrent Private Placement Agreement dated October 8, 2003 among Sun OFI, (16)
Inc., Origen Financial, Inc., and the Purchasers (as defined therein)
10.62 Registration Rights Agreement dated as of October 8, 2003 among Sun OFI, Inc., (16)
Origen Financial, Inc., Lehman Brothers Inc., on behalf of itself and as agent
for the investors listed on Schedule A thereto and those persons listed on
Schedule B thereto
12.1 Computation of Ratio of Earnings to Fixed Charges and Ratio Earnings to (17)
Combined Fixed Charges and Preferred Dividends
21.1 List of Subsidiaries of Sun Communities, Inc. (17)
23.1 Consent of PriceWaterhouseCoopers (17)
23.2 Consent of Grant Thornton, LLP (17)
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the (17)
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the (17)
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant (17)
to Section 906 of the Sarbanes-Oxley Act of 2002
99.1 Audited financial statements of Origen Financial L.L.C. (16)
99.2 Audited Financial Statements of Origen Financial, Inc. (16)
- ------------------
(1) Incorporated by reference to Sun Communities, Inc.'s Registration
Statement No. 33-69340.
(2) Incorporated by reference to Sun Communities, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1995.
(3) Incorporated by reference to Sun Communities, Inc.'s Current Report on
Form 8-K dated April 24, 1996.
(4) Incorporated by reference to Sun Communities, Inc.'s Registration
Statement No. 33-80972.
(5) Incorporated by reference to Sun Communities, Inc.'s Quarterly Report
on Form 10-K for the quarter ended September 30, 1995.
(6) Incorporated by reference to Sun Communities, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1996.
(7) Incorporated by reference to Sun Communities, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1997.
(8) Incorporated by reference to Sun Communities, Inc.'s Current Report on
Form 8-A dated May 27, 1998.
(9) Incorporated by reference to Sun Communities, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1998.
(10) Incorporated by reference to Sun Communities, Inc.'s Proxy Statement,
dated April 20, 1999
(11) Incorporated by reference to Sun Communities, Inc.'s Current Report on
Form 8-K dated October 14, 1999.
37
(12) Incorporated by reference to Sun Communities, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 2001.
(13) Incorporated by reference to Sun Communities, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended June 30, 2002.
(14) Incorporated by reference to Sun Communities, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended September 30, 2002.
(15) Incorporated by reference to Sun Communities, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 2002, as amended.
(16) Incorporated by reference to pages F-1 through F-48 of Origen
Financial, Inc.'s Registration Statement on Form S-11, No. 333-112516
(17) Filed herewith.
# Management contract or compensatory plan or arrangement required to be
identified by Form 10-K Item 14.
38
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
PAGES
-----------
Report of Independent Certified Public Accountants - Grant Thornton LLP............ F-2
Report of Independent Auditors - PricewaterhouseCoopers LLP.... F-3
Financial Statements:
Consolidated Balance Sheets as of December 31, 2003 and 2002.................... F-4
Consolidated Statements of Income
for the Years Ended December 31, 2003, 2002 and 2001............................ F-5
Consolidated Statements of Comprehensive Income ................................
for the Years Ended December 31, 2003, 2002 and 2001............................ F-6
Consolidated Statements of Partners' Capital
for the Years Ended December 31, 2003, 2002 and 2001............................ F-7
Consolidated Statements of Cash Flows
for the Years Ended December 31, 2003, 2002 and 2001............................ F-8
Notes to Consolidated Financial Statements...................................... F-9 - F-27
Schedule III - Real Estate and Accumulated Depreciation............................ F-28 - F-30
F-1
Report of Independent Certified Public Accountants
Partners
Sun Communities Operating Limited Partnership
We have audited the accompanying consolidated balance sheet of Sun Communities
Operating Limited Partnership and subsidiaries as of December 31, 2003, and the
related consolidated statements of income, comprehensive income, changes in
partners' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sun Communities
Operating Limited Partnership and subsidiaries as of December 31, 2003, and the
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 13 to the consolidated financial statements, the Company
adopted Financial Accounting Standards Board Interpretation No. 46,
"Consolidation of Variable Interest Entities" and Statement of Financial
Accounting Standards No. 150 "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity" during 2003.
We have also audited Schedule III for the year ended December 31, 2003. In our
opinion, this schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information therein.
GRANT THORNTON LLP
Southfield, Michigan
February 19, 2004
F-2
REPORT OF INDEPENDENT AUDITORS
To the Partners of Sun Communities
Operating Limited Partnership:
In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements listed in the index appearing in Item 15 on
page F-1 present fairly, in all material respects, the financial position of Sun
Communities Operating Limited Partnership and its subsidiaries (the "Company")
at December 31, 2002, and the results of their operations and their cash flows
for the two years in the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Origen Financial,
L.L.C., an investee of the Company, which statements reflect total assets of
$227,748,000 at December 31, 2002 and total revenues of $20,835,000 for the year
ended December 31, 2002. Those statements were audited by other auditors whose
report thereon has been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for Origen Financial, L.L.C, is
based solely on the report of the other auditors. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for our
opinion.
As discussed in Note 2 to the consolidated financial statements, on January 1,
2002, the Company adopted the provisions of Statement of Financial Accounting
Standards No.144, "Accounting for the Impairment on Disposal of Long-Lived
Assets".
Pricewaterhouse Coopers LLP
Detroit, Michigan
March 12, 2003 except for Note 4 as to
which the date is March 12, 2004
F-3
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 and 2002
(amounts in thousands)
2003 2002
------------- -------------
ASSETS
Investment in rental property, net $ 1,010,484 $ 999,360
Cash and cash equivalents 24,058 2,664
Inventory of manufactured homes 17,236 -
Investment in and advances to affiliates 50,667 67,719
Notes and other receivables 74,828 56,329
Other assets 44,301 37,904
------------- -------------
Total assets $ 1,221,574 $ 1,163,976
============= =============
LIABILITIES
Line of credit $ 99,000 $ 63,000
Debt 674,328 604,373
Other liabilities 24,833 24,581
------------- -------------
Total liabilities 798,161 691,954
------------- -------------
Series B Cumulative Preferred Operating Partnership - 18,195
Units, ("Series "B") mandatory redeemable, 237 issued
and outstanding for 2002
Preferred Operating Partnership Units, ("POP Units") - 35,783
redeemable, 1,326 issued and outstanding
PARTNERS' CAPITAL
Series A Perpetual Preferred Operating Partnership 50,000 50,000
Units, ("Series "A") unlimited authorized, 2,000 issued
and outstanding
Operating Partnership ("OP Units") unlimited authorized, 21,470 and
20,622 issued and outstanding in 2003 and 2002, respectively
General partner 335,241 330,005
Limited partner 46,803 48,512
Unearned compensation (7,337) (8,622)
Accumulated comprehensive loss (1,294) (1,851)
------------- -------------
Total partners' capital 423,413 418,044
------------- -------------
Total liabilities and partners' capital $ 1,221,574 $ 1,163,976
============= =============
F-4
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
2003 2002 2001
--------- --------- ---------
REVENUES
Income from rental property $ 159,115 $ 149,875 $ 136,969
Revenues from home sales 19,516 - -
Ancillary revenue, net 3,409 - -
Interest 11,354 7,990 10,305
Other income (loss) (4,256) 2,304 3,695
--------- --------- ---------
Total revenues 189,138 160,169 150,969
COSTS AND EXPENSES
Property operating and maintenance 39,837 33,751 29,258
Cost of home sales 13,879 - -
Real estate taxes 11,746 10,217 9,162
Selling, general, and administrative 18,181 7,722 7,373
Depreciation and amortization 44,120 37,900 32,716
Interest 36,680 32,375 31,016
--------- --------- ---------
Total expenses 164,443 121,965 109,525
Equity income (loss) from affiliates 667 (16,627) 131
--------- --------- ---------
Income from operations 25,362 21,577 41,575
Less distributions to Preferred OP Units 8,537 7,803 8,131
--------- --------- ---------
Income from continuing operations, net 16,825 13,774 33,444
Income from discontinued operations 10,163 1,863 5,671
--------- --------- ---------
Earnings attributable to OP Units $ 26,988 $ 15,637 $ 39,115
========= ========= =========
Earnings attributable to:
Continuing Operations:
General Partner $ 13,742 $ 11,972 $ 28,425
Limited Partner 3,083 1,802 5,019
Discontinued Operations:
General Partner 9,972 1,620 5,485
Limited Partner 191 243 186
--------- --------- ---------
$ 26,988 $ 15,637 $ 39,115
========= ========= =========
Weighted average OP Unit outstanding:
Basic 20,717 20,177 19,907
========= ========= =========
Diluted 20,856 20,363 20,089
========= ========= =========
Basic earnings per OP Unit outstanding:
Continuing operations $ 0.81 $ 0.68 $ 1.68
Discontinued operations 0.49 0.09 0.28
--------- --------- ---------
Earnings attributable to OP Units $ 1.30 $ 0.77 $ 1.96
========= ========= =========
Diluted earnings per OP Unit outstanding:
Continuing operations $ 0.80 $ 0.68 $ 1.67
Discontinued operations 0.49 0.09 0.28
--------- --------- ---------
Earnings attributable to OP Units $ 1.29 $ 0.77 $ 1.95
========= ========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(AMOUNTS IN THOUSANDS)
2003 2002 2001
--------- --------- ---------
Earnings attributable to OP Units $ 26,988 $ 15,637 $ 39,115
Unrealized income (loss) on interest
rate swaps 557 (1,851) -
--------- --------- ---------
Comprehensive income $ 27,545 $ 13,786 $ 39,115
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements
F-6
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNER'S CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(AMOUNTS IN THOUSANDS EXCEPT FOR PER UNIT DATA)
SERIES A UNREALIZED
PERPETUAL GAIN/(LOSS) ON TOTAL
PREFERRED OP GENERAL LIMITED UNEARNED INTEREST RATE PARTNERS'
UNITS PARTNERSHIP PARTNERSHIP COMPENSATION SWAP CAPITAL
------------ ----------- ----------- ------------ -------------- ---------
Balance, January 1, 2001 $ 50,000 $ 340,780 $ 51,596 $ (4,746) $ - $ 437,630
Issuance (disposition) of OP Units, net (19)
Net contributions (withdrawals) (1,830)
Earnings attributable to OP Units 33,910 5,205
Distributions declared on $2.18 per OP Unit (38,161) (5,801)
Reclassification and conversion of limited
partnership interests 1,941 (1,941)
Issuance of General Partner's restricted
common stock awards, net (3,188)
Amortization 935
------------ ----------- ----------- ------------ -------------- ---------
Balance, December 31, 2001 $ 50,000 $ 336,640 $ 49,040 $ (6,999) $ - $ 428,681
============ =========== =========== ============ ============== =========
Net contributions 17,712 6,854
Earnings attributable to OP Units 13,592 2,045
Distributions declared on $2.29 per OP Unit (41,427) (5,939)
Reclassification and conversion of limited
partnership interests 3,488 (3,488)
Issuance of General Partner's restricted
common stock awards, net (2,767)
Amortization 1,144
Unrealized (loss) interest rate swaps (1,851)
------------ ----------- ----------- ------------ -------------- ---------
Balance, December 31, 2002 $ 50,000 $ 330,005 $ 48,512 $ (8,622) $ (1,851) $ 418,044
============ =========== =========== ============ ============== =========
Net contributions (withdrawals) 28,053 (1,027)
Earnings attributable to OP Units 23,714 3,274
Distributions declared on $2.41 per OP Unit (44,419) (6,068)
Reclassification and conversion of limited
partnership interests (2,112) 2,112
Amortization 1,285
Unrealized gain on interest rate swaps 557
------------ ----------- ----------- ------------ -------------- ---------
Balance, December 31, 2003 $ 50,000 $ 335,241 $ 46,803 $ (7,337) $ (1,294) $ 423,413
============ =========== =========== ============ ============== =========
The accompanying notes are an integral part of the consolidated
financial statements.
F-7
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(AMOUNTS IN THOUSANDS)
2003 2002 2001
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings attributable to OP Units $ 26,988 $ 15,637 $ 39,115
Adjustments to reconcile earnings attributable to OP Units to cash
provided by operating activities:
Gain from property dispositions, net (3,658) (361) (4,275)
Depreciation and amortization 44,120 37,900 32,716
Depreciation allocated to income from discontinued operations 347 675 800
Amortization of deferred financing costs 1,835 1,231 1,065
Reduction in book value of investments - 13,881 -
Decrease in inventory 1,970 - -
Increase in other assets (7,520) (15,973) (4,879)
Increase (decrease) in accounts payable and other liabilities (814) (2,031) 1,329
--------- --------- ---------
Net cash provided by operating activities 63,268 50,959 65,871
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in rental properties (50,310) (87,283) (70,331)
Proceeds related to property dispositions 22,499 3,288 17,331
Investment in and advances to affiliates (47,612) (51,782) (20,056)
Repayments of (increase in) notes receivable, net 16,131 (33,397) 37,968
--------- --------- ---------
Net cash used in investing activities (59,292) (169,174) (35,088)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions (withdrawals) 26,626 14,102 (5,101)
Borrowings (repayments) on line of credit, net 36,000 (30,000) 81,000
Proceeds from (repayments on) notes payable and other debt, net 6,226 181,875 (76,599)
Payments for deferred financing costs (2,281) (2,914) -
Distributions (49,153) (46,771) (43,962)
--------- --------- ---------
Net cash provided by/(used) in financing activities 17,418 116,292 (44,662)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 21,394 (1,923) (13,879)
Cash and cash equivalents, beginning of period 2,664 4,587 18,466
--------- --------- ---------
Cash and cash equivalents, end of period $ 24,058 $ 2,664 $ 4,587
========= ========= =========
SUPPLEMENTAL INFORMATION:
Cash paid for interest including capitalized amounts of $2,082,
$2,915 and $3,704 in 2003, 2002 and 2001, respectively $ 35,744 $ 34,830 $ 34,048
Noncash investing and financing activities:
Debt assumed for rental properties $ 2,288 $ 20,653 $ 26,289
Issuance of partnership units for rental properties $ - $ 4,500 $ 4,612
Issuance of partnership units to retire capitalized lease obligations $ 4,170 $ 5,520 $ -
Restricted common stock issued as unearned compensation by the
general partner, net $ - $ 2,767 $ 3,188
Issuance of common stock pursuant to dividend reinvestment plan $ 1,334 $ - $ -
Unrealized gains (losses) on interest rate swaps $ 557 $ (1,851) $ -
The accompanying notes are an integral part of the consolidated
financial statements.
F-8
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
1. BASIS OF PRESENTATION:
Sun Communities Operating Limited Partnership (the "Company") owns and
operates or finances manufactured housing community properties. Sun
Communities, Inc. ("Sun"), a self-administered and self-managed Real Estate
Investment Trust 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. Pursuant
to the terms of the Company's partnership agreement, the Company is
required to reimburse Sun for the net expenses incurred by Sun. The amounts
reimbursed by the Company are reflected in the statement of income as
general and administrative expenses. The balance sheet of Sun as of
December 31, 2003 is identical to the accompanying Company balance sheet,
except as follows:
(AMOUNTS IN THOUSANDS)
-------------------------------------------------------------------
AS PRESENTED HEREIN SUN COMMUNITIES, INC.
DECEMBER 31, 2003 ADJUSTMENTS DECEMBER 31, 2003
------------------- ----------------- ---------------------
Minority interests $ - $ 96,803 $ 96,803
=================== ================= =====================
Series A units $ 50,000 $ (50,000) $ -
General partner 335,241 (335,241) -
Limited partners 46,803 (46,803) -
Common stock - 192 192
Additional paid-in capital - 446,211 446,211
Officers' notes - (10,299) (10,299)
Unearned compensation (7,337) - (7,337)
Accumulated other comprehensive loss (1,294) - (1,294)
Distributions in excess of accumulated earnings - (94,479) (94,479)
Treasury stock - (6,384) (6,384)
------------------- ----------------- ---------------------
Partners' capital/stockholders' equity $ 423,413 $ (96,803) $ 326,610
=================== ================= =====================
Total liabilities and partners' capital/
stockholders' equity $ 1,221,574 $ - $ 1,221,574
=================== ================= =====================
F-9
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. BUSINESS: The Company owns and operates 127 manufactured housing
communities at December 31, 2003 located in seventeen states
concentrated principally in the Midwest and Southeast comprising
approximately 43,875 developed sites and approximately 6,756 sites
suitable for development.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates.
b. PRINCIPLES OF CONSOLIDATION: The accompanying financial statements
include the accounts of the Company, all its wholly and 99 percent
owned subsidiary partnerships, and limited liability companies,
SunChamp LLC ("SunChamp") and, effective December 31, 2003, Sun Home
Services, Inc. ("SHS"). SHS is consolidated beginning in 2003 in
accordance with Financial Interpretation No. 46, "Consolidation of
Variable Interest Entities" as further described in Note 13. All
significant inter-entity balances and transactions have been
eliminated in consolidation. The limited partnership interests are
adjusted to their relative ownership interest by reclassification
to/from general partnership interests. Minority interests represented
by Sun's one percent indirect interest in the aforementioned
subsidiaries are not separately recognized in the Company's financial
statements, but rather are included in general and administrative
expenses since the amounts involved are immaterial.
c. RENTAL PROPERTY: Rental property is recorded at cost, less accumulated
depreciation. Management evaluates the recoverability of its
investment in rental property whenever events or changes in
circumstances such as recent operating results, expected net operating
cash flow and plans for future operations indicate that full asset
recoverability is questionable.
The Company measures the recoverability of its assets in accordance
with the Statement of Financial Accounting Standards No. 144 ("SFAS
144"), "Accounting for the Impairment or Disposal of Long Lived
Assets." If such assets were deemed to be impaired as a result of this
measurement, the impairment that would be recognized is measured by
the amount by which the carrying amount of the asset exceeds the fair
value of the asset as determined on a discounted net cash flow basis.
Depreciation is computed on a straight-line basis over the estimated
useful lives of the assets. Useful lives are 30 years for land
improvements and buildings and 7 to 15 years for furniture, fixtures
and equipment.
F-10
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
c. RENTAL PROPERTY, CONTINUED:
Expenditures for ordinary maintenance and repairs are charged to
operations as incurred and significant renovations and improvements,
which improve and/or extend the useful life of the asset, are
capitalized and depreciated over their estimated useful lives.
Construction costs related to development of new communities or
expansion sites, including interest, are capitalized until the property
is substantially complete. The Company capitalizes certain costs
(including interest and other costs) incurred in connection with the
development, redevelopment, capital enhancement and leasing of its
properties.
Management is required to use professional judgment in determining
whether such costs meet the criteria for immediate expense or
capitalization. The amounts are dependent on the volume and timing of
such activities and the costs associated with such activities.
d. CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments with an initial maturity of three months or less to be cash
and cash equivalents.
e. NOTES RECEIVABLE: The Company evaluates the recoverability of its
receivables whenever events occur or there are changes in circumstances
such that management believes it is probable that it will be unable to
collect all amounts due according to the contractual terms of the loan
and lease agreements. The collectibility of loans is measured based on
the present value of the expected future cash flow discounted at the
loan's effective interest rate or the fair value of the collateral if
the loan is collateral dependent. The reserve for uncollectible accounts
receivable from residents was $0.15 million at December 31, 2003 and
2002.
f. INVESTMENTS IN AND ADVANCES TO AFFILIATES: Origen Financial, Inc.
("Origen, Inc") is a real estate investment trust in the business of
originating, acquiring and servicing manufactured home loans. In October
2003, the Company purchased 5,000,000 shares of common stock
(representing approximately 33% of the issued and outstanding shares of
common stock as of December 31, 2003) of Origen, Inc. for $50 million
and agreed to sell Origen, Inc. various interests in manufactured home
loans. The Company's investment in Origen, Inc. was accounted for using
the equity method of accounting for periods ending after September 30,
2003.
During 2002 and through October 7, 2003, the Company, through SHS, and
two other participants (one unaffiliated and one affiliated with Gary
Shiffman, the Company's Chief Executive Officer and President) provided
financing to Origen Financial, L.L.C. ("Origen"), the predecessor to
Origen Inc. The financing consisted of a $48 million line
F-11
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
f. INVESTMENTS IN AND ADVANCES TO AFFILIATES, CONTINUED:
of credit and a $10 million term loan of which $35 million was outstanding
at September 30, 2003. This amount was repaid in full in October 2003 upon
the formation and capitalization of Origen, Inc.
Summarized combined financial information of the Company's equity
investment in Origen, Inc. at December 31, 2003 and Origen and SHS at
December 31, 2002 is presented below before elimination of intercompany
transactions. SHS and SunChamp are consolidated in the Company's financial
statements as of December 31, 2003. The 2003 results of operations below do
not include results of operations for Origen prior to October 8, 2003.
ORIGEN, INC. ORIGEN SHS
2003 2002 2002
----------- ---------- ---------
Loans receivable, net $ 368,509 $ 173,764 $ 33,560
Other assets 76,033 53,984 41,220
----------- ---------- ----------
Total assets $ 444,542 $ 227,748 $ 74,780
=========== ========== ==========
Notes payable $ 277,441 $ 54,946 $ 85,361
Advances under repurchase agreements - 141,085 -
Other liabilities 24,312 21,413 8,634
----------- ---------- ----------
Total liabilities 301,753 217,444 93,995
----------- ---------- ----------
Equity (deficit) 142,789 10,304 (19,215)
----------- ---------- ----------
Total liabilities and equity $ 444,542 $ 227,748 $ 74,780
=========== ========== ==========
Revenues $ 10,657 $ 20,385 $ 22,516
Expenses 8,691 49,572 24,704
Loss from equity investee - - (15,295)(a)
----------- ---------- ----------
Net income (loss) $ 1,966 $ (29,187) $ (17,483)
=========== ========== ==========
Sun's equity income (loss) $ 667 $ - $ (15,925)
=========== ========== ==========
(a)SHS determined at December 31, 2002 that its investment in Origen was
impaired and wrote off its remaining investment of $13.6 million.
g. REVENUE RECOGNITION: Rental income attributable to leases is recorded on a
straight-line basis when earned from tenants. Leases entered into by
tenants generally range from month-to-month to one year and are renewable
by mutual agreement of the Company and resident or, in some cases, as
provided by state statute. Revenue from the sale of manufactured homes is
recognized upon transfer of title at the closing of the sales transaction.
h. OTHER CAPITALIZED COSTS: Certain expenditures to dealers and residents
related to obtaining lessees in our communities are capitalized and
amortized over a seven year period; shorter than average resident's
occupancy and the average term that the home is in the community. Costs
associated with implementing the Company's new computer systems are
capitalized and amortized over the estimated useful lives of the related
software and hardware.
F-12
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
i. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying values of cash and cash
equivalents, escrows, receivables, accounts payable, accrued expenses and
other assets and liabilities are reasonable estimates of their fair values
because of the shorter maturities of these instruments. The fair value of
the Company's long-term indebtedness, which is based on the estimates of
management and on rates currently quoted and rates currently prevailing for
comparable loans and instruments of comparable maturities, exceeds the
aggregate carrying value by approximately $28.0 million at December 31,
2003. Potential expenses that would be incurred in an actual sale or
settlement are not taken into consideration.
j. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: The Company has entered into
four derivative contracts consisting of three interest rate swap agreements
and an interest rate cap agreement. The Company's primary strategy in
entering into derivative contracts is to minimize the variability that
changes in interest rates could have on its future cash flows. The Company
generally employs derivative instruments that effectively convert a portion
of its variable rate debt to fixed rate debt and to cap the maximum
interest rate on its variable rate borrowings. The Company does not enter
into derivative instruments for speculative purposes.
The swap agreements were effective April 2003, and have the effect of
fixing interest rates relative to a collateralized term loan due to FNMA.
One swap matures in July 2009, with an effective fixed rate of 4.93
percent. A second swap matures in July 2012, with an effective fixed rate
of 5.37 percent. The third swap matures in July 2007, with an effective
fixed rate of 3.97 percent. The third swap is effective as long as 90-day
LIBOR is 7 percent or lower. The three swaps have an aggregate notional
amount of $75.0 million. The interest rate cap agreement has a cap rate of
9.49 percent, a notional amount of $152.4 million and a termination date of
April 03, 2006. Each of the Company's derivative contracts is based upon
90-day LIBOR.
The Company has designated the first two swaps and the interest rate cap as
cash flow hedges for accounting purposes. The changes in the value of these
hedges are reflected in other comprehensive income/loss on the balance
sheet. These three hedges were highly effective and had minimal effect on
income. The third swap does not qualify as a hedge for accounting purposes
and, accordingly, the entire change in valuation, whether positive or
negative, is reflected as a component of interest expense. The valuation
adjustment for the twelve month period ended December 31, 2003 totals a
positive $0.9 million.
In accordance with SFAS No. 133, the "Accounting for Derivative Instruments
and Hedging Activities," which requires all derivative instruments to be
carried at fair value on the balance sheet, the Company has recorded a
liability of $0.9 and $2.3 million as of December 31, 2003 and December 31,
2002, respectively.
These valuation adjustments will only be realized if the Company terminates
the swaps prior to maturity. This is not the intent of the Company and,
therefore, the net of valuation adjustments through the various maturity
dates will approximate zero.
F-13
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
k. DEFERRED TAX ASSETS: SHS currently has significant deferred tax
assets, which are subject to periodic recoverability assessments.
Realization of these deferred tax assets is principally dependent upon
SHS's achievements of projected future taxable income. Judgments
regarding future profitability may change due to future market
conditions, SHS's ability to continue to successfully execute its
business plan, and other factors. These changes, if any, may require
possible material adjustments to these deferred tax asset balances.
SHS has net operating loss carryforwards of approximately $14.7
million at December 31, 2003 which have generated deferred tax assets
of $2.0 million, net of a valuation allowance of $3.0 million. These
loss carryforwards will begin to expire in 2011 through 2022 if not
offset by future taxable income.
l. STOCK OPTIONS: The General Partner accounts for its stock options
using the intrinsic value method contained in APB Opinion No. 25.
"Accounting for Stock Issued to Employees." If the General Partner had
accounted for awards using the methods contained in FASB Statement No.
123, "Accounting for Stock-Based Compensation", earnings attributable
to OP Units and earnings per unit would have been presented as follows
for the years ended December 31, 2003, 2002 and 2001 (amounts in
thousands, except for per unit data):
2003 2002 2001
---------- ---------- ----------
Earnings attributable to OP Units as reported $ 26,988 $ 15,637 $ 39,115
Stock-based compensation expense under fair value method (312) (548) (370)
---------- ---------- ----------
Pro forma net earnings attributable to OP Units $ 26,676 $ 15,089 $ 38,745
========== ========== ==========
Earnings per OP Unit (Basic), as reported $ 1.30 $ 0.77 $ 1.96
========== ========== ==========
Earnings per OP Unit (Basic), pro forma $ 1.29 $ 0.75 $ 1.95
========== ========== ==========
Earnings per OP Unit (Diluted), as reported $ 1.29 $ 0.77 $ 1.95
========== ========== ==========
Earnings per OP Unit (Diluted), pro forma $ 1.28 $ 0.74 $ 1.93
========== ========== ==========
m. INVENTORY: Inventory of manufactured homes is stated at lower of
specific cost or market.
n. TAXES: As a Partnership, the Company does not pay federal or state
income taxes.
o. RECLASSIFICATIONS: Certain 2002 and 2001 amounts have been
reclassified to conform with the 2003 financial statement
presentation. Such reclassifications had no effect on results of
operations as originally presented.
F-14
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
3. RENTAL PROPERTY (AMOUNTS IN THOUSANDS):
AT DECEMBER 31
---------------------------
2003 2002
----------- -----------
Land $ 104,541 $ 101,926
Land improvements and buildings 1,048,576 999,540
Furniture, fixtures, and equipment 33,080 26,277
Land held for future development 31,409 34,573
Property under development 2,799 12,521
----------- -----------
1,220,405 1,174,837
Less accumulated depreciation (209,921) (175,477)
----------- -----------
$ 1,010,484 $ 999,360
=========== ===========
Land improvements and buildings consist primarily of infrastructure, roads,
landscaping, clubhouses, rental homes, maintenance buildings and amenities.
Included in rental property at December 31, 2003 and 2002 are net carrying
amounts related to capitalized leases of $9.6 million and $17.9 million,
respectively.
During 2003, the Company acquired one development community comprised of 62
developed sites and 180 sites available for development for $4.5 million.
During 2002, the Company acquired one stabilized community, comprising 552
developed sites, for $21.3 million and three development communities,
comprising 930 developed sites and 538 sites available for development, for
$48.6 million consisting of cash of approximately $23.1 million, POP Units
of approximately $4.5 million and assumption of debt of approximately $21.0
million.
These transactions have been accounted for as purchases, and the statements
of income include the operations of the acquired communities from the dates
of their respective acquisitions. As of December 31, 2003, in conjunction
with a 1993 acquisition, the Company is obligated to issue $6.4 million of
OP Units through 2009 based on the per share market value of the Company's
stock on the issuance date. This obligation was accounted for as part of
the purchase price of the original acquisition.
F-15
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
4. DISPOSITION OF PROPERTIES:
In November 2003 the Company sold four manufactured home communities of
which three were in Michigan and one in Illinois aggregating 731 sites for
gross proceeds of approximately $24.8 million. In February 2002, the
Company sold a manufactured home community in Florida consisting of 227
sites of which 131 were occupied, for cash of approximately $3.3 million.
Net gain on sale of $8.6 million and $0.4 million on these transactions was
recorded in income from discontinued operations in 2003 and 2002,
respectively.
In accordance with FAS 144, effective for financial statements issued for
all fiscal years beginning after December 15, 2001, results of operations
and gain/(loss) in sales of real estate for properties with identifiable
cash flows sold subsequent to December 31, 2001 are reflected in the
Consolidated Statements of Income as income from discontinued operations
for all periods presented. For presentation purposes, income from
discontinued operations also includes a gain on sale of properties sold
prior to December 31, 2001 of $4.3 million, which was reported in the
Consolidated Statements of Income in prior periods as a gain from property
dispositions, net. Below is a summary of the results of operations of these
properties through their respective disposition dates (in thousands):
SUMMARY STATEMENT OF OPERATIONS
DISPOSED PROPERTIES
2003 2002 2001
---------- ---------- ----------
Income from rental property $ 2,763 $ 3,034 $ 3,289
Property operating and maintenance expenses (533) (495) (713)
Real estate taxes (310) (361) (380)
Depreciation and amortization (347) (674) (800)
---------- ---------- ----------
Income from operations 1,573 1,504 1,396
Income allocated to common OP units (191) (243) (186)
Gain on sale of discontinued operations 8,590 359 4,275
---------- ---------- ----------
Income from discontinued operations $ 9,972 $ 1,620 $ 5,485
========== ========== ==========
F-16
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
5. NOTES AND OTHER RECEIVABLES (AMOUNTS IN THOUSANDS):
AT DECEMBER 31,
----------------------
2003 2002
--------- ---------
Mortgage and other notes receivable, primarily with minimum monthly payments at
LIBOR based floating rates of approximately LIBOR + 3.0 %, maturing at
various dates through August 2008, substantially collateralized by
manufactured home communities $ 41,736 $ 38,420
Installment loans collateralized by manufactured homes with interest payable
monthly at an effective weighted average interest rate and
maturity of 8.2% and 20 years, respectively 24,802 11,633
Other receivables 8,290 6,276
--------- ---------
$ 74,828 $ 56,329
========= =========
At December 31, 2003, the maturities of mortgage notes and other
receivables are approximately as follows: 2004 - $23.2 million; 2006- $3.8,
and 2008 - $14.7 million. Of the $24.8 million of installment loans
collateralized by manufactured homes, $12.3 million were sold at book value
in February of 2004.
General Partner Officers' notes, presented as a reduction to partners'
capital in the balance sheet, bear interest at LIBOR + 1.75% notes, with a
minimum and maximum interest rate of 6% and 9%, respectively,
collateralized by 352,206 shares of the General Partner's common stock and
127,794 OP Units at December 31, 2003 with substantial personal recourse.
The notes become due in three equal installments on each of December 31,
2008, 2009 and 2010. Reductions in the principal balance of these notes
were $0.5 million and $0.3 million for the years 2003 and 2002,
respectively.
F-17
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
6. DEBT AND LINE OF CREDIT(AMOUNTS IN THOUSANDS):
The following table sets forth certain information regarding debt:
DECEMBER 31, DECEMBER 31,
2003 2002
------------ ------------
Callable/redeemable notes, interest at 6.770%, due May 14, $ 65,000 $ 65,000
2015, callable/redeemable May 16, 2005
Senior notes, interest at 6.970%, due December 3, 2007 35,000 35,000
Senior notes, interest at 8.200%, due August 15, 2008 100,000 100,000
Senior notes, interest at 5.750%, due April 15, 2010 150,000 -
Bridge loan, at variable interest rate (2.617% at December
31,2002), matured April 30, 2003 - 48,000
Senior notes, interest at 7.625%, matured May 1, 2003
- 85,000
Collateralized term loan, due to FNMA, due May 2007, with a weighted average
interest rate of 3.244% and 2.17% at December 31, 2003 and December 31,
2002, respectively,
convertible to a 5 to 10 year fixed rate loan 152,363 152,363
Collateralized term loan, interest at 7.010%, due September 9,
2007 41,547 42,206
Redeemable preferred OP units, average interest at 7.046%,
redeemable at various dates through May 2010 58,148
Capitalized lease obligations, interest at 5.510%, due
January 10, 2004 9,606 16,438
Mortgage notes, other 62,664 60,366
------------ ------------
Total debt $ 674,328 $ 604,373
============ ============
The Company entered into a $25 million loan facility in September of 2003,
of which $25 million was available to be borrowed at December 31, 2003.
Borrowings bear an interest rate of Federal Funds Effective rate plus 0.85%
and mature on March 24, 2004.
In April 2003 the Company issued $150 million of 5.75 percent senior notes,
due April 15, 2010, and used the proceeds from the offering to retire the
bridge loan of $48 million and senior notes of $85 million which matured on
April 30 and May 1, 2003, respectively. The remainder of the net proceeds
was used to pay down the Company's line of credit.
The collateralized term loans totaling $193.9 at December 31, 2003 are
secured by 22 properties comprising approximately 10,600 sites. The
capitalized lease obligation and mortgage notes are collateralized by 14
communities comprising approximately 4,000 sites. At the lease expiration
date, January 2004, the capitalized lease reflected in December 31, 2003,
was paid off by the issuance of 47,250 Preferred OP Units, cash of
approximately $1.2 million and the assumption of approximately $4.2 million
of debt, which was immediately retired. A capitalized lease obligation
matured on January 1, 2003 and was paid by the issuance of 41,700 Preferred
OP Units, cash of approximately $0.9 million and the assumption of
approximately $1.6 million of debt, which was immediately retired.
F-18
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
6. DEBT AND LINE OF CREDIT (AMOUNTS IN THOUSANDS), CONTINUED:
The initial term of the variable rate collateralized term loan due to FNMA
is five years. The Company has the option to extend such variable rate
borrowings for an additional five years and/or convert them to fixed rate
borrowings with a term of five or ten years, provided that in no event can
the term of the borrowings exceed fifteen years.
The Company has a $105 million unsecured line of credit, of which $6 and
$22 million was available to borrow at December 31, 2003 and 2002,
respectively. Borrowings under the line of credit bear interest at the rate
of LIBOR plus 0.85% and mature July 2, 2005 with a one-year extension at
the Company's option. The average interest rate of outstanding borrowings
under the line of credit was 2.05 and 2.27 percent at December 31, 2003 and
2002 respectively.
At December 31, 2003, the maturities of debt, excluding the line of credit,
during the next five years are approximately as follows: 2004 - $35.1
million; 2005 - $66.6 million; 2006 - $20.4 million: 2007 - $81.1 million;
2008 - $106.7 million and $364.4 million thereafter.
At December 31, 2003, the Company was the guarantor of $22.6 million in
personal bank loans, made to directors, employees and consultants to
purchase Company common stock and OP units pursuant to the Company's Stock
Purchase Plan. The borrowers repaid the loans in January of 2004 and the
guaranty was extinguished.
F-19
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
7. PARTNERS' CAPITAL:
There are approximately $22.3 million of Series B Units outstanding at
December 31, 2003 with mandatory dividends at rates ranging from 6.85
percent to 9.19 percent and maturing between 2006 and 2012 with redemption
prices of either $45 or $100.
The Company issued 2 million Series A Units at $25 per unit in September
1999 bearing an annual coupon rate of 8.875 percent. The Series A Units may
be called by the Company at par on or after September 29, 2004, have no
stated maturity or mandatory redemption and are convertible into Sun's
preferred stock under certain circumstances.
The terms of the POP Units issued at $27 per unit were renegotiated
effective December 31, 2001. The conversion price is $68 per unit and the
annual coupon rate is 7.0 percent for the first two years followed by a
variable rate ranging from 6.5 percent to 8.5 percent with mandatory
redemption on January 2, 2014.
In July 2002, and in March 2001, the Company's General Partner issued
restricted stock awards of 70,000 at $39.53 per share, and 99,422 at $33.00
per share, respectively, to officers and certain employees which are being
amortized over their five to ten year vesting period. Compensation cost
recognized in income for all restricted stock awards was $1.3 million, $1.1
million, and $0.9 million in 2003, 2002 and 2001, respectively.
8. OTHER INCOME (AMOUNTS IN THOUSANDS):
The components of other income are as follows for the years ended December
31, 2003, 2002 and 2001. The ($4,932) relates to a reduction in the book
value of a new community development due to the impracticality of future
phase construction.
2003 2002 2001
--------- --------- ---------
Brokerage commissions $ 754 $ 834 $ 731
Development fee - 1,425 2,707
Other income (loss) (78) 45 257
Asset write down (4,932) - -
--------- --------- ---------
$ (4,256) $ 2,304 $ 3,695
========= ========= =========
F-20
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
9. SEGMENT REPORTING: With the consolidation of the operations of Sun Home
Services for the year ended December 31, 2003, the consolidated operations
of the Company can be segmented into manufactured home sales and property
operations segments. Following is a presentation of financial information
for the year ended December 31, 2003.
PROPERTY MANUFACTURED
OPERATIONS HOME SALES COMBINED
------------ ------------ ------------
Revenues $ 159,115 $ 19,516 $ 178,631
Operating expenses 51,583 13,879 65,462
------------ ------------ ------------
Net operating income 107,532 5,637 113,169
Adjustments to arrive at Earnings attributable to OP Units:
Other revenues 2,243 8,264 10,507
General and administrative (10,536) (7,645) (18,181)
Depreciation and amortization (43,165) (955) (44,120)
Interest expense (36,530) (150) (36,680)
Equity income from affiliate 667 - 667
Distributions to preferred OP Units (8,537) - (8,537)
Income from discontinued operations 10,163 - 10,163
------------ ------------ ------------
Earnings attributable to OP Units: $ 21,837 $ 5,151 $ 26,988
============ ============ ============
Capital expenditures $ 12,829(1) $ 12,353(2) $ 25,182
Identifiable assets:
Investment in rental property, net $ 980,149 $ 30,335 $ 1,010,484
Cash and cash equivalents 24,043 15 24,058
Inventory of manufactured homes - 17,236 17,236
Investments in and advances to affiliates 50,667 - 50,667
Notes and other receivables 61,534 13,294 74,828
Other assets 41,613 2,688 44,301
------------ ------------ ------------
Total assets $ 1,158,006 $ 63,568 $ 1,221,574
============ ============ ============
(1) Capital expenditures of Property Operations segment consist of lot
modifications, recurring projects, revenue producing projects, and
expenditures for acquisitions and expansions, net of asset disposals.
(2) Capital expenditures of Manufactured Home Sales segment consist primarily of
acquisitions of rental homes.
F-21
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
10. SUN'S STOCK OPTIONS:
Data pertaining to stock option plans are as follows:
Data pertaining to stock option plans are as follows:
2003 2002 2001
-------------- -------------- --------------
Options outstanding, January 1 975,767 1,090,794 1,109,250
Options granted $ - 7,500 1,379,000
Option price N/A $ 34.92 $ 27.03-$32.81
Options exercised 154,179 97,665 59,773
Option price $ 20.13-$35.39 $ 20.13-$35.39 $ 22.75-$33.75
Options forfeited 10,837 24,862 96,583
Option price $ 27.03-$32.75 $ 27.03-$32.75 $ 27.03-$33.82
Option outstanding, December 31 810,751(a) 975,767 1,090,794
Option price $ 20-$35.39 $ 20-$35.39 $ 20-$35.39
Option exercisable, December 31 765,168(a) 834,249 823,227
(a) There are 190,394 options outstanding and exercisable with exercise
prices ranging from $20.00 - $27.99 with an exercisable average life
of 3.7 years related to the outstanding options. The weighted average
exercise price for these outstanding and exercisable options is
$25.53. There are 620,357 and 574,774 options outstanding and
exercisable, respectively, with exercise prices ranging from $28.00 -
$35.39 with a weighted average life of 4.2 years related to the
outstanding options. The weighted average exercise price for these
outstanding and exercisable options is $30.64 and $30.46,
respectively.
Sun's stock option plans provide for up to 2.1 million shares of common
stock that may be granted to directors, executive officers and other key
employees of Sun or the Company. At December 31, 2003, 364,513 shares of
common stock were available for the granting of options. Options are
granted at fair market value and generally vest over a two-year period and
may be exercised for 10 years after date of grant. In addition, the General
Partner established a Long-Term Incentive Plan in 1997 for certain
employees granting 167,918 options (of which 87,657 remain outstanding)
which become exercisable in equal installments in 2002-2004.
The Company has opted to measure compensation cost utilizing the intrinsic
value method. The fair value of each option grant was estimated as of the
date of grant using the Black-Scholes option-pricing model with the
following assumptions for options granted:
2003 2002 2001
------- ---------- --------
Estimated fair value per share of options granted during year: N/A $ 4.42(1) $ 6.19
Assumptions:
Annualized dividend yield N/A 5.9%(1) 5.9%
Common stock price volatility N/A 16.4%(1) 16.4%
Risk-free rate of return N/A 5.3%(1) 5.3%
Expected option term (in year) N/A 7 4
(1)2002 based on valuation as of April 2001, due to insignificant option
issuance in 2002.
F-22
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
10. EARNINGS PER OP UNIT (AMOUNTS IN THOUSANDS):
2003 2002 2001
--------- --------- ---------
Earnings used for basic and diluted earnings per
OP Unit computation:
Continuing operations $ 16,825 $ 13,774 $ 33,444
========= ========= =========
Discontinued operations $ 10,163 $ 1,863 $ 5,671
========= ========= =========
Total units used for basic earnings per OP Unit 20,717 20,177 19,907
Dilutive securities:
Stock options 139 186 182
--------- --------- ---------
Total units used for diluted earnings 20,856 20,363 20,089
per OP Unit computation ========= ========= =========
Diluted earnings per OP Unit reflect the potential dilution that would occur if
dilutive securities were exercised or converted into OP Units.
F-23
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
12. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following unaudited quarterly amounts are in thousands, except for per
share amounts
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
--------- --------- --------- ---------
2003
Total revenues (a) $ 48,251 $ 48,911 $ 48,074 $ 43,902
Total expenses (a) $ 39,188 $ 41,696 $ 39,172 $ 44,387
Earnings attributable to OP Units $ 6,997 $ 5,445 $ 7,282 $ 7,264
Weighted average OP Unit 20,342 20,427 20,989 21,111
Earnings per OP Unit-basic $ 0.34 $ 0.27 $ 0.35 $ 0.34
2002
Total revenues (c) $ 40,347 $ 39,493 $ 40,327 $ 40,002
Total expenses (c) $ 29,603 $ 28,947 $ 30,629 $ 32,786
Earnings (loss) attributable to OP Units (b) $ 9,332 $ 8,035 $ 6,648 $ (8,378)
Weighted average OP Unit 19,921 20,134 20,323 20,329
Earnings (loss) per OP Unit-basic $ 0.47 $ 0.40 $ 0.33 $ (0.41)
(a) The Company's investment in Sun Home Services was accounted for using the
equity method of accounting for the quarters ended March 31, June 30, and
September 30, 2003. The total revenues and total expenses for these periods
have been restated to include Sun Home Services' operating revenues and
expenses.
(b) Included in net income for the fourth quarter of 2002 is the write-off of
$13.6 million pertaining to the Company's investment in Origen.
(c) Revenues and expenses have been restated to conform to SFAS 144 which
requires operations of properties sold or held for sale to be reclassified
as discontinued operations.
F-24
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
13. RECENT ACCOUNTING PRONOUNCEMENTS:
In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 150, "Accounting
for Certain Financial Instruments with Characteristics of both Liabilities
and Equity" which establishes standards for how financial instruments that
have characteristics of both liabilities and equity instruments should be
classified on the balance sheet. The requirements of SFAS 150 generally
outline that financial instruments that give the issuer a choice of
settling an obligation with a variable number of securities or settling an
obligation with a transfer of assets or any mandatorily redeemable security
should be classified as a liability on the balance sheet. The Company has
reclassified mandatorily redeemable preferred operating partnership units
of $58.1 million into debt as of December 31, 2003. The reclassification
had no effect on the Company's compliance with the covenant requirements of
its credit agreements.
In April 2003, FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." The statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under
FASB Statements No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement is effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after
June 30, 2003. In addition, all provisions of this Statement should be
applied prospectively. The provisions of this Statement that relate to
Statement 133 Implementation Issues that have been effective for fiscal
quarters that began prior to June 15, 2003, should continue to be applied
in accordance with their respective effective dates. The adoption of this
Statement did not have a significant impact on the financial position or
results of the operations of the Company.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." The objective of this
interpretation is to provide guidance on how to identify a variable
interest entity ("VIE") and determine when the assets, liabilities,
non-controlling interests and results of operations of a VIE need to be
included in a company's consolidated financial statements. A company that
holds variable interests in an entity will need to consolidate the entity
if the company's interest in the VIE is such that the company will absorb a
majority of the VIE's expected losses and/or receive a majority of the
VIE's expected residual returns, if they occur. FIN 46 also requires
additional disclosures by primary beneficiaries and other significant
variable interest holders. The provisions of this interpretation apply to
the end of the first interim period or annual period ending after December
15, 2003 (i.e., December 31, 2003) to VIEs in which a company holds a
variable interest that it acquired before February 1, 2003. The Company
consolidated SHS in its financial reporting beginning December 31, 2003.
The consolidation did not have a significant impact on the financial
condition or results of operations of the Company.
F-25
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
14. CONTINGENCIES:
On April 9, 2003, T.J. Holdings, LLC ("TJ Holdings"), a member of
Sun/Forest, LLC ("Sun/Forest") (which, in turn, owns an equity interest in
SunChamp LLC), filed a complaint against the Company, SunChamp LLC, certain
other affiliates of the Company and two directors of Sun Communities, Inc.
in the Superior Court of Guilford County, North Carolina. The complaint
alleges that the defendants wrongfully deprived the plaintiff of economic
opportunities that they took for themselves in contravention of duties
allegedly owed to the plaintiff and purports to claim damages of $13.0
million plus an unspecified amount for punitive damages. The Company
believes the complaint and the claims threatened therein have no merit and
will defend it vigorously.
The Company is involved in various other legal proceedings arising in the
ordinary course of business. All such proceedings, taken together, are not
expected to have a material adverse impact on our results of operations or
financial condition.
15. RELATED PARTY TRANSACTIONS:
The Company and its affiliates have entered into the following transactions
with Origen Inc. and its predecessor, Origen during 2002 and 2003:
- Capital Investment in Origen, Inc. As described in Note 2, the
Company acquired 5,000,000 shares of common stock in Origen Inc.
in a private placement transaction at $10 per share.
- Loan Servicing Agreement. Origen Servicing, Inc., a wholly-owned
subsidiary of Origen, services approximately $23.0 million in
manufactured home loans for SHS as of December 31, 2003. Sun Home
Services pays Origen Servicing, Inc. an annual servicing fee of
1.25 percent of the outstanding principal balance of the loans.
- Guaranty of Licensing Bonds. The Company has guaranteed Origen
Inc.'s obligations to an insurance company in connection with the
issuance of bonds and undertakings required by various state
licensing authorities as a condition to the issuance of Origen
Inc. licenses. The Company's aggregate potential obligations
under these bonds is approximately $5.0 million.
In addition to the transactions with Origen Inc. described above, Mr.
Shiffman and his affiliates have entered into the following transactions
with the Company:
- Related Party Lease. The Company leases its executive offices in
Southfield, Michigan from an entity in which Mr. Shiffman and
certain of his affiliates beneficially own approximately a 21
percent interest.
- Capital Investment in Origen Financial, Inc. As part of the
Origen Inc. private placement, Shiffman Origen LLC (100 percent
of which is owned by the Estate of Milton M. Shiffman, Mr.
Shiffman and members of his family), acquired 1,025,000 shares of
common stock of Origen Inc. at $10 per share.
F-26
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
15. RELATED PARTY TRANSACTIONS, CONTINUED:
- Ownership of SHS. Gary Shiffman, and the Estate of Milton M.
Shiffman (former Chairman of the Board), are the owners of all of
the outstanding common stock of SHS, and as such are entitled to
5% of the cash flow from the operating activities of SHS.
- Tax Consequences Upon Sale of Properties. Gary Shiffman holds
limited partnership interests in the Company which were received
in connection with the contribution of 24 properties from
partnerships previously affiliated with him (the "Sun
Partnerships"). Prior to any redemption of these limited
partnership interests for common stock in our General Partner,
Mr. Shiffman will have tax consequences different from those of
the Company and our General Partners' stockholders on the sale of
any of the Sun Partnerships. Four of the properties have been
sold to date.
16. SUBSEQUENT EVENTS:
In February, 2004, we entered into an agreement with certain affiliates of
Property Asset Management Inc. ("PAMI") to acquire all of the equity
interests in partnerships that directly and indirectly own and operate 19
properties and entered into a real estate purchase agreement to acquire 7
other properties. The properties are recreational vehicle communities, some
of which include manufactured home sites. The portfolio consists of 11,331
sites, including 10,586 developed sites and 745 expansion recreational
vehicle sites. Completion of the purchases is subject to customary closing
conditions.
PAMI, the seller under the purchase agreements, is the sole general partner
and owns a substantial majority of the equity interests in the partnerships
that own the properties subject to the purchase agreements. PAMI has
exercised its rights under the relevant partnership agreements to acquire
the equity interests of its minority partner. PAMI has informed us that its
minority partner has disputed PAMI's rights to purchase its interests under
the partnership agreements. As a result, PAMI has filed suit in the
Delaware Chancery Court requesting, among other things, that the court
specifically enforce PAMI's right to purchase the minority interests. The
minority partner in the partnerships has filed an answer and counterclaim
in the case requesting that the court find that the minority partner has
the right to buy PAMI's interests under the partnership agreements.
PAMI believes that it will be successful in the litigation and we expect to
complete the acquisition of the partnership interests and properties.
However, due to the uncertain nature of litigation and the other conditions
to closing, we can provide no assurance that we will be able to
successfully complete the proposed acquisitions and cannot reliably predict
the timing of the resolution of these matters.
F-27
SCHEDULE III
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMLATED DEPRECIATION
DECEMBER 31. 2003
(AMOUNT IN THOUSANDS)
COST CAPITALIZED
SUBSEQUENT TO ACQUISITION GROSS AMOUNT CARRIED AT
INITIAL COST TO COMPANY IMPROVEMENTS DECEMBER 31, 2003
----------------------- --------------------------- ------------------------
PROPERTY NAME LOCATION ENCUMBRANCE LAND B & F & LAND B & F LAND B & F
- ---------------------- -------------------- ------------- -------- ----------------- -------- -------- ----------
Academy/Westpoint Canton, MI A $ 1,485 $ 14,278 $ - $ 212 $ 1,485 $ 14,490
Allendale Allendale, MI A 366 3,684 - 3,815 366 7,499
Alpine Grand Rapids, MI - 729 6,692 - 3,646 729 10,338
Apple Creek Amelia, OH C 543 5,480 - 97 543 5,577
Arbor Terrace Brandenton, FL - 456 4,410 - 378 456 4,788
Ariana Village Lakeland, FL 240 2,195 - 525 240 2,720
Autumn Ridge Ankeny, IO A 890 8,054 - 903 890 8,957
Bedford Hills Battle Creek, MI B 1,265 11,562 - 482 1,265 12,044
Bell Crossing Clarksville, TN - 717 1,916 - 3,641 717 5,557
Bonita Lake Bonita Springs, FL - 285 2,641 - 267 285 2,908
Boulder Ridge Pflugerville, TX - 1,000 500 3,324 16,916 4,324 17,416
Branch Creek Austin, TX A 796 3,716 - 5,248 796 8,964
Brentwood Kentwood, MI - 385 3,592 - 294 385 3,886
Brookside Village Goshen, IN A 260 1,080 386 7,497 646 8,577
Buttonwood Bay Sebring, IN - 1,952 18,294 - 1,773 1,952 20,067
Byrne Hill Village Toledo, OH - 383 3,903 - 371 383 4,274
Byron Center Byron Center, MI - 253 2,402 - 162 253 2,564
Candlelight Village Chicago Heights, IL - 600 5,623 - 730 600 6,353
Candlewick Court Owosso, MI - 125 1,900 132 1,139 257 3,039
Carrington Pointe Ft. Wayne, IN - 1,076 3,632 - 4,332 1,076 7,964
Casa Del Valle Alamo, TX - 246 2,316 - 497 246 2,813
Catalina Middletown, OH - 653 5,858 - 1,313 653 7,171
Chisholm Point Pflugerville, TX A 609 5,286 - 2,934 609 8,220
Clearwater Village South Bend, IN - 80 1,270 61 1,931 141 3,201
Cobus Green Elkhart, IN - 762 7,037 - 719 762 7,756
College Park Estates Canton, MI - 75 800 174 4,796 249 5,596
Comal Farms New Braunfels, TX - 1,455 1,732 - 4,486 1,455 6,218
Continental Estates Davison, MI - 1,625 16,581 150 1,726 1,775 18,307
Continental North (1) Davison, MI - - 3,814 - 3,814
Country Acres Cadillac, MI - 380 3,495 - 282 380 3,777
Country Meadows Flat Rock, MI A 924 7,583 296 9,865 1,220 17,448
Countryside Village Perry, MI B 275 3,920 185 2,169 460 6,089
Creekside Reidsville, NC - 350 1,423 - 3,129 350 4,552
Creekwood Meadows Burton, MI - 808 2,043 404 6,629 1,212 8,672
Cutler Estates Grand Rapids, MI B 749 6,941 - 408 749 7,349
Davison East (1) Davison, MI - 22 - 22
Deerfield Run Anderson, MI 1700 990 1,607 - 3,289 990 4,896
Desert View Village West Wendover, NV - 1,119 - - 1,586 1,119 1,586
Eagle Crest Firestone, CO - 2,017 150 2,362 24,503 4,379 24,653
East Fork Batavia, OH - 1,280 6,302 - 4,199 1,280 10,501
Edwardsville Edwardsville, KS B 425 8,805 541 2,776 966 11,581
Falcon Pointe East Lansing, MI 2288 450 4,049 - 174 450 4,223
Fisherman's Cove Flint, MI - 380 3,438 - 578 380 4,016
Forest Meadows Philomath, OR - 1,031 2,050 - 67 1,031 2,117
Four Seasons Elkhart, IN - 500 4,811 - 14 500 4,825
Glen Laurel Concord, NC - 1,641 453 - 6,519 1,641 6,972
Goldcoaster Homestead, FL - 446 4,234 172 1,987 618 6,221
Grand Grand Rapids, MI - 374 3,587 - 229 374 3,816
Groves Ft. Myers, FL - 249 2,396 - 736 249 3,132
Hamlin Webberville, MI - 125 1,675 536 4,004 661 5,679
DATE OF
ACCUMULATED CONSTRUCTION (C)
PROPERTY NAME TOTAL DEPRECIATION ACQUISITION (A)
- ---------------------- ---------- ------------ ---------------
Academy/Westpoint $ 15,975 $ 1,694 2000(A)
Allendale 7,865 1,665 1996(A)
Alpine 11,067 2,252 1996(A)
Apple Creek 6,120 813 1999(A)
Arbor Terrace 5,244 1,213 1996(A)
Ariana Village 2,960 838 1994(A)
Autumn Ridge 9,847 2,151 1996(A)
Bedford Hills 13,309 3,053 1996(A)
Bell Crossing 6,274 618 1999(A)
Bonita Lake 3,193 726 1996(A)
Boulder Ridge 21,740 2,212 1998(C)
Branch Creek 9,760 2,034 1995(A)
Brentwood 4,271 1,003 1996(A)
Brookside Village 9,223 2,123 1985(A)
Buttonwood Bay 22,019 1,616 2001(A)
Byrne Hill Village 4,657 649 1999(A)
Byron Center 2,817 657 1996(A)
Candlelight Village 6,953 1,590 1996(A)
Candlewick Court 3,296 988 1985(A)
Carrington Pointe 9,040 1,432 1997(A)
Casa Del Valle 3,059 654 1997(A)
Catalina 7,824 2,238 1993(A)
Chisholm Point 8,829 1,964 1995(A)
Clearwater Village 3,342 912 1986(A)
Cobus Green 8,518 2,574 1993(A)
College Park Estates 5,845 1,684 1978(A)
Comal Farms 7,673 456 2000(A&C)
Continental Estates 20,082 4,152 1996(A)
Continental North (1) 3,814 997 1996(A)
Country Acres 4,157 945 1996(A)
Country Meadows 18,668 4,484 1994(A)
Countryside Village 6,549 1,847 1987(A)
Creekside 4,902 375 2000(A&C)
Creekwood Meadows 9,884 1,523 1997(C)
Cutler Estates 8,098 1,843 1996(A)
Davison East (1) 22 - 1996(A)
Deerfield Run 5,886 565 1999(A)
Desert View Village 2,705 613 1998(C)
Eagle Crest 29,032 1,317 1998(C)
East Fork 11,781 905 2000(A&C)
Edwardsville 12,547 3,587 1987(A)
Falcon Pointe 4,673 64 2003(A)
Fisherman's Cove 4,396 1,313 1993(A)
Forest Meadows 3,148 314 1999(A)
Four Seasons 5,325 585 2000(A)
Glen Laurel 8,613 323 2001(A&C)
Goldcoaster 6,839 1,284 1997(A)
Grand 4,190 856 1996(A)
Groves 3,381 723 1997(A)
Hamlin 6,340 866 1984(A)
F-28
SCHEDULE III
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMLATED DEPRECIATION
DECEMBER 31. 2003
(AMOUNT IN THOUSANDS)
COST CAPITALIZED
SUBSEQUENT TO
INITIAL COST ACQUISITION GROSS AMOUNT CARRIED AT
TO COMPANY IMPROVEMENTS DECEMBER 31, 2003
-------------------- ----------------- -----------------------
PROPERTY NAME LOCATION ENCUMBRANCE LAND B & F & LAND B & F LAND B & F
- ---------------------- -------------------- ------------- -------- ----------------- -------- -------- ---------
High Point Frederika, DE - 898 7,031 - 1,137 898 8,168
Holiday Village Elkhart, IN - 100 3,207 143 1,287 243 4,494
Holly Forest Holly Hill, FL - 920 8,376 - 399 920 8,775
Indian Creek Ft. Myers Beach, FL - 3,832 34,660 - 1,741 3,832 36,401
Island Lake Merritt Island, FL - 700 6,431 - 349 700 6,780
Kensington Meadows Lansing, MI - 250 2,699 - 3,632 250 6,331
Kenwood La Feria, TX - 145 1,842 - 41 145 1,883
King's Court Traverse City, MI A 1,473 13,782 - 1,630 1,473 15,412
King's Lake Debary, FL - 280 2,542 - 2,257 280 4,799
Knollwood Estates Allendale, MI 2642 400 4,061 - 12 400 4,073
Lafayette Place Warren, MI - 669 5,979 - 868 669 6,847
Lake Juliana Auburndale, FL - 335 2,848 - 999 335 3,847
Lake San Marino Naples, FL - 650 5,760 - 564 650 6,324
Leesburg Landing Leesburg, FL - 50 429 921 431 971 860
Liberty Farms Valparaiso, IN - 66 1,201 116 2,062 182 3,263
Lincoln Estates Holland, MI - 455 4,201 - 453 455 4,654
Maplewood Mobile Lawrence, IN - 275 2,122 - 974 275 3,096
Meadow Lake Estates White Lake, MI A 1,188 11,498 127 1,953 1,315 13,451
Meadowbrook Charlotte, NC - 1,310 6,570 - 2,778 1,310 9,348
Meadowbrook Estates Monroe, MI - 431 3,320 379 6,048 810 9,368
Meadowbrook Village Tampa, FL - 519 4,728 - 498 519 5,226
Meadows Nappanee, IN - 287 2,300 - 2,523 287 4,823
North Point Estates Pueblo, CO - 1,582 3,027 1 2,628 1,583 5,655
Oak Crest Austin, TX 8088 4,311 12,611 - 355 4,311 12,966
Oakwood Village Miamisburg, OH - 1,964 6,401 - 6,575 1,964 12,976
Orange Tree Orange City, FL - 283 2,530 15 795 298 3,325
Orchard Lake Milford, OH C 395 4,025 - 44 395 4,069
Pebble Creek Greenwood, IN - 1,030 5,074 - 3,418 1,030 8,492
Pecan Branch Georgetown, TX - 1,379 - 331 4,286 1,710 4,286
Pheasant Ridge Lancaster, PA 2,044 19,279 - 38 2,044 19,317
Pin Oak Parc St. Louis, MO A 1,038 3,250 467 4,949 1,505 8,199
Pine Hills Middlebury, IN - 72 544 60 1,784 132 2,328
Pine Ridge Petersburg, VA - 405 2,397 - 1,359 405 3,756
Presidential Hudsonville, MI A 680 6,314 - 1,286 680 7,600
Richmond Richmond, MI - 501 2,040 - 461 501 2,501
River Haven Grand Haven, MI 9512 1,800 16,967 - 179 1,800 17,146
River Ranch Austin, TX - 4,690 843 - 6,590 4,690 7,433
River Ridge Austin, TX 6813 3,201 15,090 - 225 3,201 15,315
Roxbury Goshen, IN - 1,057 9,870 1 99 1,058 9,969
Royal Country Miami, FL B 2,290 20,758 - 933 2,290 21,691
Saddle Oak Club Ocala, FL - 730 6,743 - 805 730 7,548
Saddlebrook San Marcos, TX 5321 1,703 11,843 - 311 1,703 12,154
Scio Farms Ann Arbor, MI - 2,300 22,659 - 4,010 2,300 26,669
Sea Air Rehoboth Beach, DE 4345 1,207 10,179 - 853 1,207 11,032
Sherman Oaks Jackson, FL B 200 2,400 240 4,132 440 6,532
Siesta Bay Ft. Myers Beach, FL - 2,051 18,549 - 901 2,051 19,450
Silver Star Orlando, FL - 1,022 9,306 - 452 1,022 9,758
Snow to Sun Weslaco, TX - 190 2,143 15 926 205 3,069
Southfork Belton, MO - 1,000 9,011 - 1,521 1,000 10,532
St. Clair Place St. Clair, MI - 501 2,029 - 361 501 2,390
DATE OF
ACCUMULATED CONSTRUCTION (C)
PROPERTY NAME TOTAL DEPRECIATION ACQUISITION (A)
- ---------------------- ---------- ------------ ---------------
High Point 9,066 740 1997(A)
Holiday Village 4,737 1,476 1986(A)
Holly Forest 9,695 1,915 1997(A)
Indian Creek 40,233 9,266 1996(A)
Island Lake 7,480 1,930 1995(A)
Kensington Meadows 6,581 1,478 1995(A)
Kenwood 2,028 299 1999(A)
King's Court 16,885 3,821 1996(A)
King's Lake 5,079 1,280 1994(A)
Knollwood Estates 4,473 343 2001(A)
Lafayette Place 7,516 1,267 1998(A)
Lake Juliana 4,182 1,116 1994(A)
Lake San Marino 6,974 1,606 1996(A)
Leesburg Landing 1,831 215 1996(A)
Liberty Farms 3,445 987 1985(A)
Lincoln Estates 5,109 1,162 1996(A)
Maplewood Mobile 3,371 957 1989(A)
Meadow Lake Estates 14,766 4,406 1994(A)
Meadowbrook 10,658 980 2000(A&C)
Meadowbrook Estates 10,178 3,007 1986(A)
Meadowbrook Village 5,745 1,687 1994(A)
Meadows 5,110 1,434 1987(A)
North Point Estates 7,238 408 2001(C)
Oak Crest 17,277 670 2002(A)
Oakwood Village 14,940 2,006 1998(A)
Orange Tree 3,623 977 1994(A)
Orchard Lake 4,464 670 1999(A)
Pebble Creek 9,522 934 2000(A&C)
Pecan Branch 5,996 284 1999(C)
Pheasant Ridge 21,361 990 2002(A)
Pin Oak Parc 9,704 1,887 1994(A)
Pine Hills 2,460 709 1980(A)
Pine Ridge 4,161 1,174 1986(A)
Presidential 8,280 1,889 1996(A)
Richmond 3,002 468 1998(A)
River Haven 18,946 1,506 2001(A)
River Ranch 12,123 133 2000(A&C)
River Ridge 18,516 910 2002(A)
Roxbury 11,027 837 2001(A)
Royal Country 23,981 7,230 1994(A)
Saddle Oak Club 8,278 2,290 1995(A)
Saddlebrook 13,857 623 2002(A)
Scio Farms 28,969 7,217 1995(A)
Sea Air 12,239 996 1997(A)
Sherman Oaks 6,972 1,978 1986(A)
Siesta Bay 21,501 4,950 1996(A)
Silver Star 10,780 2,492 1996(A)
Snow to Sun 3,274 669 1997(A)
Southfork 11,532 1,902 1997(A)
St. Clair Place 2,891 548 1998(A)
F-29
SCHEDULE III
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMLATED DEPRECIATION
DECEMBER 31. 2003
(AMOUNT IN THOUSANDS)
COST CAPITALIZED
SUBSEQUENT TO
INITIAL COST ACQUISITION GROSS AMOUNT CARRIED AT
TO COMPANY IMPROVEMENTS DECEMBER 31, 2003
-------------------- ----------------- -----------------------
PROPERTY NAME LOCATION ENCUMBRANCE LAND B & F & LAND B & F LAND B & F
- ---------------------- -------------------- ------------- -------- ----------------- -------- -------- ---------
Stonebridge Richfield Twp., MI 1119 2,044 - 180 1,918 2,224 1,918
Stonebridge San Antonio, TX - 2,552 2,096 1,881 3,011 4,433 5,107
Summit Ridge Converse, TX - 2,615 2,092 - 5,263 2,615 7,355
Sun Villa Reno, NV 6567 2,385 11,773 - 403 2,385 12,176
Sunset Ridge Portland, MI - 2,044 - - 11,532 2,044 11,532
Sunset Ridge Kyle, TX - 2,190 2,775 - 5,002 2,190 7,777
Timber Ridge Ft. Collins, CO A 990 9,231 - 1,227 990 10,458
Timberbrook Bristol, IN B 490 3,400 101 5,281 591 8,681
Timberline Estates Grand Rapids, MI A 535 4,867 - 742 535 5,609
Town and Country Traverse City, MI - 406 3,736 - 277 406 4,013
Valley Brook Indianapolis, IN A 150 3,500 1,277 9,171 1,427 12,671
Village Trails Howard City, MI - 988 1,472 - 735 988 2,207
Water Oak Lady Lake, FL - 2,503 17,478 - 6,357 2,503 23,835
West Glen Village Indianapolis, IN - 1,100 10,028 - 1,014 1,100 11,042
Westbrook Toledo, OH 9606 1,110 10,462 - 890 1,110 11,352
Westbrook Senior Toledo, OH - 355 3,295 - 346 355 3,641
White Lake White Lake, MI - 672 6,179 - 4,732 672 10,911
White Oak Mt. Morris, MI A 782 7,245 112 3,704 894 10,949
Willowbrook Toledo, OH 781 7,054 - 703 781 7,757
Windham Hills Jackson, MI - 2,673 2,364 - 7,789 2,673 10,153
Woodhaven Place Woodhaven, MI - 501 4,541 - 883 501 5,424
Woodlake Estates Yoder, IN - 632 3,674 - 2,683 632 6,357
Woodlake Trails San Antonio, TX - 1,186 287 160 3,279 1,346 3,566
Woodland Park Estates Eugene, OR 7006 1,592 14,398 - 392 1,592 14,790
Woods Edge West Lafayette, IN - 100 2,600 3 7,837 103 10,437
Woodside Terrace Holland, OH - 1,064 9,625 - 1,467 1,064 11,092
Worthington Arms Lewis Center, OH - 376 2,624 - 1,267 376 3,891
Corporate Headquarters Farmington Hills, MI - - - - 8,628 8,628
Sun Homes Various 703 32,035 (3) 703 32,035
-------- -------- ------- -------- -------- ----------
$121,499 $723,661 $15,956 $359,289 $137,455 (2) $1,082,950
======== ======== ======= ======== ======== ==========
DATE OF
ACCUMULATED CONSTRUCTION (C)
PROPERTY NAME TOTAL DEPRECIATION ACQUISITION (A)
- ---------------------- ---------- ------------ ---------------
Stonebridge 4,142 - 1998(C)
Stonebridge 9,540 590 2000(A&C)
Summit Ridge 9,970 640 2000(A&C)
Sun Villa 14,561 2,254 1998(A)
Sunset Ridge 13,576 826 1998(C)
Sunset Ridge 9,967 772 2000(A&C)
Timber Ridge 11,448 2,592 1996(A)
Timberbrook 9,272 2,618 1987(A)
Timberline Estates 6,144 1,728 1994(A)
Town and Country 4,419 1,040 1996(A)
Valley Brook 14,098 3,712 1989(A)
Village Trails 3,195 386 1998(A)
Water Oak 26,338 6,986 1993(A)
West Glen Village 12,142 3,407 1994(A)
Westbrook 12,462 1,733 1999(A)
Westbrook Senior 3,996 300 2001(A)
White Lake 11,583 1,904 1997(A)
White Oak 11,843 2,156 1997(A)
Willowbrook 8,538 1,398 1997(A)
Windham Hills 12,826 1,443 1998(A)
Woodhaven Place 5,925 990 1998(A)
Woodlake Estates 6,989 1,001 1998(A)
Woodlake Trails 4,912 308 2000(A&C)
Woodland Park Estates 16,382 2,745 1998(A)
Woods Edge 10,540 2,270 1985(A)
Woodside Terrace 12,156 2,371 1997(A)
Worthington Arms 4,267 1,250 1990(A)
Corporate Headquarters 8,628 2,089 Various
Sun Homes 32,738 2,403 Various
---------- ---------
$1,220,405 $ 209,921
========== =========
A These communities collateralize $152.36 million of secured debt.
B These communities collateralize $41.6 million of secured debt.
C These communities collateralize $4.61 million of secured debt.
(1) The initial cost for this property is included in the initial cost reported
for Continental Estates.
(2) Includes $1.50 million of land classified in Property under development
(3) Includes $29.26 million of manufactured homes leased to residents in
various communities
F-30
EXHIBIT INDEX
EXHIBIT METHOD OF
NUMBER DESCRIPTION FILLING
12.1 Computation of Ratio of Earnings to Fixed Charges and (17)
Ratio Earnings to Combined Fixed Charges and Preferred
Dividends
21.1 List of Subsidiaries of Sun Communities, Inc. (17)
23.1 Consent of PriceWaterhouseCoopers LLP (17)
23.2 Consent of Grant Thornton LLP (17)
31.1 Certification of Chief Executive Officer pursuant to (17)
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to (17)
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief (17)
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002