1
FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File No. 1-12616
SUN COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
STATE OF MARYLAND 38-2730780
State of Incorporation I.R.S. Employer I.D. No.
31700 MIDDLEBELT ROAD
SUITE 145
FARMINGTON HILLS, MICHIGAN 48334
(248) 932-3100
(Address of principal executive offices and telephone number)
Securities Registered Pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
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
---
As of March 2, 1998, the aggregate market value of the Registrant's voting
stock held by non-affiliates of the Registrant was approximately $544,257,925
determined in accordance with the highest price at which the stock was sold on
such date as reported by the New York Stock Exchange.
As of March 2, 1998, there were 16,625,341 shares of the Registrant's
common stock issued and outstanding.
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PART I
ITEM 1. BUSINESS
GENERAL
Sun Communities, Inc. (the "Company") owns, operates and finances
manufactured housing communities concentrated in the midwestern and
southeastern United States. The Company 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. At December 31, 1997, the Company owned and managed a portfolio of
95 properties located in twelve states (the "Properties"), including
eighty-four manufactured housing communities, five recreational vehicle
communities, and six properties containing both manufactured housing and
recreational vehicle sites. At December 31, 1997, the Properties contained an
aggregate of 28,752 developed manufactured home sites, approximately 3,600
manufactured home sites suitable for development and 5,200 recreational vehicle
sites. In order to enhance property performance and cash flow, the Company,
through Sun Home Services, Inc., a Michigan corporation ("Home Services" or
"SHS"), actively markets and sells new and used manufactured homes for
placement in the Properties.
The Company made an election to be taxed as a REIT for federal income tax
purposes commencing with the calendar year beginning January 1, 1994, and is
self-administered and self-managed.
The Company's executive and principal property management office is
located at 31700 Middlebelt Road, Suite 145, Farmington Hills, Michigan 48334
and its telephone number is (248) 932-3100. The Company has regional property
management offices located in Elkhart, Indiana and Tampa, Florida. The
Company, which is a Maryland corporation, employed 547 people as of December
31, 1997.
HISTORY OF THE COMPANY
The immediate predecessor to Sun Communities, Inc. was incorporated in
January 1985 to continue and expand the business of acquiring, owning and
operating manufactured housing communities that was originally started in 1975.
Since its inception, the Company's strategy has been to acquire and in many
cases expand or renovate existing manufactured housing communities. The
Company has maintained this strategy because it believes attractive investment
returns can be obtained by purchasing existing properties with expansion
potential.
STRUCTURE OF THE COMPANY
The operations of the Company are carried on through certain subsidiaries
(the "Subsidiaries"), including Sun Communities Operating Limited Partnership,
a Michigan limited partnership (the "Operating Partnership") and Sun
Communities Finance Limited Partnership, a Michigan limited partnership (the
"Financing Partnership"), which, among other things, enables the Company to
comply with certain complex requirements under the Federal tax rules and
regulations applicable to REITs. The Company established the Operating
Partnership to allow the Company to acquire manufactured housing communities in
transactions that defer some or all of the sellers' tax consequences.
Substantially all of the Company's assets are held by or through the Operating
Partnership, of which the Company is the sole general partner, and wholly-owned
subsidiaries of the Company. In addition to the Operating Partnership and the
Financing Partnership, the Subsidiaries include Home Services, which provides
manufactured home sales and other services to current and prospective tenants
of the Properties. The Operating Partnership owns 100% of the non-voting
preferred stock of Home Services, which entitles the Operating Partnership to
95% of the cash flow
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from operating activities of Home Services. The voting common stock of Home
Services is owned by Milton M. Shiffman, Gary A. Shiffman and Jeffrey P.
Jorissen, executive officers of the Company, entitling them to the remaining 5%
of such cash flow from operating activities. Sun Water Oak Golf, Inc. ("Sun
Golf") is a wholly-owned subsidiary of Home Services. Sun Golf was organized
to own and operate the golf course, restaurant and related facilities located
on the Water Oak Property that were acquired in November 1994.
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 multi-family 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 in the Company's communities leases the site on
which the home is located. The Company owns the underlying land, utility
connections, streets, lighting, driveways, common area amenities and other
capital improvements and is responsible for enforcement of community guidelines
and maintenance. Some communities provide water and sewer service through
public or private utilities, while others provide these services to residents
from on-site facilities. Each owner within the Company's communities is
responsible for the maintenance of his home and leased site. As a result,
capital expenditure needs tend to be less significant, relative to multi-family
rental apartment complexes.
PROPERTY MANAGEMENT
The Company's property management strategy emphasizes intensive, hands-on
management by dedicated, on-site property managers. The Company believes that
this on-site focus enables it to continually monitor and address tenant
concerns, the performance of competitive properties and local market
conditions. Of the Company's 547 employees, 499 are located on-site as
property managers, support staff, or maintenance personnel.
The Company's property managers are overseen by Brian W. Fannon, Senior
Vice President and Chief Operating Officer, who has 28 years of property
management experience, three Vice Presidents and eleven Regional Property
Managers. In addition, the Regional Property Managers are responsible for
semi-annual market surveys of competitive parks, interaction with local
manufactured home dealers and regular property inspections.
Each property 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 property manager, each property has an on-site maintenance person and
management support staff. The Company holds periodic training sessions for all
property management personnel to ensure that management policies are
implemented effectively and professionally.
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HOME SALES
Home Services offers manufactured home sales services to tenants and
prospective tenants in the Company's communities. Since tenants often purchase
a home already on-site within a community, such services enhance occupancy and
property performance. Additionally, since many of the homes in the Properties
are sold through Home Services, better control of home quality in the Company's
communities can be maintained than if sales services were conducted solely
through third-party brokers.
COMPETITION
All of the Properties are located in developed areas that include other
manufactured housing community properties. The number of competitive
manufactured housing community properties in a particular area could have a
material effect on the Company's ability to lease sites and on rents charged at
the Properties or at any newly acquired properties. The Company may be
competing with others that have greater resources than the Company and whose
officers and directors have more experience than the Company's officers and
directors. In addition, other forms of multi-family residential properties,
such as private and federally funded or assisted multi-family housing and
single-family housing, provide housing alternatives to potential tenants of
manufactured housing communities.
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. The Company believes that each Property has the necessary operating
permits and approvals.
Americans with Disabilities Act ("ADA"). The Properties and any newly
acquired manufactured housing communities must comply with the ADA. The ADA
has separate compliance requirements for "public accommodations" and
"commercial facilities," but generally requires that public facilities such as
clubhouses, pools and recreation areas be made accessible to people with
disabilities. Compliance with ADA requirements could require removal of access
barriers and other capital improvements at the Company's properties.
Noncompliance could result in imposition of fines or an award of damages to
private litigants. The Company does not believe the ADA will have a material
adverse impact on the Company's results of operations. If required property
improvements involve a greater expenditure than the Company currently
anticipates, or if the improvements must be made on a more accelerated basis
than it anticipates, the Company's ability to make expected distributions could
be adversely affected. The Company believes that its competitors face similar
costs to comply with the requirements of the ADA.
Rent Control Legislation. State and local rent control laws in certain
jurisdictions limit the Company's ability to increase rents and to recover
increases in operating expenses and the costs of capital improvements.
Enactment of such laws has been considered from time to time in other
jurisdictions. The Company presently expects to continue to operate
manufactured housing community properties, and may purchase additional
properties, in markets that are either subject to rent control or in which
rent-limiting legislation exists or may be enacted. For example, 29 of the
Properties are located in Florida, which has enacted a law which provides that
a majority of tenants in a manufactured housing community may require that a
proposed increase in site rental rates, reduction in services or utilities or
change in the community's rules and regulations be submitted for formal
mediation or arbitration if they believe that the proposal is unreasonable.
Insurance. Management believes that the Properties are covered by
adequate fire, flood, property and business interruption insurance provided by
reputable companies and with
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commercially reasonable deductibles and limits. The Company maintains a
blanket policy that covers all of the Properties. The Company has obtained
title insurance insuring fee title to the Properties in an aggregate amount
which the Company believes to be adequate.
ITEM 2. PROPERTIES
General. At December 31, 1997, the Properties consisted of eighty-four
manufactured housing communities, five recreational vehicle communities, and
six properties containing both manufactured housing and recreational vehicle
sites concentrated in twelve states in the midwestern and southeastern United
States. At December 31, 1997, the Properties contained 28,752 developed
manufactured home sites, approximately 3,600 manufactured home sites suitable
for development and 5,200 recreational vehicle sites. Most of the Properties
include amenities oriented towards family and retirement living. Of the 95
Properties, forty-four have more than 300 developed manufactured home sites,
with the largest having 913 developed manufactured home sites.
The Properties had an aggregate occupancy rate of 95% as of December 31,
1997, excluding recreational vehicle sites. Since January 1, 1997, the
Properties have averaged an aggregate annual turnover of homes (where the home
is moved out of the community) of approximately 2.8% 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 8.5%.
The Company believes that its 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.
The Company has sought to concentrate its communities within certain
geographic areas in order to achieve economies of scale in management and
operation. Except for five Properties located in Texas and one property
located in Colorado, the Properties are located in the midwestern and
southeastern United States. The Company has identified Florida as a key market
in which to expand its existing operations in the southeast because of
Florida's stable tenant base, relatively low cost of living and attractive
acquisition opportunities. Additionally, the Company's midwestern operations
serve as a source of prospective tenants for the Florida Properties, which are
generally oriented towards retirement living. Because the Company believes that
geographic diversification will help insulate the portfolio from regional
economic influences, the Company is also interested in acquiring properties in
the western United States.
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The following table sets forth certain information relating to the
Properties owned as of December 31, 1997:
DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/97 (1) 12/31/95 (1) 12/31/96 (1) 12/31/97(1)
- --------------------- -------------------- -------------------- --------------- -----------
MIDWEST
MICHIGAN
Allendale
Allendale, MI 281 96% 97% 80%(2)
Alpine
Grand Rapids, MI 381 96% 99% 99%
Bedford Hills
Battle Creek, MI 339 94% 94% 98%
Brentwood
Kentwood, MI 197 97% 99% 99%
Byron Center
Byron Center, MI 143 92% 97% 100%
Candlewick Court
Owosso, MI 211 100% 99% 98%
College Park Estates
Canton, MI 230 98% 99% 99%
Continental Estates
Davison, MI 385 (4) 93% 92%
Continental North
Davison, MI 334 (4) 95% 96%
Country Acres
Cadillac, MI 182 98% 98% 96%
Country Meadows
Flat Rock, MI 577 99% 99% 96%(2)
Countryside Village
Perry, MI 359 99% 96% 96%
Creekwood (3)
Burton, MI 140 --- --- 98%
Cutler Estates
Grand Rapids, MI 281 96% 98% 98%
Davison East
Davison, MI 190 (5) 99% 97%
Fisherman's Cove
Flint, MI 162 98% 97% 97%
Grand
Grand Rapids, MI 311 95% 98% 99%
Hamlin
Webberville, MI 146 99% 100% 98%
Kensington Meadows
Lansing, MI 251 94% 67% (6) 77%(2)
Kings Court
Traverse City, MI 613 94% 92% (6) 95%(2)
Lincoln Estates
Holland, MI 191 98% 97% 100%
Maple Grove Estates
Dorr, MI 46 100% 100% 98%
Meadow Lake Estates
White Lake, MI 425 97% 100% 100%
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DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/97 (1) 12/31/95 (1) 12/31/96 (1) 12/31/97(1)
- --------------------- -------------------- -------------------- --------------- -----------
Meadowbrook Estates
Monroe, MI 453 100% 100% 100%
Meadowstream Village
Sodus, MI 159 98% 99% 99%
Parkwood
Grand Blanc, MI 249 96% 97% 98%
Presidential
Hudsonville, MI 364 96% 98% 92%(2)
Scio Farms
Ann Arbor, MI 913 100% 99% 100%
Sherman Oaks
Jackson, MI 366 100% 99% 98%
Timberline Estates
Grand Rapids, MI 296 98% 100% 100%
Town & Country
Traverse City, MI 192 98% 100% 99%
White Lake
White Lake, Michigan 268 (5) (5) 97%
White Oak Estates
Mt. Morris, Michigan 376 (5) (5) 97%
------ --- --- ---
Michigan Total 10,011 97% 98% 97%
====== === === ===
INDIANA
Brookside Village
Goshen, IN 430 99% 99% 84%(2)
Carrington Pointe
Ft. Wayne, IN 170 (5) (5) 76%
Clear Water Village
South Bend, IN 202 93% 97% 94%(2)
Cobus Green
Elkhart, IN 386 98% 98% 98%
Holiday Village
Elkhart, IN 326 98% 99% 98%
Liberty Farms
Valparaiso, IN 220 100% 92% (2) 100%
Maplewood
Lawrence, IN 207 97% 99% 97%
Meadows
Nappanee, IN 330 96% 98% 99%
Meadowbrook
Indianapolis, IN 444 96% 98% 81%(2)
Pine Hills
Middlebury, IN 126 99% 96% 94%
Timberbrook
Bristol, IN 567 84% 88% (2) 97%
Valley Mills
Indianapolis, IN 356 99% 98% 98%
West Glen Village
Indianapolis, IN 552 99% 99% 99%
Woods Edge
West Lafayette, IN 430 92% 99% 98%
------ --- --- ---
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DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/97 (1) 12/31/95 (1) 12/31/96 (1) 12/31/97(1)
- --------------------- -------------------- -------------------- --------------- -----------
Indiana Total 4,746 96% 97% 94%
===== === === ===
OTHER
Autumn Ridge
Ankeny, IA 400 100% 98% 99%
Boulder Ridge
Pflugerville, TX 135 -- -- 18%(6)
Branch Creek Estates
Austin, TX 392 98% 94% (6) 99%
Candlelight
Chicago Heights, IL 309 93% 95% 99%
Casa del Valle (9)
Alamo, TX 114 (5) (5) 96%
Catalina Community
Middletown, OH 462 98% 99% 97%
Chisholm Point Estates
Pflugerville, TX 405 98% 83% (2) 98%
Douglas
Atlanta, GA 203 89% 95% 96%
Edwardsville
Edwardsville, KS 634 90% 93% 90%(2)
Flagview
Atlanta, GA 198 93% 98% 100%
Paradise
Chicago Heights, IL 278 99% 98% 100%
Pine Ridge
Petersburg, VA 245 100% 98% 99%
Pin Oak Parc
O'Fallon, MO 400 99% 99% 96%(2)
Snow to Sun (9)
Weslaco, TX 176 (5) (5) 98%
Southfork
Belton, MO 476 (5) (5) 98%
Timber Ridge
Ft. Collins, CO 582 100% 100% 100%
Willowbrook (8)
Toledo, OH 266 (5) (5) 97%
Woodside Terrace (8)
Springfield, OH 439 (5) (5) 98%
Worthington Arms
Delaware, OH 224 99% 100% 99%
----- --- --- ---
Other Total 6,338 97% 96% 96%
===== === === ===
SOUTHEAST
FLORIDA
Arbor Terrace
Bradenton, FL (7) 100% 100% 100%
Ariana Village
Lakeland, FL 210 72% (6) 78% (6) 79%
Bonita Lake
Bonita Springs, FL (7) 100% 100% 100%
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DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/97 (1) 12/31/95 (1) 12/31/96 (1) 12/31/97(1)
- --------------------- -------------------- -------------------- --------------- -----------
Breezy Hills (9)
Pompano Beach, FL 169 100% 99% 94%
Chain O'Lakes
Grand Island, FL 308 97% 95% 95%
Elmwood Mobile Home
Park
Daytona Beach, FL 100 (5) (5) 100%
Gold Coaster (9)
Florida City, FL 222 (5) (5) 100%
Golden Lakes
Plant City, FL 426 91% 92% 94%
Groves RV Resort
Lee County, FL (7) (5) (5) 100%
Holly Forrest Estates
Holly Hill, FL 402 (5) (5) 100%
Indian Creek (9)
Ft. Myers Beach, FL 353 100% 100% 100%
Island Lakes
Merritt Island, FL 301 100% 100% 99%
Kings Lake
Debary, FL 245 62% (6) 66% (6) 76%
Kings Pointe
Winter Haven, FL 229 43% (6) 48% (6) 52%
Kissimmee Gardens
Kissimmee, FL 239 99% 100% 100%
Lake Juliana
Auburndale, FL 293 54% (6) 57% (6) 59%
Lake San Marino
Naples, FL (7) 100% 100% 100%
Leesburg Landing
Lake County, FL 96 (4) 54% (6) 50%
Meadowbrook Village
Tampa, FL 257 100% 97% 100%
Orange Tree
Orange City, FL 246 78% (6) 83% (6) 89%
Plantation Manor
Ft. Pierce, FL 376 95% 97% 97%
Pleasure Cove
Ft. Pierce, FL 209 95% 95% 94%
Royal Country
Miami, FL 864 100% 99% 99%
Saddle Oak Club
Ocala, FL 376 98% 100% 99%
Siesta Bay
Ft. Myers Beach, FL (7) 100% 100% 100%
Silver Star
Orlando, FL 426 96% 96% 95%
Tallowwood
Coconut Creek, FL 273 62% 63% 68%
Water Oak Country Club
Estates
Lady Lake, FL 713 100% 100% 100%
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DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/97 (1) 12/31/95 (1) 12/31/96 (1) 12/31/97(1)
- --------------------- -------------------- -------------------- --------------- -----------
Whispering Palm (9)
Sebastian, FL 324 100% 96% 92%
------ --- --- ---
Florida Total 7,657 89% 93% 92%
====== === === ===
TOTAL/AVERAGE 28,752 93% 95% 95%
====== === === ===
(1) Excludes 5,200 recreational vehicle sites owned at December 31, 1997.
(2) Occupancy in these Properties reflects the recent development of sites
which are in their initial lease-up phase.
(3) This Property is owned by a joint venture in which the Operating
Partnership has a 50% interest.
(4) Acquired in 1996.
(5) Acquired in 1997.
(6) Occupancy in these Properties reflects the fact that these communities
are in their initial lease-up phase.
(7) This Property contains only recreational vehicle sites.
(8) The Company leases this Property. The Company has the option to purchase
the Property upon the expiration of the lease. If the Company does not
exercise its option to purchase, the lessor has the right to cause the
Company to purchase the Property at the expiration of the lease at the
option price.
(9) This Property also contains recreational vehicle sites.
Leases. The typical lease entered into between a tenant and the Company
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. See "Regulations and
Insurance."
ITEM 3. LEGAL PROCEEDINGS
Certain partnerships which previously owned twenty-four of the Properties
(the "Sun Partnerships") were involved in a variety of legal proceedings
arising in the ordinary course of business prior to the transfer of the
Properties to the Operating Partnership, and the Company has become a
successor party-in-interest to these proceedings as a result of the
contribution of the Properties to the Company, as well as other proceedings
that have arose in the ordinary course of operating the Properties. All such
proceedings, taken together, are not expected to have a material adverse
impact on the Company's business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year covered by this report.
PART II
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ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been listed on the New York Stock Exchange
("NYSE") since December 8, 1993 under the symbol "SUI." On March 2, 1998, the
closing sales price of the Common Stock was $34 7/8 and the Common Stock was
held by approximately 1,671 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
Company with respect to each such period.
High Low Distribution
---- ------- ------------
FISCAL YEAR ENDED DECEMBER 31, 1996
First Quarter of 1996.............. 27 5/8 25 1/4 .455
Second Quarter of 1996............. 27 3/8 24 7/8 .455
Third Quarter of 1996.............. 29 25 5/8 .455
Fourth Quarter of 1996............. 34 3/4 28 1/8 .455
FISCAL YEAR ENDED DECEMBER 31, 1997
First Quarter of 1997.............. 33 5/8 31 1/2 .47
Second Quarter of 1997............. 34 3/4 30 1/2 .47
Third Quarter of 1997.............. 37 7/8 33 9/16 .47
Fourth Quarter of 1997............. 36 9/16 33 7/8 .47
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ITEM 6. SELECTED FINANCIAL DATA
SUN COMMUNITIES, INC. AND PREDECESSOR BUSINESS
YEAR ENDED DECEMBER 31, (2)
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT FOR PER SHARE DATA AND OTHER DATA)
OPERATING DATA:
Revenues:
Income from property.................... $ 93,188 $ 71,312 $ 44,048 $ 30,461 $ 14,222
Income from SHS and BFSC................ 1,518 506 325 432 --
Other income............................ 1,535 1,381 739 1,450 199
---------- --------- ---------- ---------- ---------
Total revenues......................... 96,241 73,199 45,112 32,343 14,421
---------- --------- ---------- ---------- ---------
Expenses:
Property operating and maintenance...... 21,111 15,970 9,838 7,404 3,222
Real estate taxes....................... 7,481 5,654 2,981 2,167 1,024
General and administrative.............. 4,520 3,458 2,535 2,005 893
Depreciation and amortization........... 20,668 14,887 9,747 6,949 2,611
Interest................................ 14,534 11,277 6,420 4,894 5,280
Predecessor business expenses........... - - - - 1,315
---------- --------- ---------- ---------- ---------
Total expenses......................... 68,314 51,246 31,521 23,419 14,345
---------- --------- ---------- ---------- ---------
Income before extraordinary item and
minority interests.................... 27,927 21,953 13,591 8,924 76
Extraordinary item, early
extinguishment of debt.................. - (6,896) - - -
---------- --------- ---------- ---------- ---------
Income before minority interests........ 27,927 15,057 13,591 8,924 76
Income (loss) allocated to minority
interests............................... 5,672 3,353 1,930 1,138 (212)
---------- --------- ---------- ---------- ---------
Net income.............................. $ 22,255 $ 11,704 $ 11,661 $ 7,786 $ 288
========== ========= ========== ========== =========
Net income per weighted average share: $ 1.38 $ .85 $ 1.19 $ 1.05 $ .05
Basic................................... ========== ========= ========== ========== =========
Diluted................................. $ 1.37 $ .85 $ 1.19 $ 1.04 $ .05
========== ========= ========== ========== =========
Weighted average common shares
outstanding............................. 16,081 13,733 9,792 7,416 5,326
========== ========= ========== ========== =========
Distribution per common share(1)........ $ 1.865 $ 1.81 $ 1.335 $ 1.78 $ .077
========== ========= ========== ========== =========
OTHER DATA:
Total properties (at end of period)(3).. 99 83 54 46 31
Total sites (at end of period)(3)....... 35,936 30,026 18,145 14,318 9,036
BALANCE SHEET DATA:
Rental property, before accumulated
depreciation............................ $684,821 $588,813 $326,613 $257,030 $148,668
Total assets............................ $690,914 $585,056 $325,104 $267,370 $157,462
Total debt.............................. $264,264 $185,000 $107,055 $ 62,931 $ 46,413
Stockholders' equity.................... $326,780 $300,932 $177,593 $174,978 $ 92,985
(1) The distribution of $.445 per share for the fourth quarter of 1995 was
declared and paid in January, 1996, and accordingly is not included in
the $1.335.
(2) See the Consolidated Financial Statements of the Company included
elsewhere herein.
(3) Includes communities financed by the Company.
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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.
RESULTS OF OPERATIONS
Comparison of year ended December 31, 1997 to year ended December 31, 1996
For the year ended December 31, 1997, income before extraordinary item and
minority interests increased by $5.9 million from $22.0 million to $27.9
million, when compared to the year ended December 31, 1996. The increase was
due to increased revenues of $23.0 million while expenses increased by $17.1
million.
Income from property increased by $21.9 million from $71.3 million to
$93.2 million due primarily to the acquisition of communities comprising
approximately 5,200 developed sites during 1997 and 29 communities comprising
in excess of 11,300 developed sites during 1996.
Income from Home Services and Bingham Financial Services Corporation
("Bingham" or "BFSC") increased by $1.0 million to $1.5 million from $.5
million due to increased sales of homes and the financing operations of the
Company's newly formed affiliate, Bingham.
Property operating and maintenance expenses increased by $5.1 million from
$16.0 million to $21.1 million due primarily to the acquired communities.
Real estate taxes increased by $1.8 million from $5.7 million to $7.5
million due primarily to the acquired communities.
General and administrative expenses increased by $1.0 million from $3.5
million to $4.5 million due primarily to additional staff as a result of the
Company's growth.
Interest expense increased by $3.2 million from $11.3 million to $14.5
million due primarily to $150 million Senior Notes which were issued May 1,
1996. Included in interest is amortization of deferred finance costs of $.2
million in 1997 and 1996.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
increased by $15.0 million from $48.1 million to $63.1 million. EBITDA as a
percent of revenues was 65.6% compared to 65.7% in 1996.
Depreciation and amortization expense increased by $5.8 million from $14.9
million to $20.7 million due primarily to the acquisition of communities in
1997 and 1996.
Comparison of year ended December 31, 1996 to year ended December 31, 1995
For the year ended December 31, 1996, income before extraordinary item and
minority interests increased by $8.4 million from $13.6 million to $22.0
million, when compared to the year ended December 31, 1995. The increase was
due to increased revenues of $28.1 million while expenses increased by $19.7
million.
- 13 -
14
Income from property increased by $27.3 million from $44.0 million to
$71.3 million due primarily to the acquisition of 29 communities comprising in
excess of 11,300 developed sites during 1996 and six additional communities
comprising in excess of 2,200 developed sites during 1995.
Other income increased by $.7 million from $.7 million to $1.4 million due
to higher levels of interest income resulting primarily from investment of
proceeds of financings and interest on mortgage notes receivable for a full
year in 1996.
Property operating and maintenance expenses increased by $6.2 million from
$9.8 million to $16.0 million due primarily to the acquired communities.
Real estate taxes increased by $2.7 million from $3.0 million to $5.7
million due primarily to the acquired communities.
General and administrative expenses increased by $1.0 million from $2.5
million to $3.5 million due primarily to additional staff as a result of the
Company's growth.
Interest expense increased by $4.9 million from $6.4 million to $11.3
million due to higher levels of borrowings at a slightly higher weighted
average interest rate. Included in interest is amortization of deferred finance
costs of $.2 million and $.6 million in 1996 and 1995, respectively.
EBITDA increased by $18.3 million from $29.8 million to $48.1 million.
EBITDA as a percent of revenues was 65.7% compared to 66.0 % in 1995.
Depreciation and amortization expense increased by $5.2 million from $9.7
million to $14.9 million due primarily to the acquisition of communities in
1996 and 1995.
SAME PROPERTY INFORMATION
The following table reflects property-level financial information as of
and for the years ended December 31, 1997 and 1996. The "Same Property" data
represents information regarding the operation of communities owned as of
January 1, 1996. Site, occupancy, and rent data for those communities is
presented as of the last day of each period presented. The table includes
sites where the Company's interest is in the form of shared appreciation notes
or where the Company is providing financing and managing the properties. Such
amounts relate to 1,873 sites in 1997 and 1,218 sites in 1996 and were formerly
classified in other income.
- 14 -
15
SAME PROPERTY TOTAL PORTFOLIO
---------------- ------------------
1997 1996 1997 1996
------ ------- -------- --------
(in thousands) (in thousands)
Property revenues, including other $52,241 $48,725 $93,188 $71,312
------- ------- ------- -------
Property operating expenses:
Property operating and maintenance 10,135 9,720 21,111 15,970
Real estate taxes 3,857 3,640 7,481 5,654
------- ------- ------- -------
Property operating expenses 13,992 13,360 28,592 21,624
------- ------- ------- -------
Property EBITDA $38,249 $35,365 $64,596 $49,688
======= ======= ======= =======
Number of properties 54 54 99 83
Developed sites 18,904 18,539 35,936 30,026
Occupied sites 17,954 17,404 33,415 27,949
Occupancy % 95.0% 93.9% 95.0%(1) 94.4%(1)
Weighted average monthly rent per site $ 251 $ 241 $ 255 (1) $ 250 (1)
Sites available for development 1,423 1,943 3,641 (2) 3,268
Sites in development 291 509 904 779
- -------------------------
(1) Occupancy % and weighted average rent relates to manufactured housing
sites, excluding recreational vehicle sites.
(2) Includes 750 sites related to zoned land.
On a same property basis, property revenues increased by $3.5 million from
$48.7 million to $52.2 million, or 7.2 percent, due primarily to increases in
rents and occupancy related charges including water and property tax pass
throughs. Also contributing to revenue growth was the increase of 550 leased
sites at December 31, 1997 compared to December 31, 1996 and the increase in
weighted average monthly rent per site from $241 in 1996 to $251 in 1997.
Property operating expenses increased by $.6 million from $13.4 million to
$14.0 million, or 4.7 percent, due to increased occupancies and costs and
increases in assessments and millage by local taxing authorities. Property
EBITDA increased by $2.9 million from $35.4 million to $38.3 million, or 8.2
percent.
Sites available for development in the total portfolio increased by 373
from 3,268 to 3,641.
LIQUIDITY SOURCES AND REQUIREMENTS
Cash and cash equivalents decreased by $7.0 million to $2.2 million at
December 31, 1997 compared to $9.2 million at December 31, 1996 primarily
because cash used in investing activities exceeded cash provided by operating
and financing activities.
- 15 -
16
Net cash provided by operating activities increased by $4.8 million from
$35.4 million to $40.2 million for the year ended December 31, 1997 as compared
to the year ended December 31, 1996. This increase was due primarily to a
$16.4 million increase in income before depreciation and amortization, minority
interests and extraordinary item offset by a $4.3 million increase in other
assets and a $7.4 million decrease in accounts payable and other liabilities.
Net cash used in investing activities increased by $30.8 million from
$76.9 million to $107.7 million for the year ended December 31, 1997 as
compared to the year ended December 31, 1996. This was due to increased
investments in mortgage notes, affiliates and officer notes.
Net cash provided by financing activities increased by $9.8 million from
$50.6 million to $60.5 million for the year ended December 31, 1997 as compared
to the year ended December 31, 1996. This increase was due to proceeds from
the sale of shares of Common Stock pursuant to the Company's Dividend
Reinvestment Plan exceeding the distributions paid to stockholders and OP Unit
holders by $13.7 million offset by a reduction in net borrowings, including
proceeds from a 1996 Common Stock offering and deferred financing activities of
$3.9 million.
The Company expects to meet its short-term liquidity requirements
generally through its working capital provided by operating activities. The
Company expects to meet certain long-term liquidity requirements such as
scheduled debt maturities and property acquisitions through the issuance of
equity or debt securities, or interests in the Operating Partnership. The
Company considers these sources to be adequate and anticipates they will
continue to be adequate to meet operating requirements, capital improvements,
investment in development, and payment of distributions by the Company in
accordance with REIT requirements in both the short and long term. The Company
can also meet these short-term and long-term requirements by utilizing its $75
million line of credit which bears interest at LIBOR plus .90% and is due
November 1, 1999.
At December 31, 1997, the Company's debt to total market capitalization
approximated 28.8% (assuming conversion of all Common and Preferred OP Units to
shares of Common Stock), with a weighted average maturity of approximately 5.9
years and a weighted average interest rate of 7.23%.
Capital expenditures for 1997 included recurring capital expenditures of
$4.6 million, including $.4 million for additional space and related costs at
corporate headquarters, and revenue producing capital expenditures of $1.2
million which principally consisted of water metering programs.
Development costs including land acquisitions of $0.2 million aggregated
$17.5 million for the year ended December 31, 1997.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the years ended
December 31, 1995, 1996, and 1997 was 3.03:1, 2.49:1, and 2.40:1, 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.
- 16 -
17
OTHER
The Company does not anticipate the Year 2000 compliance requirements will
have a material impact on earnings. The Company has initiated replacement of
the Company's most significant computer programs with new updates that are
warranted to be Year 2000 compliant. Installation of these updates is
anticipated to be completed prior to December 31, 1998. All other programs
subject to Year 2000 concerns will be evaluated utilizing internal and external
resources to re-program, replace or test each of them. A formal communication
plan with significant third party vendors will be initiated during 1998 to
determine their Year 2000 compliance programs.
Industry analysts consider funds from operations ("FFO") to be an
appropriate measure of the performance of an equity REIT. It is defined as
income before minority interests plus non-cash items such as depreciation and
amortization. FFO should not be considered as an alternative to net income as
an indication of the Company's performance or to cash flows as a measure of
liquidity.
The following table presents FFO for each of the quarters during 1997,
1996 and 1995:
QUARTERS ENDED 1997 1996 1995
----------------------- -------- -------- -------
March 31 $11,204 $6,201 $5,288
June 30 11,178 8,960 5,878
September 30 11,485 9,652 5,998
December 31 12,081 10,282 6,114
-------- -------- -------
$45,948 $35,095 $23,278
======== ======== =======
Weighted average OP
Units used for basic
FFO per share: 18,444 15,646 11,420
Dilutive securities:
Stock options 187 87 34
Convertible preferred
OP Units 1,224 883 --
-------- -------- -------
Weighted average OP
Units used for diluted
FFO per share: 19,855 16,616 11,454
======== ======== =======
Diluted FFO per unit reflects the potential dilution that would occur if
securities were exercised or converted into OP Units. For purposes of
calculating diluted FFO per OP Unit, $2,505 and $1,670 would be added to FFO in
1997 and 1996, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data are filed herewith under
Item 14.
- 17 -
18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in the Company's independent public
accountants during the past two fiscal years.
PART III
The information required by ITEMS 10, 11, 12 AND 13 will be included in
the Company's proxy statement for its 1998 Annual Meeting of Shareholders, and
is incorporated herein by reference.
PART IV
ITEM 14. 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
The Company filed a report on Form 8-K detailing the twelve (12)
manufactured housing communities which it acquired during the 1997
calendar year. The date of the report was December 31, 1997. The
following financial statements were filed as exhibits to such report: (i)
Historical Summaries of Gross Income and Direct Operating Expenses for
each of Southfork Mobile Home Park, White Oak Estates, Willowbrook Place
and Woodside Terrace; (ii) Pro-Forma Condensed Consolidated Statement
of Operations for the year ended December 31, 1997 (unaudited); and (iii)
Pro-Forma Condensed Consolidated Balance Sheet as of December 31, 1997
(unaudited).
- 18 -
19
SUN COMMUNITIES, INC.
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
PAGES
Report of Independent Accountants F-2
Financial Statements:
Consolidated Balance Sheet as of December 31, 1997 and 1996 F-3
Consolidated Statement of Income
for the Years Ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statement of Stockholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statement of Cash Flows for the
Years Ended December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7 - F-14
Schedule III - Real Estate and Accumulated Depreciation F-15 - F-18
F-1
20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Sun Communities, Inc.:
We have audited the accompanying consolidated balance sheet of Sun Communities,
Inc. as of December 31, 1997 and 1996, and the related consolidated statements
of income, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. We have also audited the consolidated
financial statement schedule listed under 14(a)(2) of this form 10-K. These
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sun Communities,
Inc. as of December 31, 1997 and 1996 and the consolidated results of its
operations and cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule referred to
above, when considered in relation to the consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information
stated therein.
Coopers & Lybrand L.L.P.
Detroit, Michigan
February 23, 1998
F-2
21
SUN COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 AND 1996
(AMOUNTS IN THOUSANDS)
ASSETS 1997 1996
---- ----
Investment in rental property, net $634,737 $558,278
Cash and cash equivalents 2,198 9,236
Investment in Sun Home Services, Inc. ("SHS") 11,973 5,103
Investment in Bingham Financial Services, Corp. ("BFSC") 4,586 --
Mortgage notes receivable 19,269 4,176
Other assets 18,151 8,263
-------- --------
Total assets $690,914 $585,056
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Line of credit $ 17,000 $ --
Debt 247,264 185,000
Accounts payable and accrued expenses 8,765 7,718
Deposits and other liabilities 8,853 9,123
-------- --------
281,882 201,841
-------- --------
Minority interests 82,252 82,283
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value, 10,000 shares
authorized, none issued
Common stock, $.01 par value, 100,000 shares
authorized, 16,587 and 15,389 issued and
outstanding in 1997 and 1996, respectively 166 154
Paid-in capital 364,050 328,321
Officers' notes (11,773) (9,173)
Distributions in excess of accumulated earnings (25,663) (18,370)
-------- ---------
Total stockholders' equity 326,780 300,932
-------- --------
Total liabilities and stockholders' equity $690,914 $585,056
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
22
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
1997 1996 1995
------ ----- ------
REVENUES
Income from property ......................................... $93,188 $71,312 $44,048
Income from SHS and BFSC ..................................... 1,518 506 325
Other income, principally interest ........................... 1,535 1,381 739
------- ------- -------
Total revenues ............................................ 96,241 73,199 45,112
------- ------- -------
EXPENSES
Property operating and maintenance ........................... 21,111 15,970 9,838
Real estate taxes ............................................ 7,481 5,654 2,981
General and administrative ................................... 4,520 3,458 2,535
Depreciation and amortization ................................ 20,668 14,887 9,747
Interest ..................................................... 14,534 11,277 6,420
------- ------- -------
Total expenses ............................................ 68,314 51,246 31,521
------- ------- -------
Income before extraordinary item and minority interests ....... 27,927 21,953 13,591
Extraordinary item, early extinguishment of debt .............. -- 6,896 --
------- ------- -------
Income before minority interests .............................. 27,927 15,057 13,591
Less income allocated to minority interests:
Preferred OP Units ........................................ 2,505 1,670 --
Common OP Units ........................................... 3,167 1,683 1,930
------- ------- -------
Net income ................................................ $22,255 $11,704 $11,661
======= ======= =======
Basic earnings per share:
Income before extraordinary item .......................... $ 1.38 $ 1.35 $ 1.19
Extraordinary item ........................................ -- .50 --
------- ------- -------
Net income ................................................ $ 1.38 $ .85 $ 1.19
======= ======= =======
Weighted average common shares outstanding .................... 16,081 13,733 9,792
======= ======= =======
Diluted earnings per share:
Income before extraordinary item .......................... $ 1.37 $ 1.35 $ 1.19
Extraordinary item ........................................ -- .50 --
------- ------- -------
Net income ................................................ $ 1.37 $ .85 $ 1.19
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statement
F-4
23
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
DISTRIBUTIONS
COMMON PAID-IN IN EXCESS
STOCK CAPITAL OF EARNINGS
------ ------- --------------
Balance, January 1, 1995 ....................................... $ 95 $ 180,944 $ (6,061)
Issuance of 400 shares of common stock for officer notes ....... 4 8,646
Exercise of stock options and other, net ....................... 887
Reclassification and conversion of minority interests .......... 3,098
Net income ..................................................... 11,661
Cash distributions declared of $1.335 per share ................ (13,031)
------ --------- ----------
Balance, December 31, 1995 ..................................... 99 193,575 (7,431)
Issuance of 4,807 shares of common stock for officer notes ..... 48 118,245
Dividend reinvestment plan and other, net ...................... 7 15,198
Reclassification and conversion of minority interests .......... 1,303
Net income ..................................................... 11,704
Cash distributions declared of $1.81 per share ................. (22,643)
------ --------- ----------
Balance, December 31, 1996 ..................................... 154 328,321 (18,370)
Dividend reinvestment plan and other, net ...................... 12 36,712
Reclassification and conversion of minority interests .......... (983)
Net income...................................................... 22,255
Cash distributions declared of $1.865 per share ................ (29,548)
------ --------- ----------
Balance, December 31, 1997 ..................................... $ 166 $ 364,050 $ (25,663)
====== ========= ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
24
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AMOUNTS IN THOUSANDS)
1997 1996 1995
--------- --------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................ $ 22,255 $ 11,704 $ 11,661
Adjustments to reconcile net income to
cash provided by operating activities:
Income allocated to minority interests .................................. 3,167 1,683 1,930
Extraordinary item, net of prepayment penalties ......................... -- 1,390 --
Depreciation and amortization costs ..................................... 20,668 14,887 9,747
Deferred financing costs ................................................ 235 236 598
Increase in other assets ................................................ (6,919) (2,659) (3,474)
Increase in accounts payable and
other liabilities ..................................................... 796 8,173 4,521
--------- --------- --------
Net cash provided by operating activities ............................... 40,202 35,414 24,983
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in rental properties ........................................... (78,552) (78,722) (38,214)
Investment in mortgage notes receivable ................................... (15,093) -- (4,143)
Investment in SHS. ........................................................ (6,870) 1,804 1,872
Investment in BFSC ........................................................ (4,586) -- --
Officer note .............................................................. (2,600) -- --
--------- --------- --------
Net cash used in investing activities ................................... (107,701) (76,918) (40,485)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sales of common stock ................................... -- 117,770 --
Proceeds from borrowings .................................................. 62,000 185,000 41,257
Repayments on borrowings .................................................. (189) (241,114) (10,077)
Payments for deferred financing costs ..................................... (4,326) (277) (990)
Distributions ............................................................. (33,748) (25,965) (19,832)
Retirement of common operating partnership units .......................... -- -- (1,001)
Dividend reinvestment plan and other, net ................................. 36,724 15,205 887
--------- --------- --------
Net cash provided by financing activities .............................. 60,461 50,619 10,244
--------- --------- --------
Net increase (decrease) in cash and cash equivalents ...................... (7,038) 9,115 (5,258)
Cash and cash equivalents, beginning of year .............................. 9,236 121 5,379
--------- --------- --------
Cash and cash equivalents, end of year .................................... $ 2,198 $ 9,236 $ 121
========= ========= ========
SUPPLEMENTAL INFORMATION
Cash paid for interest including capitalized amounts of $645,
$380 and $192 in 1997, 1996 and 1995, respectively .................. $ 14,742 $ 9,958 $ 5,499
Noncash investing and financing activities:
Increase in minority interests for rental properties and other assets .. -- 53,437 15,444
Debt assumed for rental properties and other ........................... -- 134,059 12,944
Capitalized lease obligations for rental properties and other .......... 17,453 -- --
Transfer of rental homes with SHS ...................................... -- (3,720) 4,018
Issuance of common stock for officers' notes ........................... -- 523 8,650
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
25
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
A. BUSINESS: Sun Communities, Inc. and its subsidiaries (the "Company") is
a real estate investment trust ("REIT") which owns and operates or
finances 99 manufactured housing communities located in 13 states
concentrated principally in the Midwest and Southeast comprising
approximately 36,000 developed sites and approximately 3,600 sites
suitable for development. The Company generally will not be subject to
federal or state income taxes to the extent it distributes its REIT
taxable income to its stockholders.
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 and all majority-owned
subsidiaries. The minority interests include Common Operating
Partnership Units ("OP Units") which are convertible into an equivalent
number of shares of the Company's common stock. Such conversion would
have no effect on earnings per share since the allocation of earnings
to an OP Unit is equivalent to earnings allocated to a share of common
stock. Of the 18.9 million OP Units outstanding, the Company owns 16.6
million or 87.5 percent. The minority interests are adjusted to their
relative ownership interest annually by reclassification to/from
paid-in capital.
Also included in minority interest are 1.3 million Preferred OP Units
("POP Units") issued at $27 per unit bearing an annual dividend of
$1.89 and redeemable at par or convertible in June, 2002. The POP
Units are convertible one-for-one into OP Units at prices up to $31.50
per share. At prices above $31.50 per share, the POP Units are
convertible into OP Units based on a formula the numerator of which is
$31.50 plus 25 percent of stock price appreciation above $36 per share.
The denominator is the then stock price. Had conversion occurred at the
December 31, 1997 stock price of $35.94, the 1.325 million POP Units
would have converted into 1.161 million OP Units.
SHS provides home sales and other services to current and prospective
tenants. The Company owns 100 percent of the outstanding preferred
stock of SHS, is entitled to 95 percent of the operating cash flow, and
accounts for its investment utilizing the equity method of accounting.
The common stock is owned by three officers of the Company who are
entitled to receive 5 percent of the operating cash flow.
BFSC provides financing to current and prospective tenants. The
Company owns 25,000 common shares or 2% of BFSC. The Company has
730,000 warrants exercisable at prices ranging from $10 to $14 per
share from 2001 through 2018. The market price of BFSC stock at
December 31, 1997 was $10 .
C. RENTAL PROPERTY: Rental property is recorded at the lower of cost,
less accumulated depreciation or fair value. 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.
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. 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.
F-7
26
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, CONTINUED:
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. REVENUE RECOGNITION: Rental income attributable to leases is recorded
on a straight-line basis when earned from tenants. Leases entered into
by tenants range from month-to-month to twelve years and are renewable
by mutual agreement of the Company and resident or, in some cases, as
provided by statute.
F. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying value of financial
instruments which includes cash and cash investments, mortgages and
notes receivable and debt approximates fair value.
G. TAX STATUS OF DIVIDENDS: Approximately 31.2, 56.6, and 47.8 percent of
the distributions paid in 1997, 1996, and 1995, respectively, represent
a return of capital.
H. CASH FLOW HEDGES: The company periodically enters into hedge
transactions utilizing Treasury securities to lock-in the basic
interest cost of financing acquisitions. The gain or loss on such
hedges is amortized as an adjustment to interest expense over the term
of the related financing.
I. RECLASSIFICATIONS: Certain 1995 and 1996 amounts have been
reclassified to conform with the 1997 financial statement presentation.
Such reclassifications have no effect on operations as originally
presented.
2. ACQUISITIONS:
During 1997, the Company acquired 12 manufactured housing communities
comprising 4,258 developed sites and 425 sites suitable for development.
The cost of acquisitions aggregated $69.8 million excluding $4.5 million of
future payments contingent upon certain events. Consideration consisted of
$51.3 million in cash and $18.5 million in capitalized lease obligations.
During 1996, the Company acquired 29 manufactured housing communities
comprising in excess of 11,350 developed sites and 500 sites suitable for
development for $247.9 million. Consideration consisted of $134.1 million in
the assumption or issuance of debt, $53.4 million in issuance of Common and
Preferred OP Units and $60.4 million of cash.
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. In conjunction with an acquisition, the
Company is obligated to issue $12.1 million of OP Units over the expected
lease-up of the community through 2009 based on the per unit price of the OP
Units on each annual date.
F-8
27
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
2. ACQUISITIONS, CONTINUED:
The following unaudited table of pro forma information has been prepared as
if the Company's acquisition of 29 manufactured housing communities in 1996
and 12 manufactured housing communities in 1997 had occurred as of
January 1, 1996. In management's opinion, the pro forma information is not
necessarily indicative of consolidated results of operations that may have
occurred had the above transactions taken place on January 1 1996. In the
following table, the amounts are in thousands except per share amounts:
PRO FORMA FOR THE
YEAR ENDED
DECEMBER 31
-----------------
(UNAUDITED)
-----------------
1997 1996
------- ------
Revenues ............................... $103,401 $ 95,126
Operating income ....................... $ 67,697 $ 61,980
Net income ............................. $ 24,762 $ 20,981
Net income per share ................... $ 1.34 $ 1.21
Net income has not been reduced for minority interests and net income per
share assumes that all OP Units have been converted to shares of the
Company's common stock. Operating income is defined as total revenues less
property operating and maintenance expense, real estate tax expense and
general and administrative expense. Operating income is not necessarily an
indication of the performance of the Company or a measure of liquidity.
3. RENTAL PROPERTY:
AT DECEMBER 31
------------------
1997 1996
-------- --------
Land ........................................... $ 67,677 $ 58,943
Land improvements and buildings ................ 598,699 510,726
Furniture, fixtures, and equipment ............. 12,676 9,826
Property under development ..................... 5,769 9,318
-------- --------
684,821 588,813
Less accumulated depreciation ............... (50,084) (30,535)
-------- --------
$634,737 $558,278
======== ========
Land improvements and buildings consist primarily of infrastructure, roads,
landscaping, clubhouses, maintenance buildings and amenities. Included in
rental property at December 31, 1997 are net carrying amounts related to
capitalized leases of $18.4 million.
F-9
28
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
4. NOTES RECEIVABLE:
Mortgage notes receivable consisted of the following (amounts in thousands):
AT DECEMBER 31
----------------------
1997 1996
-------- ---------
Mortgage notes receivable with minimum
monthly interest payments at 7%,
maturing June 30, 2012, collateralized
by manufactured housing/recreational
vehicle communities located in Dover,
DE (a) $15,093 $ --
Second mortgage and third shared appreciation
mortgage notes with monthly interest
payments at an average rate of 17 %
and excess interest as defined, maturing
May 1, 2001, collateralized by manufactured
housing communities located in Alberta, Canada 4,176 4,176
------- -------
$19,269 $ 4,176
======= =======
(a) The stated interest rate is 12%. The excess of the interest earned at
the stated rate over the pay rate is added to the principal balance
and will also accrue interest at the stated rate.
The officers' notes are 10 year, LIBOR + 1.75% notes,with a minimum and maximum
interest rate of 6% and 9%, respectively, collateralized by 372,206 shares of
the Company's common stock and 127,794 OP Units with personal liability up to
approximately $7.2 million. Interest income of $.8 million and $.6 million has
been recognized in 1997 and 1996, respectively. Accrued interest of $.2
million and $.3 million has been recorded at December 31, 1997 and 1996,
respectively of which $.2 million was paid in both February, 1998 and January,
1997.
F-10
29
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
5. DEBT:
AT DECEMBER 31
----------------------
1997 1996
---------- ---------
Collateralized term loan, interest at 7.01%, due
September 9, 2007 ......................................... $ 44,889 --
Collateralized term loan, interest at LIBOR plus 1.50%
due November 1, 1997 ...................................... -- $ 35,000
Senior notes, interest at 7.375%, due May 1, 2001 .............. 65,000 65,000
Senior notes, interest at 7.625%, due May 1, 2003 .............. 85,000 85,000
Senior notes, interest at 6.97%, due December 3, 2007 .......... 35,000 --
Collateralized lease obligations, interest at 6.1%, due
December 1, 2002 .......................................... 17,375 --
--------- ----------
$ 247,264 $ 185,000
========= ==========
The Company has a $75 million unsecured line of credit at LIBOR plus .90%
maturing in November, 1999, of which $58 million was available at December
31, 1997. The interest rate at December 31, 1997 was 6.89%.
The term loan is collateralized by 7 communities comprising approximately
3,400 sites. Annual payments under capitalized lease obligations range from
$1.3 million to $1.4 million during their terms. The extraordinary item of
$6.9 million in 1996 results from the early extinguishment of debt and
includes prepayment penalties and related deferred financing costs.
At December 31, 1997, the Company has Treasury Rate Locks for a total
notional amount of $88.7 million and an unrealized loss of $1.5 million for
the purpose of hedging against the potential for increased interest expense
on anticipated future fixed rate financings. At the present time, the
Company anticipates issuing fixed rate securities in 1998 with a maturity of
at least five to ten years. Should medium term interest rates increase, the
value of the Treasury Rate Locks will increase offsetting a portion of the
additional interest expense incurred. Alternatively, should medium term
interest rates decrease, the Company will incur costs which would be offset
by lower interest expense.
At December 31, 1997, the maturities of debt during the next five years were
approximately as follows: 1998 - $.8 million; 1999 - $.8 million; 2000 - $.9
million; 2001 $66.0 million; and 2002 - $16.6 million.
F-11
30
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
6. STOCK OPTIONS:
Data pertaining to stock option plans are as follows:
1997 1996 1995
----------- --------------- ---------------
Options outstanding, January 1 ...................... 767,434 301,167 300,000
Options granted ..................................... 262,000 482,950 375,430
Option price ...................................... $27-$35.39 $26.625-$28.637 $21.625-$24.875
Options exercised ................................... 61,033 16,683 356,763
Option price ...................................... $20-$28.64 $20-$23.125 $20-$21,625
Options forfeited ................................... 2,501 -- 17,500
Option price ...................................... $24.88-$28.64 -- $22-$23.125
Options outstanding, December 31 .................... 965,900 (a) 767,434 301,167
Option price ...................................... $20-$35.39 $20-$28.637 $20-$24.875
Options exercisable, December 31 .................... 482,651 (a) 392,949 232,833
(a) There are 337,700 and 300,031 options outstanding and exercisable,
respectively, which range from $20.00 - $27.99. The weighted average
exercise price for these outstanding and exercisable options is $22.78
and $22.28, respectively. There are 628,200 and 182,620 options
outstanding and exercisable, respectively, which range from $28.00 -
$35.99. The weighted average exercise price for these outstanding and
exercisable options is $30.26 and $28.70, respectively. The weighted
average contractual life of outstanding options is 6.9 years.
At December 31, 1997, 432,000 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. The stock option plans provide for the grant of up to 1,593,000
options. In addition, the Company established a Long-Term Incentive Plan for
its nonexecutive officer employees permitting a grant of up to 240,000 options
which were granted in 1997, and become exercisable in equal installments in
2002-2004 based on corporate profit performance.
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
1997 1996
------ --------
Estimated fair value value per share of options granted during year .................. $2.82 $1.94
Assumptions:
Annualized dividend yield ......................................................... 7.1% 6.9%
Common stock price volatility ................................................. 15.6% 15.1%
Risk-free rate of return ...................................................... 6.7% 6.2%
Expected option term (in years) ............................................... 7 8
If compensation cost for stock option grants had been recognized based on the
fair value at the grant date, this would have resulted in net income of $21.9
million and $11.5 million and basic net income per share of $1.36 and $.84 in
1997 and 1996, respectively.
F-12
31
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
7. EARNINGS PER SHARE:
1997 1996 1995
------- ------- -------
Earnings used for basic and diluted earnings per
share computation $22,255 $11,704 $11,661
======= ======= =======
Total shares used for basic earnings per share 16,081 13,733 9,792
Dilutive securities:
Stock options 187 87 34
------- ------- -------
Total shares used for diluted earnings per share
computation 16,268 13,820 9,826
======= ======= =======
Diluted earnings per share reflect the potential dilution that would occur if
securities were exercised or converted
into common stock. Convertible POP Units are excluded from the computations as
their inclusion would have an anti-dilutive effect on earnings per share in
1997 and 1996.
8. 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
-------- ---------- -------- -------
1997
Total revenues .................................. $23,393 $23,233 $24,117 $25,498
Operating income (a) ............................ $15,305 $15,188 $15,740 $16,896
Income before allocation to minority interests .. $ 7,039 $ 6,878 $ 6,992 $ 7,018
Net income ...................................... $ 5,568 $ 5,447 $ 5,573 $ 5,667
Weighted average common shares outstanding ...... 15,632 15,924 16,243 16,527
Earnings per common share ....................... $ .36 $ .34 $ .34 $ .34
F-13
32
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
8. QUARTERLY FINANCIAL DATA (UNAUDITED)CONTINUED:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
MARCH 31 JUNE 30(b) SEPT. 30 DEC. 31
-------- ---------- -------- -------
1996
Total revenues .................................. $12,442 $18,149 $20,862 $21,746
Operating income (a) ............................ $ 8,254 $12,063 $13,538 $14,262
Income before allocation to minority interests .. $ 3,456 $ 5,647 $ 6,278 $ 6,572
Net income ...................................... $ 2,937 $ 4,631 $ 5,012 $ 5,230
Weighted average common shares outstanding ...... 10,013 14,489 15,092 15,337
Earnings per common share ....................... $ .29 $ .32 $ .33 $ .34
(a) Operating income is defined as total revenues less property operating and
maintenance expense, real estate tax expense, and general and
administrative expenses. Operating income is a measure of the performance
of the operations of the properties before the effects of depreciation,
amortization and interest expense. Operating income is not necessarily an
indication of the performance of the Company or a measure of liquidity.
(b) Net income and earnings per share are presented before an extraordinary
item arising from debt extinguishment of which $6,106 or $.42 per
share is attributable to common stockholders.
F-14
33
SUN COMMUNITIES, INC. SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
INITIAL COST
TO COMPANY
------------------------
BUILDING
AND
PROPERTY NAME LOCATION ENCUMBRANCE LAND FIXTURES
- ------------------------- ----------------- ------------- ------- --------
Allendale Allendale, MI - $ 393 $ 3,684
Alpine Grand Rapids, MI - 729 6,692
Arbor Terrace Bradenton, FL - 481 4,410
Ariana Village Lakeland, FL - 240 2,195
Autumn Ridge Ankeny, IO - 890 8,054
Bedford Hills Battle Creek, MI - (1) 1,265 11,562
Bonita Lake Bonita Springs, FL - 285 2,641
Boulder Creek Pflugerville, TX - 1,000 500
Branch Creek Austin, TX - 796 3,716
Breezy Hill Pompano Beach, FL - 1,778 16,085
Brentwood Kentwood, MI - 385 3,592
Brookside Village Goshen, IN - 260 1,080
Byron Center Byron Center, MI - 257 2,402
Candlelight Village Chicago Heights, IL - 600 5,623
Candlewick Court Owosso, MI - 125 1,900
Carrington Pointe Ft. Wayne, IN - 1,076 3,632
Casa Del Valle Alamo, TX - 246 2,316
Catalina Middletown, OH - 653 5,858
Chain O'Lakes Grand Island, FL - 551 5,003
Chisholm Point Pflugerville, TX - 609 5,286
Clearwater Village South Bend, IN - 80 1,270
Cobus Green Elkhart, IN - 762 7,037
College Park Estates Canton, MI - 75 800
Continental Estates Davison, MI - 1,625 16,581
Country Acres Cadillac, MI - 380 3,495
Country Meadows Flat Rock, MI - 924 7,583
Countryside Village Perry, MI - (1) 275 3,920
Creekwood Meadows Burton, MI - 808 2,043
COST CAPITALIZED
SUBSEQUENT TO
ACQUISITION GROSS AMOUNT
------------------------ CARRIED AT
IMPROVEMENTS DECEMBER 31, 1997
------------------------- --------------------------
BUILDING BUILDING
AND AND
PROPERTY NAME LOCATION LAND FIXTURES LAND FIXTURES
- ------------------------- ----------------- ------------ --------- --------- -----------
Allendale Allendale, MI - $ 1,154 $ 393 $ 4,838
Alpine Grand Rapids, MI - 517 729 7,209
Arbor Terrace Bradenton, FL - 46 481 4,456
Ariana Village Lakeland, FL - 222 240 2,417
Autumn Ridge Ankeny, IO - 142 890 8,196
Bedford Hills Battle Creek, MI - 116 1,265 11,678
Bonita Lake Bonita Springs, FL - 37 285 2,678
Boulder Creek Pflugerville, TX $ 493 1,564 1,493 2,064
Branch Creek Austin, TX - 3,837 796 7,553
Breezy Hill Pompano Beach, FL - 53 1,778 16,138
Brentwood Kentwood, MI - 64 385 3,656
Brookside Village Goshen, IN 386 3,919 646 4,999
Byron Center Byron Center, MI - 63 257 2,465
Candlelight Village Chicago Heights, IL - 120 600 5,743
Candlewick Court Owosso, MI 132 769 257 2,669
Carrington Pointe Ft. Wayne, IN - - 1,076 3,632
Casa Del Valle Alamo, TX - - 246 2,316
Catalina Middletown, OH - 207 653 6,065
Chain O'Lakes Grand Island, FL - 55 551 5,058
Chisholm Point Pflugerville, TX - 1,206 609 6,492
Clearwater Village South Bend, IN 61 1,119 141 2,389
Cobus Green Elkhart, IN - 279 762 7,316
College Park Estates Canton, MI 174 4,309 249 5,109
Continental Estates Davison, MI 150 63 1,775 16,644
Country Acres Cadillac, MI - 46 380 3,541
Country Meadows Flat Rock, MI 296 7,409 1,220 14,992
Countryside Village Perry, MI 185 1,411 460 5,331
Creekwood Meadows Burton, MI 404 1,588 1,212 3,631
ACCUMULATED DATE OF
PROPERTY NAME LOCATION TOTAL DEPRECIATION ACQUISITION
- ------------------------- ----------------- --------- ------------ ------------
Allendale Allendale, MI $ 5,231 $ 222 1996
Alpine Grand Rapids, MI 7,938 360 1996
Arbor Terrace Bradenton, FL 4,937 233 1996
Ariana Village Lakeland, FL 2,657 287 1994
Autumn Ridge Ankeny, IO 9,086 415 1996
Bedford Hills Battle Creek, MI 12,943 599 1996
Bonita Lake Bonita Springs, FL 2,963 138 1996
Boulder Creek Pflugerville, TX 3,557 36 1996
Branch Creek Austin, TX 8,349 339 1995
Breezy Hill Pompano Beach, FL 17,916 840 1996
Brentwood Kentwood, MI 4,041 192 1996
Brookside Village Goshen, IN 5,645 547 1985
Byron Center Byron Center, MI 2,722 132 1996
Candlelight Village Chicago Heights, IL 6,343 298 1996
Candlewick Court Owosso, MI 2,926 363 1985
Carrington Pointe Ft. Wayne, IN 4,708 64 1997
Casa Del Valle Alamo, TX 2,562 42 1997
Catalina Middletown, OH 6,718 856 1993
Chain O'Lakes Grand Island, FL 5,609 319 1996
Chisholm Point Pflugerville, TX 7,101 460 1995
Clearwater Village South Bend, IN 2,530 253 1986
Cobus Green Elkhart, IN 8,078 999 1993
College Park Estates Canton, MI 5,358 591 1978
Continental Estates Davison, MI 18,419 840 1996
Country Acres Cadillac, MI 3,921 183 1996
Country Meadows Flat Rock, MI 16,212 1,243 1994
Countryside Village Perry, MI 5,791 664 1987
Creekwood Meadows Burton, MI 4,843 52 1996
F-14
34
SUN COMMUNITIES, INC. SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION, CONTINUED
(AMOUNTS IN THOUSANDS)
INITIAL COST
TO COMPANY
----------------------------------
BUILDING
AND
PROPERTY NAME LOCATION ENCUMBRANCE LAND FIXTURES
- ------------------------- ----------------- ------------- ----------- ------------------
Cutler Estates Grand Rapids, MI - (1) 822 7,604
Douglas Estates Austell, GA - 508 2,125
Edwardsville Edwardsville, KS - (1) 425 8,805
Elmwood Holly Hill, FL - 230 2,076
Fisherman's Cove Flint, MI - 380 3,438
Flagview Village Douglasville, GA - 508 2,125
Goldcoaster Homestead, FL - 446 4,234
Golden Lakes Plant City, FL - 1,092 7,161
Grand Grand Rapids, MI - 578 5,396
Groves Ft. Myers, FL - 249 2,396
Hamlin Webberville, MI - 125 1,675
Holly Forest Holly Hill, FL - 920 8,376
Holiday Village Elkhart, IN - 100 3,207
Indian Creek Ft. Myers Beach, FL - 3,832 34,660
Island Lake Merritt Island, FL - 700 6,431
Kensington Meadows Lansing, MI - 250 2,699
King's Court Traverse City, MI - 1,473 13,782
King's Lake Debary, FL - 280 2,542
King's Pointe Winter Haven, FL - 262 2,359
Kissimmee Gardens Kissimmee, FL - 594 5,522
Lake Juliana Auburndale, FL - 335 2,848
Lake San Marino Naples, FL - 650 5,760
Leesburg Landing Leesburg, FL - 50 429
Liberty Farms Valparaiso, IN - 66 1,201
Lincoln Estates Holland, MI - 455 4,201
Maple Grove Estates Dorr, MI - 15 210
Maplewood Lawrence, IN - 280 2,122
Meadow Lake Estates White Lake, MI - 1,188 11,498
Meadowbrook Indianapolis, IN - 927 3,833
Meadowbrook Estates Monroe, MI - 431 3,320
Meadowbrook Village Tampa, FL - 519 4,728
COST CAPITALIZED
SUBSEQUENT TO
ACQUISITION GROSS AMOUNT
----------------------- CARRIED AT
IMPROVEMENTS DECEMBER 31, 1997
----------------------- -------------------------
BUILDING BUILDING
AND AND
PROPERTY NAME LOCATION LAND FIXTURES LAND FIXTURES
- ------------------------- ----------------- --------- ---------- ----------- ----------
Cutler Estates Grand Rapids, MI - 47 822 7,651
Douglas Estates Austell, GA - 521 508 2,646
Edwardsville Edwardsville, KS 541 1,350 966 10,155
Elmwood Holly Hill, FL - - 230 2,076
Fisherman's Cove Flint, MI - 313 380 3,751
Flagview Village Douglasville, GA - 391 508 2,516
Goldcoaster Homestead, FL - - 446 4,234
Golden Lakes Plant City, FL 1 393 1,093 7,554
Grand Grand Rapids, MI - 49 578 5,445
Groves Ft. Myers, FL - - 249 2,396
Hamlin Webberville, MI 77 638 202 2,313
Holly Forest Holly Hill, FL - - 920 8,376
Holiday Village Elkhart, IN 143 819 243 4,026
Indian Creek Ft. Myers Beach, FL - 119 3,832 34,779
Island Lake Merritt Island, FL - 61 700 6,492
Kensington Meadows Lansing, MI - 1,612 250 4,311
King's Court Traverse City, MI - 220 1,473 14,002
King's Lake Debary, FL - 870 280 3,412
King's Pointe Winter Haven, FL - 142 262 2,501
Kissimmee Gardens Kissimmee, FL - 147 594 5,669
Lake Juliana Auburndale, FL - 247 335 3,095
Lake San Marino Naples, FL - 41 650 5,801
Leesburg Landing Leesburg, FL - 70 50 499
Liberty Farms Valparaiso, IN 116 1,606 182 2,807
Lincoln Estates Holland, MI - 82 455 4,283
Maple Grove Estates Dorr, MI 19 222 34 432
Maplewood Lawrence, IN - 484 280 2,606
Meadow Lake Estates White Lake, MI 127 1,146 1,315 12,644
Meadowbrook Indianapolis, IN 350 2,164 1,277 5,997
Meadowbrook Estates Monroe, MI 379 5,370 810 8,690
Meadowbrook Village Tampa, FL - 130 519 4,858
ACCUMULATED DATE OF
PROPERTY NAME LOCATION TOTAL DEPRECIATION ACQUISITION
- ------------------------- ----------------- ----------- -------------- -------------
Cutler Estates Grand Rapids, MI 8,473 395 1996
Douglas Estates Austell, GA 3,154 331 1988
Edwardsville Edwardsville, KS 11,121 1,342 1987
Elmwood Holly Hill, FL 2,306 35 1997
Fisherman's Cove Flint, MI 4,131 501 1993
Flagview Village Douglasville, GA 3,024 330 1988
Goldcoaster Homestead, FL 4,680 77 1997
Golden Lakes Plant City, FL 8,647 1,044 1993
Grand Grand Rapids, MI 6,023 284 1996
Groves Ft. Myers, FL 2,645 96 1997
Hamlin Webberville, MI 2,515 303 1984
Holly Forest Holly Hill, FL 9,296 142 1997
Holiday Village Elkhart, IN 4,269 564 1986
Indian Creek Ft. Myers Beach, FL 38,611 1,813 1996
Island Lake Merritt Island, FL 7,192 542 1995
Kensington Meadows Lansing, MI 4,561 270 1995
King's Court Traverse City, MI 15,475 712 1996
King's Lake Debary, FL 3,692 355 1994
King's Pointe Winter Haven, FL 2,763 300 1994
Kissimmee Gardens Kissimmee, FL 6,263 821 1993
Lake Juliana Auburndale, FL 3,430 373 1994
Lake San Marino Naples, FL 6,451 303 1996
Leesburg Landing Leesburg, FL 549 25 1996
Liberty Farms Valparaiso, IN 2,989 341 1985
Lincoln Estates Holland, MI 4,738 221 1996
Maple Grove Estates Dorr, MI 466 61 1979
Maplewood Lawrence, IN 2,886 351 1989
Meadow Lake Estates White Lake, MI 13,959 1,493 1994
Meadowbrook Indianapolis, IN 7,274 660 1989
Meadowbrook Estates Monroe, MI 9,500 1,181 1986
Meadowbrook Village Tampa, FL 5,377 654 1994
F-15
35
SCHEDULE III
SUN COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION, CONTINUED
(AMOUNTS IN THOUSANDS)
INITIAL COST
TO COMPANY
---------------------------------
BUILDING
AND
PROPERTY NAME LOCATION ENCUMBRANCE LAND FIXTURES
- ------------------------- ----------------- ------------- ---------- ------------------
Meadows Nappanee, IN - 300 2,300
Meadowstream Village Sodus, MI - 100 1,175
Orange Tree Orange City, FL - 283 2,530
Paradise Chicago Heights, IL - 723 6,638
Parkwood Grand Blanc, MI - 477 4,279
Pin Oak Parc St. Louis, MO - 1,038 3,250
Pine Hills Middlebury, IN - 72 544
Pine Ridge Petersburg, VA - 405 2,397
Plantation Manor Ft. Pierce, FL - 950 8,891
Pleasure Cove Ft. Pierce, FL - 550 5,005
Presidential Hudsonville, MI - 680 6,314
Royal Country Miami, FL - (1) 2,290 20,758
Saddle Oak Club Ocala, FL - 730 6,743
Scio Farms Ann Arbor, MI - 2,300 22,659
Sherman Oaks Jackson, MI - (1) 200 2,400
Siesta Bay Ft. Myers Beach, FL - 2,051 18,549
Silver Star Orlando, FL - 1,067 9,685
Southfork Belton, MO - 1,000 9,011
Snow to Sun Weslaco, TX - 190 2,143
Tallowwood Coconut Creek, FL - 510 5,099
Timber Ridge Ft. Collins, CO - 990 9,231
Timberbrook Bristol, IN - (1) 490 3,400
Timberline Estates Grand Rapids, MI - 536 4,867
Town and Country Traverse City, MI - 406 3,736
Valley Mills Indianapolis, IN - 150 3,500
Water Oak Country Club Est. Lady Lake, FL - 2,503 17,478
West Glen Village Indianapolis, IN - 1,100 10,028
Whispering Palm Sebastian, FL - 975 8,754
White Lake White Lake, MI - 673 6,179
COST CAPITALIZED
SUBSEQUENT TO
ACQUISITION GROSS AMOUNT
------------------------------- CARRIED AT
IMPROVEMENTS DECEMBER 31, 1997
------------------------------- ------------------------------
BUILDING BUILDING
AND AND
PROPERTY NAME LOCATION LAND FIXTURES LAND FIXTURES
- ------------------------- ----------------- ----------------- --------- --------- -----------
Meadows Nappanee, IN -1 1,732 299 4,032
Meadowstream Village Sodus, MI 109 1,044 209 2,219
Orange Tree Orange City, FL 15 235 298 2,765
Paradise Chicago Heights, IL - 41 723 6,679
Parkwood Grand Blanc, MI - 338 477 4,617
Pin Oak Parc St. Louis, MO 44 1,423 1,082 4,673
Pine Hills Middlebury, IN 52 1,348 124 1,892
Pine Ridge Petersburg, VA - 889 405 3,286
Plantation Manor Ft. Pierce, FL - 68 950 8,959
Pleasure Cove Ft. Pierce, FL - - 550 5,005
Presidential Hudsonville, MI - 535 680 6,849
Royal Country Miami, FL - 275 2,290 21,033
Saddle Oak Club Ocala, FL - 196 730 6,939
Scio Farms Ann Arbor, MI - 2,178 2,300 24,837
Sherman Oaks Jackson, MI 240 2,974 440 5,374
Siesta Bay Ft. Myers Beach, FL - 72 2,051 18,621
Silver Star Orlando, FL - 57 1,067 9,742
Southfork Belton, MO - - 1,000 9,011
Snow to Sun Weslaco, TX - - 190 2,143
Tallowwood Coconut Creek, FL - 437 510 5,536
Timber Ridge Ft. Collins, CO - 148 990 9,379
Timberbrook Bristol, IN 101 4,151 591 7,551
Timberline Estates Grand Rapids, MI - 252 536 5,119
Town and Country Traverse City, MI - 38 406 3,774
Valley Mills Indianapolis, IN - 533 150 4,033
Water Oak Country Club Est. Lady Lake, FL - 1,364 2,503 18,842
West Glen Village Indianapolis, IN - 385 1,100 10,413
Whispering Palm Sebastian, FL - 26 975 8,780
White Lake White Lake, MI - - 673 6,179
ACCUMULATED DATE OF
PROPERTY NAME LOCATION TOTAL DEPRECIATION ACQUISITION
- ------------------------- ----------------- ---------- ------------ ------------
Meadows Nappanee, IN 4,331 512 1987
Meadowstream Village Sodus, MI 2,428 319 1984
Orange Tree Orange City, FL 3,063 321 1994
Paradise Chicago Heights, IL 7,402 347 1996
Parkwood Grand Blanc, MI 5,094 619 1993
Pin Oak Parc St. Louis, MO 5,755 467 1994
Pine Hills Middlebury, IN 2,016 255 1980
Pine Ridge Petersburg, VA 3,691 441 1986
Plantation Manor Ft. Pierce, FL 9,909 1,073 1994
Pleasure Cove Ft. Pierce, FL 5,555 606 1994
Presidential Hudsonville, MI 7,529 339 1996
Royal Country Miami, FL 23,323 2,839 1994
Saddle Oak Club Ocala, FL 7,669 732 1995
Scio Farms Ann Arbor, MI 27,137 1,993 1995
Sherman Oaks Jackson, MI 5,814 730 1986
Siesta Bay Ft. Myers Beach, FL 20,672 970 1996
Silver Star Orlando, FL 10,809 508 1996
Southfork Belton, MO 10,011 - 1997
Snow to Sun Weslaco, TX 2,333 40 1997
Tallowwood Coconut Creek, FL 6,046 647 1994
Timber Ridge Ft. Collins, CO 10,369 484 1996
Timberbrook Bristol, IN 8,142 891 1987
Timberline Estates Grand Rapids, MI 5,655 618 1994
Town and Country Traverse City, MI 4,180 195 1996
Valley Mills Indianapolis, IN 4,183 548 1989
Water Oak Country Club Est. Lady Lake, FL 21,345 2,606 1993
West Glen Village Indianapolis, IN 11,513 1,224 1994
Whispering Palm Sebastian, FL 9,755 456 1996
White Lake White Lake, MI 6,852 104 1997
F-16
36
SCHEDULE III
SUN COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION, CONTINUED
(AMOUNTS IN THOUSANDS)
INITIAL COST
TO COMPANY
---------------------------------
BUILDING
AND
PROPERTY NAME LOCATION ENCUMBRANCE LAND FIXTURES
- ------------------------- ----------------- ------------- --------------- -------------
White Oak Mt. Morris, MI - 782 7,245
Willowbrook Toledo, OH - 781 7,054
Woods Edge West Lafayette, IN - 100 2,600
Woodside Terrace Holland, OH - 1,064 9,625
Worthington Arms Delaware, OH - 376 2,624
Corporate Headquarters Farmington Hills, MI - - -
Property Under Development - - 190
--------- ----------
$ 63,080 $ 542,604
========= ==========
COST CAPITALIZED
SUBSEQUENT TO
ACQUISITION GROSS AMOUNT
--------------------------- CARRIED AT
IMPROVEMENTS DECEMBER 31, 1997
--------------------------- ---------------------------
BUILDING BUILDING
AND AND
PROPERTY NAME LOCATION LAND FIXTURES LAND FIXTURES
- ------------------------- ----------------- -------------- --------- --------- -----------
White Oak Mt. Morris, MI - - 782 7,245
Willowbrook Toledo, OH - - 781 7,054
Woods Edge West Lafayette, IN 3 1,581 103 4,181
Woodside Terrace Holland, OH - - 1,064 9,625
Worthington Arms Delaware, OH - 800 376 3,424
Corporate Headquarters Farmington Hills, MI - 1,851 - 1,851
Property Under Development - - - 190
------- --------- --------- -----------
$ 4,597 $ 74,540 $ 67,677 $ 617,144
======= ========= ========= ===========
ACCUMULATED DATE OF
PROPERTY NAME LOCATION TOTAL DEPRECIATION ACQUISITION
- ------------------------- ----------------- ----------- ------------ -----------
White Oak Mt. Morris, MI 8,027 124 1997
Willowbrook Toledo, OH 7,835 - 1997
Woods Edge West Lafayette, IN 4,284 512 1985
Woodside Terrace Holland, OH 10,689 162 1997
Worthington Arms Delaware, OH 3,800 467 1990
Corporate Headquarters Farmington Hills, MI 1,851 448 Various
Property Under Development 190 - 1997
--------- -----------
$ 684,821 $ 50,084
========= ===========
(1) These communities collateralize $45 million of secured debt.
F-17
37
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 20, 1998
SUN COMMUNITIES, INC.
By /s/ Gary A. Shiffman
------------------------------
Gary A. Shiffman, President
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
- ---- ----- ----
/s/ Milton M. Shiffman
- -----------------------
Milton M. Shiffman Chairman of the Board of Directors March 20, 1998
/s/ Gary A. Shiffman Chief Executive Officer, President and
- ----------------------- Director March 20, 1998
Gary A. Shiffman
Senior Vice President,
Chief Financial Officer, Treasurer,
/s/ Jeffrey P. Jorissen Secretary
- ----------------------- and Principal Accounting Officer March 20, 1998
Jeffrey P. Jorissen
/s/ Paul D. Lapides
- ----------------------- Director March 20, 1998
Paul D. Lapides
/s/ Ted J. Simon
- ----------------------- Director March 20, 1998
Ted J. Simon
/s/ Clunet R. Lewis
- ----------------------- Director March 20, 1998
Clunet R. Lewis
38
NAME TITLE DATE
- ---- ----- ----
- -----------------------
Ronald L. Piasecki Director March , 1998
--
/s/ Arthur A. Weiss
- ----------------------- Director March 20, 1998
Arthur A. Weiss
39
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ------------
2.1 Form of Common Stock Certificate (1)
2.2 Agreement of Sale pertaining to White Oak Estates
2.3 Agreement of Sale pertaining to Southfork
2.4 Agreement of Sale pertaining to Holly Forest Estates and Elmwood
Mobile Home Park
3.1 Amended and Restated Articles of Incorporation of Sun Communities, Inc. (1)
3.2 Bylaws of Sun Communities, Inc. (3)
4.1 Indenture, dated as of April 24, 1996, among the Operating (4)
Partnership, the Company and Bankers Trust Company, as Trustee
4.2 Form of Note for the 2001 Notes (4)
4.3 Form of Note for the 2003 Notes (4)
4.4 First Supplemental Indenture, dated as of August 20, 1997, by and
between the Operating Partnership and Bankers Trust Company, as
Trustee
4.5 Form of Medium-Term Note (Floating Rate)
4.6 Form of Medium-Term Note (Fixed Rate)
10.1 Second Amended and Restated Agreement of Limited Partnership of Sun (8)
Communities Operating Limited Partnership
10.2 Amended and Restated 1993 Stock Option Plan# (8)
10.3 Amended and Restated 1993 Non-Employee Director Stock Option Plan# (8)
10.4 Form of Stock Option Agreement between the Company and certain (1)
directors, officers and other individuals#
10.5 Form of Non-Employee Director Stock Option Agreement between the (5)
Company and certain directors#
10.6 Employment Agreement between the Company and Gary A. Shiffman# (8)
10.7 Agreement regarding termination of Robert B. Bayer's Employment (6)
Agreement#
10.8 Registration Rights and Lock-Up Agreement with the Company (5)
10.9 Senior Unsecured Line of Credit Agreement with Lehman Brothers
Holdings Inc.
10.10 Amended and Restated Loan Agreement between Sun Communities Funding
Limited Partnership and Lehman Brothers Holdings Inc.
10.11 Amended and Restated Loan Agreement among Miami Lakes Venture
Associates, Sun Communities Funding Limited Partnership and Lehman
Brothers Holdings Inc.
40
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ------------
10.12 Form of Indemnification Agreement between each officer and director of
the Company and the Company
10.13 Loan Agreement among the Operating Partnership, Sea Breeze Limited
Partnership and High Point Associates, LP.
10.14 Option Agreement by and between the Operating Partnership and Sea
Breeze Limited Partnership
10.15 Option Agreement by and between the Operating Partnership and High
Point Associates, LP
10.16 Purchase Agreement with respect to Mortgage Debt (1)
10.17 Credit Agreement between Fort McMurray Housing Inc. and Sun (3)
Communities Alberta Limited Partnership
10.18 First Amending Agreement to Credit Agreement between Fort McMurray (3)
Housing Inc. and Sun Communities Alberta Limited Partnership
10.19 Demand Note Agreement from Sun Communities Operating Limited (3)
Partnership to NBD Bank, Canada
10.20 Fee and Commission Agreement between Sun Communities Operating Limited (3)
Partnership and Fort McMurray Housing Inc.
10.21 $1,022,538.12 Promissory Note from Gary A. Shiffman to the Company (7)
10.22 $1,022,538.13 Promissory Note from Gary A. Shiffman to the Company (7)
10.23 $6,604,923.75 Promissory Note from Gary A. Shiffman to the Company (7)
10.24 Stock Pledge Agreement between Gary A. Shiffman and the Company for (7)
94,570 shares of Common Stock
10.25 Stock Pledge Agreement between Gary A. Shiffman and the Company for (7)
305,430 shares of Common Stock
10.26 $ 1,300,195.40 Promissory Note from Gary A. Shiffman to the Operating
Partnership
10.27 $ 1,300,195.40 Promissory Note from Gary A. Shiffman to the Operating
Partnership
10.28 Stock Pledge Agreement between Gary A. Shiffman and the Operating
Partnership with respect to 80,000 shares of Common Stock
10.29 Registration Rights Agreement between Gary A. Shiffman and the Company (3)
10.30 Registration Rights and Lock Up Agreement among the Company and the (3)
partners of Miami Lakes Venture Associates, as amended
10.31 Registration Rights and Lock Up Agreement among the Company and the (3)
partners of Scio Farms Estates Limited Partnership
10.32 Registration Rights and Lock Up Agreement among the Company and the (3)
partners of Kensington Meadows Associates
41
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ------------
10.33 Registration Rights and Lock Up Agreement among the Company and (8)
certain affiliates of Aspen Enterprises, Ltd. (Preferred OP Units)
10.34 Registration Rights and Lock Up Agreement among the Company and (8)
certain affiliates of Aspen Enterprises, Ltd. (Common OP Units)
10.35 Registration Rights Agreement among the Company and the partners of (8)
S&K Smith Co.
10.36 Employment Agreement between the Company and Jeffrey P. Jorissen# (8)
10.37 Long Term Incentive Plan
12.1 Computation of Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges and Preferred Dividends
21 List of Subsidiaries
23 Consent of Coopers & Lybrand L.L.P., independent accountants
27 Financial Data Schedule
- ---------------
(1) Incorporated by reference to the Company's Registration Statement No.
33-69340.
(2) Incorporated by reference to the Company's Current Report on Form 8-K
dated March 20, 1996.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
(4) Incorporated by reference to the Company's Current Report on Form 8-K
dated April 24, 1996.
(5) Incorporated by reference to the Company's Registration Statement No.
33-80972.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
(7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995.
(8) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
# Management contract or compensatory plan or arrangement required to be
identified by Form 10-K Item 14.