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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998.
OR
/ / Transition pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
COMMISSION FILE NUMBER 333-2522-01
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in its Charter)
Michigan 38-3144240
(State of Incorporation) (I.R.S. Employer Identification No.)
31700 Middlebelt Road 48334
Suite 145 (Zip Code)
Farmington Hills, Michigan
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (248) 932-3100
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Page 1 of 14
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SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
INDEX
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PAGES
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PART I
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997 3
Consolidated Statements of Income for the Periods
Ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-12
PART II
Item 5. Ratios of Earnings to Fixed Charges 13
Item 6.(a) Exhibits required by Item 601 of Regulation S-K 13
Item 6.(b) Reports on Form 8-K 13
Signatures 14
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SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(IN THOUSANDS)
1998 1997
---------- ----------
ASSETS
Investment in rental property, net $ 695,898 $ 634,737
Cash and cash equivalents 10,792 2,198
Investment in affiliates 21,872 16,559
Mortgage notes receivable 17,893 21,869
Other assets 16,949 18,151
--------- ---------
Total assets $ 763,404 $ 693,514
========= =========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Line of credit $ 54,000 $ 17,000
Debt 272,890 247,264
Accounts payable and accrued expenses 12,285 8,765
Deposits and other liabilities 10,352 8,853
Distributions payable 9,956 --
--------- ---------
Total liabilities 359,483 281,882
--------- ---------
Partners' Capital:
Preferred Operating Partnership Units ("POP Units"),
unlimited authorized, 1,325 issued and outstanding
in 1998 and 1997 35,783 35,783
Operating Partnership Units ("OP Units"), unlimited authorized; 19,040 and
18,946 issued and outstanding in 1998 and 1997, respectively
General partner 321,136 329,380
Limited partners 47,002 46,469
--------- ---------
Total partners' capital 403,921 411,632
--------- ---------
Total liabilities and partners' capital $ 763,404 $ 693,514
========= =========
The accompanying notes are an integral part of the financial statements.
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SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997
-------- --------
Revenues:
Income from property $ 28,605 $ 22,987
Other income 1,751 406
-------- --------
Total revenues 30,356 23,393
-------- --------
Expenses:
Property operating and maintenance 6,419 5,147
Real estate taxes 2,167 1,863
General and administrative 1,316 1,078
Depreciation and amortization 5,940 4,821
Interest 5,578 3,445
-------- --------
Total expenses 21,420 16,354
-------- --------
Net Income 8,936 7,039
Less distribution to Preferred OP Units 626 626
-------- --------
Earnings attributable to OP Units $ 8,310 $ 6,413
======== ========
Net income attributed to:
General Partner $ 7,301 $ 5,568
Limited Partners 1,009 845
-------- --------
$ 8,310 $ 6,413
======== ========
Earnings per OP Unit:
Basic $ 0.44 $ 0.36
======== ========
Diluted $ 0.43 $ 0.35
======== ========
Weighted average OP Units outstanding 19,017 18,005
======== ========
The accompanying notes are an integral part of the financial statements.
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SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(IN THOUSANDS)
1998 1997
-------- --------
Cash flows from operating activities:
Earnings attributable to OP Units $ 8,310 $ 6,413
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization costs 5,940 4,821
Gain related to mortgage notes receivable (937)
Deferred financing costs 137 39
(Increase) decrease in prepaid expenses and other assets 748 (669)
Increase in accounts payable and other liabilities 5,019 4,171
-------- --------
Net cash provided by operating activities 19,217 14,775
-------- --------
Cash flows from investing activities:
Investment in rental properties (39,135) (9,277)
Investment in affiliates (5,313) (4,489)
Proceeds related to mortgage notes receivable 4,913 --
-------- --------
Net cash used in investing activities (39,535) (13,766)
-------- --------
Cash flows from financing activities:
Distributions (8,278) (7,886)
Proceeds from borrowings 37,000 --
Repayments on borrowings (246) --
Payments for deferred financing costs (73) (16)
Capital contribution 509 8,209
-------- --------
Net cash provided by financing activities 28,912 307
-------- --------
Net increase in cash and cash equivalents 8,594 1,316
Cash and cash equivalents, beginning of period 2,198 9,236
-------- --------
Cash and cash equivalents, end of period $ 10,792 $ 10,552
======== ========
Supplemental information:
OP units issued for rental properties $ 1,704 --
Debt assumed for rental properties $ 16,393 --
Capitalized lease obligation for rental properties $ 9,479 --
The accompanying notes are an integral part of the financial statements
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SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
These unaudited condensed consolidated financial statements of Sun
Communities Operating Limited Partnership, (the "Company"), have been
prepared pursuant to the Securities and Exchange Commission ("SEC") rules
and regulations and should be read in conjunction with the financial
statements and notes thereto of the Company as of December 31, 1997. The
following notes to consolidated financial statements present interim
disclosures as required by the SEC. The accompanying consolidated financial
statements reflect, in the opinion of management, all adjustments necessary
for a fair presentation of the interim financial statements. All such
adjustments are of a normal and recurring nature. Certain reclassifications
have been made to the prior period financial statements to conform with
current period presentation.
Sun Communities, Inc. ("Sun"), a self-administered and self-managed Real
Estate Investment Trust with no independent operations of its own, is the
sole general partner of the Company. As general partner, Sun has unilateral
control and complete responsibility for management of the Company. Pursuant
to the terms of the Company's partnership agreement, the Company is
required to reimburse Sun for the net expenses incurred by Sun. Amounts
paid on behalf of Sun by the Company are reflected in the statement of
operations as general and administrative expenses. The balance sheet of Sun
as of March 31, 1998 is identical to the accompanying Company balance
sheet, except as follows:
As Presented
Herein Sun Communities, Inc.
March 31, 1998 Adjustments March 31, 1998
-------------- ------------ --------------------
(in thousands)
Notes receivable....................................$ 17,893 $ (2,600) $ 15,293
========= ========== =========
Total assets........................................$ 763,404 $ (2,600) $ 760,804
========= ========== =========
Minority interests.................................. -- $ 82,785 $ 82,785
=========
Preferred OP Units..................................$ 35,783 (35,783)
OP Units:
General partner................................. 321,136 (321,136)
Limited partners................................ 47,002 (47,002)
Common stock........................................ 168 $ 168
Additional paid-in capital.......................... 364,557 364,557
Distributions in excess of
accumulated earnings............................ (34,416) (34,416)
Officers' notes..................................... (11,773) (11,773)
--------- ---------- ---------
Partners' capital/Stockholders'
equity......................................$ 403,921 $ (2,600) $ 318,536
========= ========== =========
Total liabilities and partners'
capital/stockholders' equity....................$ 763,404 $ (2,600) $ 760,804
========= ========== =========
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SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. RENTAL PROPERTY:
The following summarizes rental property (in thousands):
March 31, December 31,
1998 1997
--------- -----------
Land $ 79,662 $ 67,677
Land improvements and buildings 654,272 598,699
Furniture, fixtures, equipment 13,575 12,676
Property under development 4,023 5,769
--------- ---------
751,532 684,821
Accumulated depreciation 55,634 50,084
--------- ---------
Rental property, net $ 695,898 $ 634,737
========= =========
During the first quarter of 1998, the Company acquired eight communities
comprising 1,800 developed sites and 650 sites suitable for development for
approximately $60 million.
3. DEBT:
The following table sets forth certain information regarding debt (in
thousands):
March 31, December 31,
1998 1997
--------- ------------
Collateralized term loan, interest at 7.01%,
due September 9, 2007 $ 44,776 $ 44,889
Senior notes, interest at 7.375%, due May 1, 2001 65,000 65,000
Senior notes, interest at 7.625%, due May 1, 2003 85,000 85,000
Senior notes, interest at 6.97%, due December 3, 2007 35,000 35,000
Collateralized lease obligations, interest ranging
from 6.1% to 6.3%, due March 10, 2001 through
December 1, 2002 26,747 17,375
Mortgage note, interest at 8.24%, due April 1, 2006 7,037 --
Mortgage note, interest at 8.0%, due May 1, 2017 8,351 --
Mortgage note, other 979 --
--------- ---------
$ 272,890 $ 247,264
========= =========
The Company had $21 million available borrowings under its $75 million line
of credit at March 31, 1998. The Company is negotiating an increase to its
line of credit facility to $100 million. In May 1998, the Company will
repay line of credit borrowings using proceeds received from the issuance
of $65 million in senior notes which bear interest at 6.77% and mature
May 14, 2015.
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SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. NOTES RECEIVABLE:
Notes receivable consisted of the following (in thousands):
March 31, December 31,
1998 1997
--------- ------------
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) $ 15,293 $ 15,093
Second mortgage and third shared appreciation mortgage notes with
monthly interest payments at an average rate of 17 percent and
excess interest as defined, collateralized by manufactured
housing communities located in Alberta, Canada -- 4,176
10 year note to an officer of the general partner bearing interest
at LIBOR + 1.75% collateralized by 80,000 shares of Sun
Communities, Inc. Common stock with substantial personal
recourse 2,600 2,600
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$ 17,893 $ 21,869
======== ========
(a) The stated interest rate is 12%. The excess of the interest
rate earned at the stated rate over the pay rate is added to
the principal balance and will also accrue interest at the
stated rate.
5. OTHER INCOME:
The components of other income are as follows for the three months ended
March 31, 1998 and 1997 (in thousands):
1998 1997
------ ------
Interest $ 447 $ 436
Gain from mortgage notes receivable 937 --
Equity earnings - SHS 175 43
Other, principally brokerage commissions 192 --
------ ------
$1,751 $ 479
====== ======
The gain from mortgage notes receivable results from the repayment of the
Company's shared appreciation mortgages on two Canadian communities.
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SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. EARNINGS PER OP UNIT:
March 31,
1998 1997
-------- --------
Earnings used for basic and diluted earnings per
OP unit computation $ 8,310 $ 6,413
======== ========
Total units used for basic earnings per OP unit 19,017 18,005
Dilutive securities:
Sun's stock options 203 160
-------- --------
Total shares used for diluted earnings per OP unit
computation 19,220 18,165
======== ========
Diluted earnings per OP Unit reflect the potential dilution that would
occur if securities were exercised or converted into OP Units. Convertible
POP Units are excluded from the computations as their inclusion would have
an antidilutive effect on earnings per OP Unit in 1998 and 1997.
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SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis of the consolidated financial condition
and results of operations should be read in conjunction with the consolidated
financial statements and the notes thereto. Capitalized terms are used as
defined elsewhere in this Form 10-Q.
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 1998 and 1997
For the three months ended March 31, 1998, net income before distribution to
Preferred OP Units increased by 26.9 percent from $7.0 million to $8.9 million,
when compared to the three months ended March 31, 1997. The increase was due to
increased revenues of $7.0 million while expenses increased by $5.1 million.
Income from property increased by $5.6 million from $23.0 million to $28.6
million or 24.4 percent, due to acquisitions ($4.0 million), lease up of
manufactured home sites ($.5 million) and increases in rents and other community
revenues ($1.1 million).
Other income increased by $1.3 million from $.4 million to $1.7 million. The
three months ended March 31, 1998 include a $.9 million gain from the repayment
of the Company's shared appreciation mortgages on two Canadian communities. $.3
million of the increase in other income relates to the improved results of SHS,
including brokerage commissions.
Property operating and maintenance increased by $1.3 million from $5.1 million
to $6.4 million or 24.7 percent due primarily to acquisitions ($.9 million).
Real estate taxes increased by $.3 million from $1.9 million to $2.2 million or
16.3 percent due primarily to acquisitions ($.2 million).
General and administrative expenses increased by $.2 million from $1.1 million
to $1.3 million or 22.1 percent due primarily to increased staffing to manage
the growth of the company. General and administrative expenses as a percentage
of income from property declined from 4.7 percent to 4.6 percent as a result of
economies of scale resulting from the company's growth.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
increased by $5.1 million from $15.3 million to $20.4 million or 34.4 percent
due primarily to acquisitions.
Depreciation and amortization increased by $1.1 million from $4.8 million to
$5.9 million or 23.2 percent due primarily to acquisitions.
Interest expense increased by $2.1 million from $3.5 million to $5.6 million or
61.9 percent primarily due to increased average debt outstanding.
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SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SAME PROPERTY INFORMATION
The following table reflects property-level financial information as of and for
the three months ended March 31, 1998 and 1997. The "Same Property" data
represents information regarding the operation of communities owned as of
January 1, 1997. 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 mortgage
notes or where the Company is providing financing and managing the properties.
Such amounts relate to the total portfolio data and include 923 and 1,187 sites
in 1998 and 1997, respectively.
SAME PROPERTY TOTAL PORTFOLIO
-------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
Income from property $ 19,123 $ 17,815 $ 28,605 $ 22,987
-------- -------- -------- --------
Property operating expenses:
Property operating and maintenance 3,410 3,268 6,419 5,147
Real estate taxes 1,680 1,561 2,167 1,863
-------- -------- -------- --------
Property operating expenses 5,090 4,829 8,586 7,010
-------- -------- -------- --------
Property EBITDA $ 14,033 $ 12,986 $ 20,019 $ 15,977
======== ======== ======== ========
Number of properties 74 74 104 86
Developed sites 24,798 24,239 36,720 30,700
Occupied sites 23,622 22,921 34,122 28,500
Occupancy % 95.3(1) 94.6(1) 94.3(1) 94.7(1)
Weighted average monthly rent per site $ 262(1) $ 251(1) $ 263(1) $ 254(1)
Sites available for development 2,200 2,667 4,700 3,552
Sites in development 684 579 1,269 849
(1) Occupancy % and weighted average rent relates to manufactured housing sites,
excluding recreational vehicle sites.
On a same property basis, property revenues increased by $1.3 million from $17.8
million to $19.1 million, or 7.3 percent, due primarily to increases in rents
and occupancy related charges including water and property tax pass through.
Also contributing to revenue growth was the increase of 701 leased sites at
March 31, 1998 compared to March 31, 1997.
Property operating expenses increased by $.3 million from $4.8 million to $5.1
million or 5.4 percent, due to increased occupancies and costs and increases in
assessments and millage rates by local taxing authorities. Property EBITDA
increased by $1.0 million from $13.0 million to $14.0 million, or 8.1 percent.
Sites available for development in the total portfolio increased by 1,148 from
3,552 to 4,700 primarily in conjunction with land acquisitions for new
communities to be developed in Michigan, Texas and Nevada.
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SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $8.6 million to $10.8 million at March
31, 1998 compared to $2.2 million at December 31, 1997 primarily because cash
provided by operating and financing activities exceeded cash used in investing
activities.
Net cash provided by operating activities increased by $4.4 million to $19.2
million for the three months ended March 31, 1998 compared to $14.8 million for
the same period in 1997. Net income before depreciation and amortization and
gain related to mortgage notes receivable increased by $2.1 million and the
remaining balance was attributable to changes in working capital.
Net cash used in investing activities increased by $25.7 million to $39.5
million from $13.8 million due to $29.9 million related to acquisition
activities offset by $4.9 million from the collection of mortgage notes
receivable.
Net cash provided by financing activities increased by $28.6 million to $28.9
million for the three months ended March 31, 1998 compared to $.3 million for
the same period in 1997. This increase was due to $37.0 million of additional
debt borrowings offset by a $7.7 million reduction in the proceeds received from
capital contributions.
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 debt securities, or
general or limited partnership interests. 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 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. The Company is negotiating an increase to its line of
credit facility to $100 million.
In May 1998, the Company issued $65 million of senior notes which bear
interest at 6.77% and mature May 14, 2015. Proceeds from this debt issuance
will be used to repay line of credit borrowings.
At March 31, 1998, the Company's debt to total market capitalization
approximated 32% (assuming conversion of all Common and Preferred OP Units to
shares of common stock), with a weighted average maturity of approximately 5.5
years and a weighted average interest rate of 7.2%.
Recurring capital expenditures approximated $1.0 million for the three months
ended March 31, 1998.
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SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
PART II
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ITEM 5. - RATIOS OF EARNINGS TO FIXED CHARGES
The Company's ratios of earnings to fixed charges for the years December 31,
1993, 1994, 1995, 1996, and 1997, and the three months ended March 31, 1998 were
1.05:1, 2.79:1, 3.03:1, 2.49:1, 2.40:1, and 2.28:1, respectively.
ITEM 6.(A) - EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
EXHIBIT NO. DESCRIPTION
----------- -----------
12.1 Ratios of Earnings to Fixed Charges
27 Financial Data Schedule
ITEM 6.(B) - REPORTS ON FORM 8-K
The Company filed a Report on Form 8-K, dated December 31, 1997, with the
Securities and Exchange Commission on January 7, 1998 relating to 1997
acquisitions, as amended by a Report on Form 8-K/A filed on March 16, 1998 to
include financial data for such acquisitions.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 11, 1998
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
BY: Sun Communities, Inc., General Partner
BY: /s/ Jeffrey P. Jorissen
---------------------------------------------------------
Jeffrey P. Jorissen, Chief Financial Officer
and Secretary
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SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
EXHIBIT INDEX
PAGE
FILED NUMBER
EXHIBIT NO. DESCRIPTION HEREWITH HEREIN
- ----------- ----------- -------- ------
12.1 Ratio of Earnings to Fixed Charges X 16
27 Financial Data Schedule X
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