1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly report pursuant to Section 13 of 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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
Suite 145
Farmington Hills, Michigan 48334
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (248) 932-3100
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Page 1 of 15
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SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
INDEX
PAGES
PART I
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997 3
Consolidated Statements of Income for the Periods
Ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 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 10-13
PART II
Item 6.(a) Exhibits required by Item 601 of Regulation S-K 14
Item 6.(b) Reports on Form 8-K 14
Signatures 15
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SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(IN THOUSANDS)
ASSETS 1998 1997
--------------- -------------
Investment in rental property, net $ 708,289 $ 634,737
Cash and cash equivalents 1,896 2,198
Investment in affiliates 30,585 16,559
Mortgage notes receivable 18,146 21,869
Other assets 20,679 18,151
--------------- -------------
Total assets $ 779,595 $ 693,514
=============== =============
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Line of credit $ 5,000 $ 17,000
Debt 338,779 247,264
Accounts payable and accrued expenses 12,425 8,765
Deposits and other liabilities 10,577 8,853
Distributions payable 10,053 -
--------------- -------------
Total liabilities 376,834 281,882
--------------- -------------
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; 19,238 and 18,946 issued and
outstanding in 1998 and 1997, respectively
General partner 325,767 329,380
Limited partners 46,842 46,469
Unearned compensation (5,631) -
--------------- -------------
Total partners' capital 402,761 411,632
--------------- -------------
Total liabilities and partners' capital $ 779,595 $ 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 PERIODS ENDED JUNE 30, 1998 AND 1997
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
---------- ---------- ---------- ---------
Revenues:
Income from property $ 28,281 $ 22,468 $ 56,886 $ 45,455
Other income 1,543 765 3,294 1,171
----------- ----------- ----------- ----------
Total revenues 29,824 23,233 60,180 46,626
----------- ----------- ----------- ----------
Expenses:
Property operating and maintenance 6,132 5,050 12,551 10,197
Real estate taxes 2,213 1,877 4,380 3,740
General and administrative 1,393 1,118 2,709 2,196
Depreciation and amortization 6,066 4,956 12,006 9,777
Interest 6,052 3,354 11,630 6,799
----------- ----------- ----------- ----------
Total expenses 21,856 16,355 43,276 32,709
----------- ----------- ----------- ----------
Net Income 7,968 6,878 16,904 13,917
Less distribution to Preferred OP Units 626 626 1,252 1,252
----------- ----------- ----------- ----------
Earnings attributable to OP Units $ 7,342 $ 6,252 $ 15,652 $ 12,665
=========== =========== =========== ==========
Net income attributed to:
General Partner $ 6,503 $ 5,447 $ 13,804 $ 11,015
Limited Partners 839 805 1,848 1,650
----------- ----------- ----------- ----------
$ 7,342 $ 6,252 $ 15,652 $ 12,665
=========== =========== =========== ==========
Earnings per OP Unit:
Basic $ 0.38 $ 0.34 $ 0.82 $ 0.70
=========== =========== =========== ==========
Diluted $ 0.38 $ 0.34 $ 0.81 $ 0.69
=========== =========== =========== ==========
Weighted average OP Units outstanding - basic 19,051 18,282 19,034 18,144
=========== =========== =========== ==========
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 SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(IN THOUSANDS)
1998 1997
------------- --------------
Cash flows from operating activities:
Earnings attributable to OP Units $ 15,652 $ 12,665
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization costs 12,006 9,777
Gain related to mortgage notes receivable (937) -
Deferred financing costs 300 77
Increase in other assets (918) (2,402)
Increase in accounts payable and other liabilities 6,010 1,670
------------- ------------
Net cash provided by operating activities 32,113 21,787
------------- ------------
Cash flows from investing activities:
Investment in rental properties (56,032) (19,318)
Investment in affiliates (14,026) (7,869)
Proceeds related to notes receivable 4,807 (2,600)
------------- ------------
Net cash used in investing activities (65,251) (29,787)
------------- ------------
Cash flows from financing activities:
Distributions (18,233) (16,376)
Proceeds from borrowings 65,000 -
Repayments on borrowings (12,477) -
Payments for deferred financing costs (2,740) (51)
Capital contribution 1,286 16,546
------------- ------------
Net cash provided by financing activities 32,836 119
------------- ------------
Net decrease in cash and cash equivalents (302) (7,881)
Cash and cash equivalents, beginning of period 2,198 9,236
------------- ------------
Cash and cash equivalents, end of period $ 1,896 $ 1,355
============= ============
Supplemental information:
OP units issued for rental properties $ 1,704 -
Debt assumed for rental properties $ 19,217 -
Capitalized lease obligation for rental properties $ 9,479 -
OP units issued as unearned compensation $ 5,631 -
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 June 30, 1998 is
identical to the accompanying Company balance sheet, except as follows:
As Presented
Herein Sun Communities, Inc.
June 30, 1998 Adjustments June 30, 1998
------------- ------------ -------------
(in thousands)
Notes receivable...................... $ 18,146 $ (2,600) $ 15,546
============= ============ ==============
Total assets.......................... $ 779,595 $ (2,600) $ 776,995
============= ============ ==============
Minority interests.................... - $ 82,625 $ 82,625
==============
Preferred OP Units.................... $ 35,783 (35,783)
OP Units:
General partner................... 325,767 (325,767)
Limited partners.................. 46,842 (46,842)
Common stock.......................... 171 $ 171
Additional paid-in capital............ 370,895 370,895
Officers' notes....................... (11,626) (11,626)
Unearned compensation................. (5,631) (5,631)
Distributions in excess of
accumulated earnings.............. (36,273) (36,273)
------------- ------------ --------------
Partners' capital/Stockholders'...
equity........................ $ 402,761 $ (2,600) $ 317,536
============= ============ ==============
Total liabilities and partners'
capital/stockholders' equity...... $ 779,595 $ (2,600) $ 776,995
============= ============ ==============
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SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. RENTAL PROPERTY:
The following summarizes rental property (in thousands):
June 30, December 31,
1998 1997
------------- ---------------
Land $ 88,585 $ 67,677
Land improvements and buildings 661,866 598,699
Furniture, fixtures, equipment 14,198 12,676
Property under development 4,900 5,769
------------- ---------------
769,549 684,821
Accumulated depreciation 61,260 50,084
------------- ---------------
Rental property, net $ 708,289 $ 634,737
============= ===============
Through June 30, 1998, acquisitions have totaled approximately $68.4
million including eight communities and four land parcels comprising
approximately 1,800 developed sites and 2,500 sites suitable for
development.
3. NOTES RECEIVABLE:
Notes receivable consisted of the following (in thousands):
June 30, December 31,
1998 1997
----------- --------------
Mortgage notes receivable with minimum monthly
interest payments at 7%, maturing June 30,
2012, collateralized by communities located in
Dover, DE(a) $ 15,546 $ 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 - 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
----------- ------------
$ 18,146 $ 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.
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SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. DEBT:
The following table sets forth certain information regarding debt (in
thousands):
June 30, December 31,
1998 1997
------------ --------------
Collateralized term loan, interest at 7.01%,
due September 9, 2007 $ 44,661 $ 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
Callable/redeemable notes, interest at 6.77%, due
May 14, 2015, callable/redeemable May 16, 2005 65,000 -
Collateralized lease obligations, interest ranging
from 6.1% to 6.3%, due March 10, 2001 through
December 1, 2002 26,680 17,375
Mortgage note, interest at 8.24%, due April 1, 2006 7,020 -
Mortgage note, interest at 8.0%, due May 1, 2017 8,305 -
Mortgage note, other 2,113 -
------------- ---------------
$ 338,779 $ 247,264
============= ===============
The Company had $95 million available to borrow under its line of credit
at June 30, 1998. In May 1998, the Company increased its line of credit
facility from $75 million to $100 million.
5. OTHER INCOME:
The components of other income are as follows for the periods ended June
30, 1998 and 1997 (in thousands):
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
------- ------- ------- -------
Interest $ 785 $ 426 $ 1,250 $ 789
Gain from mortgage notes receivable - - 937 -
Equity earnings - Sun Home Services, Inc. 520 339 695 382
Other, principally brokerage commissions 238 - 412 -
--------- --------- --------- ---------
$ 1,543 $ 765 $ 3,294 $ 1,171
========= ========= ========= =========
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:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
--------- --------- --------- ---------
Earnings used for basic and diluted earnings per
OP unit computation $ 7,342 $ 6,252 $ 15,652 $ 12,665
========= ========= ========== ========
Total units used for basic earnings per OP unit 19,051 18,282 19,034 18,144
Dilutive securities, principally stock options 171 163 182 159
--------- --------- ---------- --------
Total shares used for diluted earnings per OP unit
computation 19,222 18,445 19,216 18,303
========= ========= ========= =========
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 six months ended June 30, 1998 and 1997
For the six months ended June 30, 1998, net income before distribution to
Preferred OP Units increased by 21.5 percent from $13.9 million to $16.9
million, when compared to the six months ended June 30, 1997. The increase was
due to increased revenues of $13.6 million while expenses increased by $10.6
million.
Income from property increased by $11.4 million from $45.5 million to $56.9
million or 25.1 percent, due to acquisitions ($8.3 million), lease up of
manufactured home sites ($1.0 million) and increases in rents and other
community revenues ($2.1 million).
Other income increased by $2.1 million from $1.2 million to $3.3 million. $.9
million of the increase was due to a gain from the repayment of the Company's
shared appreciation mortgages, $.7 million of the increase relates to the
improved results of SHS, including brokerage commissions and the remaining $.5
million of the increase relates to interest income.
Property operating and maintenance increased by $2.3 million from $10.2 million
to $12.5 million or 23.1 percent due primarily to acquisitions ($1.8 million).
Real estate taxes increased by $.6 million from $3.8 million to $4.4 million or
17.1 percent due primarily to acquisitions ($.5 million).
General and administrative expenses increased by $.5 million from $2.2 million
to $2.7 million or 23.4 percent due primarily to increased staffing to manage
the growth of the company. General and administrative expenses as a percentage
of income from property remained constant at 4.8 percent.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
increased by $10.0 million from $30.5 million to $40.5 million or 32.9 percent.
Depreciation and amortization increased by $2.2 million from $9.8 million to
$12.0 million or 22.8 percent due primarily to acquisitions.
Interest expense increased by $4.8 million from $6.8 million to $11.6 million or
71.1 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
RESULTS OF OPERATIONS
Comparison of the three months ended June 30, 1998 and 1997
For the three months ended June 30, 1998, income before distribution to
Preferred OP Units increased by 15.8 percent from $6.9 million to $8.0 million,
when compared to the three months ended June 30, 1997. The increase was due to
increased revenues of $6.6 million while expenses increased by $5.5 million.
Income from property increased by $5.8 million from $22.5 million to $28.3
million or 25.9 percent, due to acquisitions ($4.3 million), lease up of
manufactured home sites ($.5 million) and increases in rents and other community
revenues ($1.0 million).
Other income increased by $.8 million from $.7 million to $1.5 million. $.4
million of the increase in other income relates to the improved results of SHS,
including brokerage commissions and the remaining $.4 million of the increase
relates to interest income.
Property operating and maintenance increased by $1.1 million from $5.0 million
to $6.1 million or 21.4 percent due primarily to acquisitions ($.9 million).
Real estate taxes increased by $.3 million from $1.9 million to $2.2 million or
17.9 percent due primarily to acquisitions ($.2 million).
General and administrative expenses increased by $.3 million from $1.1 million
to $1.4 million or 24.6 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 5.0 percent to 4.9 percent.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
increased by $4.9 million from $15.2 million to $20.1 million or 32.2 percent
due primarily to acquisitions.
Depreciation and amortization increased by $1.1 million from $5.0 million to
$6.1 million or 22.4 percent due primarily to acquisitions.
Interest expense increased by $2.7 million from $3.4 million to $6.1 million or
80.4 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 six months ended June 30, 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 2,070 sites in 1998 and 1997,
respectively.
SAME PROPERTY TOTAL PORTFOLIO
----------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Income from property $ 38,511 $ 35,802 $ 56,886 $ 45,455
--------- ----------- ----------- -----------
Property operating expenses:
Property operating and maintenance 7,004 6,796 12,551 10,197
Real estate taxes 3,360 3,121 4,380 3,740
---------- ----------- ----------- -----------
Property operating expenses 10,364 9,917 16,931 13,937
---------- ----------- ----------- -----------
Property EBITDA $ 28,147 $ 25,885 $ 39,955 $ 31,518
========== =========== =========== ===========
Number of properties 74 74 104 86
Developed sites 24,829 24,386 36,800 31,500
Occupied sites 23,835 23,074 33,600 29,200
Occupancy % 96.0%(1) 94.6%(1) 96.1%(1) 94.5%(1)
Weighted average monthly rent per site 264(1) $ 252(1) $266(1) $255(1)
Sites available for development 2,300 2,565 5,554 3,312
Sites in development 678 601 1,512 736
(1) Occupancy % and weighted average rent relates to manufactured housing sites,
excluding recreational vehicle sites.
On a same property basis, property revenues increased by $2.7 million from $35.8
million to $38.5 million, or 7.6 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 761 leased sites at June
30, 1998 compared to June 30, 1997.
Property operating expenses increased by $.5 million from $9.9 million to $10.4
million or 4.5 percent, due to increased occupancies and costs and increases in
assessments and millage rates by local taxing authorities. Property EBITDA
increased by $2.3 million from $25.9 million to $28.2 million, or 8.7 percent.
Sites available for development in the total portfolio increased by 2,242 from
3,312 to 5,554 primarily in conjunction with land acquisitions for new
communities to be developed in Arizona, 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 decreased by $.3 million to $1.9 million at June 30,
1998 compared to $2.2 million at December 31, 1997 primarily because cash used
in investing activities exceeded cash provided by operating and financing
activities.
Net cash provided by operating activities increased by $10.3 million to $32.1
million for the six months ended June 30, 1998 compared to $21.8 million for the
same period in 1997. Changes in working capital increased by $5.8 million and
net income before depreciation and amortization and gain related to mortgage
notes receivable increased by $4.5 million.
Net cash used in investing activities increased by $35.5 million to $65.3
million from $29.8 million primarily due to $36.7 million related to acquisition
activities.
Net cash provided by financing activities increased by $32.7 million to $32.8
million for the six months ended June 30, 1998 compared to $.1 million for the
same period in 1997. $49.8 million of this increase was due to additional net
debt borrowings and deferred financing costs offset by a $15.3 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 $100
million line of credit which bears interest at LIBOR plus .90% and is due
November 1, 1999.
In May 1998, the Company issued $65 million of senior notes which bear interest
at 6.77%, mature May 14, 2015, and are callable/redeemable May 16, 2005.
Proceeds from this debt issuance were used to repay line of credit borrowings.
At June 30, 1998, the Company's debt to total market capitalization approximated
33.3% (assuming conversion of all Common and Preferred OP Units to shares of
common stock), with a weighted average maturity of approximately 8.0 years and a
weighted average interest rate of 7.2%.
Recurring capital expenditures approximated $2.5 million for the six months
ended June 30, 1998, including $.2 million for additional space and related
costs at corporate headquarters.
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SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
PART II
ITEM 6.(A) - EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
ITEM 6.(B) - REPORTS ON FORM 8-K
The Company filed a Report on Form 8-K, dated May 7, 1998, with the Securities
and Exchange Commission on May 14, 1998, related to debt securities.
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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: August 10, 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
27 Financial Data Schedule X
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