1
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 JUNE 30, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 1-11718

MANUFACTURED HOME COMMUNITIES, INC.
(Exact name of registrant as specified in its Charter)

MARYLAND 36-3857664
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

TWO NORTH RIVERSIDE PLAZA, SUITE 800, CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip Code)

(312) 474-1122
(Registrant's telephone number, including area code)

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 ( )

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

24,692,308 SHARES OF COMMON STOCK AS OF JULY 31, 1996.

MANUFACTURED HOME COMMUNITIES, INC.

TABLE OF CONTENTS

PART I - FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

INDEX TO FINANCIAL STATEMENTS

Page
----

Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995........................................... 3

Consolidated Statements of Operations for the six months and quarters ended June 30, 1996 and 1995.............. 4

Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and 1995........................... 5

Notes to Consolidated Financial Statements...................................................................... 6

ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................................. 9

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings........................................................................................ 15

ITEM 6. Exhibits and Reports on Form 8-K......................................................................... 15

MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 AND DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)

June 30, December 31,
1996 1995
---------- -----------

ASSETS
Investment in rental property:
Land......................................................... $133,995 $127,229
Land improvements............................................ 353,312 328,667
Buildings and other depreciable property..................... 87,689 87,059
---------- -----------
574,996 542,955
Accumulated depreciation..................................... (63,927) (56,403)
---------- -----------
Net investment in rental property........................... 511,069 486,552
Cash and cash equivalents..................................... 862 760
Short-term investments (at cost, which approximates market)... 5,850 1,682
Notes receivable.............................................. 15,201 15,010
Investment in and advances to affiliates...................... 10,748 10,987
Rents receivable.............................................. 881 935
Deferred financing costs, net................................. 2,905 3,268
Prepaid expenses and other assets............................. 2,419 3,430
Due from affiliates........................................... 412 501
---------- -----------
Total assets................................................ $550,347 $523,125
========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable....................................... $198,196 $199,066
Line of credit............................................... 38,000 12,900
Accounts payable and accrued expenses........................ 12,892 8,759
Accrued interest payable..................................... 1,314 1,258
Rents received in advance and security deposits.............. 3,364 1,792
Distributions payable........................................ 8,360 7,998
Due to affiliates............................................ 469 547
---------- -----------
Total liabilities........................................... 262,595 232,320
---------- -----------

Commitments and contingencies
Minority interests............................................ 28,936 29,305
---------- -----------
Stockholders' equity:
Preferred stock, $.01 par value
10,000,000 shares authorized; none issued................... --- ---
Common stock, $.01 par value
50,000,000 shares authorized; 24,802,036 and
24,502,877 shares issued and 24,692,308 and 24,393,149 shares
outstanding for 1996 and 1995, respectively................. 247 244
Paid-in capital.............................................. 293,633 288,533
Treasury stock, 109,728 shares of common stock............... (1,987) (1,987)
Employee notes............................................... (6,210) (1,565)
Distributions in excess of accumulated earnings.............. (26,867) (23,725)
---------- -----------
Total stockholders' equity.................................. 258,816 261,500
---------- -----------
Total liabilities and stockholders' equity.................... $550,347 $523,125
========== ===========

The accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS AND QUARTERS ENDED JUNE 30, 1996 AND 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

For the Six Months Ended For the Quarter Ended
June 30, June 30,
------------------------- ----------------------
1996 1995 1996 1995
----------- ----------- --------- ----------

REVENUES
Base rental income....................... $45,660 $42,616 $23,195 $21,453
Utility and other income................. 4,539 4,201 2,240 1,982
Equity in income of affiliates........... 207 302 102 135
Interest income.......................... 1,191 1,178 591 599
----------- ----------- --------- ----------
Total revenues.......................... 51,597 48,297 26,128 24,169
----------- ----------- --------- ----------
EXPENSES
Property operating and maintenance....... 13,998 13,580 7,101 6,662
Real estate taxes........................ 4,016 3,894 2,006 1,977
Property management...................... 2,225 2,448 1,041 1,151
General and administrative............... 1,952 2,380 981 1,058
Interest:................................
Interest incurred....................... 8,076 8,644 4,150 4,372
Amortization of deferred
financing costs........................ 564 1,244 296 430
Depreciation.............................. 7,543 7,180 3,887 3,590
----------- ----------- --------- ----------
Total expenses.......................... 38,374 39,370 19,462 19,240
----------- ----------- --------- ----------
Income from operations.................... 13,223 8,927 6,666 4,929
Gain on sale of properties................ --- 435 --- 435
----------- ----------- --------- ----------
Income before allocation to
minority interests...................... 13,223 9,362 6,666 5,364
(Income) allocated to minority interests.. (1,311) (936) (661) (536)
----------- ----------- --------- ----------
Net income................................ $11,912 $8,426 $6,005 $4,828
=========== =========== ========= ==========
Net income per weighted average common
share outstanding....................... $.48 $.35 $.24 $.20
=========== =========== ========= ==========
Distributions declared
per common share outstanding............ $.61 $.59 $.305 $.295
=========== =========== ========= ==========
Weighted average common shares outstanding 24,675 24,332 24,687 24,332
=========== =========== ========= ==========

The accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(AMOUNTS IN THOUSANDS)
(UNAUDITED)

1996 1995
-------- -------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................... $11,912 $8,426
Adjustments to reconcile net income to
cash provided by operating activities:
Income allocated to minority interests....................... 1,311 936
Depreciation and amortization expense........................ 8,107 8,424
Equity in income of affiliates............................... (207) (302)
(Gain) on sale of rental properties.......................... --- (435)
Decrease in rents receivable................................. 54 285
Decrease (increase) in prepaid expenses and other assets..... 839 (435)
Increase in accounts payable and accrued expenses............ 4,111 5,037
Increase in rents received in advance and security deposits.. 1,572 1,553
-------- -------
Net cash provided by operating activities...................... 27,699 23,489
-------- -------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments, net........................ (4,168) (6,649)
Distributions from (contributions to) affiliates............... 446 (437)
Collection of principal payments on notes receivable........... 70 1,583
Acquisition of rental properties............................... (28,968) (600)
Improvements:
Improvements - corporate...................................... (542) (534)
Improvements - rental properties.............................. (1,461) (1,151)
Site development costs........................................ (1,089) (1,332)
Net proceeds from sale of rental property...................... --- 1,284
-------- -------
Net cash used in investing activities.......................... (35,712) (7,836)
-------- -------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options.................... 348 663
Distributions to common stockholders and minority interests.... (16,350) (15,982)
Treasury stock acquired........................................ --- (1,987)
Collection of principal payments on employee notes............. 47 2,448
Proceeds from line of credit................................... 25,600 ---
Repayments on mortgage notes payable and line of credit........ (1,370) (543)
Debt issuance costs and other.................................. (160) (237)
-------- -------
Net cash provided by (used in) financing activities............ 8,115 (15,638)
-------- -------
Net increase in cash and cash equivalents....................... 102 15
Cash and cash equivalents, beginning of period.................. 760 1,924
-------- -------
Cash and cash equivalents, end of period........................ $862 $1,939
======== =======

SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest........................ $8,020 $7,924
======== =======

The accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PRESENTATION:

These unaudited Consolidated Financial Statements of Manufactured Home
Communities, Inc., a Maryland corporation, and its subsidiaries (collectively,
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 included in the Company's 1995
Annual Report on Form 10-K. The following Notes to Consolidated Financial
Statements highlight significant changes to the Notes included in the 1995
Annual Report on Form 10-K and 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
periods' financial statements in order to conform with current period
presentation.

NOTE 1 - COMMON STOCK AND RELATED TRANSACTIONS

The Company paid a $.305 per share distribution on April 12, 1996 and July
12, 1996, for the quarters ended March 31, 1996 and June 30, 1996,
respectively, to stockholders of record on March 29, 1996 and June 28, 1996,
respectively.

On January 2, 1996, certain members of management of the Company each
entered into subscription agreements with the Company to acquire a total of
270,000 shares of the Company's common stock at $17.375 per share, the market
price on that date. The Company received from these individuals notes (the
"1996 Employee Notes") in exchange for their shares. The 1996 Employee Notes
accrue interest at 5.91%, mature on January 2, 2005, and are recourse against
the employees in the event the pledged shares are insufficient to repay the
obligations.

NOTE 2 - RENTAL PROPERTY

On February 28, 1996, the Company acquired Waterford, located near
Wilmington, Delaware, for a purchase price of approximately $21 million. The
acquisition was funded with an $18.6 million borrowing under the Company's line
of credit with a bank and approximately $2.4 million of working capital.
Waterford consists of 621 developed sites and 110 expansion sites; the cost of
completing the expansion sites will be paid by the seller.

On May 9, 1996, the Company funded a recourse real estate loan for
$6,050,000 to the partnership which owns Candlelight Village, located in
Columbus, Indiana. The loan has an interest rate of 9.5%, 9.75% and 10% for
the first, second and third years of the loan, respectively, which interest is
payable monthly. Interest and principal are guaranteed by the general partner
of the partnership which owns Candlelight Village. The loan matures May 8,
1999 at which time the Company has the option to purchase Candlelight Village.
Candlelight Village consists of 512 sites and 73 expansion sites. For
financial accounting purposes, the Company accounts for the loan as an
investment in real estate.

The Company is actively seeking to acquire additional communities and
currently is engaged in negotiations relating to the possible acquisition of a
number of communities. At any time these negotiations are at varying stages
which may include contracts outstanding to acquire certain manufactured home
communities which are subject to satisfactory completion of the Company's due
diligence review.

Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and For Long-Lived Assets To Be Disposed Of"
("SFAS No. 121") is effective for fiscal years beginning after December 15,
1995. The Company evaluates rental properties for impairment when conditions
exist which may indicate that it is probable that the sum of expected future
cash flows (undiscounted) from a rental property is less than its carrying
value. Upon determination that a permanent impairment has occurred, rental
properties are reduced to fair value. For the quarter and six months ended
June 30, 1996, permanent impairment conditions did not exist at any of the
Company's properties.

MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - NOTES RECEIVABLE

At June 30, 1996 and December 31, 1995, notes receivable consisted of the
following (amounts in thousands):

1996 1995
---------- -----------

$2.0 million note
receivable with
monthly principal and
interest payments at
9.0%, maturing on
6/10/2003.............. $ 1,683 $ 1,768
$1.2 million purchase
money notes with
monthly principal and
interest payments at
7%, maturing on
4/30/2001.............. 1,167 1,174
$10 million leasehold
mortgage loan with
interest accruing at
a stated rate of
12.5% with a pay rate
of 8.5%, maturing on
9/1/2013............... 10,796 10,558
$1.9 million note
receivable with
monthly interest
payments at prime
plus 1.6%, maturing
on 4/15/2000........... 1,555 1,510
--------- ---------
Total notes receivable.. $15,201 $15,010
========= =========

NOTE 4 - LONG-TERM BORROWINGS

At June 30, 1996 and December 31, 1995, long-term borrowings consisted of
the following (amounts in thousands):

1996 1995
-------- --------

$100.0 million mortgage note payable with monthly interest only
payments at LIBOR plus 1.05%, maturing on 3/3/98 (a).............. $100,000 $100,000
First mortgage loan with monthly principal and interest payments
at 7.40%, maturing on 3/1/2004.................................... 8,695 8,767
Purchase money note with structured principal and interest payments
at an imputed rate of 7.38%, maturing on 7/13/2004................ 1,334 1,516
First mortgage loan with monthly principal and interest payments
at a rate of 7.48%, maturing on 8/1/2004.......................... 24,703 24,859
$65.0 million first mortgage loan with monthly principal and
interest payments at 8%, maturing on 8/18/2001.................... 63,464 63,924
-------- --------
Total collateralized borrowings.................................... 198,196 199,066
$100.0 million line of credit at LIBOR plus 1.375% (b)............. 38,000 12,900
-------- --------
Total long-term borrowings......................................... $236,196 $211,966
======== ========

(a) In December 1995, the Company entered into an agreement fixing the London
Interbank Offered Rate ("LIBOR") on the $100.0 million mortgage note payable
(the "Mortgage Debt") at 5.24% effective January 10, 1996 through January 10,
1997. The value of this agreement is impacted by changes in the market rate of
interest. Had the agreement been entered into on June 30, 1996, the applicable
LIBOR swap rate would have been 5.6%. Each 0.01% increase or decrease in the
applicable swap rate for this agreement increases or decreases the value of the
agreement entered into by the Company versus its current value by approximately
$7,000.

MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - LONG-TERM BORROWINGS (CONTINUED)

The Company has an interest rate cap for the term of the Mortgage Debt
which eliminates exposure to increases in LIBOR over 6%, plus 1.05%. In
connection with the agreement effective January 10, 1996, discussed above, the
Company sold a portion of the interest rate cap related to 1996 and recorded a
non-cash loss of approximately $650,000 in the fourth quarter of 1995. As of
June 30, 1996, the fair market value of the interest rate cap was approximately
$499,000 as compared to book value of $762,000.

In July 1995, the Company entered into an interest rate swap agreement
(the "Swap") beginning at the maturity of the Mortgage Debt fixing LIBOR on the
refinancing of the Mortgage Debt at 6.4% for the period 1998 through 2003. The
cost of the Swap consisted only of legal costs which were deemed immaterial.
In the event that the Company does not refinance the Mortgage Debt, the risk
associated with the Swap is that the Company would be obligated to perform its
obligations under the terms of the Swap or would have to pay to terminate the
Swap. In either event, the impact of such transaction would be reflected in
the Company's statement of operations. The value of the Swap is impacted by
changes in the market rate of interest. Had the Swap been entered into on June
30, 1996, the applicable LIBOR swap rate would have been 7.03%. Each 0.01%
increase or decrease in the applicable swap rate for the Swap increases or
decreases the value of the Swap entered into by the Company versus its current
value by approximately $38,000.

(b) On May 7, 1996, the Company amended the credit agreement increasing the
$50.0 million line of credit to $100.0 million at LIBOR plus 1.375% and
extended the maturity date to August 17, 1998. In addition, the fee on the
average unused amount was reduced to .15% of such amount from .25%. The
Company paid a $200,000 loan fee which is being amortized over the remaining
period of the amended agreement.

As of June 30, 1996, the carrying value of the property collateralizing the
long-term borrowings was approximately $457 million.

NOTE 5 - STOCK OPTIONS

Pursuant to the Amended and Restated 1992 Stock Option and Stock Award
Plan (the "Plan") as discussed in Note 12 to the 1995 Annual Report on Form
10-K, certain officers, directors, key employees and consultants have been
offered the opportunity to acquire shares of common stock of the Company
through stock options ("Options"). During the six months ended June 30, 1996,
Options for 27,000 shares of common stock were exercised.

In 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under the
provisions of SFAS No. 123, companies can elect to account for stock-based
compensation plans using a fair-value-based method or continue measuring
compensation expense for those plans using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees". SFAS No. 123 requires that companies electing to continue
using the intrinsic value method must make pro-forma disclosures of net income
and earnings per share as if the fair-value-based method of accounting had been
applied.

The Company elected to continue to account for stock-based compensation
using the intrinsic value method. As such, SFAS No. 123 did not have an impact
on the Company's results of operations or financial position for the six months
ended June 30, 1996. The pro-forma information required by SFAS No. 123 will be
included in the footnotes to the Company's 1996 year-end consolidated financial
statements.

NOTE 6 - COMMITMENTS AND CONTINGENCIES

There have been no new or significant developments related to the
commitments and contingencies that were discussed in the 1995 Annual Report on
Form 10-K.

MANUFACTURED HOME COMMUNITIES, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

The following is a discussion of the interim results of operations,
financial condition and liquidity and capital resources of the Company for the
quarter and six months ended June 30, 1996 compared to the corresponding
periods in 1995. It should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included herein and the 1995 Annual
Report on Form 10-K.

RESULTS OF OPERATIONS

COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 TO THREE MONTHS ENDED JUNE 30,
1995

Since June 30, 1995, the gross investment in rental property has increased
from $543 million to $575 million due to the acquisition of Waterford on
February 28, 1996 and Candlelight Village on May 9, 1996, partially offset by
the sale of one property in September 1995. The total number of sites has
increased from 25,432 as of June 30, 1995 to 26,820 as of June 30, 1996.

The following table summarizes certain weighted average occupancy
statistics for the three months ended June 30, 1996 and 1995. "Core Portfolio"
represents an analysis of properties owned during both periods of comparison.

Core Portfolio Total Portfolio
---------------- ------------------
1996 1995 1996 1995
-------- -------- -------- --------

Total sites 25,560 25,323 26,598 25,323
Occupied sites 24,055 23,750 24,953 23,750
Occupancy % 94.1% 93.8% 93.8% 93.8%
Monthly base rent per site $311 $296 $310 $296

Base rental income ($23.2 million) increased $1.7 million or 7.9%. For
the Core Portfolio, base rental income increased approximately $1.4 million or
6.4%, reflecting a 5.1% increase in base rental rates and a 1.3% increase
related to occupancy. Base rental income at Waterford and Candlelight Village
was approximately $728,000 for the quarter ended June 30, 1996. Partially
offsetting this increase was a $140,000 decrease in base rental income
resulting from the sale of two properties in 1995.

The increase in monthly base rent per site reflected annual rent increases
which went into effect in the first quarter of 1996 at approximately 72% of the
properties and in the second quarter of 1996 at 11% of the properties, as well
as annual rent increases that occurred in the last six months of 1995. The
1.3% increase in occupied sites for the Core Portfolio was primarily due to
improved occupancy in the Southeastern Region's expansion communities.

Utility and other income ($2.2 million) increased $258,000 or 13%
primarily due to increased real estate pass-on income relative to increased
real estate taxes at certain of the properties.

Interest income ($591,000) decreased $8,000 or 1.3%, primarily due to a
decrease in interest earned on short-term investments, partially offset by
interest earned on the 1996 Employee Notes. Short-term investments had average
balances for the quarters ended June 30, 1996 and 1995 of approximately $3.5
million and $12.3 million, respectively, which earned interest income at an
effective rate of 5.2% and 4.3% per annum, respectively. As of June 30, 1996,
the Company had cash and cash equivalents and short-term investments of
approximately $6.7 million.

MANUFACTURED HOME COMMUNITIES, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS (CONTINUED)

Property operating and maintenance expenses ($7.1 million) increased
$439,000 or 6.6%. Waterford and Candlelight Village comprised $205,000 of this
increase. The remaining $246,000 increase was primarily due to an increase in
utility expense of approximately $219,000 and an increase in repairs and
maintenance of approximately $151,000, partially offset by a decrease in
property payroll of $146,000. Property operating and maintenance expenses
represented 27.2% of total revenues in 1996 and 27.6% in 1995.

Real estate taxes ($2.0 million) increased $29,000 or 1.5% due to the
expected increase in assessed values at certain properties in 1996. Real
estate taxes represented 7.7% of total revenues in 1996 and 8.2% in 1995.

Property management expenses ($1.0 million) decreased $110,000 or 9.6%.
The decrease was primarily due to an overall decrease in expenses resulting
from staffing reductions which occurred in 1995. Property management expenses
represented 4.0% of total revenues in 1996 and 4.8% in 1995.

General and administrative expenses ("G&A") ($981,000) decreased $77,000
or 7.3%. The decrease in expense resulted from staffing reductions which
occurred in 1995, partially offset by an increase in travel costs related to a
more active acquisition effort. G&A expenses represented 3.8% of total
revenues in 1996 and 4.4% in 1995.

Interest expense ($4.2 million) decreased by $222,000 or 5.1%. The
decrease was due to a decrease in the effective interest rate. The effective
interest rates were 7.2% and 7.7% for the quarters ended June 30, 1996 and
1995, respectively. The weighted average outstanding debt balances for the
quarters ended June 30, 1996 and 1995 were $232.0 million and $226.2 million,
respectively. Interest expense represented 15.9% of total revenues in 1996
and 18.1% in 1995.

In December 1995, the Company entered into an agreement fixing the LIBOR
rate on the Mortgage Debt at 5.24% effective January 10, 1996 through January
10, 1997. The value of this agreement is impacted by changes in the market
rate of interest. Had the agreement been entered into on June 30, 1996, the
applicable LIBOR swap rate would have been 5.6%. Each 0.01% increase or
decrease in the applicable swap rate for this agreement increases or decreases
the value of the agreement entered into by the Company versus its current value
by approximately $7,000.

In July 1995, the Company entered into the Swap beginning at the maturity
of the Mortgage Debt fixing LIBOR on the refinancing of the Mortgage Debt at
6.4% for the period 1998 through 2003. The cost of the Swap consisted only of
legal costs which were deemed immaterial. In the event that the Company does
not refinance the Mortgage Debt, the risk associated with the Swap is that the
Company would be obligated to perform its obligations under the terms of the
Swap or would have to pay to terminate the Swap. In either event, the impact
of such transaction would be reflected in the Company's statement of
operations. The value of the Swap is impacted by changes in the market rate of
interest. Had the Swap been entered into on June 30, 1996, the applicable
LIBOR swap rate would have been 7.03%. Each 0.01% increase or decrease in the
applicable swap rate for the Swap increases or decreases the value of the Swap
entered into by the Company versus its current value by approximately $38,000.

MANUFACTURED HOME COMMUNITIES, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS (CONTINUED)

On May 7, 1996, the Company amended its credit agreement on the $50.0
million line of credit ("Credit Facility") increasing the Credit Facility to
$100.0 million at LIBOR plus 1.375% and extended the maturity date to August
17, 1998. In addition, the fee on the average unused amount was reduced to
0.15% of such amount from 0.25%. The Company repaid $3.0 million under the
Credit Facility on July 10, 1996, and borrowed an additional $1.0 million on
July 31, 1996.

Amortization of deferred financing costs ($296,000) decreased $134,000 or
31.2% as a result of the sale of the portion of the interest rate cap on the
Mortgage Debt related to 1996 (see discussion above). Amortization of deferred
financing costs represented 1.1% of total revenues in 1996 and 1.8% in 1995.

Depreciation expense ($3.9 million) increased $297,000 or 8.3%.
Depreciation expense on corporate assets was approximately $124,000 and $96,000
for the quarters ended June 30, 1996 and 1995, respectively. Depreciation
expense represented 14.9% of total revenues in 1996 and 1995.

COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 TO SIX MONTHS ENDED JUNE 30, 1995

The acquisition of Waterford and Candlelight Village in 1996 increased
base rental income, property operating and maintenance expenses, real estate
taxes and depreciation for the six months ended June 30, 1996. These increases
were partially offset by the sale of two properties in 1995.

The following table summarizes certain weighted average occupancy
statistics for the six months ended June 30, 1996 and 1995. "Core Portfolio"
represents an analysis of properties owned during both periods of comparison.

Core Portfolio Total Portfolio
---------------- -----------------
1996 1995 1996 1995
-------- ------- -------- ------

Total sites 25,557 25,338 26,198 25,338
Occupied sites 24,031 23,700 24,581 23,700
Occupancy % 94.0% 93.5% 93.8% 93.5%
Monthly base rent per site $310 $295 $310 $295

Base rental income ($45.7 million) increased $3.0 million or 7.1%. For
the Core Portfolio, base rental income increased approximately $2.8 million or
6.6%, reflecting a 5.1% increase in base rental rates and a 1.5% increase
related to occupancy. Base rental income at Waterford and Candlelight Village
was approximately $918,000 for the six months ended June 30, 1996. Partially
offsetting this increase was a $396,000 decrease in base rental income
resulting from the sale of two properties in 1995.

The increase in monthly base rent per site reflected annual rent increases
which went into effect in the first quarter of 1996 at approximately 72% of the
properties and second quarter of 1996 at 11% of the properties, as well as
annual rent increases that occurred in the last six months of 1995. The 1.4%
increase in occupied sites for the Core Portfolio was primarily due to improved
occupancy in the Southeastern Region's expansion communities.

Utility and other income ($4.5 million) increased $243,000 or 5.4%
primarily due to increased real estate tax pass-on income relative to increased
real estate taxes at certain of the properties.

MANUFACTURED HOME COMMUNITIES, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS (CONTINUED)

Interest income ($1.2 million) increased $13,000 or 1.1%, primarily due to
interest earned on the $1.9 million of notes receivable funded by the Company
in April 1995 and the 1996 Employee Notes granted on January 2, 1996, partially
offset by a decrease in interest earned on short-term investments. Short-term
investments had average balances for the six months ended June 30, 1996 and
1995 of approximately $3.4 million and $10.0 million, respectively, which
earned interest income at an effective rate of 5.3% and 4.3% per annum,
respectively.

Property operating and maintenance expenses ($14.0 million) increased
$418,000 or 3.1%. Waterford and Candlelight Village comprised $258,000 of this
increase. The remaining $160,000 increase was primarily due to an increase in
utility expense of approximately $380,000, an increase in insurance and other
expenses of approximately $188,000, and an increase in repairs and maintenance
of $118,000, partially offset by a decrease in property payroll of $491,000.
Property operating and maintenance expenses represented 27.1% of total revenues
in 1996 and 28.1% in 1995.

Real estate taxes ($4.0 million) increased $122,000 or 3.1% due to the
expected increase in assessed values at certain properties in 1996. Real
estate taxes represented 7.8% of total revenues in 1996 and 8.1% in 1995.

Property management expenses ($2.2 million) decreased $223,000 or 9.1%.
The decrease was primarily due to a decrease in management company payroll. In
late March 1995, the Company closed certain of its regional offices and reduced
staffing at the corporate office which decreased management company payroll.
Partially offsetting this decrease was the receipt in 1995 of a termination fee
related to certain fee-managed contracts. Property management expenses
represented 4.3% of total revenues in 1996 and 5.1% in 1995.

G&A ($2.0 million) decreased $429,000 or 18.0%. The decrease was due to:
(i) decreased professional fees resulting from the write-off in the first six
months of 1995 of legal due diligence and related costs associated with
acquisitions which did not materialize; (ii) decreased public company costs,
and (iii) decreased income and franchise taxes. G&A represented 3.8% of total
revenues in 1996 and 4.9% in 1995.

Interest expense ($8.1 million) decreased by $568,000 or 6.6%. The
decrease was due to a decrease in the effective interest rate. The effective
interest rates were 7.2% and 7.64% for the six months ended June 30 1996 and
1995, respectively. The weighted average outstanding debt balances for the six
months ended June 30, 1996 and 1995 were $225.1 million and $226.4 million,
respectively. Interest expense represented 15.7% of total revenues in 1996 and
17.9% in 1995.

Amortization of deferred financing costs ($564,000) decreased $680,000 or
54.7% primarily due to the write-off in 1995 of approximately $385,000 of loan
costs related to the $50 million line of credit with General Electric Credit
Corp. which expired in March 1995. In addition, the Company sold a portion of
the interest rate cap on the Mortgage Debt related to 1996. Amortization of
deferred financing costs represented 1.1% of total revenues in 1996 and 2.6%
in 1995.

Depreciation expense ($2.5 million) increased $363,000 or 5.1%.
Depreciation expense on corporate assets was approximately $220,000 and
$166,000 for the six months ended June 30, 1996 and 1995, respectively.
Depreciation expense represented 14.6% of total revenues in 1996 and 14.9% in
1995.

MANUFACTURED HOME COMMUNITIES, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents increased by $102,000 when compared to December
31, 1995. The major components of this increase were the $25.6 million
borrowings under the line of credit and increased cash provided by operating
activities, partially offset by the acquisition of Waterford and Candlelight,
payment of distributions, purchase of short-term investments, and improvements
to rental properties.

Net cash provided by operating activities increased $4.2 million from
$23.5 million for the six months ended June 30, 1995 to $27.7 million for the
same period in 1996. This increase reflected a $2.0 million increase in Funds
From Operations ("FFO"), as discussed below, and decreased prepaid expenses.

FFO was defined by the National Association of Real Estate Investment
Trusts ("NAREIT") in March 1995 as net income (computed in accordance with
generally accepted accounting principles ["GAAP"]), before allocation to
minority interests, plus real estate depreciation and after adjustments for
significant non-recurring items, if any. In the first quarter of 1996, the
Company adopted this new definition of FFO which is effective for periods
ending after December 31, 1995. Prior to this adoption, FFO was defined as
income before allocation to minority interests plus certain non-cash items,
primarily depreciation and amortization. Funds available for distribution
("FAD") is defined as FFO less non-revenue producing capital expenditures. The
Company believes that FFO and FAD are useful to investors as a measure of the
performance of an equity REIT because, along with cash flows from operating
activities, financing activities and investing activities, they provide
investors an understanding of the ability of the Company to incur and service
debt and to make capital expenditures. FFO and FAD in and of themselves do not
represent cash generated from operating activities in accordance with GAAP and
therefore should not be considered an alternative to net income as an
indication of the Company's performance or to net cash flows from operating
activities as determined by GAAP as a measure of liquidity and are not
necessarily indicative of cash available to fund cash needs.

The following table presents a calculation of FFO and FAD for the quarters
and six months ended June 30, 1996 and 1995:

For the For the
Quarters Ended Six Months Ended
June 30, June 30,
--------------- --------------------
1996 1995 1996 1995
-------- ------ -------- --------

Computation of funds from operations:
Income before allocation to
minority interests............................ $6,666 $5,364 $13,223 $9,362
Depreciation on real estate assets........... 3,763 3,507 7,323 7,014
Amortization of non recurring items......... --- --- --- 385
Gain on sale of assets...................... --- (435) --- (435)
------- ------ -------- --------
Funds from operations (a)................... $10,429 $8,436 $20,546 $16,326
======= ====== ======== ========
Computation of funds available for distribution:
Funds from operations (a)...................... $10,429 $8,436 $20,546 $16,326
Non-revenue producing improvements -
rental properties............................ (815) (377) (1,461) (1,151)
------- ------ -------- --------
Funds available for distribution................ $9,614 $8,059 $19,085 $15,175
======= ====== ======== ========

(a) FFO for the quarter and six months ended June 30, 1995 has been restated
pursuant to the new definition of FFO adopted by the Company for periods ending
after December 31, 1995.

MANUFACTURED HOME COMMUNITIES, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

Net cash used in investing activities increased $27.9 million from $7.8
million for the six months ended June 30, 1995 to $35.7 million for the six
months ended June 30, 1996 primarily due to the acquisition of Waterford and
Candlelight Village, partially offset by a decrease in the purchase of
short-term investments.

On February 28, 1996, the Company acquired Waterford, located near
Wilmington, Delaware, for a purchase price of approximately $21 million. The
acquisition was funded with an $18.6 million borrowing under the Company's line
of credit and approximately $2.4 million of working capital. Waterford
consists of 621 developed sites and 110 expansion sites; the cost of developing
the expansion sites will be paid by the seller.

Capital expenditures for improvements were approximately $3.1 million for
the six months ended June 30, 1996 compared to $3.0 million for the six months
ended June 30, 1995. Of the $3.1 million, approximately $1.5 million
represented improvements to existing sites. The Company anticipates spending
approximately $2.0 million on improvements to existing sites during the
remainder of 1996. The Company believes these improvements are necessary in
order to increase and/or maintain occupancy levels and maximize rental rates
charged to new and renewing residents. Of the remaining $1.6 million, $1.1
million represented costs to develop expansion sites at certain of the
Company's properties and $542,000 represented costs associated with the
Company's conversion to a new accounting software system and other corporate
headquarter expenditures. The Company is currently developing an additional
161 sites which should be available for occupancy in 1996.

Net cash provided by (used in) financing activities increased $23.8
million from $(15.6) million for the six months ended June 30, 1995 to $8.1
million for the six months ended June 30, 1996 primarily due to $25.6 million
of borrowings under the line of credit for the acquisitions of Waterford and
Candlelight.

Distributions to common stockholders and minority interests remained
relatively stable at $16.4 million and $16.0 million for the six months ended
June 30, 1996 and 1995, respectively. On January 12, 1996, the Company paid a
$0.295 per share distribution for the fourth quarter of 1995 to stockholders of
record on December 29, 1995. The Company paid a $0.305 per share distribution
on April 12, 1996 and July 12, 1996, for the quarters ended March 31, 1996 and
June 30, 1996, respectively, to stockholders of record on March 29, 1996 and
June 28, 1996, respectively. Return of capital on a GAAP basis was $0.065 and
$0.075 for the quarters ended March 31, 1996 and June 30, 1996, respectively.

On January 2, 1996, certain members of management of the Company each
entered into subscription agreements with the Company to acquire a total of
270,000 shares of the Company's common stock at $17.375 per share, the market
price on that date. The Company received from these individuals the 1996
Employee Notes in exchange for their shares. The 1996 Employee Notes accrue
interest at 5.91%, mature on January 2, 2005, and are recourse against the
employees in the event the pledged shares are insufficient to repay the
obligations.

MANUFACTURED HOME COMMUNITIES, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

The Company expects to meet its short-term liquidity requirements,
including its distributions, generally through its working capital, net cash
provided by operating activities and availability under the existing line of
credit. The Company expects to meet certain long-term liquidity requirements
such as scheduled debt maturities, property acquisitions and capital
improvements by long-term collateralized and uncollateralized borrowings
including its existing line of credit and the issuance of debt securities or
additional equity securities in the Company, in addition to working capital.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The discussion in Note 6 of Notes to Consolidated Financial Statements
is incorporated herein by reference.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits:

10.1 Second Amended and Restated MHC Operating Limited Partnership
Agreement of Limited Partnership, dated as of March 15, 1996

27 Financial Data Schedule

(b) Reports on Form 8-K:

None.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.

MANUFACTURED HOME COMMUNITIES, INC.

BY: /s/ Thomas P. Heneghan
------------------------------------------
Thomas P. Heneghan
Vice President and Chief Financial Officer
(a duly authorized officer and Chief
Accounting Officer of the Company)

DATE: August 9, 1996