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 This report also includes the Registrant's Use of Proceeds
Report Pursuant to Section 229.701(f).
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998.
OR
[ ] Transition pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
COMMISSION FILE NUMBER 1-12616
SUN COMMUNITIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Maryland 38-2730780
(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 [ ]
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:
17,071,966 shares of Common Stock, $.01 par value as of October 30, 1998
Page 1 of 15
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SUN COMMUNITIES, INC.
INDEX
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PAGES
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PART I
- ------
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997 3
Consolidated Statements of Income for the Periods
Ended September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 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 10-16
PART II
- -------
Item 6.(a) Exhibits required by Item 601 of Regulation S-K 17
Item 6.(b) Reports on Form 8-K 17
Signatures 18
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SUN COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
(SEPTEMBER 30, 1998 AND DECEMBER 31, 1997)
(IN THOUSANDS)
----------
ASSETS 1998 1997
---------- ----------
Investment in rental property, net $ 714,665 $ 634,737
Cash and cash equivalents 12,168 2,198
Investment in affiliates 31,785 16,559
Mortgage notes receivable 15,931 19,269
Other assets 23,463 18,151
---------- ----------
Total assets $ 798,012 $ 690,914
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Line of credit $ 21,000 $ 17,000
Debt 339,391 247,264
Accounts payable and accrued expenses 16,166 8,765
Deposits and other liabilities 11,107 8,853
Distributions payable 10,054 --
---------- ----------
Total liabilities 397,718 281,882
---------- ----------
Minority interests 82,621 82,252
---------- ----------
Stockholders' equity:
Preferred stock, $.01 par value, 10,000 shares
authorized; no shares issued and outstanding -- --
Common stock, $.01 par value, 100,000 shares
authorized; 17,070 and 16,587 issued and
outstanding in 1998 and 1997, respectively 171 166
Paid-in capital 370,969 364,050
Officers' notes (11,609) (11,773)
Unearned compensation (5,631) --
Distributions in excess of accumulated earnings (36,227) (25,663)
---------- ----------
Total stockholders' equity 317,673 326,780
---------- ----------
Total liabilities and stockholders' equity $ 798,012 $ 690,914
========== ==========
The accompanying notes are an integral part of the financial statements.
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SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
------
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
-------- -------- ------- ------
Revenues:
Income from property $ 85,180 $ 68,632 $ 28,294 $ 23,177
Other income 4,466 2,111 2,109 940
--------- --------- --------- ---------
Total revenues 89,646 70,743 30,403 24,117
--------- --------- --------- ---------
Expenses:
Property operating and maintenance 19,095 15,620 6,544 5,423
Real estate taxes 6,502 5,578 2,122 1,838
General and administrative 4,126 3,312 1,417 1,116
Depreciation and amortization 18,121 14,927 6,115 5,150
Interest 17,808 10,397 6,178 3,598
--------- --------- --------- ---------
Total expenses 65,652 49,834 22,376 17,125
--------- --------- --------- ---------
Income before gain on asset sales and
minority interests 23,994 20,909 8,027 6,992
Gain on asset sales 3,030 -- 2,093 --
--------- --------- --------- ---------
Income before minority interests 27,024 20,909 10,120 6,992
Less income allocated to minority interests:
Preferred OP Units 1,879 1,879 627 627
Common OP Units 2,931 2,442 1,083 792
--------- --------- --------- --------
Net income $ 22,214 $ 16,588 $ 8,410 $ 5,573
========= ========= ========= ========
Earnings per common share:
Basic $ 1.32 $ 1.04 $ 0.50 $ 0.34
========= ========= ========= ========
Diluted $ 1.30 $ 1.03 $ 0.49 $ 0.34
========= ========= ========= ========
Weighted average common shares
outstanding - basic 16,816 15,933 16,900 16,243
========= ========= ========= ========
Distributions declared per common
share outstanding $ 1.47 $ 1.41 $ 0.49 $ 0.47
========= ========= ========= ========
The accompanying notes are an integral part of the financial statements.
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SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS)
--------
1998 1997
-------- --------
Cash flows from operating activities:
Net income $ 22,214 $ 16,588
Adjustments to reconcile net income to net
cash provided by operating activities:
Income allocated to minority interests 2,931 2,442
Gain on asset sales (3,030) --
Depreciation and amortization 18,121 14,927
Deferred financing costs 491 116
Increase in other assets (4,355) (4,599)
Increase in accounts payable and other liabilities 10,281 5,025
--------- ---------
Net cash provided by operating activities 46,653 34,499
--------- ---------
Cash flows from investing activities:
Investment in rental properties (80,755) (42,214)
Investment in affiliates (15,226) (12,927)
Proceeds related to asset sales 20,773 --
Mortgage notes receivable (838) (13,742)
Officer note 164 (2,600)
--------- ---------
Net cash used in investing activities (75,882) (71,483)
--------- ---------
Cash flows from financing activities:
Distributions (27,660) (24,982)
Proceeds from borrowings, including line of credit, net 69,000 30,000
Repayment on borrowings (708) --
Proceeds from stock options, dividend reinvestment
plan and other 1,337 26,815
Payments for deferred financing costs (2,770) (2,355)
--------- ---------
Net cash provided by financing activities 39,199 29,478
--------- ---------
Net increase (decrease) in cash and cash equivalents 9,970 (7,506)
Cash and cash equivalents, beginning of period 2,198 9,236
--------- ---------
Cash and cash equivalents, end of period $ 12,168 $ 1,730
========= =========
Supplemental Information:
OP units issued for rental properties $ 1,704 --
Debt assumed for rental properties $ 18,356 --
Capitalized lease obligation for rental properties $ 9,479 --
Common stock issued as unearned compensation $ 5,631 --
The accompanying notes are an integral part of the financial statements
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SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
1. BASIS OF PRESENTATION:
These unaudited consolidated financial statements of Sun Communities,
Inc., a Maryland Corporation, (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.
2. RENTAL PROPERTY:
The following summarizes rental property (in thousands):
September 30, December 31,
1998 1997
------------ ------------
Land $ 94,166 $ 67,677
Land improvements and buildings 660,299 598,699
Furniture, fixtures, equipment 14,624 12,676
Property under development 10,542 5,769
------------ ------------
779,631 684,821
Accumulated depreciation 64,966 50,084
------------ ------------
Rental property, net $ 714,665 $ 634,737
============ ============
Through September 30, 1998, acquisitions have totaled approximately $65.6
million for ten communities and $14.1 million for six land parcels
comprising approximately 2,100 developed sites and 3,700 sites suitable
for development.
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SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
3. NOTES RECEIVABLE:
Notes receivable consisted of the following (in thousands):
September 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) $ 15,931 $ 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
--------- ---------
$ 15,931 $ 19,269
========= =========
(a) The stated interest rate is 12%. The excess of the interest earned at the stated rate over the pay rate is added
to the principal balance and will also accrue interest at the stated rate.
The officer notes are 10 year, LIBOR + 1.75% notes, with a minimum and
maximum interest rate of 6% and 9%, respectively, collateralized by
372,206 shares of the Company's common stock and 127,794 OP Units with
substantial personal recourse.
4. DEBT:
The following table sets forth certain information regarding debt (in
thousands):
September 30, December 31,
1998 1997
------------ -----------
Collateralized term loan, interest at 7.01%,
due September 9, 2007 $ 44,544 $ 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 26,611 17,375
Mortgage note, interest at 8.24%, due April 1, 2006 7,004 --
Mortgage note, interest at 8.0%, due May 1, 2017 8,257 --
Mortgage note, other 2,975 --
------------ -----------
$ 339,391 $ 247,264
============ ===========
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SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
4. DEBT CONTINUED:
At September 30, 1998, the Company has Treasury Rate Locks for a total
notional amount of $37.5 million and an unrealized loss of $3.6 million
for the purpose of hedging against the potential for increased interest
expense on anticipated future fixed rate financings. At the present time,
the Company anticipates issuing fixed rate securities in 1999 with a
maturity of at least five to ten years. Should medium term interest rates
increase, the value of the Treasury Rate Locks will increase offsetting a
portion of the additional interest expense incurred. Alternatively,
should medium term interest rates decrease, the Company will incur costs
which should be offset by lower interest expense.
5. MINORITY INTERESTS:
Minority interests include 2,169,935 and 2,358,581 Common Operating
Partnership Units at September 30, 1998 and December 31, 1997,
respectively, and 1,325,275 Convertible Preferred Operating Partnership
Units ("POP Units") at September 30, 1998 and December 31, 1997.
6. OTHER INCOME:
The components of other income are as follows for the periods ended
September 30, 1998 and 1997 (in thousands):
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
------ ------ ------ ------
Interest $2,270 $1,222 $1,062 $ 438
Equity earnings - Sun Home
Services, Inc. ("SHS") 1,480 875 786 493
Other, principally brokerage commissions 716 14 261 9
------ ------ ------ ------
$4,466 $2,111 $2,109 $ 940
====== ====== ====== ======
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SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
7. EARNINGS PER SHARE:
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
------ ------ ------ ------
Earnings used for basic and diluted earnings per
share computation $22,214 $16,588 $ 8,410 $ 5,573
======= ======= ======= =======
Total shares used for basic earnings per share 16,816 15,933 16,900 16,243
Dilutive securities, principally stock options 167 181 140 226
------- ------- ------- -------
Total shares used for diluted earnings per share
computation 16,983 16,114 17,040 16,469
======= ======= ======= =======
Diluted earnings per share reflect the potential dilution that would
occur if securities were exercised or converted into common stock.
Convertible POP Units are excluded from the computations as their
inclusion would have an antidilutive effect on earnings per share in 1998
and 1997.
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SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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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 nine months ended September 30, 1998 and 1997
For the nine months ended September 30, 1998, income before gain on asset sales
and minority interests increased by 14.7 percent from $20.9 million to $24.0
million, when compared to the nine months ended September 30, 1997. The increase
was due to increased revenues of $18.9 million while expenses increased by $15.8
million.
Income from property increased by $16.6 million from $68.6 million to $85.2
million or 24.1 percent, due to acquisitions ($12.0 million), lease up of
manufactured home sites ($1.9 million) and increases in rents and other
community revenues ($2.7 million).
Other income increased by $2.4 million from $2.1 million to $4.5 million. $1.3
million of the increase relates to the improved results of SHS, including
brokerage commissions and the remaining $1.1 million of the increase relates to
interest income.
Property operating and maintenance increased by $3.5 million from $15.6 million
to $19.1 million or 22.2 percent due primarily to acquisitions ($2.8 million).
Real estate taxes increased by $.9 million from $5.6 million to $6.5 million or
16.6 percent due primarily to acquisitions ($.7 million).
General and administrative expenses increased by $.8 million from $3.3 million
to $4.1 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 remained constant at 4.8 percent.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
increased by $13.7 million from $46.2 million to $59.9 million or 29.6 percent.
Depreciation and amortization increased by $3.2 million from $14.9 million to
$18.1 million or 21.4 percent due primarily to acquisitions.
Interest expense increased by $7.4 million from $10.4 million to $17.8 million
or 71.3 percent primarily due to increased average debt outstanding.
The $3.0 million gain on asset sales resulted from the disposal of certain
assets during the current nine month period.
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SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-------
RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 1998 and 1997
For the three months ended September 30, 1998, income before gain on asset sales
and minority interests increased by 14.8 percent from $7.0 million to $8.0
million, when compared to the three months ended September 30, 1997. The
increase was due to increased revenues of $6.3 million while expenses increased
by $5.3 million.
Income from property increased by $5.1 million from $23.2 million to $28.3
million or 22.1 percent, due to acquisitions ($3.7 million), lease up of
manufactured home sites ($.9 million) and increases in rents and other community
revenues ($.5 million).
Other income increased by $1.2 million from $.9 million to $2.1 million. $.6
million of the increase in other income relates to the improved results of SHS,
including brokerage commissions and the remaining $.6 million of the increase
relates to interest income.
Property operating and maintenance increased by $1.1 million from $5.4 million
to $6.5 million or 20.7 percent due almost entirely to acquisitions.
Real estate taxes increased by $.3 million from $1.8 million to $2.1 million or
15.5 percent due almost entirely to acquisitions.
General and administrative expenses increased by $.3 million from $1.1 million
to $1.4 million or 27.0 percent due primarily to increased staffing to manage
the growth of the company. General and administrative expenses as a percentage
of income from property increased from 4.8 percent to 5.0 percent.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
increased by $4.6 million from $15.7 million to $20.3 million or 29.1 percent
due primarily to acquisitions.
Depreciation and amortization increased by $1.0 million from $5.1 million to
$6.1 million or 18.7 percent due primarily to acquisitions.
Interest expense increased by $2.6 million from $3.6 million to $6.2 million or
71.7 percent primarily due to increased average debt outstanding.
The $2.1 million gain on asset sales results from the disposal of certain assets
during the current three month period.
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SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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SAME PROPERTY INFORMATION
The following table reflects property-level financial information as of and for
the nine months ended September 30, 1998 and 1997. The "Same Property" data
represents information regarding the operation of communities owned as of
January 1, 1997 and September 30, 1998. 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 2,040 sites in 1998 and 1997, respectively.
SAME PROPERTY TOTAL PORTFOLIO
-------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
Income from property $ 56,619 $ 52,555 $ 85,180 $ 68,632
-------- -------- -------- --------
Property operating expenses:
Property operating and maintenance 10,706 10,422 19,095 15,620
Real estate taxes 4,893 4,525 6,502 5,578
-------- -------- -------- --------
Property operating expenses 15,599 14,947 25,597 21,198
-------- -------- -------- --------
Property EBITDA $ 41,020 $ 37,608 $ 59,583 $ 47,434
======== ======== ======== ========
Number of properties 72 72 104 95
Developed sites 24,593 23,930 36,956 33,326
Occupied sites 23,342 22,739 33,484 30,965
Occupancy % 94.9%(1) 95.0%(1) 95.2(1) 95.2%(1)
Weighted average monthly rent per site $ 265(1) $ 253(1) $ 267(1) $ 256(1)
Sites available for development 1,744 2,405 5,854 3,288
Sites in development 374 497 1,220 762
(1) Occupancy % and weighted average rent relates to manufactured housing sites,
excluding recreational vehicle sites.
On a same property basis, property revenues increased by $4.1 million from $52.5
million to $56.6 million, or 7.7 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 603 leased sites at
September 30, 1998 compared to September 30, 1997.
Property operating expenses increased by $.7 million from $14.9 million to $15.6
million or 4.4 percent, due to increased occupancies and costs and increases in
assessments and millage rates by local taxing authorities. Property EBITDA
increased by $3.4 million from $37.6 million to $41.0 million, or 9.1 percent.
Sites available for development in the total portfolio increased by 2,566 from
3,288 to 5,854 primarily in conjunction with land acquisitions for new
communities to be developed in Arizona, Michigan, Texas and Nevada.
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SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $10.0 million to $12.2 million at
September 30, 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 $12.2 million to $46.7
million for the nine months ended September 30, 1998 compared to $34.5 million
for the same period in 1997. Income before minority interests, depreciation and
amortization and gain on asset sales increased by $6.7 million and changes in
working capital increased by $5.5 million.
Net cash used in investing activities increased by $4.4 million to $75.9 million
from $71.5 million primarily due to an increase of $38.5 million in rental
property acquisition activities offset by $20.8 million in proceeds from asset
sales and a reduction of $12.9 million used to finance mortgage notes
receivable.
Net cash provided by financing activities increased by $9.7 million to $39.2
million for the nine months ended September 30, 1998 compared to $29.5 million
for the same period in 1997. $37.9 million of this increase was due to
additional net debt borrowings, net of deferred financing costs offset by a
$25.5 million reduction in the proceeds received from stock options and dividend
reinvestment plan and a $2.7 million increase in distributions.
The Company expects to meet its short-term liquidity requirements generally
through its working capital provided by operating activities. The Company
expects to meet certain long-term liquidity requirements such as scheduled debt
maturities and property acquisitions through the issuance of equity or debt
securities, or interests in the Operating Partnership. The Company considers
these sources to be adequate and anticipates they will continue to be adequate
to meet operating requirements, capital improvements, investment in development,
and payment of distributions by the Company in accordance with REIT requirements
in both the short and long term. The Company can also meet these short-term and
long-term requirements by utilizing its $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 September 30, 1998, the Company's debt to total market capitalization
approximated 33.6% (assuming conversion of all Common and Preferred OP Units to
shares of common stock), with a weighted average maturity of approximately 7.5
years and a weighted average interest rate of 7.1%.
Recurring capital expenditures approximated $4.1 million for the nine months
ended September 30, 1998, including $.3 million for additional space and related
costs at corporate headquarters.
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SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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OTHER
Funds from operations ("FFO") is defined by the National Association of Real
Estate Investment Trusts ("NAREIT") as "net income (computed in accordance with
generally accepted accounting principles) excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures." Industry
analysts consider FFO to be an appropriate supplemental measure of the operating
performance of an equity REIT primarily because the computation of FFO excludes
historical cost depreciation as an expense and thereby facilitates the
comparison of REITs which have different cost bases in their assets. Historical
cost accounting for real estate assets implicitly assumes that the value of real
estate assets diminishes predictably over time, whereas real estate values have
instead historically risen or fallen based upon market conditions. FFO does not
represent cash flow from operations as defined by generally accepted accounting
principles and is a supplemental measure of performance that does not replace
net income as a measure of performance or net cash provided by operating
activities as a measure of liquidity. In addition, FFO is not intended as a
measure of a REIT's ability to meet debt principal repayments and other cash
requirements, nor as a measure of working capital. The following table
calculates FFO for the periods ended September 30, 1998 and 1997 (in thousands):
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
---- ---- ---- ----
Income before gain on asset sales and
minority interest $23,994 $20,909 $ 8,027 $ 6,992
Add depreciation and amortization, net
of corporate office depreciation 17,995 14,837 6,073 5,120
Deduct distribution to Preferred OP Units (1,879) (1,879) (627) (627)
------- ------- ------- -------
Funds from operations $40,110 $33,867 $13,473 $11,485
======= ======= ======= =======
Weighted average OP Units outstanding
used for basic FFO per share/unit 19,048 18,296 19,075 18,602
Dilutive securities:
Stock options 167 181 140 226
Convertible preferred OP Units 1,230 1,238 1,268 1,170
------- ------- ------- -------
Weighted average OP Units used for
diluted FFO per share/unit 20,445 19,715 20,483 19,998
======= ======= ======= =======
FFO, per share/unit:
Basic $ 2.11 $ 1.85 $ 0.71 $ 0.62
======= ======= ======= =======
Diluted $ 2.05 $ 1.81 $ 0.69 $ 0.61
======= ======= ======= =======
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SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------
OTHER CONTINUED:
Year 2000 Update
The Year 2000 Compliance issue concerns the inability of computerized
information systems and non-information systems to accurately calculate, store
or use a date after 1999. This could result in computer system failures or
miscalculations causing disruptions of operations. The Year 2000 issue affects
almost all companies and organizations.
The Company has discussed its software applications and internal operational
programs with its current information systems' vendors and, based on such
discussions, believes that such applications and programs will properly
recognize calendar dates beginning in the year 2000. The Company is discussing
with its material third-party service providers, such as its banks, payroll
processor, stock transfer agent and telecommunications provider, their Year 2000
compliance efforts and is assessing what effect their possible non-compliance
might have on the Company. In addition, the Company is discussing with its
material vendors the possibility of any interface difficulties and/or electrical
or mechanical problems relating to the year 2000 which may affect properties
owned or operated by the Company. The Company plans to complete its assessment
of Year 2000 compliance by such parties by December 31, 1998. Until such time,
the Company cannot estimate any potential adverse impact resulting from the
failure of vendors or third-party service providers to address their Year 2000
issues; however, to date, no significant Year 2000 related conditions have been
identified.
The Company believes that its expenditures for assessing its Year 2000 issues,
though difficult to quantify, to date have not been material because the
Company's Year 2000 evaluation has been conducted by its own personnel or by its
vendors in connection with their servicing operations. In addition, the Company
is not aware of any Year 2000 related conditions that it believes would likely
require material expenditures in the future.
Based on its current information, the Company believes that the risk posed by
any forseeable Year 2000 related problem with its internal systems and the
systems at its properties (including both information and non-information
systems) or with its vendors is minimal. Year 2000 related problems with the
Company's software applications and internal operational programs or with the
electrical or mechanical systems at its properties are unlikely to cause more
than minor disruptions in the Company's operations. The Company believes that
the risk posed by Year 2000 related problems for certain third-party service
providers, such as its banks, payroll processor, stock transfer agent and
telecommunications provider is marginally greater, though, based on its current
information, the Company does not believe any such problems would have a
material effect on its operations. Any Year 2000 related problems at these
third-party service providers could delay the processing of financial
transactions and the Company's payroll and could disrupt the Company's internal
and external communications. At this time, no contingency plans exist, however,
the Company anticipates developing contingency plans if, and to the extent,
deemed necessary. The Company does plan to seek independent verification or
review of its assessment of its Year 2000 issues by March 31, 1999. Pursuant to
the results of the independent review, contingency plans will be developed if,
and to the extent deemed necessary.
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SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-------
OTHER CONTINUED:
Year 2000 Update, Continued
While the Company believes that it will be Year 2000 compliant by December 31,
1999, there can be no assurance that the Company has been or will be successful
in identifying and assessing Year 2000 issues, or that, to the extent
identified, the Company's efforts to resolve such issues will be effective such
that Year 2000 issues will not have a material adverse effect on the Company's
business, financial condition, or results of operation.
Safe Harbor Statement
This Form 10-Q contains various "forward-looking statements" within the meaning
of the Securities Act of 1933 and the Securities Exchange Act of 1934, and the
Company intends that such forward-looking statements be subject to the safe
harbors created thereby. The words "may", "will", "expect", "believe",
"anticipate", "should", "estimate", and similar expressions identify
forward-looking statements. These forward-looking statements reflect the
Company's current views with respect to future events and financial performance,
but are based upon current assumptions regarding the Company's operations,
future results and prospects, and are subject to many uncertainties and factors
relating to the Company's operations and business environment which may cause
the actual results of the Company to be materially different from any future
results expressed or implied by such forward-looking statements. Please see the
section entitled "Risk Factors" of the Company's Registration Statement on Form
S-3 filed with the Securities and Exchange Commission on January 30, 1998 for a
list of uncertainties and factors.
Such factors include, but are not limited, to the following: (i) changes in the
general economic climate; (ii) increased competition in the geographic areas in
which the Company owns and operates manufactured housing communities; (iii)
changes in government laws and regulations affecting manufactured housing
communities; and (iv) the ability of the Company to continue to identify,
negotiate and acquire manufactured housing communities and/or vacant land which
may be developed into manufactured housing communities on terms favorable to the
Company. The Company undertakes no obligation to publicly update or revise any
forward-looking statements whether as a result of new information, future
events, or otherwise.
16
17
SUN COMMUNITIES, INC.
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 did not file any reports on Form 8-K during the period covered by
this Form 10-Q.
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18
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: November 10, 1998
SUN COMMUNITIES, INC.
By:/s/ Jeffrey P. Jorissen
-----------------------------------------
Jeffrey P. Jorissen, Chief Financial
Officer and Secretary
18
19
SUN COMMUNITIES, INC.
EXHIBIT INDEX
PAGE
FILED NUMBER
EXHIBIT NO. DESCRIPTION HEREWITH HEREIN
- ---------- ----------- -------- ------
27 Financial Data Schedule X
19
5
1,000
9-MOS
DEC-31-1998
JAN-01-1998
SEP-30-1998
12,168
0
0
0
0
0
779,631
64,966
798,012
21,000
339,391
0
0
171
317,502
798,012
0
89,646
0
25,597
0
0
17,808
27,024
0
27,024
0
0
0
22,214
1.32
1.30
September 30, 1997 Earnings per share:
Basic $1.04
September 30, 1997 Earnings per share:
Diluted $1.03
