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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
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)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 Par Value The New York Stock Exchange
(Title of Class) (Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates was
approximately $619 million as of March 10, 1998 based upon the closing price of
$25.875 on such date using beneficial ownership of stock rules adopted pursuant
to Section 13 of the Securities Exchange Act of 1934 to exclude voting stock
owned by Directors and Officers, some of whom may not be held to be affiliates
upon judicial determination.
At March 10, 1998 24,915,399 shares of the Registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III incorporates by reference the Registrant's Proxy Statement relating to
the Annual Meeting of Stockholders to be held May 12, 1998.
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MANUFACTURED HOME COMMUNITIES, INC.
TABLE OF CONTENTS
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PART I. Page
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Item 1. Business..................................................................................3
Item 2. Properties................................................................................7
Item 3. Legal Proceedings........................................................................12
Item 4. Submission of Matters to a Vote of Security Holders......................................12
PART II.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters................13
Item 6. Selected Financial Data and Operating Information........................................13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....16
Item 8. Financial Statements and Supplementary Data..............................................23
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.....23
PART III.
Item 10. Directors and Executive Officers of the Registrant.......................................23
Item 11. Executive Compensation...................................................................23
Item 12. Security Ownership of Certain Beneficial Owners and Management...........................23
Item 13. Certain Relationships and Related Transactions...........................................23
PART IV.
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K........................24
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PART I
ITEM 1. BUSINESS
THE COMPANY
GENERAL
Manufactured Home Communities, Inc. (together with its consolidated
subsidiaries, the "Company") is a fully integrated company which owns and
operates manufactured home communities. Manufactured home communities are
residential developments designed and improved for the placement of detached,
single-family manufactured homes which are produced off-site and installed
within the community. The owner of each home leases the site on which it is
located. Modern manufactured home communities are similar to typical
residential subdivisions containing centralized entrances, paved streets, curbs
and gutters and parkways. In addition, these communities often provide a
clubhouse for social activities and recreation and other amenities, which may
include swimming pools, shuffleboard courts, tennis courts, laundry facilities
and cable television service. Utilities are provided or arranged for by the
owner of the community. Some communities provide water and sewer service
through public or private utilities, while others provide these services to
residents from on-site facilities.
The Company was formed to continue the property operations, business
objectives and acquisition strategies of an entity that has owned and operated
manufactured home communities since 1969. As of December 31, 1997, the Company
owned or controlled a portfolio of 121 manufactured home communities (the
"Properties") located throughout the United States containing 44,108
residential sites. The Properties are located in 24 states (with the number of
Properties in each state shown parenthetically) -- Florida (34), California
(19), Arizona (17), Colorado (10), Delaware (7), Nevada (4), Oregon (3), Kansas
(3), Missouri (3), Indiana (3), Illinois (2), Iowa (2), Utah (2), New York (2),
Maryland (1), Minnesota (1), Montana (1), New Mexico (1), Oklahoma (1),
Pennsylvania (1), Virginia (1), West Virginia (1), Michigan (1) and Washington
(1). As of December 31, 1997, the Company also owned two office buildings
located in California.
The Company has approximately 778 full-time employees dedicated to
carrying out the Company's operating philosophy and strategies of value
enhancement and service to residents. The Company typically utilizes a one or
two-person management team (who reside at the Properties) for the on-site
management of each of the Properties. Typically, clerical and maintenance
workers are employed to assist these individuals in the management and care of
the Properties. Direct supervision of on-site management is the responsibility
of the Company's five regional vice presidents. These individuals have
significant experience in addressing the needs of residents and in finding or
creating innovative approaches to maximize value and increase cash flow from
property operations. Complementing this field management staff are
approximately 51 corporate employees who assist on-site management in all
property functions.
FORMATION OF THE COMPANY
The Company, formed in March 1993, is a Maryland corporation, which has
elected to be taxed as a real estate investment trust ("REIT"). The Company
generally will not be subject to Federal income tax to the extent it
distributes its REIT taxable income to its stockholders. REITs are subject to
a number of organizational and operational requirements. If the Company fails
to qualify as a REIT, its income is taxable at regular corporate rates. Even if
the Company qualifies for taxation as a REIT, the Company is subject to certain
state and local taxes on its income and property and Federal income and excise
taxes on its undistributed income.
The operations of the Company are conducted through certain entities which
are owned or controlled by the Company. MHC Operating Limited Partnership (the
"Operating Partnership") is the entity through which the Company conducts
substantially all of its operations. Sub-partnerships of the Operating
Partnership were created to: (i) facilitate mortgage financing (the "Financing
Partnerships"); (ii) facilitate the Company's ability to provide financing to
the owners of manufactured home communities ("Lending Partnership"); (iii) own
the management operations of the Company ("Management Partnerships"); and (iv)
own the assets and operations of certain utility companies which service the
Properties ("MHC Systems"). The financial results of the Operating Partnership
and sub-partnerships (together the "Subsidiaries") are consolidated in the
Company's consolidated financial statements.
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In addition, since certain activities, if performed by the Company, may
not be qualifying REIT activities under the Internal Revenue Code of 1986, as
amended (the "Code"), the Company has invested in the non-voting preferred
stock of various corporations which engage in such activities. Realty Systems,
Inc. ("RSI") is engaged in the business of purchasing, selling, leasing and
financing manufactured homes that are located or will be located in properties
managed by the Company. RSI also provides brokerage services to residents at
such properties. Typically residents move from a community but do not relocate
their homes. RSI may provide brokerage services, in competition with other
local brokers, by seeking buyers for the homes. RSI also leases homes to
prospective residents with the expectation that the tenant eventually will
purchase the home. LP Management Corp. leases from the Operating Partnership
certain real property within or adjacent to certain of the Properties
consisting of golf courses, pro shops, restaurants and recreational vehicle
areas. LP Management Corp. pays a management fee to an independent contractor
who manages and operates these businesses. The Company believes that RSI's
and LP Management Corp.'s (collectively, "Affiliates") activities benefit the
Company by maintaining and enhancing occupancy at the Properties. The Company
accounts for its investment in and advances to Affiliates using the equity
method of accounting.
BUSINESS OBJECTIVES AND OPERATING STRATEGIES
The Company seeks to maximize both current income and long-term growth in
income. The Company focuses on manufactured home communities that have strong
cash flow growth potential and expects to hold such properties for long-term
investment and capital appreciation. These business objectives and their
implementation are determined by the Company's Board of Directors and may be
changed at any time. The Company's investment and operating approach includes:
- Aggressively managing the Properties to increase operating margins
through rent and/or occupancy increases and expense control;
- Increasing income and property values by continuing the strategic
expansion and, where appropriate, renovation of the Properties;
- Utilizing management information systems to evaluate potential
acquisitions, identify and track competing properties and monitor tenant
satisfaction; and
- Selectively acquiring manufactured home communities that have
potential for long-term cash flow growth.
The Company is committed to enhancing its reputation as the most respected
brand name in the manufactured home community business. Its strategy is to own
and operate the highest quality communities in premier locations across the
United States. The focus is on creating an attractive residential environment
for homeowners by providing a well-maintained, comfortable community with a
variety of organized recreational and social activities and superior amenities.
In addition, the Company regularly surveys rental rates of competing
properties and conducts satisfaction surveys of residents to determine the
factors residents consider most important in choosing a manufactured home
community.
FUTURE ACQUISITIONS
The Company almost doubled its portfolio of manufactured home communities
in 1997 through acquisitions. The Company believes that opportunities for
property acquisitions are particularly attractive at this time because of
increasing acceptability of and demand for manufactured homes and continued
constraints on development of new manufactured home communities. The Company
believes it has a competitive advantage in the acquisition of new communities
due to its experienced management, significant presence in major real estate
markets and substantial capital resources. The Company is actively seeking to
acquire additional communities and currently is engaged in various stages of
negotiations relating to the possible acquisition of a number of communities.
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The Company anticipates that newly acquired properties will be located in
the United States. The Company utilizes market information systems to identify
and evaluate acquisition opportunities, including a market data base to review
the primary economic indicators of the various locations in which the Company
expects to expand its operations. Acquisitions will be financed from the most
appropriate sources of capital, which may include undistributed funds from
operations, issuance of additional equity securities, sales of investments,
collateralized and uncollateralized borrowings and issuance of debt securities.
In addition, the Company may cause the Operating Partnership to issue OP Units
to finance acquisitions. The Company believes that an ownership structure
which includes the Operating Partnership will permit the Company to acquire
additional manufactured home communities in transactions that may defer all or
a portion of the sellers' tax consequences.
When evaluating potential acquisitions, the Company will consider such
factors as: (i) the replacement cost of the property; (ii) the geographic area
and type of property; (iii) the location, construction quality, condition and
design of the property; (iv) the current and projected cash flow of the
property and the ability to increase cash flow; (v) the potential for capital
appreciation of the property; (vi) the terms of tenant leases, including the
potential for rent increases; (vii) the potential for economic growth and the
tax and regulatory environment of the community in which the property is
located; (viii) the potential for expansion of the physical layout of the
property and/or the number of sites; (ix) the occupancy and demand by residents
for properties of a similar type in the vicinity and the residents profile; (x)
the prospects for liquidity through sale, financing or refinancing of the
property; and (xi) competition from existing manufactured home communities and
the potential for the construction of new communities in the area. The Company
expects to purchase manufactured home communities with physical and market
characteristics similar to the Properties in its current portfolio.
PROPERTY EXPANSIONS
The Company will seek to increase the income generated from the Properties
and from any additional properties acquired by expanding the number of sites
available to be leased to residents if justified by local market conditions and
permitted by zoning and other applicable laws. Of the 121 Properties, eleven
may be expanded consistent with existing zoning regulations. In 1998, the
Company expects to develop an additional 90 expansion sites at Golf Vista. In
addition, where appropriate, the Company will consider upgrading or adding
facilities and amenities to certain Properties in order to make those
Properties more attractive in their markets. As of December 31, 1997, the
Company had more than 900 expansion sites located in sixteen of the Properties.
The Company filled 228 of the expansion sites in 1997 and expects to fill an
additional 200 sites in 1998.
LEASES
The typical lease entered into between the tenant and one of the Company's
manufactured home communities for the rental of a site requires a security
deposit and is month-to-month or year-to-year, renewable upon the consent of
both parties or, in some instances, as provided by statute. These leases are
cancelable, depending on state law, for non-payment of rent, violation of
community rules and regulations or other specified defaults. Non-cancelable
long-term leases, ranging from one to fifteen years, are in effect at certain
sites within seven of the Properties. In addition, lifetime leases are in
effect at certain sites within five of the Properties. These leases are
subject to rental rate increases based on the Consumer Price Index, in some
instances taking into consideration certain floors and ceilings and allowing
for pass-throughs of certain items such as real estate taxes, utility expenses
and capital expenditures. Generally, market rate adjustments are made on an
annual basis.
REGULATIONS AND INSURANCE
General. Manufactured home communities are subject to various laws,
ordinances and regulations, including regulations relating to recreational
facilities such as swimming pools, clubhouses and other common areas. The
Company believes that each Property has the necessary permits and approvals to
operate.
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Rent Control Legislation. State and local rent control laws, principally
in California and Florida, limit the Company's ability to increase rents and to
recover increases in operating expenses and the costs of capital improvements.
Enactment of such laws has been considered from time to time in other
jurisdictions. The Company presently expects to continue to maintain
manufactured home communities, and may purchase additional properties, in
markets that are either subject to rent control or in which rent-limiting
legislation exists or may be enacted. For example, Florida has enacted a law
which generally provides that rental increases must be reasonable. Also,
certain jurisdictions in California in which the Company owns Properties limit
rent increases to changes in the Consumer Price Index or some percentage
thereof.
Insurance. Management believes that the Properties are covered by
adequate fire, flood, property and earthquake insurance (where appropriate)
provided by reputable companies and with commercially reasonable deductibles
and limits. The Company believes its insurance coverage is adequate based on
the Company's assessment of the risks to be insured, the probability of loss
and the relative cost of available coverage. The Company has obtained title
insurance insuring fee title to the Properties in an aggregate amount which the
Company believes to be adequate.
INDUSTRY
THE MANUFACTURED HOME COMMUNITY INDUSTRY
The Company believes that modern manufactured home communities, like the
Properties, provide an opportunity for increased cash flows and appreciation in
value. These may be achieved through increases in occupancy rates and rents, as
well as expense controls, expansion of existing Properties and opportunistic
acquisitions, for the following industry specific reasons:
- Barriers to Entry: The Company believes that the supply of new
manufactured home communities will be constrained due to barriers to
entry into the industry. The most significant barrier has been the
difficulty in securing zoning from local authorities. This has been the
result of (i) the public's poor perception of the business, and (ii) the
fact that manufactured home communities generate less tax revenue
because the homes are treated as personal property (a benefit to the
home owner) rather than real property. Another factor that creates
substantial barriers to entry is the length of time between investment
in the communities' development and the attainment of stabilized
occupancy and the generation of revenues. The initial development of the
infrastructure may take up to two or three years. Once the community is
ready for occupancy, it may be difficult to attract residents to an
empty community. Substantial occupancy levels may take a number of
years to achieve.
- Industry Consolidation: According to an industry analyst's
manufactured home community industry report, there are approximately
24,000 manufactured home communities in the United States. The Company
believes that approximately 20% or 4,800 of these communities would be
considered "investment-grade". The five public companies which own
manufactured home communities own approximately 382 or less than 10% of
the "investment-grade" communities. In addition, based on a report
prepared by one analyst, the top 50 owners of manufactured home
communities own approximately 25% of the "investment-grade" assets. The
Company believes that this relatively high degree of fragmentation in
the industry provides the Company, as a national organization with
experienced management and substantial financial resources, the
opportunity to purchase additional manufactured home communities at
favorable prices.
- Stable Tenant Base: The Company believes that manufactured home
communities tend to achieve and maintain a stable rate of occupancy due
to the following factors: (i) residents own their own homes, and (ii)
moving a manufactured home from one community to another involves
substantial cost and effort and often results in the abandonment of
on-site improvements made by the tenant such as decks, garages, carports
and landscaping.
MANUFACTURED HOUSING
Based on the current growth in the number of individuals living in
manufactured homes, the Company believes that manufactured homes are
increasingly viewed by the public as an attractive and economical form of
housing. According to the industry's trade association, nearly one in three
new single family homes sold in the United States today is factory-built.
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The Company believes that the growing popularity of manufactured housing
is primarily the result of the following factors:
- Importance of Home Ownership. A 1996 survey by the Federal National
Mortgage Association indicated that most people would make a wide range
of trade-offs in order to own their own home. Security and permanence
are thought to be non-financial reasons to own a home. The commitment
to home ownership is tempered by an awareness of the high cost of owning
a home. The affordability of manufactured housing allows many
individuals to achieve this goal without jeopardizing their financial
security.
- Affordability. For a significant number of persons, manufactured
housing represents the only means of achieving home ownership. In
addition, the total cost of housing in a manufactured home community
(home cost, site rent and related occupancy costs) is competitive with
and often lower than the total cost of alternative housing, such as
apartments and condominiums.
- Lifestyle Choice. As the average age of the United States population
has increased, manufactured housing has become an increasingly popular
housing alternative for retirement and "empty-nest" living. The
percentage of buyers of manufactured homes who are 40 to 49 years old
has more than doubled since 1981 and the percentage of buyers who are 50
to 59 years old increased 40% in the same period. The Company believes
that manufactured housing is especially attractive to such individuals
when located within a community that offers an appealing amenity
package, close proximity to local services, social activities, low
maintenance and a secure environment.
- Construction Quality. Since 1976, all manufactured housing has been
required to meet stringent Federal standards, resulting in significant
increases in the quality of the industry's product. The Department of
Housing and Urban Development's standards for manufactured housing
construction quality are the only Federally regulated standards
governing housing quality of any type in the United States.
Manufactured homes produced since 1976 have received a "red and silver"
government seal certifying that they were built in compliance with the
Federal code. The code regulates manufactured home design and
construction, strength and durability, fire resistance and energy
efficiency, and the installation and performance of heating, plumbing,
air conditioning, thermal and electrical systems. In newer homes, top
grade lumber and dry wall materials are common. Also, manufacturers are
required to follow the same fire codes as builders of site-built
structures.
- Comparability to Site-Built Homes. The manufactured housing industry
has experienced a recent trend towards multi-section homes. Many modern
manufactured homes are longer (up to 80 feet compared to 50 feet in the
1960s) and wider than earlier models. Many homes have vaulted ceilings,
fireplaces and as many as four bedrooms and closely resemble single
family site-built homes.
ITEM 2. PROPERTIES
The Company believes that the Properties provide attractive amenities and
common facilities that create a comfortable and attractive community for the
residents, with most offering a clubhouse, a swimming pool, laundry facilities
and cable television service. Many also offer additional amenities such as
sauna/whirlpool spas, golf courses, tennis, shuffleboard and basketball courts
and exercise rooms. Since residents own their homes, it is their
responsibility to maintain their homes and the surrounding area. It is
management's role to insure that residents comply with community policies and
to provide maintenance of the common areas, facilities and amenities. The
Company holds periodic meetings of its property management personnel for
training and implementation of the Company's strategies. The Properties
historically have had and the Company believes they will continue to have low
turnover and high occupancy rates due in part to this strategy.
The distribution of the Properties throughout the United States reflects
the Company's belief that geographic diversification helps insulate the
portfolio from regional economic influences. The Company intends to target new
acquisitions in or near markets where the Properties are located and will also
consider acquisitions of properties outside such markets. The Company's five
largest markets of Properties owned are Florida (28 Properties), California (18
Properties), Arizona (15 Properties), Colorado (10 Properties) and the
Northeast (8 Properties). These markets account for 34%, 15%, 10%, 11%, and 9%,
respectively, of the Company's total revenues for the year ended December 31,
1997. The Company also has Properties located in the following markets:
Northwest, Midwest, and Nevada area. The Company's largest Property, Bay
Indies, located in Venice, Florida accounted for 4.4% of the Company's total
revenues for the year ended December 31, 1997.
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The following tables set forth certain information relating to the
Properties owned by the Company as of December 31, 1997 categorized by the
Company's major markets. "Core Portfolio" represents an analysis of Properties
owned as of the beginning of both years under comparison.
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Number Monthly Monthly
of Sites Occupancy Occupancy Base Rent Base Rent
Location Approximate as of as of as of as of as of
Community City, State Acreage 12/31/97 12/31/97 12/31/96 12/31/97 12/31/96
- ------------------------ ------------------ ----------- -------- --------- --------- --------- ---------
FLORIDA
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CENTRAL FLORIDA:
Mid-Florida Lakes Leesburg FL 290 1,195 95% (b) 94% (b) $288 $280
Oak Bend Ocala FL 100 262 79% (b) 78% (b) $208 $200
Spanish Oaks Ocala FL 78 459 98% 99% $260 $245
The Landings Port Orange FL 80 436 91% (a) $274 (a)
Pickwick Village Port Orange FL 84 432 94% (a) $271 (a)
EASTERN FLORIDA:
Carriage Cove Daytona Beach FL 78 418 99% (a) $334 (a)
Bulow Village Flagler Beach FL 40 276 65% (b) 100% $196 $182
Arrowhead Village Lantana FL 102 603 96% (a) $362 (a)
Colonies of Margate Margate FL 125 819 98% 97% $392 $383
Lakewood Village Melbourne FL 69 349 96% 96% $306 $291
Heritage Village Vero Beach FL 64 436 98% 98% $269 $261
Indian Oaks Rockledge FL 38 211 80% (b) (a) $221 (a)
WESTERN FLORIDA
Bay Indies Venice FL 211 1,309 100% 100% $292 $284
Bay Lake Estates Nokomis FL 35 228 100% 100% $320 $305
Buccaneer Estates N. Ft. Myers FL 223 971 100% 100% $286 $270
Country Place New PortRichey FL 82 515 72% (b) 65% (b) $205 $195
East Bay Oaks Largo FL 41 328 99% 99% $314 $302
Eldorado Village Largo FL 25 227 100% 99% $314 $304
Hillcrest Clearwater FL 25 279 90% (b) (a) $278 (a)
Holiday Ranch Largo FL 13 150 89% (a) $313 (a)
Lake Fairways N. Ft. Myers FL 259 896 100% 100% $323 $312
Lake Haven Dunedin FL 48 379 98% 98% $336 $324
Pine Lakes N. Ft. Myers FL 298 585 100% 97% $392 $381
The Heritage N. Ft. Myers FL 214 454 67% (b) 60% (b) $270 $264
Windmill Manor Bradenton FL 44 292 98% (a) $316 (a)
Windmill Village N. Ft. Myers FL 69 491 100% 99% $278 $272
Windmill Village South Sarasota FL 61 306 100% 100% $288 $276
Windmill Village North Sarasota FL 74 471 100% 99% $287 $276
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Total Florida Market 13,777 95% 95% $301 $290
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Florida Core Portfolio 10,956 95% 95% $300 $290
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</TABLE>
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<TABLE>
<CAPTION>
Number Monthly Monthly
of Sites Occupancy Occupancy Base Rent Base Rent
Location Approximate as of as of as of as of as of
Community City, State Acreage 12/31/97 12/31/97 12/31/96 12/31/97 12/31/96
- ------------------------ ------------------ ----------- -------- --------- --------- --------- ---------
CALIFORNIA
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Northern California:
California Hawaiian San Jose CA 50 413 100% (a) $544 (a)
Colony Park Ceres CA 10 187 77% (a) $319 (a)
Concord Cascade Pacheco CA 31 283 99% 99% $473 $468
Contempo Marin San Rafael CA 61 396 100% 100% $582 $566
Coralwood Modesto CA 22 194 93% (a) $373 (a)
De Anza Santa Cruz Santa Cruz CA 30 198 100% 100% $460 $450
Four Seasons Fresno CA 40 242 67% (a) $230 (a)
Monte del Lago Castroville CA 54 314 86% (b) (a) $431 (a)
Royal Oaks Visalia CA 29 149 85% (a) $240 (a)
San Jose I-IV (c) San Jose CA 88 724 100% (a) $501 (a)
Sea Oaks Los Osos CA 18 125 100% (a) $323 (a)
Sun Shadow San Jose CA 30 121 100% (a) $527 (a)
Southern California:
Date Palm Cathedral City CA 145 538 90% 91% $573 $560
Lamplighter Spring Valley CA 32 270 96% 96% $477 $454
Rancho Valley El Cajon CA 19 140 94% 93% $474 $456
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Total California Market 4,294 94% 96% $474 $511
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California Core Portfolio 1,825 96% 96% $523 $511
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</TABLE>
<TABLE>
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ARIZONA
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Apollo Village Phoenix AZ 29 238 93% (b) 93% (b) $316 $294
Brentwood Manor Mesa AZ 45 275 99% 98% $386 $368
Carefree Manor Phoenix AZ 16 127 98% (a) $264 (a)
Casa del Sol Resort #1 Peoria AZ 24 246 97% 96% $368 $348
Casa del Sol Resort #2 Glendale AZ 29 239 100% 99% $393 $373
Central Park Phoenix AZ 40 293 94% 94% $329 $314
Desert Skies Phoenix AZ 24 170 97% (a) $252 (a)
Em Ja Ha Phoenix AZ 100 115 100% (a) $227 (a)
Fairview Manor Tucson AZ 28 235 99% (a) $270 (a)
Hacienda De Valencia Mesa AZ 51 366 94% 93% $316 $299
Palm Shadows Glendale AZ 33 294 98% 99% $297 $279
Sedona Shadows Sedona AZ 41 200 86% (a) $267 (a)
Sunrise Heights Phoenix AZ 28 200 94% 92% $304 $281
The Mark Mesa AZ 61 409 99% 92% $295 $276
The Meadows Tempe AZ 57 391 96% 96% $366 $347
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Total Arizona Market 3,798 96% 95% $317 $317
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Arizona Core Portfolio 2,466 96% 94% $325 $308
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</TABLE>
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<TABLE>
<CAPTION>
Number Monthly Monthly
of Sites Occupancy Occupancy Base Rent Base Rent
Location Approximate as of as of as of as of as of
Community City, State Acreage 12/31/97 12/31/97 12/31/96 12/31/97 12/31/96
- ------------------------ ------------------ ----------- -------- --------- --------- --------- ---------
COLORADO
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Bear Creek Sheridan CO 6 127 99% (a) $354 (a)
Cimarron Broomfield CO 48 327 98% 98% $332 $318
Golden Terrace Golden CO 36 265 99% 99% $369 $349
Golden Terrace West Golden CO 38 317 98% 98% $362 $343
Golden Terrace South Golden CO 14 80 99% (a) $337 (a)
Hillcrest Aurora CO 73 603 95% 94% $359 $343
Holiday Hills Denver CO 99 737 97% 96% $346 $328
Holiday Village - CO Co. Springs CO 39 240 97% 98% $348 $324
Pueblo Grande Pueblo CO 33 252 98% 98% $226 $207
Woodland Hills Denver CO 57 434 99% 99% $336 $311
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Total Colorado Market 3,382 97% 97% $340 $321
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Colorado Core Portfolio 3,175 97% 97% $340 $321
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</TABLE>
<TABLE>
<CAPTION>
NORTHEAST
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Mariner's Cove Millsboro DE 110 375 83% (b) 81% (b) $302 $278
Nassau Lewes DE 67 392 97% 99% $245 $232
Waterford Wilmington DE 160 731 89% (b) 85% (b) $337 $324
Pheasant Ridge Mt. Airy MD 98 101 100% 100% $368 $344
Meadows of Chantilly Chantilly VA 82 500 86% 91% $463 $443
Independence Hill Morgantown WV 55 203 98% 99% $178 $167
Green Acres Breinigsville PA 149 595 98% (b) 95% (b) $357 $339
Brook Gardens Lackawanna NY 87 426 99% (a) $388 (a)
-------- --------- --------- --------- ---------
Total Northeast Market 3,323 92% 91% $340 $318
-------- --------- --------- --------- ---------
Northeast Core Portfolio 2,166 92% 93% $330 $316
-------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
MIDWEST
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Five Seasons Cedar Rapids IA 62 389 91% (b) (a) $224 (a)
Holiday Village - IA Sioux City IA 160 519 95% 94% $204 $190
Camelot Acres Burnsville MN 180 319 96% 94% $335 $314
Golf Vista Estates Monee IL 144 229 86% (b) (a) $283 (a)
Willow Lake Estates Elgin IL 110 616 99% 100% $527 $500
Burns Harbor Chesterton IN 42 228 97% 98% $268 $253
Candlelight Village Columbus IN 101 585 97% (b) 93% $164 $157
Oak Tree Village Portage IN 76 380 98% 98% $250 $236
Creekside Wyoming MI 8 165 98% (a) $340 (a)
Bonner Springs Bonner Springs KS 33 210 77% 78% $175 $175
Carriage Park Kansas City KS 24 143 67% (d) 60% (d) $172 $174
Quivira Hills Kansas City KS 54 142 80% 78% $212 $207
Rockwood Village Tulsa OK 38 265 99% 99% $191 $182
Briarwood Brookline MO 27 166 95% 94% $169 $159
Dellwood Manor Warrensburg MO 46 136 89% 89% $156 $144
Northstar Village Kansas City MO 61 219 85% 87% $219 $209
-------- --------- --------- --------- ---------
Total Midwest Market 4,711 93% 92% $266 $253
-------- --------- --------- --------- ---------
Midwest Core Portfolio 3,343 93% 92% $284 $270
-------- --------- --------- --------- ---------
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Number Monthly Monthly
of Sites Occupancy Occupancy Base Rent Base Rent
Location Approximate as of as of as of as of as of
Community City, State Acreage 12/31/97 12/31/97 12/31/96 12/31/97 12/31/96
- ------------------------ ------------------ ----------- -------- --------- --------- --------- ---------
NEVADA, UTAH, NEW MEXICO
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Del Rey Albuquerque NM 59 407 95% 99% $337 $320
All Seasons Salt Lake City UT 29 121 100% (a) $251 (a)
Westwood Village Farr West UT 93 294 100% (a) $204 (a)
Bonanza Las Vegas NV 43 353 99% 99% $415 $398
Flamingo West Las Vegas NV 36 205 100% 100% $375 $383
The Cabana Las Vegas NV 37 263 100% 100% $378 $364
Villa Borega Las Vegas NV 40 293 98% (a) $403 (a)
-------- --------- --------- --------- ---------
Total Nevada Market 1,936 98% 100% $348 $362
-------- --------- --------- --------- ---------
Nevada Core Portfolio 1,228 98% 100% $380 $362
-------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
NORTHWEST
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kloshe Illahee Federal Way WA 50 258 100% (a) $397 (a)
Falconwood Eugene OR 30 183 98% (a) $285 (a)
Quail Hollow Fairview OR 17 137 100% (a) $373 (a)
Shadowbrook Clackamas OR 20 156 100% (a) $384 (a)
Casa Village Billings MT 65 491 97% 96% $240 $232
-------- --------- --------- --------- ---------
Total Northwest Market 1,225 98% 96% $313 $232
-------- --------- --------- --------- ---------
Northwest Core Portfolio 491 97% 96% $240 $232
-------- --------- --------- --------- ---------
Grand Total Company Portfolio 36,446 95% (e) 95% (e) $329 $313
======== ========= ========= ========= =========
Grand Total Core Portfolio 25,650 95% 95% $327 $314
======== ========= ========= ========= =========
</TABLE>
(a) The Company acquired this Property in 1997.
(b) The process of filling expansion sites at these properties is ongoing.
(c) San Jose I-IV was subsequently renamed Westwinds.
(d) Carriage Park suffered damage to approximately 85 homes in 1993 due to
flooding; the process of re-leasing these sites is ongoing.
(e) Changes in total portfolio occupancy includes the impact of acquisitions
and expansion programs and are therefore not comparable. See Management's
Discussion and Analysis of Financial Condition and Results of Operations.
11
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS
Richard M. Perlman, a former employee of companies controlled by Mr.
Samuel Zell, Chairman of the Board of Directors, filed a legal proceeding
against Mr. Zell and various partnerships and corporations controlled by Mr.
Zell claiming, inter alia, that he had an interest in certain of the properties
previously owned by Mobile Home Communities, Inc. which were contributed to the
Operating Partnership at the time of the Company's initial public offering and
that he suffered damages when those properties were transferred in the
Operating Partnership. The proceeding was filed on July 21, 1995 (Richard M.
Perlman et al. v. Samuel Zell et al.) (United States District Court for the
Northern District of Illinois-Eastern Division, Case No. 95 C 4242). Mr
Perlman voluntarily dismissed the action that he previously filed in the
Circuit Court of Cook County, Illinois, which was known as Richard M. Perlman
v. Samuel Zell, et. al, Case No. 92 CH 19915. The Company is not party to this
lawsuit. This action has proceeded to a jury verdict and the Company has
incurred no liability and will incur no losses in connection with such action.
In a separate matter, residents of DeAnza Santa Cruz, a Property located
in Santa Cruz, California (the "City") previously brought several actions
opposing certain fees and charges in connection with water service at the
Property, specifically opposing a monthly "readiness to serve" charge. One
group of residents, who have elected to be covered under the City's rent
control ordinance ("Ordinance"), had their case heard before the City's rent
control board. On June 29, 1995, the City's hearing officer found that the
Company may charge only its actual costs. The Company believes its actual costs
exceed the amount of the monthly readiness to serve charge and has appealed
this decision and filed an application with the California Public Utilities
Commission requesting the Commission to set cost based rates for water at this
Property. In connection with the hearing officer's decision, the residents
were awarded costs of approximately $50,000 and the Company has rebated the
readiness to serve charge collected since its acquisition of the Property in
August, 1994. The impact of this decision on the financial condition or results
of operations of the Company is not expected to be material.
The Santa Cruz Homeowners Association, representing approximately fifteen
residents not covered by the Ordinance, separately filed suit in the Superior
Court of the State of California (Case Number 128001) opposing the same fees
and charges in connection with water service and seeking damages, including
punitive damages, arising out of the imposition of the readiness to serve
charge. A trial in the matter is set for July 1998 and the Company intends to
vigorously defend itself in the matter.
On September 29, 1995, the United States Environmental Protection Agency
("USEPA") issued its Findings of Violations and Order for Compliance with
respect to the National Pollution Discharge Elimination System ("NPDES") Permit
governing the operation of the onsite waste water treatment plant at one of the
Properties. On October 6, 1995, the USEPA issued its Findings of Violation and
Order for Compliance with respect to the NPDES Permit governing the operation
of the onsite waste water treatment plant at another of the Properties.
Applicable law provides for fines and penalties for these violations. Although
no fines or penalties have been assessed to date, USEPA continues to threaten
the imposition of fines, penalties and further legal proceedings regarding
these matters. The Company believes it complied with one order by connecting
to the local municipal waste water system, which connection was completed in
1997 and will further upgrade the waste water treatment plant at the other
Property during 1998 to further comply with the remaining order.
The Company is involved in various other legal proceedings arising in the
ordinary course of business. All proceedings herein described or referred to,
taken together, are not expected to have a material adverse impact on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth for the period indicated, the high and low
sales prices for the Company's common stock as reported by the New York Stock
Exchange under the trading symbol MHC.
<TABLE>
<CAPTION>
Distributions Return of Capital
Close High Low Made GAAP Basis (a)
----- ---- --- ---- --------------
<S> <C> <C> <C> <C> <C>
1997
1st Quarter $ 21.875 $ 24.25 $ 21.375 $ .33 $ .05
2nd Quarter 23.0625 23.75 20.125 .33 .04
3rd Quarter 26.00 26.4375 23.0625 .33 .02
4th Quarter 27.00 27.50 25.625 .33 .04
1996
1st Quarter $ 17.75 $ 19.75 $ 17.25 $.305 $.065
2nd Quarter 19.25 19.375 17.00 .305 .065
3rd Quarter 19.25 19.625 17.875 .305 .045
4th Quarter 23.25 23.25 19.00 .305 .065
</TABLE>
(a) Represents distributions per share in excess of net income per share-basic
on a GAAP basis and is not the same as return of capital on a tax basis.
The number of beneficial holders of the Company's common stock at December 31,
1997 was approximately 5,600.
ITEM 6. SELECTED FINANCIAL AND OPERATING INFORMATION
The following table sets forth selected financial and operating
information on a historical basis for the Company. The following information
should be read in conjunction with all of the financial statements and notes
thereto included elsewhere in this Form 10-K. The historical operating data
for the years ended December 31, 1997 and 1996 has been derived from the
historical Financial Statements of the Company audited by Ernst & Young LLP,
independent auditors. The historical operating data for the years ended
December 31, 1995, 1994, and 1993 have been derived from the historical
Financial Statements of the Company audited by Coopers & Lybrand, L.L.P.,
independent auditors.
On April 22, 1994, a two-for-one stock split became effective. For
purposes of presenting outstanding shares, distribution per share and units of
limited partnership interest ("OP Units"), the impact of the stock split has
been given retroactive treatment.
13
<PAGE> 14
Manufactured Home Communities, Inc. Consolidated Historical
<TABLE>
<CAPTION>
(1) Years ended December 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
--------- -------- --------- --------- ---------
(Amounts in thousands, except for per share and property data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
REVENUES
Base rental income $ 108,984 $ 93,109 $ 85,242 $ 60,085 $ 36,112
Utility and other income 11,785 8,821 8,481 4,348 2,711
Equity in income of affiliates 800 853 885 727 1,195
Interest income 1,941 2,420 2,296 3,599 1,958
--------- -------- --------- --------- ---------
Total revenues 123,510 105,203 96,904 68,759 41,976
--------- -------- --------- --------- ---------
EXPENSES
Property operating and maintenance 32,343 28,399 27,057 19,203 11,350
Real estate taxes 8,352 7,947 7,241 4,214 2,329
Property management 5,079 4,338 4,675 4,099 2,168
General and administrative 4,559 4,062 4,537 3,668 1,383
Depreciation and other costs (2) 17,955 15,732 16,122 9,520 5,201
Interest and related amortization (3) 21,753 17,782 18,527 11,146 8,588
--------- -------- --------- --------- ---------
Total expenses 90,041 78,260 78,159 51,850 31,019
--------- -------- --------- --------- ---------
Income from operations 33,469 26,943 18,745 16,909 10,957
Gain (loss) on sale of property --- --- 1,278 (293) ---
--------- -------- --------- --------- ---------
Income before allocation to
minority interests
and extraordinary item 33,469 26,943 20,023 16,616 10,957
Income allocated to
minority interests (4,373) (2,671) (2,006) (1,568) (522)
--------- -------- --------- --------- ---------
Income before extraordinary item 29,096 24,272 18,017 15,048 10,435
Extraordinary loss on
early extinguishment
of debt (net of income
allocated to minority
interests) (451) --- --- --- ---
--------- -------- --------- --------- ---------
Net income $ 28,645 $ 24,272 $ 18,017 $ 15,048 $ 10,435
========= ======== ========= ========= =========
Net income per common share before
extraordinary item - basic $ 1.18 $ .98 $ .74 $ .70 $ .70
========= ======== ========= ========= =========
Net income per common share before
extraordinary item - diluted (4) $ 1.16 $ .98 $ .74 $ .70 $ .69
========= ======== ========= ========= =========
Net income per common share - basic $ 1.16 $ .98 $ .74 $ .70 $ .70
========= ======== ========= ========= =========
Net income per common share - diluted (4) $ 1.15 $ .98 $ .74 $ .70 $ .69
========= ======== ========= ========= =========
Dividend per share (5) $ 1.32 $ 1.22 $ 1.18 $ 1.14 $ 1.03
========= ======== ========= ========= =========
Weighted average common shares outstanding -
basic, excluding OP Units of 3,749, 2,715,
2,717, 2,397 and 2,279, respectively 24,689 24,693 24,353 21,508 14,918
========= ======== ========= ========= =========
Weighted average common shares outstanding -
diluted, including OP Units of 3,749, 2,715,
2,717, 2,397, and 2,279, respectively 28,762 27,546 27,138 23,942 17,344
========= ======== ========= ========= =========
OTHER DATA:
Funds from operations (6) $ 50,834 $ 42,187 $ 34,518 $ 26,186 $ 16,094
Net cash flow:
Operating activities $ 54,581 $ 49,660 $ 40,161 $ 24,910 $ 16,724
Investing activities $(239,445) $(60,954) $ 4,382 $(220,707) $(178,059)
Financing activities $ 185,449 $ 10,858 $ (45,707) $ 170,427 $ 188,449
Total Properties (at end of period) (7) 121 69 65 67 47
Total sites (at end of period) 44,108 27,356 25,552 25,860 14,474
Total sites (weighted average) 29,323 26,621 25,375 18,164 13,144
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
(1) December 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
--------- -------- ---------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate, before accumulated
depreciation (8) $ 936,318 $597,650 $ 543,229 $ 541,775 $ 197,812
Total assets 864,365 567,874 523,125 544,106 341,728
Total debt 495,172 254,982 211,966 226,670 103,000
Minority interests 67,453 28,640 29,305 30,507 23,432
Stockholders' equity 280,575 257,952 261,500 270,602 204,426
</TABLE>
- ------------------------------
(1) See the Consolidated Financial Statements of the Company included elsewhere
herein.
(2) Depreciation and other costs include depreciation on corporate assets of
approximately $590,000, $488,000, $349,000, $243,000, and $64,000 for the
years ended December 31, 1997, 1996, 1995, 1994, and 1993, respectively.
(3) The $265 million mortgage notes payable (the "New Mortgage Debt") bear
interest at 7.015% through February 1, 2008.
The Company has a $100 million credit facility bearing interest at London
Interbank Offered Rate ("LIBOR") plus 1.125% ($25 million outstanding at
December 31, 1997).
In July 1995, the Company entered into an interest rate swap agreement
(the "Swap") fixing the LIBOR on $100 million of the Company's floating rate
debt at 6.4% for the period March, 1998 through 2003. By fixing the rate on
$100 million of debt, the Company avoids the general uncertainty relating to
the floating interest rate on the Company's variable rate debt through such
time.
(4) The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128"). For further discussion of earnings
per share and the impact of SFAS No. 128, see the notes to the consolidated
financial statements beginning on page F-8.
(5) The Company went public on March 3, 1993. The 1993 first quarter dividend
of $.08 reflected the period from March 3, 1993 to March 31, 1993 and was
prorated to $.25.
(6) The Company generally considers Funds From Operations ("FFO") to be an
appropriate measure of the performance of an equity REIT. FFO was defined
by the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 as net income (computed in accordance with GAAP), before
allocation to minority interests, excluding gains (or losses) from sales of
property, 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. For purposes of presenting FFO, the revised
definition of FFO has been given retroactive treatment. Prior to this
adoption, FFO was defined as income before allocation to minority interests
plus certain non-cash items, primarily depreciation and amortization. The
Company believes that FFO is helpful 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, it provides
investors an understanding of the ability of the Company to incur and
service debt and to make capital expenditures. The Company computes FFO in
accordance with the NAREIT definition which may differ from the methodology
for calculating FFO utilized by other equity REITs and, accordingly, may not
be comparable to such other REITs. FFO in and of itself does 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 is not
necessarily indicative of cash available to fund cash needs.
15
<PAGE> 16
(7) During the year ended December 31, 1993, seven Properties were acquired
which had aggregate net operating income of $1.5 million in 1993, which
included approximately $500,000 of depreciation and amortization expense.
During 1994, 23 Properties were acquired, which had an aggregate net
operating income of $10.3 million in 1994, which included approximately
$3.7 million of depreciation and amortization expense. Also during 1994,
three properties were sold; net operating income attributable to such
properties was approximately $30,500, which included approximately $32,000
of depreciation and amortization expense. During the year ended December
31, 1995, two properties were sold; net operating income attributable to
such properties was approximately $235,000, which included approximately
$83,000 of depreciation and amortization expense. During the year ended
December 31, 1996, four Properties were acquired; net operating income
attributable to such Properties was approximately $1.8 million, which
included approximately $371,000 of depreciation and amortization expense.
During the year ended December 31, 1997, 39 Properties were acquired; net
operating income attributable to such Properties was approximately $3.8
million, which included approximately $1.7 million of depreciation and
amortization expense.
(8) The Company believes that the book value of the Properties, which
reflects historical costs of such real estate assets less accumulated
depreciation, is less than the current market value of the Properties.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the historical Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Annual Report.
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
Since December 31, 1996, the gross investment in rental property has
increased from $598 million to $936 million as of December 31, 1997 due to the
acquisition of the following properties (the "Acquisition Properties"): (i)
California Hawaiian on March 14, 1997; (ii) Golf Vista Estates on March 27,
1997; (iii) Golden Terrace South on May 30, 1997; (iv) a portfolio of eighteen
manufactured home communities and two commercial properties (collectively, the
"MPW Properties") on August 29, 1997; (v) Arrowhead Village on September 16,
1997, and (vi) seventeen of the Ellenburg Communities on December 18, 1997.
The total number of sites owned and controlled has increased from 27,356 as of
December 31, 1996 to 44,108 as of December 31, 1997.
The following table summarizes certain weighted average occupancy
statistics for the years ended December 31, 1997 and 1996. "Core Portfolio"
represents an analysis of properties owned during both periods of comparison.
<TABLE>
<CAPTION>
Core Portfolio Total Portfolio
--------------- ----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Total sites 25,631 25,554 29,323 26,621
Occupied sites 24,319 24,098 27,770 25,025
Occupancy % 94.9% 94.3% 94.7% 94.0%
Monthly base rent per site $325 $312 $327 $310
</TABLE>
Base rental income ($109 million) increased $15.9 million or 17.0%. For
the Core Portfolio, base rental income increased approximately $4.7 million or
5.2%, reflecting a 4.3% increase in base rental rates and a 0.9% increase
related to occupancy. The remaining $11.2 million increase in base rental
income was attributed to the Acquisition Properties.
Monthly base rent per site for the total portfolio increased 5.5%,
reflecting a 4.2% increase in monthly base rent per site for the Core Portfolio
and higher monthly base rents for the Acquisition Properties. Average monthly
base rent per site for the Acquisition Properties was $343 for the year ended
December 31, 1997.
Weighted average occupancy increased 0.7% due to increased occupancy at
the expansion communities and the addition of the Acquisition Properties with
higher occupancy percentages to the portfolio.
16
<PAGE> 17
Utility and other income ($11.8 million) increased $3.0 million or 33.6%,
primarily due to an increase of $1.2 million attributed to the Acquisition
Properties, the collection of dividend income of $173,000 in the first quarter
of 1997, and increased utility income, real estate tax pass-ons and other
miscellaneous income at the Core Portfolio.
Interest income ($1.9 million) decreased $479,000 or 19.8%, primarily due
to the repayment of $13 million of notes receivable in August 1997, partially
offset by an increase in interest earned on short-term investments. Short-term
investments had average balances for the years ended December 31, 1997 and 1996
of approximately $4.7 million and $3.4 million, respectively, which earned
interest income at an effective rate of 5.4% per annum in both years.
Property operating and maintenance expenses ($32.3 million) increased $3.9
million or 13.9% due to the impact of the Acquisition Properties and an
increase in property payroll, property general and administrative expenses and
insurance and other expenses at the Core Portfolio. Partially offsetting these
increases was a decrease in repairs and maintenance expense and utility expense
at the Core Portfolio. Property operating and maintenance expenses represented
26.2% of total revenues in 1997 and 27.0% in 1996.
Real estate taxes ($8.4 million) increased $405,000 or 5.1% due to the
impact of the Acquisiton Properties, partially offset by a decrease in the Core
Portfolio due to lower than expected assessed values at certain of the
properties based on actual bills received. Real estate taxes represented 6.8%
of total revenues in 1997 and 7.6% in 1996.
Property management expenses ($5.1 million) increased $741,000 or 17.1%.
The increase was primarily due to an increase in management company payroll and
incremental costs associated with self management of the Acquisition
Properties. Property management expenses represented 4.1% of total revenues in
both 1997 and 1996.
General and Administrative expenses ("G&A") ($4.6 million) increased
$497,000 or 12.2%. The increase was primarily due to increased payroll
resulting from salary increases. G&A represented 3.7% of total revenues in
1997 and 3.9% in 1996.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
increased $12.7 million or 21%. Approximately $7.6 million of the increase
related to the Acquisition Properties. The remaining increase reflected
increased base rental income and decreased repairs and maintenance expense,
utility expense and real estate tax expense, partially offset by increased
payroll expense, property general and administrative expense and insurance and
other expenses at the Core Portfolio. In addition, corporate G&A and property
management expenses increased. EBITDA represented 59.2% of total revenues in
1997 and 57.5% in 1996.
Interest and related amortization ($21.8 million) increased $4.0 million
or 22.3%. The increase was due to higher weighted average outstanding debt
balances during the period. The weighted average outstanding debt balances for
the years ended December 30, 1997 and 1996 were $301.3 million and $234.9
million, respectively. The effective interest rate was 7.1% in 1997 and 7.2%
in 1996. Interest and related amortization represented 17.6% of total revenues
in 1997 and 16.9% in 1996.
On December 12, 1997 the Company refinanced the $100.0 million mortgage
note (the "Original Mortgage Debt") with a $265.0 million mortgage note (the
"New Mortgage Debt") collateralized by 29 properties beneficially owned by MHC
Financing Limited Partnership. The New Mortgage Debt has a maturity date of
January 2, 2028 and pays interest only at 7.015%. There is no principal
amortization until February 1, 2008 after which principal and interest are paid
from available cash flow and the interest rate is reset at a rate equal to the
then 10-year U.S. Treasury obligations plus 2.0%. In October 1996, the Company
entered into an interest rate swap agreement (the "1997 Swap") fixing LIBOR on
the Original Mortgage Debt at 5.57% effective January 10, 1997 through March
3, 1998. The Company sold the 1997 Swap in December 31, 1997 for approximately
$26,000 in connection with the refinancing.
On March 1, 1997, the Company amended the credit agreement for its $100.0
million line of credit reducing the interest rate from LIBOR plus 1.375% to
LIBOR plus 1.125%. In addition, the fee on the average unused amount was
reduced to 0.125% of such amount from 0.15%. The Company did not pay any fees
in connection with this amendment.
On April 3, 1997, the Company entered into a $60.0 million term loan (the
"Loan") with a group of banks with interest only payable monthly at a rate of
LIBOR plus 1.0%. The Loan matures on April 3, 2000 and may be extended to
April 3, 2002. In connection with the Loan, the outstanding balance under the
$100.0 million line of credit was reduced by $60.0 million.
17
<PAGE> 18
In July 1995, the Company entered into an interest rate swap agreement
(the "1998 Swap") fixing LIBOR on $100 million of the Company's floating rate
debt at 6.4% for the period March, 1998 through 2003. By fixing the rate on
$100 million of debt, the Company avoids the general uncertainty relating to
the floating interest rate on the Company's variable rate debt through such
time. The cost of the 1998 Swap consisted only of legal costs which were deemed
immaterial. The value of the 1998 Swap is impacted by changes in the market
rate of interest. Had the 1998 Swap been entered into on December 31, 1997,
the applicable LIBOR swap rate would have been 5.97%. Each 0.01% increase or
decrease in the applicable swap rate for the 1998 Swap increases or decreases
the value of the 1998 Swap entered into by the Company versus its current value
by approximately $43,245.
Depreciation on corporate assets ($590,000) increased $102,000 or 20.9%
due to fixed asset additions in 1996 associated with the Company's conversion
to a new accounting software system. Depreciation on corporate assets
represented 0.5% of total revenues in both 1997 and 1996.
Depreciation on real estate assets and other costs ($17.4 million)
increased $2.1 million or 13.9% as a result of the Acquisition Properties. In
addition, the Company recognized a one-time gain of $18,000 representing gains
on the prepayment of notes receivable and the sale of certain assets related to
the Chateau Communities, Inc. ("Chateau") merger attempt, partially offset by
the write-off of certain deferred compensation. Depreciation on real estate
assets and other costs represented 14.1% of total revenues in 1997 and 14.5%
in 1996.
In the fourth quarter of 1997, the Company recognized an extraordinary
item for early extinguishment of the Original Mortgage Debt of $556,000.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
Since December 31, 1995, the gross investment in rental property had
increased from $543 million to $598 million when compared to December 31, 1996
due to the acquisition of Waterford on February 28, 1996, the funding of the
Candlelight Village loan, which was accounted for as a purchase, on May 9,
1996, and the acquisition of Casa del Sol Resort No. 1 and Casa del Sol Resort
No. 2 (collectively, the "Casa del Sol Resorts") on October 23, 1996. The
total number of sites increased from 25,552 as of December 31, 1995 to 27,356
as of December 31, 1996.
The following table summarizes certain weighted average occupancy
statistics for the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
Core Portfolio Total Portfolio
--------------- ----------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Total sites 25,554 25,375 26,621 25,375
Occupied sites 24,098 23,787 25,025 23,787
Occupancy % 94.3% 93.7% 94.0% 93.7%
Monthly base rent per site $312 $297 $310 $297
</TABLE>
Base rental income ($93.1 million) increased $7.9 million or 9.2%. For
the Core Portfolio, base rental income increased approximately $5.4 million or
6.3%, reflecting a 5.0% increase in base rental rates and a 1.3% increase
related to occupancy. Base rental income at Waterford, Candlelight Village and
the Casa del Sol Resorts (collectively, the "1996 Acquisitions") was
approximately $3.0 million for the year ended December 31, 1996. Partially
offsetting this increase was a $502,000 decrease in base rental income
resulting from the sale of two properties in 1995.
Monthly base rent per site for the total portfolio increased 4.4%
reflecting a 5.0% increase in the Core Portfolio, partially offset by lower
monthly base rents for the 1996 Acquisitions. Average monthly base rent per
site for the 1996 Acquisitions was $270.
Weighted average occupancy increased 0.4% primarily due to increased
occupancy at the expansion communities.
Utility and other income ($8.8 million) increased $340,000 or 4% primarily
due to increased utility income and real estate tax pass-on income.
18
<PAGE> 19
Interest income ($2.4 million) increased $124,000 or 5%, primarily due to
interest earned on the 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 years ended December 31, 1996 and 1995
of approximately $3.4 million and $3.5 million, respectively, which earned
interest income at an effective rate of 5.4% in both years.
Property operating and maintenance expenses ($28.4 million) increased $1.3
million or 5% due to the impact of the 1996 Acquisitions, an increase in
utility expense, insurance and other expenses, and repairs and maintenance
expense at the Core Portfolio. Partially offsetting the increase was a
decrease resulting from the sale of two properties in 1995 and a decrease in
property payroll and property general and administrative expense at the Core
Portfolio. Property operating and maintenance expenses represented 27.0% of
total revenues in 1996 and 27.9% in 1995.
Real estate taxes ($7.9 million) increased $706,000 or 10% due to the
expected increase in assessed values at certain Properties in 1996. Real
estate taxes represented 7.6% of total revenues in 1996 and 7.5% in 1995.
Property management expenses ($4.3 million) decreased $337,000 or 7%. The
decrease was primarily due to a decrease in management company payroll as a
result of the staffing reductions in 1995. Property management expenses
represented 4.1% of total revenues in 1996 and 4.8% in 1995.
G&A expenses ($4.0 million) decreased $475,000 or 11%. The Company
continued to focus on reducing G&A expenses as a percentage of revenues and, as
a result these costs decreased significantly in 1996. In addition,
professional fees decreased resulting from the write-off in 1995 of legal due
diligence and related costs associated with acquisitions which did not
materialize. G&A expenses represented 3.9% of total revenues in 1996 and 4.7%
in 1995.
EBITDA increased $7.1 million or 21%. Approximately $2.2 million of the
increase related to the 1996 Acquisitions, partially offset by a decrease
resulting from the sale of two properties in 1995. The remaining increase
reflected increased base rental income and decreased payroll expense and
property general and administrative expenses, partially offset by increased
repairs and maintenance expense, utility expense, insurance and other expenses
and real estate expense at the Core Portfolio. In addition, corporate G&A
increased and property management expenses decreased. EBITDA represented 57.5%
of total revenues in 1996 and 55.1% in 1995.
Interest expense and related amortization ($17.8 million) decreased by
$745,000 or 4%. Interest expense decreased $13,000 due to a decrease in the
interest rate on the Original Mortgage Debt resulting from the interest rate
swap agreement entered into in December 1995 (see discussion below), partially
offset by an increase in interest on the line of credit resulting from
additional borrowings in 1996. The weighted average outstanding debt balances
for the years ended December 31, 1996 and 1995 were $234.9 million and $228.4
million, respectively. The effective interest rates were 7.2% and 7.6% for the
years ended December 31, 1996 and 1995, respectively. Amortization decreased
$732,000 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 Original Mortgage Debt related to 1996 which decreased
amortization in 1996. Interest expense and related amortization represented
16.9% of total revenues in 1996 and 19.1% in 1995.
The Company had an interest rate cap for the term of the Original Mortgage
Debt which eliminated exposure to increases in LIBOR over 6%, plus 1.05%. In
connection with the 1997 Swap and 1998 Swap, the Company sold portions of the
interest rate cap related to 1996 and 1997 and recorded a non-cash write-off of
approximately $650,000 in the fourth quarter of 1995 and $482,000 in the fourth
quarter of 1996.
Depreciation expense and other costs ($15.7 million) increased $390,000 or
2% as a result of the 1996 Acquisitions. In addition, the Company sold a
portion of the interest rate cap on the Original Mortgage Debt related to 1996
and 1997 and incurred non-cash charges of $482,000 and $650,000 in 1996 and
1995, respectively. Depreciation expense represented 14.5% of total revenues
in 1996 and 15.6% in 1995.
19
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased $4.9 million from
$49.7 million for the year ended December 31, 1996 to $54.6 million for the
same period in 1997. This increase reflected an $8.6 million increase in FFO,
which reflected increases in rental income and decreases of certain expenses as
discussed in "Results of Operations" above, and an increase in collection of
rents received in advance and security deposits related to the property
acquisitions, partially offset by an increase in prepaid expenses and rents
receivable and decreased accounts payable accruals.
Net cash provided by operating activities increased $9.5 million from
$40.2 million for the year ended December 31, 1995 to $49.7 million for the
same period in 1996. This increase reflected a $7.7 million increase in FFO,
which reflected increases in rental income and decreases of certain expenses as
discussed in "Results of Operations" above, an increase in accounts payable
accruals of approximately $1.6 million primarily related to acquisition
activities and real estate taxes, and an increase in collection of rents
receivable of $498,000, partially offset by decreased collections of
miscellaneous receivables.
FFO was defined by NAREIT in March 1995 as net income (computed in
accordance with generally accepted accounting principles ["GAAP"]), before
allocation to minority interests, excluding gains (or losses) from sales of
propery, 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 was 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. The Company computes FFO in accordance with the
NAREIT definition which may differ from the methodology for calculating FFO
utilized by other equity REITs and, accordingly, may not be comparable to such
other REITs. 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 years
ended December 31, 1997, 1996 and 1995 (amounts in the thousands):
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-------------------------
Computation of funds from operations: 1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income before allocation to
minority interests and
extraordinary item............... $33,469 $26,943 $20,023
Depreciation on real estate
assets and other costs..... 17,365 15,244 15,773
Gain on sale of assets........ --- --- (1,278)
------- ------- -------
Funds from operations (a)............ $50,834 $42,187 $34,518
======= ======= =======
Computation of funds available
for distribution:
Funds from operations (a)............ $50,834 $42,187 $34,518
Non-revenue producing
improvements - rental
properties................ (4,187) (3,402) (3,286)
------- ------- -------
Funds available for distribution....... $46,647 $38,785 $31,232
======= ======= =======
</TABLE>
- ---------------
(a) FFO for the year ended December 31, 1995 has been restated pursuant
to the new definition of FFO adopted by the Company for periods ending
after December 31, 1995.
20
<PAGE> 21
Net cash used in investing activities increased $178.5 million from $70
million for the year ended December 31, 1996 to $239.4 million for the year
ended December 31, 1997, primarily due to increased payments for acquisitions
in 1997 and the Company's investment in partnerships, partially offset by the
collection of principal payments on notes receivable, net proceeds from the
sale of project related assets and decreased purchases of short-term
investments, all of which had maturitites of three months or less.
Net cash used in investing activities increased $65.4 million from $4.4
million provided by investing activities for the year ended December 31, 1995
to $61.0 million used in investing activities for the year ended December 31,
1996, primarily due to the acquisitions of Waterford and the Casa del Sol
Resorts, the financing of Candlelight Village, the costs incurred in pursuit of
a proposed merger, a decrease in cash from the sale of rental properties in
1996 when compared to 1995 and the purchase of short-term investments.
Partially offsetting this increase were increased distributions from RSI.
During 1996, the Company offered a merger proposal to Chateau in
opposition to Chateau's proposed merger with ROC Communities, Inc. ("ROC") and
incurred approximately $1.3 million in project related costs and invested in
certain project related saleable assets with a book value of approximately $9.9
million. These expenditures were included in prepaid expenses and other assets
at December 31, 1996. On February 11, 1997, Chateau's shareholders approved
Chateau's merger with ROC. Thus, during 1997, the Company sold the related
assets it had acquired for approximately $11.1 million and incurred a net gain
of approximately $259,000.
During 1997, notes receivable of approximately $15 million were repaid.
In connection with the repayments, the Company recognized a one-time gain of
$525,000 representing the collection of a $1.4 million prepayment penalty,
partially offset by the write-off of the apportioned purchase price originally
allocated to the management contract for the property collateralizing one note
and write-off of the unamortized discount on another note.
On March 14, 1997, the Company acquired California Hawaiian, located in
San Jose, California, for a purchase price of approximately $23.3 million. The
acquisition was funded with a borrowing under the Company's line of credit.
On March 27, 1997, the Company acquired Golf Vista, located in Monee,
Illinois. The purchase price of approximately $7.4 million, including deferred
payments of $150,000 per year for the next five years, was funded with existing
available cash.
On May 30, 1997, the Company entered into a capital lease with East Tincup
Village, Inc., a Colorado corporation, for Golden Terrace South (formerly known
as East Tincup Village). The lease term is 110 months commencing on May 29,
1997 with monthly rental payments of approximately $18,000. The lease contains
an option for the Company to purchase Golden Terrace South at the termination
of the lease for $2.4 million. For financial accounting purposes, the Company
accounts for the lease as a direct financing lease and, accordingly, the
Company has recorded an investment in real estate and a note payable.
On August 29, 1997, the Company acquired the MPW Properties from limited
partnerships and joint ventures affiliated with MPW. The aggregate purchase
price of the MPW Properties was approximately $103 million. Approximately $64
million of the purchase price was in the form of units of limited partnership
interest ("OP Units"), approximately $6 million was in the form of installment
notes payable, approximately $17 million was in the form of cash funded from a
borrowing under the Company's line of credit, and the Company assumed debt of
approximately $13 million. In addition, the Company capitalized approximately
$1.8 million of costs associated with the acquisition.
On September 16, 1997, the Company acquired Arrowhead Village, located in
Lantana, Florida for a purchase price of approximately $20.3 million. The
acquisition was funded with a borrowing under the Company's line of credit.
21
<PAGE> 22
On September 4, 1997, the Company entered into a portfolio purchase
agreement to acquire 38 manufactured home communities (the "Ellenburg
Communities") from partnerships having Ellenburg Capital Corporation ("ECC") as
the general partner for a purchase in excess of $300 million. The agreement
immediately transferred property management of the 38 communities to the
Company. The Ellenburg Communities are being sold pursuant to an order of the
Superior Court for the State of California (the "California Court") which is
overseeing the involuntary dissolution of ECC. The California Court has
appointed winding-up agents to liquidate and wind-up the affairs of ECC. In
December 1997, the Company entered into a supplemental agreement (the
"Supplemental Agreement") in furtherance of its acquisition of the Ellenburg
Communities which was approved by the California Court. Sales of the Ellenburg
Communities are subject to limited partner approval. In December 1997, the
Company closed on the acquisition of seventeen of the Ellenburg Communities for
approximately $143 million and gained effective control of an additional twelve
communities. In 1998, the Company closed on the acquisition of two additional
Ellenburg Communities and made acquisition advances to the partnerships which
own seven of the Ellenburg Communities. The Company has also acquired certain
other undivided minority interests in certain of the properties. The Company
is in the process of obtaining limited partner approval to acquire the
remaining Ellenburg Communities. The Company has 120 days to complete certain
post-closing due diligence procedures and adjust the purchase price to the
extent that: (i) the net operating income of the communities is less than the
amount used to determine the purchase price; (ii) the community requires
environmental, structural engineering, deferred maintenance and other physical
or legal costs which may be in excess of anticipated amounts for such items,
and (iii) the community has negative working capital. The maximum amount for
such adjustments will be equal to 25% of the net equity value of the community
which will be held in escrow for 120 days from closing. The acquisitions are
being financed through assumption of debt securitization with a bank and
through borrowings under the Company's line of credit.
Capital expenditures for improvements were approximately $6.4 million for
the year ended December 31, 1997 compared to $8.1 million for the year ended
December 31, 1996. Of the $6.4 million, approximately $4.2 million represented
improvements to existing sites. The Company anticipates spending approximately
$4.5 million on improvements to existing sites during 1998. 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. The remaining $2.2 million represented costs to develop expansion
sites at certain of the Company's Properties and other corporate headquarter
costs. The Company is currently developing 90 additional sites at Golf Vista
Estates which should be available for occupancy in 1998.
Net cash provided by financing activities increased $174.6 million from
$10.9 million for the year ended December 31, 1996 to $185.4 million for the
year ended December 31, 1997 primarily due to the addition of the New Mortgage
Debt whereby the Company borrowed an additional $165 million, increased
borrowings on the line of credit, and an increase in proceeds from the exercise
of stock options and issuance of common stock under the employee stock purchase
plan, partially offset by the purchase of 330,300 shares of the Company's
common stock under the common stock repurchase plan, increased distributions to
common stockholders and the payment of debt issuance costs related to the Debt
Refinancing.
Net cash provided by financing activities increased $56.6 million from
$45.7 million used in financing activities for the year ended December 31, 1995
to $10.9 million provided by financing activities for the year ended December
31, 1996 primarily due to $52.1 million of borrowings under the line of credit
for the acquisitions of Waterford and the Casa del Sol Resorts and the
financing of Candlelight Village.
Distributions to common stockholders and minority interests increased
$13.8 million for the year ended December 31, 1997 when compared to the same
period in 1996 due to an increase in the distribution per share and number of
shares and OP units outstanding. For the year ended December 31, 1997, the
Company declared and paid quarterly distributions totaling $1.32 per share.
For the year ended December 31, 1996, the Company declared and paid quarterly
distributions totaling $1.22 per share, which included the fourth quarter
distribution paid on January 10, 1997. Return of capital on a GAAP basis was
$0.15, $0.24 and $0.44 for the years ended December 31, 1997, 1996 and 1995,
respectively.
Substantially all of the leases at the Properties allow for monthly or
annual rent increases which provide the Company with the opportunity to achieve
increases in rental income as each lease matures. Such types of leases
generally minimize the risk of inflation to the Company.
22
<PAGE> 23
The year 2000 issue ("Year 2000") is the result of computer programs being
written using two digits rather than four to define the applicable year. Any
of the Company's computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, collect rents, or engage in similar normal business activities.
Based on a recent assessment, the Company determined that a majority of its
applications will function properly with respect to dates in the year 2000 and
thereafter. The Company has initiated formal communications with all of its
significant suppliers to determine the extent to which the Company's interface
systems are vulnerable to those third parties' failure to remediate their own
year 2000 issues. The Company's total Year 2000 project cost and estimates to
complete do not include the estimated costs and time associated with the impact
of third party Year 2000 issues. There can be no guarantee that the systems of
other companies on which the Company's systems rely will be timely converted
and would not have an adverse effect on the Company's systems. The Company
anticipates completing its Year 2000 project no later than December 31, 1998,
which is prior to any impact on its operating systems. The total cost of the
Year 2000 project is estimated to be immaterial assuming third parties
remediate their own year 2000 issues. This assumption is based on management's
best estimates, which were derived utilizing numerous assumptions of future
events, and there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Combined Financial Statements on page F-1 of this Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10, 11, 12, 13.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, EXECUTIVE
COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 10, Item 11, Item 12, and Item 13
will be contained in a definitive proxy statement which the Registrant
anticipates will be filed no later than April 28, 1998, and thus this
part has been omitted in accordance with General Instruction G(3) to
Form 10-K.
23
<PAGE> 24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)
(1&2) See Index to Financial Statements and Schedules on page F-1 of this
Form 10-K.
<TABLE>
(3) Exhibits:
<S> <C>
2(a) Admission Agreement between Equity Financial and Management Co.,
Manufactured Home Communities, Inc. and MHC Operating Partnership
3.1(a) Articles of Incorporation of Manufactured Home Communities, Inc.
3.2(a) Articles of Amendment and Restatement of Manufactured Home Communities, Inc.
3.3(a) Bylaws of Manufactured Home Communities, Inc.
4 Not applicable
9 Not applicable
10.1(a) Amended and Restated Agreement of Limited Partnership of MHC Operating Limited Partnership
10.2(a) Agreement of Limited Partnership of MHC Financing Limited Partnership
10.3(a) Agreement of Limited Partnership of MHC Management Limited Partnership
10.4(a) Property Management and Leasing Agreement between MHC Financing
Limited Partnership and MHC Management Limited Partnership
10.5(a) Property Management and Leasing Agreement between MHC Operating
Limited Partnership and MHC Management Limited Partnership
10.6(a) Services Agreement between Realty Systems, Inc. and MHC Management Limited Partnership
10.7(a) Rate Protection Agreement
10.8(a) Revolving Credit Note made by Realty Systems, Inc. to Equity Financial and Management Co.
10.9(a) Assignment to MHC Operating Limited Partnership of Revolving
Credit Note made by Realty Systems, Inc. to Equity Financial and Management Co.
10.10(a) Stock Option Plan
10.11A(a) Indenture of Mortgage, Deed of Trust, Security Agreement, Financing Statement, Fixture Filing and
Assignment of Rents
10.11B(a) Promissory Note
10.11C(a) Assignment of Loan Documents
10.11D(a) Assignment of Leases, Rents and Security Deposits
10.11E(a) Swap Agreement Pledge and Security Agreement
10.11F(a) Cash Collateral Account Security, Pledge and Assignment Agreement
10.11G(a) Assignment of Property Management and Leasing Agreement
10.11H(a) Trust Agreement
10.12(a) Form of Noncompetition Agreement
10.13(a) Form of Noncompetition Agreement
10.13A(a) Form of Noncompetition Agreement
10.14(a) General Electric Credit Corporation Commitment Letter
10.15(a) Administrative Services Agreement between Realty Systems, Inc. and Equity Group Investments, Inc.
10.16(a) Registration Rights and Lock-Up Agreement with the Company (the Original Owners, EF&M,
Directors, Officers and Employees)
10.17(a) Administrative Services Agreement between Manufactured Home Communities, Inc. and Equity Group
Investments, Inc.
10.18(a) Form of Subscription Agreement between the Company and certain officers and other individuals dated
March 3, 1993
10.19(a) Form of Secured Promissory Note payable to the Company by certain officers dated March 3, 1993
10.20(a) Form of Pledge Agreement between the Company and certain officers dated March 3, 1993
10.21(a) Loan and Security Agreement between Realty Systems, Inc. and MHC Operating Limited Partnership
10.22(a) Equity and Registration Rights Agreement with the Company (the GM Trusts)
10.23(b) Agreement of Limited Partnership of MHC Lending Limited Partnership
10.23(c) Agreement of Limited Partnership of MHC-Bay Indies Financing Limited Partnership
10.24(c) Agreement of Limited Partnership of MHC-De Anza Financing Limited Partnership
10.25(c) Agreement of Limited Partnership of MHC-DAG Management Limited Partnership
</TABLE>
24
<PAGE> 25
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
(3) Exhibits (continued):
<TABLE>
<S> <C>
10.26(d) Amendment No. 2 to MHC Operating Limited Partnership Amended and
Restated Partnership Agreement dated February 15, 1996
10.27(d) Form of Subscription Agreement between the Company and certain
members of management of the Company dated January 2, 1996
10.28(d) Form of Secured Promissory Note payable to the Company by certain
members of management of the Company dated January 2, 1996
10.29(d) Form of Pledge Agreement between the Company and certain members of
management of the Company dated January 2, 1996
10.30(e) Second Amended and Restated MHC Operating Limited Partnership
Agreement of Limited Partnership, dated as of March 15, 1996
10.31(f) Agreement of Limited Partnership of MHC Financing Limited
Partnership Two
11 Not applicable
12(f) Computation of Ratio of Earnings to Fixed Charges
13 Not applicable
16 Not applicable
18 Not applicable
21(f) Subsidiaries of the registrant
22 Not applicable
23(f) Consent of Independent Auditors
23.1(f) Consent of Independent Auditors
24.1(f) Power of Attorney for John F. Podjasek, Jr. dated March 11, 1998
24.2(f) Power of Attorney for Michael A. Torres dated March 11, 1998
24.3(f) Power of Attorney for Thomas E. Dobrowski dated March 6, 1998
24.4(f) Power of Attorney for Gary Waterman dated March 10, 1998
24.5(f) Power of Attorney for Donald S. Chisholm dated March 5, 1998
24.6(f) Power of Attorney for Louis H. Masotti dated March 11, 1998
27(f) Financial Data Schedule
28 Not applicable
</TABLE>
___________________
(a) Included as an exhibit to the Company's Form S-11 Registration Statement,
File No. 33-55994, and incorporated herein by reference.
(b) Included as an exhibit to the Company's Report on Form 10-K dated December
31, 1993, and incorporated herein by reference.
(c) Included as an exhibit to the Company's Report on Form 10-K dated December
31, 1994, and incorporated herein by reference.
(d) Included as an exhibit to the Company's Report on Form 10-Q for the quarter
ended March 31, 1996, and incorporated herein by reference.
(e) Included as an exhibit to the Company's Report on Form 10-Q for the quarter
ended June 30, 1996, and incorporated herein by reference.
(f) Filed herewith.
25
<PAGE> 26
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
(b) Reports on Form 8-K:
Form 8-K/A dated August 29, 1997, filed November 11, 1997, relating
to Item 2 - "Acquisition of Assets" and Item 7 "Financial Statements
and Exhibits" on the acquisition of the MPW Properties.
Form 8-K dated December 18, 1997, filed December 31, 1997, relating
to Ite 2 - "Acquisition of Assets" and Item 7 "Financial Statements
and Exhibits" on the acquisition of the Ellenburg Communities.
Form 8-K/A dated December 18, 1997, filed February 24, 1998, relating
to Item 2 - "Acquisition of Assets" and Item 7 "Financial Statements
and Exhibits" on the acquisition of the Ellenburg Communities.
(c) Exhibits:
See Item 14 (a)(3) above.
(d) Financial Statement Schedules:
See Index to Financial Statements attached hereto on page F-1 of this
Form 10-K.
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MANUFACTURED HOME COMMUNITIES, INC.,
a Maryland corporation
Date: March 13, 1998 By: /s/ Howard Walker
- --------------------- -------------------------------------
Howard Walker
President and Chief Executive Officer
Date: March 13, 1998 By: /s/ Thomas P. Heneghan
- --------------------- -------------------------------------
Thomas P. Heneghan
Executive Vice President, Treasurer
and Chief Financial Officer
Date: March 13, 1998 By: /s/ Judy A. Pultorak
- --------------------- -------------------------------------
Judy A. Pultorak
Principal Accounting Officer
27
<PAGE> 28
MANUFACTURED HOME COMMUNITIES, INC. - SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant and in capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Howard Walker March 13, 1998
- ---------------------- Chief Executive Officer and President --------------
Howard Walker *Attorney-in-Fact
/s/ Thomas P. Heneghan Executive Vice President, Treasurer March 13, 1998
- ------------------------- and Chief Financial Officer --------------
Thomas P. Heneghan *Attorney-in-Fact
/s/ Samuel Zell Chairman of the Board March 13, 1998
- ------------------------- --------------
Samuel Zell
/s/ Sheli Z. Rosenberg Director March 13, 1998
- ------------------------- --------------
Sheli Z. Rosenberg
/s/ David A. Helfand Director March 13, 1998
- ------------------------- --------------
David A. Helfand
* Donald S. Chisholm Director March 13, 1998
- ------------------------- --------------
Donald S. Chisholm
* Thomas E. Dobrowski Director March 13, 1998
- ------------------------- ---------------
Thomas E. Dobrowski
* Louis H. Masotti Director March 13, 1998
- ------------------------- --------------
Louis H. Masotti
* John F. Podjasek, Jr. Director March 13, 1998
- ------------------------- --------------
John F. Podjasek, Jr.
* Michael A. Torres Director March 13, 1998
- ------------------------- --------------
Michael A. Torres
* Gary L. Waterman Director March 13, 1998
- ------------------------- --------------
Gary L. Waterman
</TABLE>
28
<PAGE> 29
INDEX TO FINANCIAL STATEMENTS
MANUFACTURED HOME COMMUNITIES, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Auditors .................................. F-2 and F-3
Consolidated Balance Sheets as of December 31, 1997 and 1996 ..... F-4
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 .............................. F-5
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1997, 1996 and 1995 .............. F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 .............................. F-7
Notes to Consolidated Financial Statements ....................... F-8
Schedule II - Valuation and Qualifying Accounts .................. S-1
Schedule III - Real Estate and Accumulated Depreciation .......... S-2
Certain schedules have been omitted as they are not applicable
to the Company.
</TABLE>
F-1
<PAGE> 30
Report of Independent Auditors
To the Board of Directors of
Manufactured Home Communities, Inc.
We have audited the accompanying consolidated balance sheets of
Manufactured Home Communities, Inc. as of December 31, 1997 and 1996, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years then ended. We have also audited the related
financial statement schedules listed in the accompanying index for the years
ended December 31, 1997 and 1996. These financial statements and schedules are
the responsibility of the management of Manufactured Home Communities, Inc.
Our responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects the consolidated financial position of Manufactured
Home Communities, Inc. as of December 31, 1997 and 1996 and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present
fairly, in all material respects the information required to be included
therein.
ERNST & YOUNG LLP
Chicago, Illinois
January 28, 1998, except for Note 15
as to which the date is February 23, 1998
F-2
<PAGE> 31
Report of Independent Auditors
To the Board of Directors of
Manufactured Home Communities, Inc.
We have audited the accompanying consolidated statement of operations,
changes in stockholders' equity and cash flows of Manufactured Home
Communities, Inc. for the year ended December 31, 1995. We have also audited
the related schedules listed in the accompanying index for the year ended
December 31, 1995. These financial statements are the responsibility of the
management of Manufactured Home Communities, Inc. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects the consolidated results of operations and cash flows
of Manufactured Home Communities, Inc. for the year ended December 31, 1995 in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects the information required to be included
therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
February 16, 1996
F-3
<PAGE> 32
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Investment in rental property:
Land....................................................... $206,375 $138,514
Land improvements.......................................... 612,670 370,440
Buildings and other depreciable property................... 90,870 88,696
Advances on rental property acquisitions................... 26,403 ---
-------- --------
936,318 597,650
Accumulated depreciation................................... (89,208) (71,481)
-------- --------
Net investment in rental property....................... 847,110 526,169
Cash and cash equivalents..................................... 909 324
Short-term investments (at cost, which approximates market)... --- 1,968
Notes receivable.............................................. 1,147 15,427
Investment in and advances to affiliates...................... 7,126 6,836
Rents receivable.............................................. 787 723
Deferred financing costs, net................................. 3,265 1,999
Prepaid expenses and other assets............................. 3,968 14,279
Due from affiliates........................................... 53 149
-------- --------
Total assets............................................... $864,365 $567,874
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable, net................................ $403,656 $197,482
Unsecured term loan........................................ 60,000 ---
Unsecured line of credit................................... 25,000 57,500
Other notes payable........................................ 6,516 ---
Accounts payable and accrued expenses...................... 17,197 14,364
Accrued interest payable................................... 1,536 1,495
Rents received in advance and security deposits............ 2,299 1,897
Distributions payable...................................... 55 8,439
Due to affiliates.......................................... 78 105
-------- --------
Total liabilities....................................... 516,337 281,282
-------- --------
Commitments and contingencies
Minority interests............................................ 67,453 28,640
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value
10,000,000 shares authorized; none issued............... --- ---
Common stock, $.01 par value
50,000,000 shares authorized; 24,771,180 and
24,951,948 shares issued and outstanding for 1997
and 1996, respectively.................................. 248 249
Paid-in capital............................................ 319,030 293,512
Employee notes............................................. (4,967) (6,158)
Distributions in excess of accumulated earnings............ (33,736) (29,651)
-------- --------
Total stockholders' equity.............................. 280,575 257,952
-------- --------
Total liabilities and stockholders' equity................. $864,365 $567,874
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-4
<PAGE> 33
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
REVENUES
Base rental income........................................ $108,984 $93,109 $85,242
Utility and other income.................................. 11,785 8,821 8,481
Equity in income of affiliates............................ 800 853 885
Interest income........................................... 1,941 2,420 2,296
-------- ------- -------
Total revenues......................................... 123,510 105,203 96,904
-------- ------- -------
EXPENSES
Property operating and maintenance........................ 32,343 28,399 27,057
Real estate taxes......................................... 8,352 7,947 7,241
Property management....................................... 5,079 4,338 4,675
General and administrative................................ 4,091 3,335 3,151
General and administrative - affiliates................... 468 727 1,386
Interest and related amortization......................... 21,753 17,782 18,527
Depreciation on corporate assets.......................... 590 488 349
Depreciation on real estate assets and other costs........ 17,365 15,244 15,773
-------- ------- -------
Total expenses......................................... 90,041 78,260 78,159
-------- ------- -------
Income from operations.................................... 33,469 26,943 18,745
Gain on sale of rental properties......................... --- --- 1,278
-------- ------- -------
Income before allocation to minority interests and
extraordinary loss on early extinguishment of debt..... 33,469 26,943 20,023
Income allocated to minority interests.................... (4,373) (2,671) (2,006)
-------- ------- -------
Income before extraordinary loss on early extinguishment
of debt................................................ 29,096 24,272 18,017
Extraordinary loss on early extinguishment of debt (net of
$105 allocated to minority interests).................. (451) --- ---
-------- ------- -------
Net income................................................ $ 28,645 $24,272 $18,017
======== ======= =======
Net income per common share before extraordinary
item - basic........................................... $ 1.18 $ .98 $ .74
======== ======= =======
Net income per common share before extraordinary
item - diluted......................................... $ 1.16 $ .98 $ .74
======== ======= =======
Net income per common share - basic....................... $ 1.16 $ .98 $ .74
======== ======= =======
Net income per common share - diluted..................... $ 1.15 $ .98 $ .74
======== ======= =======
Weighted average common shares outstanding - basic........ 24,689 24,693 24,353
======== ======= =======
Weighted average common shares outstanding - diluted (Note 2) 28,762 27,546 27,138
======== ======= =======
Distributions declared per common share outstanding....... $ 1.32 $ 1.22 $ 1.18
======== ======= =======
Tax status of distributions:
Ordinary income........................................ $ 1.12 $ .90 $ .68
======== ======= =======
Capital gain........................................... $ --- $ --- $ .02
======== ======= =======
Return of capital...................................... $ .20 $ .32 $ .48
======== ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements
F-5
<PAGE> 34
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
PREFERRED STOCK, $.01 PAR VALUE................... $ --- $ --- $ ---
======== ======== ========
COMMON STOCK, $.01 PAR VALUE
Balance, beginning of year........................ $ 249 $ 244 $ 244
Issuance of common stock for employee notes.... --- 3 ---
Issuance of common stock through restricted
stock awards................................ 1 2 ---
Retirement of treasury stock................... --- (1) ---
Exercise of options............................ 1 1 ---
Repurchase of common stock..................... (3) --- ---
-------- -------- --------
Balance, end of year.............................. $ 248 $ 249 $ 244
======== ======== ========
PAID - IN CAPITAL
Balance, beginning of year........................ $293,512 $288,533 $287,397
Issuance of common stock for employee notes.... --- 4,689 ---
Retirement of treasury stock................... --- (1,986) ---
Conversion of OP Units to common stock......... --- 23 ---
Recognition of deferred compensation expense... 1,637 951 86
Exercise of options............................ 2,070 1,013 752
Issuance of common stock through restricted
stock awards................................ 1,431 289 291
Issuance of common stock through employee stock
purchase plan............................... 587 --- ---
Repurchase of common stock..................... (7,257) --- ---
Adjustment for minority interests ownership
in operating partnership.................... 27,050 --- 7
-------- -------- --------
Balance, end of year.............................. $319,030 $293,512 $288,533
======== ======== ========
TREASURY STOCK
Balance, beginning of year........................ $ --- $ (1,987) $ ---
Common stock retired (acquired), 109,728 shares --- 1,987 (1,987)
-------- -------- --------
Balance, end of year.............................. $ --- $ --- $ (1,987)
======== ======== ========
EMPLOYEE NOTES
Balance, beginning of year........................ $ (6,158) $ (1,565) $ (4,050)
Notes received for issuance of common stock.... --- (4,692) ---
Principal payments............................. 1,191 99 2,485
-------- -------- --------
Balance, end of year.............................. $ (4,967) $ (6,158) $ (1,565)
======== ======== ========
DISTRIBUTIONS IN EXCESS OF ACCUMULATED EARNINGS
Balance, beginning of year........................ $(29,651) $(23,725) $(12,989)
Net income..................................... 28,645 24,272 18,017
Distributions.................................. (32,730) (30,198) (28,753)
-------- -------- --------
Balance, end of year.............................. $(33,736) $(29,651) $(23,725)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-6
<PAGE> 35
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
-------- ------- -------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................................... $ 28,645 $24,272 $18,017
Adjustments to reconcile net income to
cash provided by operating activities:
Income allocated to minority interests.......................... 4,268 2,671 2,006
Depreciation and amortization expense........................... 19,018 16,720 17,842
(Gain) loss on sale of rental properties........................ --- --- (1,278)
Equity in income of Affiliates.................................. (800) (853) (885)
Amortization of deferred compensation and other................. 3,068 1,242 377
Writeoff of a management contract and project costs............. (575) --- ---
Decrease (increase) in rents receivable......................... (64) 212 710
(Increase) in prepaid expenses and other assets................. (2,228) (109) (664)
Increase in accounts payable and accrued expenses............... 2,847 5,400 3,833
Increase (decrease) in rents received in advance
and security deposits........................................ 402 105 203
-------- ------- -------
Net cash provided by operating activities.......................... 54,581 49,660 40,161
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
(Purchase) redemption of short-term investments, net............... 1,968 (286) 4,799
Sale (purchase) of project related assets.......................... 11,147 (11,205) ---
Advances on rental property acquisitions........................... (22,811) --- ---
Distributions from Affiliates...................................... 388 5,004 1,399
Collections on notes receivable.................................... 16,342 126 1,832
Net proceeds from sale of rental property.......................... --- --- 4,762
Acquisition of rental properties................................... (240,083) (46,531) (600)
Improvements:
Improvements - corporate........................................ (357) (844) (808)
Improvements - rental properties................................ (4,187) (3,402) (3,286)
Site development costs.......................................... (1,852) (3,816) (3,716)
-------- ------- -------
Net cash (used in) provided by investing activities................ (239,445) (60,954) 4,382
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from stock options and employee stock purchase plan... 2,658 1,014 752
Distributions to common stockholders and minority interests........ (46,886) (33,070) (31,963)
Repurchase of common stock......................................... (7,260) --- (1,987)
Collection of principal payments on employee notes................. 1,191 99 2,485
Proceeds from line of credit, term loan, and mortgage notes payable 510,731 52,100 ---
Repayments on mortgage notes payable and line of credit............ (272,674) (9,084) (14,704)
Debt issuance costs................................................ (2,311) (201) (290)
-------- ------- -------
Net cash provided by (used in) financing activities................ 185,449 10,858 (45,707)
-------- ------- -------
Net increase (decrease) in cash and cash equivalents................. 585 (436) (1,164)
Cash and cash equivalents, beginning of year......................... 324 760 1,924
-------- ------- -------
Cash and cash equivalents, end of year............................... $ 909 $ 324 $ 760
======== ======= =======
SUPPLEMENTAL INFORMATION
Cash paid during the year for interest............................... $ 20,667 $16,557 $16,156
======== ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements
F-7
<PAGE> 36
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION OF THE COMPANY AND BASIS OF PRESENTATION
Manufactured Home Communities, Inc. (together with its consolidated
subsidiaries, the "Company"), formed in March 1993, is a Maryland corporation
which has elected to be taxed as a real estate investment trust ("REIT"). The
Company owns or has a controlling interest in 121 manufactured home communities
(the "Properties") located in 24 states, consisting of 44,108 sites. The
Company generally will not be subject to Federal income tax to the extent it
distributes its REIT taxable income to its stockholders.
The operations of the Company are conducted through certain entities which
are owned or controlled by the Company. MHC Operating Limited Partnership (the
"Operating Partnership") is the entity through which the Company conducts
substantially all of its operations. The Company contributed the proceeds from
its initial public offering to the Operating Partnership for a general
partnership interest. The limited partners of the Operating Partnership (the
"Minority Interests") receive an allocation of net income which is based on
their respective ownership percentage of the Operating Partnership which is
shown on the Consolidated Financial Statements as Minority Interests. As of
December 31, 1997, the Minority Interests represented 5,733,815 units of
limited partnership interest ("OP Units") which are convertible into an
equivalent number of shares of the Company's stock. The issuance of additional
shares of common stock or OP Units changes the respective ownership of the
Operating Partnership for both the Minority Interests and the Company.
Sub-partnerships of the Operating Partnership were created to (i)
facilitate mortgage financing (the "Financing Partnerships"); (ii) facilitate
the Company's ability to provide financing to manufactured home communities
("Lending Partnership"); (iii) own the management operations of the Company
("Management Partnerships"); and (iv) own the assets and operations of certain
utility companies which service the Company's properties ("MHC Systems").
The accompanying financial statements represent the consolidated financial
information of the Company and its subsidiaries. Due to the Company's ability
as general partner to control either through ownership or by contract the
Operating Partnership, the Financing Partnerships, the Lending Partnerships,
the Management Partnerships and MHC Systems, each such subsidiary has been
consolidated with the Company for financial reporting purposes.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(b) Rental Property
Rental property is recorded at cost less accumulated depreciation.
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") was 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 year ended December 31, 1997 and 1996, permanent
impairment conditions did not exist at any of the Company's properties.
Depreciation is computed on the straight-line basis over the estimated
useful lives of the assets. The Company uses a 30-year estimated life
for buildings acquired and structural and land improvements, a
ten-to-fifteen year estimated life for building upgrades and a
three-to-seven year estimated life for furniture, fixtures and equipment.
Expenditures for ordinary maintenance and repairs are expensed to
operations as incurred and significant renovations and improvements which
improve the asset and extend the useful life of the asset are capitalized
over their estimated useful life. Initial direct leasing costs are
expensed as incurred.
F-8
<PAGE> 37
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) Rental Property(continued)
The distribution of the Properties throughout the United States reflects
the Company's belief that geographic diversification helps insulate
the portfolio from regional economic influences. At the same time, the
Company has sought to create clusters of Properties within each of its
primary markets in order to achieve economies of scale in management and
operation. The Company's five largest markets are Florida, California,
Colorado, Arizona and the Northeast. These markets account for 34%, 15%,
11%, 10%, and 9%, respectively, of the Company's total revenues for the
year ended December 31, 1997.
(c) Cash and Cash Equivalents
The Company considers all demand and money market accounts and
certificates of deposit with an original maturity when purchased of
three months or less, to be cash equivalents.
(d) Notes Receivable
Notes receivable generally are stated at their outstanding unpaid
principal balances net of any deferred fees or costs on originated loans,
or unamortized discounts. Interest income is accrued on the unpaid
principal balance. Discounts are amortized to income using the interest
method.
(e) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" requires disclosures about the
fair value of financial instruments whether or not such instruments are
recognized in the balance sheet. The Company's financial instruments
include short-term investments, notes receivable, accounts receivable,
accounts payable, other accrued expenses, mortgage notes payable and
interest rate hedge arrangements. The fair value of all financial
instruments, including notes receivable, were not materially different
from their carrying values at December 31, 1997 and 1996, except the fair
market value of certain derivatives related to the Mortgage Debt (see Note
8).
(f) Deferred Financing Costs
Deferred financing costs include fees and costs incurred to obtain
long-term financing and costs to obtain the interest rate cap for the
Mortgage Debt. The costs are being amortized over the terms of the
respective loans on a level yield basis. Unamortized deferred financing
fees are written-off when debt is retired before the maturity date.
Accumulated amortization for such costs was $717,112 and $6,211,736 at
December 31, 1997 and 1996, respectively.
(g) Earnings Per Common Share
Earnings per common share are based on the weighted average number of
common shares outstanding during each year. In 1997, the Financial
Accounting Standards Board issued Statement No. 128, "Earnings Per Share"
("SFAS No. 128"). SFAS No. 128 replaces the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts
for all periods have been presented, and where appropriate, restated to
conform to the SFAS No. 128 requirements. The conversion of OP Units has
been excluded from the basic earnings per share calculation because of
certain restrictions on conversion. The conversion of an OP Unit to
common stock will have no effect on earnings per common share since the
allocation of earnings to an OP Unit is equivalent to earnings allocated
to a share of common stock.
F-9
<PAGE> 38
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) Earnings Per Common Share (continued)
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Numerator:
Net income $28,645 $24,272 $18,017
Income allocated to minority interests 4,373 2,671 2,006
------- ------- -------
Numerator for diluted earnings per share-
income available to common shareholders
after assumed conversions $33,018 $26,943 $20,023
======= ======= =======
Denominator:
Weighted average shares outstanding 24,689 24,693 24,353
Weighted average OP Units outstanding
assuming conversion 3,749 2,715 2,717
Employee stock options 324 138 68
------- ------- -------
Denominator for diluted earnings per share-
adjusted weighted average shares and
assumed conversions 28,762 27,546 27,138
======= ======= =======
</TABLE>
(h) Revenue Recognition
Rental income attributable to leases is recorded when earned from tenants.
(i) Minority Interests
Net income is allocated to Minority Interests based on their respective
ownership percentage of the Operating Partnership. An ownership percentage
is represented by dividing the number of OP Units held by the Minority
Interests (5,733,815 and 2,714,889 at December 31, 1997 and 1996,
respectively) by total OP Units and common stock outstanding. Issuance of
additional shares of common stock or OP Units changes the percentage
ownership of both the Minority Interests and the Company. Due in part to the
exchange rights, such transactions and the proceeds therefrom are treated as
capital transactions and result in an allocation between stockholders' equity
and Minority Interests to account for the change in the respective percentage
ownership of the underlying equity of the Operating Partnership.
(j) Income Taxes
Due to the structure of the Company as a REIT, the results of operations
contain no provision for Federal income taxes. However, the Company may be
subject to certain state and local income, excise or franchise taxes. The
Company paid state and local taxes of approximately $40,000 and $73,000
during the years ended December 31, 1997 and 1996. As of December 31, 1997,
net investment in rental property and notes receivable had a federal tax
basis of approximately $605 million and $20 million, respectively.
(k) Reclassifications
Certain 1996 and 1995 amounts have been reclassified to conform to the 1997
financial presentation. Such reclassifications have no effect on the
operations or equity as originally presented.
F-10
<PAGE> 39
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS
The following table presents the changes in the Company's outstanding
common stock for the years ended December 31, 1997, 1996 and 1995 (excluding OP
Units of 5,733,815, 2,714,889 and 2,717,048 outstanding at December 31, 1997,
1996 and 1995, respectively):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Shares outstanding at January 1,.............................. 24,951,948 24,393,149 24,426,887
Common stock purchased by key employees of the Company... --- 270,000 ---
Common stock issued through conversion of OP Units....... --- 2,159 ---
Common stock issued through exercise of Options.......... 107,147 75,497 58,500
Common stock issued through stock awards................. 14,777 211,143 17,490
Common stock issued through ESPP......................... 27,608 --- ---
Common stock repurchased and retired..................... (330,300) --- (109,728)
---------- ---------- ----------
Shares outstanding at December 31,............................ 24,771,180 24,951,948 24,393,149
========== ========== ==========
</TABLE>
In September 1996, the Company retired 109,728 shares of common stock
which were repurchased in 1995 and being held in treasury.
As of December 31, 1997, the Company's percentage ownership of the
Operating Partnership was 81.2%. The remaining 18.8% is owned by the Minority
Interests.
The Company paid a $.33 per share distribution on April 11, 1997, July 11,
1997, October 10, 1997 and December 30, 1997, for the quarters ended March 31,
1997, June 30, 1997, September 30, 1997 and December 31, 1997, respectively, to
stockholders of record on March 28, 1997, June 27, 1997, September 26, 1997 and
December 16, 1997, respectively.
In March 1997, the Company's Board of Directors approved a common stock
repurchase plan whereby the Company is authorized to repurchase up to 1,000,000
shares of its common stock. As of December 31, 1997, the Company had
repurchased 330,300 shares of common stock.
The Company adopted, effective July 1, 1997, the 1997 Non Qualified
Employee Stock Purchase Plan ("ESPP"). Pursuant to the ESPP, certain employees
and directors of the Company may each annually acquire up to $100,000 of common
stock of the Company. The aggregate number of shares of common stock available
under the ESPP shall not exceed 1,000,000, subject to adjustment by the Board
of Directors. The common stock may be purchased quarterly at a price equal to
85% of the lesser of: (a) the closing price for a share on the last day of such
quarter; and (b) the greater of: (i) the closing price for a share on the first
day of such quarter, and (ii) the average closing price for a share for all the
business days in the quarter. As of December 31, 1997, 27,608 shares have been
issued through the ESPP.
On August 29, 1997, the Company, as general partner of the Operating
Partnership, approved the addition of new limited partners (the "MPW Limited
Partners") to the Operating Partnership in connection with the acquisition of
properties from limited partners and joint ventures affiliated with Mobileparks
West, a California limited partnership ("MPW"). The MPW Limited Partners
received 3,018,926 OP Units which are exchangeable on a one-for-one basis for
shares of the Company's common stock.
NOTE 4 - RENTAL PROPERTY
Land improvements consist primarily of improvements made to land such as
landscaping and infrastructure. Depreciable property consists of permanent
buildings in the communities such as clubhouses, laundry facilities,
maintenance storage facilities, and furniture, fixtures and equipment.
F-11
<PAGE> 40
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - RENTAL PROPERTY (CONTINUED)
During the year ended December 31, 1995, the Company sold two communities
for cash of approximately $5.0 million and a purchase money note receivable of
$1.45 million, net of a fair value discount of $450,000. The Company recorded
gains in connection with these two sales in the amount of approximately $1.3
million.
During the year ended December 31, 1996, the Company acquired three
communities for an aggregate purchase price of approximately $38 million and
funded a recourse first mortgage real estate loan for approximately $6 million
to the partnership which owned one community. For financial accounting
purposes, the Company accounts for the loan as an investment in real estate.
These four communities consist of 1,618 sites and 183 expansion sites. The
acquisitions and loan funding were funded with approximately $41.6 million in
borrowings under the Company's line of credit and $2.4 million in existing
available cash.
On March 14, 1997, the Company acquired California Hawaiian Mobile Estates
("California Hawaiian"), located in San Jose, California, for a purchase price
of approximately $23.3 million. The acquisition was funded with a borrowing
under the Company's line of credit. California Hawaiian consists of
approximately 412 developed sites.
On March 27, 1997, the Company acquired Golf Vista Estates ("Golf Vista"),
located in Monee, Illinois. The purchase price of approximately $7.4 million,
including deferred payments of $150,000 per year for the next five years, was
funded with existing available cash. Golf Vista consists of approximately 200
developed sites and 319 expansion sites.
On May 29, 1997, the Company entered into a capital lease with East Tincup
Village, Inc., a Colorado corporation, for Golden Terrace South (formerly known
as East Tincup Village). The lease term is 110 months commencing on May 29,
1997, with monthly rental payments of approximately $18,000. The lease
contains an option for the Company to purchase Golden Terrace South at the
termination of the lease for $2.4 million. For financial accounting purposes,
the Company accounts for the lease as a capital lease; and, accordingly, the
Company has recorded an investment in real estate and a note payable of $2.4
million. Golden Terrace South consists of 80 developed sites and 86
recreational vehicle sites.
On August 29, 1997, the Company acquired seventeen manufactured home
communities, a 50% general partnership interest in one manufactured home
community, and two commercial properties (collectively, the "MPW Properties")
from limited partnerships and joint ventures affiliated with MPW. The
aggregrate purchase price was approximately $103 million. Approximately $64
million of the purchase price was in the form of OP Units, approximately $6
million was in the form of installment notes payable, approximately $17 million
was in the form of cash funded from a borrowing under the Company's line of
credit, and the Company assumed debt of approximately $13 million. The MPW
Properties, which consist of approximately 3,500 sites, are located in
California, Oregon, Utah, Arizona, Nevada and Washington.
On September 16, 1997, the Company acquired Arrowhead Village, located in
Lantana, Florida, for a purchase price of approximately $20.3 million. The
acquisition was funded with a borrowing under the Company's line of credit.
Arrowhead Village consists of approximately 603 developed sites.
On September 4, 1997, the Company entered into a portfolio purchase
agreement to acquire 38 manufactured home communities (the "Ellenburg
Communities") from partnerships having Ellenburg Capital Corporation ("ECC") as
a general partner for a purchase price in excess of $300 million. The
agreement immediately transferred property management of the 38 communities to
the Company. The Ellenburg Communities are being sold pursuant to an order of
the Superior Court for the State of California (the "California Court"), by
which ECC was involuntarily dissolved. The California Court has appointed the
winding-up agents to liquidate and wind-up the affairs of ECC and its interests
in the partnerships. In December 1997, the Company entered into a supplemental
agreement (the "Supplemental Agreement") with respect to the purchase the
Ellenburg Communities which was approved by the California Court.
F-12
<PAGE> 41
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - RENTAL PROPERTY (CONTINUED)
On December 18, 1997, the Company acquired seventeen of the 38 Ellenburg
Communities from court appointed agents winding up the affairs of ECC. The
aggregate purchase price of these communities was approximately $143 million.
Approximately $59 million of the purchase price was in the form of cash funded
from an additional borrowing with a bank and the Company also assumed debt of
approximately $34 million and repaid existing debt in the amount of
approximately $50 million. These seventeen communities consist of 4,159
manufactured home sites and 2,005 recreational vehicle sites. The Company has
120 days to complete certain post-closing due diligence procedures and adjust
the purchase price to the extent that (i) the net operating income of the
communities is less than the amount used to determine the purchase price; (ii)
the community requires environmental, structural engineering, deferred
maintenance and other physical or legal costs which may be in excess of
anticipated amounts for such items, and (iii) the community has negative
working capital. The maximum amount for such adjustments will be an amount
equal to 25% of the net equity value of the community which will be held in
escrow for 120 days from closing.
In connection with the remaining Ellenburg Communities not yet acquired as
of December 31, 1997, the Company had made acquisition advances in the amount
of approximately $22.0 million to various partnerships which own certain of the
Ellenburg Communities. In addition, the Company purchased certain limited
partnership interests of approximately $4.4 million in various partnerships
which own certain of the Ellenburg Communities through a tender offer which
expired on October 2, 1997. Approximately $3.6 million of the investment
represents limited partners who received payment either in the form of
preferred limited partnership interests with structured payments over periods
ranging from six to eight years, or who will receive a cash payment
representing the market value of the preferred limited partnership interests.
The Company subsequently closed on the acquisition of certain of the Ellenburg
Communities (see Note 15).
The acquisitions have been accounted for utilizing the purchase method of
accounting and, accordingly, the results of operations of acquired assets are
included in the statement of operations from the dates of acquisitions. The
Company acquired all of the communities from unaffiliated third parties.
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.
The following unaudited summarized pro forma financial information
presents the effect of all material transactions which transpired from January
1, 1996 to December 31, 1997. In management's opinion, the summarized pro
forma financial information does not purport to present what actual results
would have been had the above transactions occurred on January 1, 1996, or to
project results for any future period. The amounts presented in the following
table are in thousands, except for per share amounts:
<TABLE>
<CAPTION>
For the Years Ended
1997 1996
-------- --------
<S> <C> <C>
Total revenues $179,546 $169,985
Pro Forma net income $ 22,442 $ 16,832
Pro Forma net income per common share - basic $ .91 $ .68
</TABLE>
F-13
<PAGE> 42
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INVESTMENT IN AND ADVANCES TO AFFILIATES
Investment in and advances to affiliates consists principally of preferred
stock of Realty Systems, Inc. ("RSI") and LP Management Corp. (collectively
"Affiliates") and advances under a line of credit between the Company and RSI.
The Company accounts for the investment in and advances to Affiliates using the
equity method of accounting.
Following is unaudited financial information for the Affiliates for the
year ended December 31, 1997 and 1996 (amounts in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
-------- --------
Assets $ 14,466 $ 12,772
Liabilities, net of amounts due
to the Company (7,340) (5,936)
-------- --------
Net investment in Affiliates $ 7,126 $ 6,836
======== ========
Home sales $ 20,994 $ 20,645
Cost of sales (17,352) (17,539)
Other revenues and expenses, net (2,842) (2,253)
-------- --------
Equity in income of Affiliates $ 800 $ 853
======== ========
</TABLE>
NOTE 6 - NOTES RECEIVABLE
At December 31, 1997 and 1996, notes receivable consisted of the following
(amounts in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
$1.2 million purchase money notes with
monthly principal and interest payments at
7%, maturing on 7/31/2001....................... $ 1,147 $ 1,160
$2.0 million note receivable with monthly principal
and interest payments at 9.0%, maturing on
6/10/2003 (a)................................... --- 1,596
$10 million leasehold mortgage loan with interest
accruing at a stated rate of 12.5% with a pay
rate of 8.75%, maturing on 9/1/2013 (b)......... --- 11,071
$1.9 million note receivable with monthly interest
payments at prime plus 1.6%, maturing
on 4/15/2000 (c)................................ --- 1,600
------- -------
Total notes receivable............................. $ 1,147 $15,427
======= =======
</TABLE>
(a) On August 1, 1997, the $2.0 million note receivable was repaid.
(b) On August 13, 1997, the $10.0 million leasehold mortgage loan was repaid
and the Company recognized a one-time gain of $315,000 representing the
collection of a $1.4 million prepayment penalty on the note, partially
offset by the write-off of the apportioned purchase price originally
allocated to the management contract for the property collateralizing the
note.
(c) On December 23, 1997, the $1.9 million note receivable was repaid and the
Company recognized a one-time gain of $210,000.
NOTE 7 - EMPLOYEE NOTES RECEIVABLE
In December 1992, certain directors, officers and other individuals each
entered into subscription agreements with the Company to acquire 440,000 shares
of the Company's common stock at $7.25 per share. The Company received from
these individuals notes (the "1993 Employee Notes") in exchange for their
shares. The 1993 Employee Notes accrue interest at 6.77%, mature on March 2,
2003, and are recourse against the employees in the event the pledged shares
are insufficient to repay the obligations.
F-14
<PAGE> 43
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - EMPLOYEE NOTES RECEIVABLE (CONTINUED)
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.
In December 1997, the then Chief Executive Officer of the Company resigned
and paid off his 1993 Employee Note and 1996 Employee Note in the aggregate
amount of approximately $1 million.
NOTE 8 - LONG-TERM BORROWINGS
As of December 31, 1997 and 1996, the Company had outstanding mortgage
indebtedness of approximately $403.7 million and $197.5 million, respectively,
encumbering 43 and 37 of the Company's properties, respectively. As of
December 31, 1997 and 1996, the carrying value of such properties was
approximately $493 million and $331 million, respectively. On December 12,
1997, the Company refinanced $100.0 million of the mortgage debt (the "Original
Mortgage Debt") with a $265.0 million mortgage note (the "New Mortgage Debt")
collateralized by 29 properties beneficially owned by MHC Financing Limited
Partnership. The New Mortgage Debt has a maturity date of January 2, 2028 and
pays interest at 7.015%. There is no principal amortization until February 1,
2008 after which principal and interest are paid from available cash flow and
the interest rate is reset at a rate equal to the then 10-year U.S. Treasury
obligations plus 2.0%. In connection with the refinancing, the Company
recognized an extraordinary loss on early extinguishment of debt in the amount
of $556,000. In October 1996, the Company entered into an interest rate swap
agreement (the "1997 Swap") fixing the London Interbank Offered Rate ("LIBOR")
on the Original Mortgage Debt at 5.57% effective January 10, 1997 through March
3, 1998. The Company sold the 1997 Swap effective December 31, 1997 for
approximately $26,000 in connection with the refinancing.
During 1997, in connection with the acquisition of the MPW Properties and
Ellenburg Communities, the Company assumed the outstanding mortgage balances on
eight properties in the aggregate amount of approximately $41.6 million. The
obligations were recorded at fair market value with the related discount or
premium being amortized over the life of the loan using the effective interest
rate. In addition, the Company recorded a $2.4 million loan in connection with
a direct financing lease entered into in May 1997 (see Note 4 for additional
discussion). Scheduled maturities for the outstanding indebtedness, excluding
the New Mortgage Debt, are at various dates through November 30, 2020 and fixed
interest rates range from 7.25% to 9.05%.
The Company has a $100.0 million unsecured line of credit with a bank (the
"Credit Agreement"). On March 1, 1997, the Company amended the Credit
Agreement reducing the interest rate from LIBOR plus 1.375% to LIBOR plus
1.125%. In addition, the fee on the average unused amount was reduced to
0.125% of such amount from 0.15%. The Company did not pay any fees in
connection with this amendment. As of December 31, 1997, $25.0 million was
outstanding under the line of credit.
On April 3, 1997, the Company entered into a $60.0 million term loan (the
"Loan") with a group of banks with interest only payable monthly at a rate of
LIBOR plus 1.0%. On June 2, 1997, the Company elected to set the LIBOR rate on
the Loan at 6.05% through January 2, 1998. The Loan matures on April 3, 2000
and may be extended to April 3, 2002. In connection with the Loan, the
outstanding balance under the $100.0 million line of credit was reduced by
$60.0 million.
In connection with the acquisition of the MPW Properties, the Company
issued approximately $6.6 million of installment notes payable secured by a
letter of credit with interest rates of 7.5%, maturing September 1, 2002.
Approximately $5.3 million of the notes pay principal annually and interest
quarterly and the remaining $1.3 million of the notes pay interest quarterly.
In July 1995, the Company entered into an interest rate swap agreement
(the "1998 Swap") fixing LIBOR on $100 million of the Company's floating rate
debt at 6.4% for the period 1998 through 2003. The cost of the 1998 Swap
consisted only of legal costs which were deemed immaterial. The value of the
1998 Swap is impacted by changes in the market rate of interest. Had the 1998
Swap been entered into on December 31, 1997, the applicable LIBOR swap rate
would have been 5.97%. Each 0.01% increase or decrease in the applicable swap
rate for the 1998 Swap increases or decreases the value of the 1998 Swap
entered into by the Company versus its current value by approximately $43,245.
F-15
<PAGE> 44
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - LONG-TERM BORROWINGS (CONTINUED)
Aggregate payments of principal on long-term borrowings for each of the
next five years and thereafter are as follows (amounts in thousands):
<TABLE>
<CAPTION>
Year Amount
---------- --------
<S> <C>
1998 $3,555
1999 3,422
2000 3,608
2001 71,377
2002 63,474
Thereafter 351,003
--------
Total $496,439
========
</TABLE>
NOTE 9 - LEASE AGREEMENTS
The leases entered into between the tenant and the Company for the rental
of a site are month-to-month or for a period of one to ten years, renewable
upon the consent of the parties or, in some instances as provided by statute.
Non-cancelable long-term leases, ranging from one to fifteen years, are in
effect at certain sites within six of the properties. Rental rate increases at
these properties are primarily a function of increases in the Consumer Price
Index taking into consideration certain floors and ceilings. Additionally,
periodic market rate adjustments are made as deemed necessary. Future minimum
rents scheduled to be received under noncancelable tenant leases at December
31, 1997 are as follows (amounts in thousands):
<TABLE>
<CAPTION>
Year Amount
---------- -------
<S> <C>
1998 $16,136
1999 12,528
2000 6,087
2001 6,267
2002 6,452
Thereafter 20,535
-------
Total $68,005
=======
</TABLE>
NOTE 10 - GROUND LEASES
Certain properties lease land under noncancellable operating leases
expiring in various years from 2022 to 2031 with terms which require twelve
equal payments per year plus additional rents calculated as a percent of gross
revenues. For the year ended December 31, 1997, ground rent was $1.2 million.
Minimum future rental payments under the lease are $1.6 million for each of the
next five years and $34.0 million thereafter.
NOTE 11 - TRANSACTIONS WITH RELATED PARTIES
Equity Group Investments, Inc. ("EGI"), an entity controlled by Mr. Samuel
Zell, Chairman of the Board of Directors, and certain of its affiliates have
provided services such as administrative support, investor relations, corporate
secretarial, real estate tax evaluation services, market consulting and
research services, and computer and support services. Fees paid to EGI and its
affiliates amounted to approximately $140,000, $708,000 and $1,047,000 for the
years ended December 31, 1997, 1996 and 1995, respectively. Amounts due to
these affiliates were approximately $15,000 and $31,000 as of December 31, 1997
and 1996, respectively.
F-16
<PAGE> 45
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
Certain related entities, owned by persons affiliated with Mr. Zell, have
provided services to the Company. These entities include, but are not limited
to, Rosenberg & Liebentritt, P.C. which provided legal services; The Riverside
Agency, Inc. which provided insurance brokerage services; Equity Office
Properties Trust which provided office space to the Company; and Equity
Properties & Development, LP which provided accounting services. Fees paid to
these entities amounted to approximately $459,000, $527,000 and $250,000 for
the years ended December 31, 1997, 1996 and 1995, respectively. Amounts due to
these affiliates were approximately $63,000 and $74,000 as of December 31, 1997
and 1996, respectively. Of the amounts due to these affiliates as of December
31, 1997 and 1996, approximately $105,000 and $67,000, respectively, were
capitalized.
Related party agreements or fee arrangements are generally for a term of
one year and approved by independent members of the Board of Directors.
NOTE 12 - STOCK OPTION PLAN
A Stock Option Plan (the "Plan") was adopted by the Company in December
1992. Pursuant to the Plan, certain officers, directors, employees and
consultants of the Company may be offered the opportunity to acquire shares of
common stock through the grant of stock options ("Options"), including
non-qualified stock options and, for key employees, incentive stock options
within the meaning of Section 422 of the Code. The Compensation Committee will
determine the vesting schedule, if any, of each Option and the term, which term
shall not exceed ten years from the date of grant. As to the Options that have
been granted through December 31, 1997, generally, one-third are exercisable
one year after the initial grant, one-third are exercisable two years following
the date such Options were granted and the remaining one-third are exercisable
three years following the date such Options were granted. The Plan allows for
10,000 Options to be granted annually to each director. The common stock with
respect to which the Options may be granted during any calendar year to any
grantee shall not exceed 250,000 shares. In addition, the Plan provides for
the granting of stock appreciation rights ("SARs") and restricted stock awards
("Stock Awards"). A maximum of 2,000,000 shares of common stock were available
for grant under the Plan as of December 31, 1997 and an additional 2,000,000
shares will become available upon approval by the Company's shareholders.
In 1997, 1996 and 1995, the Company issued 14,777, 13,144 and 17,490
shares related to Stock Awards, respectively. The shares related to the Stock
Awards shall be restricted for a period of two years from the date of grant.
The fair market value of these Stock Awards of approximately $394,361, $289,000
and $291,000 at the date of grant was recorded by the Company in 1997, 1996 and
1995, respectively.
In 1996, the Company awarded 198,000 Stock Awards to certain members of
senior management of the Company. These Stock Awards vest over five years, but
may be restricted for a period of up to fifteen years depending upon certain
performance benchmarks tied to increases in funds from operations being met.
The fair market value of these Stock Awards of approximately $4.4 million as of
the date of grant was treated in 1996 as deferred compensation. The Company
amortized approximately $1.6 million and $871,000 related to these Stock Awards
in 1997 and 1996, respectively.
In 1997, the Company awarded 77,750 performance units to certain members
of senior management of the Company, which upon approval by the Company's
shareholders will be converted to Stock Awards. These performance units vest
over three years and are dependent upon certain performance benchmarks tied to
total returns to shareholders being met. The fair market value of these
performance units of approximately $2.1 million as of the date of grant was
treated in 1997 as deferred compensation. The Company amortized approximately
$1.0 million related to these performance units in 1997.
F-17
<PAGE> 46
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCK OPTION PLAN (CONTINUED)
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its Options and Stock Awards because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123")
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of
the Company's Options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized. Additionally, the amount
recognized as expense for the Stock Awards during any given year of the
performance period is dependent on certain performance benchmarks being met.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its Options and Restricted Stock Awards under the fair value
method of that Statement. The fair value for the Options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1997, 1996 and 1995, respectively: risk-free
interest rates of 6.3%, 6.6% and 6.5%; dividend yields of 5.5%, 6.4% and 7.2%;
volatility factors of the expected market price of the Company's common stock
of .24, .27 and .27; and a weighted-average expected life of the options of 5
years. The fair value of the Stock Awards granted in 1996 and 1997 has been
estimated as approximately 30% below the fair market value on the date of grant
because these Stock Awards may remain restricted even after they become fully
vested.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's Options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its Options.
For purposes of pro forma disclosures, the estimated fair value of the
Options is amortized to expense over the Options' vesting period and the
estimated fair value of the Restricted Awards is amortized to expense over the
same period. The pro forma effect of SFAS No. 123 on the Company's net income
for the years ended December 31, 1997, 1996 and 1995 was immaterial.
A summary of the Company's stock option activity, and related information
for the years ended December 31, 1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Subject Exercise Price Per
to Option Share
-------------- --------------------
<S> <C> <C>
Balance at December 31, 1994 1,092,084 $ 17.81
Options granted 437,250 16.92
Options exercised (58,500) 12.88
Options canceled (130,200) 18.96
-------------- --------------------
Balance at December 31, 1995 1,340,634 17.62
Options granted 307,350 21.01
Options exercised (75,497) 14.14
Options canceled (121,835) 20.19
-------------- --------------------
Balance at December 31, 1996 1,450,652 18.31
Options granted 404,450 25.37
Options exercised (107,147) 18.82
Options canceled (57,462) 19.75
-------------- --------------------
Balance at December 31, 1997 1,690,493 $ 19.91
============== ====================
</TABLE>
F-18
<PAGE> 47
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCK OPTION PLAN (CONTINUED)
As of December 31, 1997, 1996 and 1995, 1,755,532 shares, 116,957 shares
and 513,615 shares remained available for grant, respectively, and 1,626,333
shares, 874,353 shares and 759,193 shares were exercisable, respectively.
Exercise prices for Options outstanding as of December 31, 1997 ranged from
$12.875 to $26.6875, with the substantial majority of the exercise prices
exceeding $17.25. The remaining weighted-average contractual life of those
Options was 8.1 years.
NOTE 13 - PREFERRED STOCK
The Company's Board of Directors is authorized under the Company's
charter, without further stockholder approval, to issue, from time to time, in
one or more series, 10,000,000 shares of $.01 par value preferred stock (the
"Preferred Stock"), with specific rights, preferences and other attributes as
the Board may determine, which may include preferences, powers and rights that
are senior to the rights of holders of the Company's common stock. However,
under certain circumstances, the issuance of preferred stock may require
stockholder approval pursuant to the rules and regulations of the New York
Stock Exchange.
NOTE 14 - SAVINGS PLAN
The Company has a qualified retirement plan, with a salary deferral
feature designed to qualify under Section 401 of the Code (the "401(k) Plan"),
to cover its employees and those of its Subsidiaries, if any. The 401(k) Plan
permits eligible employees of the Company and those of any Subsidiary to defer
a portion of their compensation up to 16% of their eligible compensation on a
pre-tax basis subject to certain maximum amounts. In addition, the Company will
match dollar-for-dollar the participant's contribution up to 4% of the
participant's eligible compensation.
In addition, amounts contributed by the Company will vest, on a prorated
basis, according to the participant's vesting schedule. After five years of
employment with the Company, the participants will be 100% vested for all
amounts contributed by the Company. Additionally, a discretionary profit
sharing component of the 401(k) Plan provides for a contribution to be made
annually for each participant in an amount, if any, as determined by the
Company. All employee contributions are 100% vested. The Company's contribution
to the 401(k) Plan was approximately $262,000, $201,000 and $171,000 for the
years ended December 31, 1997, 1996 and 1995, respectively. The Company's
anticipated plan contribution for profit sharing was approximately $183,000 for
the year ended December 31, 1997.
NOTE 15 - SUBSEQUENT EVENTS
On January 6, 1998, the Company funded a $12.3 million loan (the "Meadows
Loan") to the Meadows Preservation, Inc. The Meadows Loan is collateralized by
The Meadows manufactured home community located in Palm Beach Gardens, Florida,
bears interest at a nominal rate of 9%, subject to adjustment based on cash
flow of the property, and matures on July 31, 1998. The loan was funded with a
borrowing under the Company's line of credit.
On January 8, 1998, the Company acquired Quail Meadows, located in
Riverbank, California, for a purchase price of approximately $4.7 million. The
acquisition was funded with a borrowing under the Company's line of credit.
Quail Meadows consists of approximately 146 developed sites.
F-19
<PAGE> 48
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - SUBSEQUENT EVENTS (CONTINUED)
By February 23, 1998, the Company closed on the acquisition of three of
the Ellenburg Communities (see Note 4) for an aggregate purchase price of $25.4
million, made additional acquisition advances of approximately $33 million to
the partnerships which own seven of the Ellenburg Communities, and acquired
certain other undivided interests in certain of the Ellenburg Communities. The
Company funded the acquisition advances with borrowings under the Company's
line of credit. In connection with the Supplemental Agreement, on February 12,
1998, the Company exercised its right of first refusal on five of the Ellenburg
Communities. A third party, backed by one of the Company's competitors, has
appealed certain orders of the California Court related to the Company's
acquisition of the Ellenburg Communities. The third party originally requested
the California Court to stay all of its proceedings and the Company's
acquisition of the Ellenburg Communities pending such appeal. The California
Court denied this motion. The third party then filed a writ of supersedeas
with the California appellate court seeking a stay of the California Court's
orders and related transactions pending appeal. The appellate court also
refused to issue a stay and denied the writ of supersedeas. The Company does
not expect the appeals to be successful, or if successful, to have a material
impact on the Company's acquisition of the Ellenburg Communities.
NOTE 16 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings arising in the
ordinary course of business. All such proceedings, taken together, are not
expected to have a material adverse impact on the financial position, results
of operations or cash flows of Company.
NOTE 17 - PROPOSED MERGER
During 1996, the Company offered a merger proposal to Chateau Communities,
Inc. ("Chateau") in opposition to Chateau's proposed merger with ROC
Communities, Inc. ("ROC") and incurred approximately $1.3 million in related
costs and invested in certain related saleable assets with a book value of
approximately $9.9 million. These expenditures were included in prepaid
expenses and other assets as of December 31, 1996. On February 11, 1997,
Chateau's shareholders approved Chateau's merger with ROC. In 1997, the Company
sold the related assets it had acquired for approximately $11.1 million and
recorded a net gain of approximately $259,000.
F-20
<PAGE> 49
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is unaudited quarterly data for 1997 and 1996 (amounts in
thousands, except for per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
3/31 6/30 9/30 12/31
------- ------- ------- -------
1997
- -------------------------------------------
<S> <C> <C> <C> <C>
Total revenues ............................ $28,529 $29,385 $31,153 $34,443
======= ======= ======= =======
Income before allocation
to minority interests .................... $ 7,711 $ 8,051 $ 8,783 $ 8,368
======= ======= ======= =======
Net income ................................ $ 6,955 $ 7,253 $ 7,642 $ 6,795
======= ======= ======= =======
Weighted average common shares
outstanding-basic (excluding OP Units) ... 24,840 24,715 24,575 24,628
======= ======= ======= =======
Weighted average common shares
outstanding - diluted
(including OP Units) (a) ................. 27,840 27,660 28,735 30,781
======= ======= ======= =======
Weighted average OP Units ................. 2,715 2,715 3,798 5,734
======= ======= ======= =======
Net income per common share
outstanding - basic ...................... $ .28 $ .29 $ .31 $ .28
======= ======= ======= =======
Net income per common share
outstanding - diluted (a) ................ $ .28 $ .29 $ .31 $ .27
======= ======= ======= =======
1996
- -------------------------------------------
Total revenues ............................ $25,469 $26,128 $26,408 $27,198
======= ======= ======= =======
Income before allocation
to minority interests .................... $ 6,557 $ 6,666 $ 7,145 $ 6,575
======= ======= ======= =======
Net income ................................ $ 5,907 $ 6,005 $ 6,437 $ 5,923
======= ======= ======= =======
Weighted average common
shares outstanding (excluding OP Units) .. 24,664 24,687 24,697 24,714
======= ======= ======= =======
Weighted average common shares
outstanding - diluted
(including OP Units) (a) ................. 27,502 27,525 27,542 27,559
======= ======= ======= =======
Weighted average OP Units ................. 2,715 2,715 2,715 2,715
======= ======= ======= =======
Net income per common share outstanding $ .24 $ .24 $ .26 $ .24
======= ======= ======= =======
Net income per common share
outstanding - diluted (a) ................ $ .24 $ .24 $ .26 $ .24
======= ======= ======= =======
</TABLE>
(a) The 1996 and first three quarters of 1997 earnings per share amounts have
been restated to comply with SFAS No. 128.
F-21
<PAGE> 50
SCHEDULE II
MANUFACTURED HOME COMMUNITIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ADDITIONS
------------------
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING OF TO TO OTHER END OF
PERIOD INCOME ACCOUNTS DEDUCTIONS(1) PERIOD
------------- --------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1995:
Allowance for doubtful accounts...... $160,000 $380,854 $--- ($340,854) $200,000
For the year ended December 31, 1996:
Allowance for doubtful accounts...... $200,000 $198,797 $--- ($148,797) $250,000
For the year ended December 31, 1997:
Allowance for doubtful accounts...... $250,000 $150,985 $--- ($150,985) $250,000
</TABLE>
(1) Deductions represent tenant receivables deemed uncollectible.
S-1
<PAGE> 51
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
----------------------- --------------------
MANUFACTURED Depreciable Depreciable
HOME COMMUNITIES LOCATION Encumbrances Land Property Land Property
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
APOLLO VILLAGE Apollo, AZ 0 932 3,219 0 257
BRENTWOOD MANOR Mesa, AZ 5,030 1,998 6,024 0 162
CASA DEL SOL RESORT NO. 1 Phoenix, AZ 6,146 2,215 6,467 0 71
CASA DEL SOL RESORT NO. 2 Phoenix, AZ 6,801 2,104 6,283 0 56
CENTRAL PARK Phoenix, AZ 6,899 1,612 3,784 0 287
HACIENDA DE VALENCIA Mesa, AZ 8,501 833 2,701 0 614
PALM SHADOWS Glendale, AZ 3,432 1,400 4,218 0 169
SEDONA SHADOWS Sedona AZ 1,582 1,096 3,431 0 18
SUNRISE HEIGHTS Phoenix, AZ 0 999 3,016 0 127
THE MARK Mesa, AZ 0 1,354 4,660 5 201
THE MEADOWS Tempe, AZ 8,841 2,614 7,887 0 198
CALIFORNIA HAWAIIAN San Jose CA 16,391 5,825 17,755 0 31
CONCORD CASCADE Pacheco, CA 10,486 985 3,016 0 360
CONTEMPO MARIN San Rafael, CA 17,340 4,779 16,379 8 765
CORALWOOD Modesto CA 0 0 5,047 0 9
DATE PALM Cathedral City, CA 9,796 4,138 14,064 (23) 526
DE ANZA SANTA CRUZ ESTATES Santa Cruz CA 4,475 2,103 7,204 0 85
FOUR SEASONS Fresno CA 0 756 2,348 0 22
GARDEN WEST OFFICE PLAZA Monterey CA 0 535 1,702 0 0
LAMPLIGHTER VILLAGE Spring Valley, CA 10,168 633 2,201 0 422
MONTE DEL LAGO Castroville CA 2,652 3,150 9,469 0 78
NICHOLSON PLAZA San Jose CA 0 0 4,512 0 2
RANCHO VALLEY El Cajon, CA 4,607 685 1,902 0 261
ROYAL OAKS Visalia CA 0 602 1,921 0 9
SAN JOSE I, II, III AND IV San Jose CA 0 0 17,616 0 188
SEA OAKS Los Osos CA 0 871 2,703 0 8
SUNSHADOW San Jose CA 0 0 5,707 0 8
CIMARRON Broomfield, CO 8,069 863 2,790 0 306
GOLDEN TERRACE SOUTH Golden, CO 2,400 750 2,265 0 84
GOLDEN TERRACE VILLAGE Golden, CO 8,193 826 2,415 0 376
GOLDEN TERRACE WEST Golden, CO 9,824 1,694 5,065 0 539
HILLCREST VILLAGE Aurora, CO 14,943 1,912 5,202 289 1,365
HOLIDAY HILLS VILLAGE Denver, CO 19,487 2,159 7,780 0 1,542
HOLIDAY VILLAGE, CO Colorado Springs, CO 6,011 567 1,759 0 339
PUEBLO GRANDE VILLAGE Pueblo, CO 3,748 241 1,069 0 269
WOODLAND HILLS Thornton, CO 0 1,928 4,408 0 1,804
MARINER'S COVE Millsboro, DE 0 990 2,971 0 2,190
NASSAU PARK Lewes, DE 0 1,536 4,609 0 427
WATERFORD Wilmington, DE 0 5,250 16,202 0 83
<CAPTION>
Gross Amount Carried
at Close of
Period 12/31/97
---------------------
MANUFACTURED Depreciable Accumulated Date of
HOME COMMUNITIES Land Property Total Depreciation Acquisition
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
APOLLO VILLAGE 932 3,476 4,408 378 1994
BRENTWOOD MANOR 1,998 6,186 8,184 976 1993
CASA DEL SOL RESORT NO. 1 2,215 6,538 8,753 201 1996
CASA DEL SOL RESORT NO. 2 2,104 6,339 8,443 189 1996
CENTRAL PARK 1,612 4,071 5,683 1,877 1983
HACIENDA DE VALENCIA 833 3,315 4,148 1,448 1984
PALM SHADOWS 1,400 4,387 5,787 693 1993
SEDONA SHADOWS 1,096 3,449 4,545 38 1997
SUNRISE HEIGHTS 999 3,143 4,142 406 1994
THE MARK 1,359 4,861 6,220 543 1994
THE MEADOWS 2,614 8,085 10,699 1,060 1994
CALIFORNIA HAWAIIAN 5,825 17,786 23,611 444 1997
CONCORD CASCADE 985 3,376 4,361 1,545 1983
CONTEMPO MARIN 4,787 17,144 21,931 1,869 1994
CORALWOOD 0 5,056 5,056 56 1997
DATE PALM 4,115 14,590 18,705 1,629 1994
DE ANZA SANTA CRUZ ESTATES 2,103 7,289 9,392 817 1994
FOUR SEASONS 756 2,370 3,126 26 1997
GARDEN WEST OFFICE PLAZA 535 1,702 2,237 19 1997
LAMPLIGHTER VILLAGE 633 2,623 3,256 1,176 1983
MONTE DEL LAGO 3,150 9,547 12,697 106 1997
NICHOLSON PLAZA 0 4,514 4,514 50 1997
RANCHO VALLEY 685 2,163 2,848 984 1983
ROYAL OAKS 602 1,930 2,532 21 1997
SAN JOSE I, II, III AND IV 0 17,804 17,804 194 1997
SEA OAKS 871 2,711 3,582 30 1997
SUNSHADOW 0 5,715 5,715 63 1997
CIMARRON 863 3,096 3,959 1,427 1983
GOLDEN TERRACE SOUTH 750 2,349 3,099 38 1997
GOLDEN TERRACE VILLAGE 826 2,791 3,617 1,257 1983
GOLDEN TERRACE WEST 1,694 5,604 7,298 1,981 1986
HILLCREST VILLAGE 2,201 6,567 8,768 2,774 1983
HOLIDAY HILLS VILLAGE 2,159 9,322 11,481 4,069 1983
HOLIDAY VILLAGE, CO 567 2,098 2,665 935 1983
PUEBLO GRANDE VILLAGE 241 1,338 1,579 616 1983
WOODLAND HILLS 1,928 6,212 8,140 805 1994
MARINER'S COVE 990 5,161 6,151 1,170 1987
NASSAU PARK 1,536 5,036 6,572 1,542 1988
WATERFORD 5,250 16,285 21,535 583 1996
</TABLE>
S-2
<PAGE> 52
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
--------------------- ----------------------
MANUFACTURED Depreciable Depreciable
HOME COMMUNITIES LOCATION Encumbrances Land Property Land Property
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ARROWHEAD VILLAGE Lantana, FL 0 5,325 15,420 0 32
BAY INDIES Venice, FL 24,206 10,483 31,559 0 299
BAY LAKE ESTATES Nokomis, FL 2,116 990 3,390 0 181
BUCCANEER ESTATES N. Ft. Myers, FL 7,704 4,207 14,410 0 342
BULOW VILLAGE Flagler Beach, FL 1,334 3,633 949 4 1,848
COLONIES OF MARGATE Margate, FL 12,702 5,890 20,211 0 340
COUNTRY PLACE VILLAGE New Port Richey, FL 4,001 663 0 18 5,309
EAST BAY OAKS Largo, FL 6,695 1,240 3,322 0 272
ELDORADO VILLAGE Largo, FL 4,882 778 2,341 0 231
FFEC-SIX N. Ft. Myers, FL 0 401 3,608 0 57
HERITAGE VILLAGE Vero Beach, FL 0 2,403 7,259 0 121
LAKE FAIRWAYS N. Ft. Myers, FL 0 6,075 18,134 0 251
LAKE HAVEN Dunedin, FL 8,132 1,135 4,047 0 347
LAKEWOOD VILLAGE Melbourne, FL 0 1,863 5,627 0 132
MID-FLORIDA LAKES Leesburg, FL 12,807 5,997 20,635 0 684
OAK BEND Ocala, FL 0 850 2,572 0 234
PINE LAKES N. Ft. Myers, FL 0 6,306 14,579 0 4,389
SPANISH OAKS Ocala, FL 0 2,250 6,922 0 120
THE HERITAGE N. Ft. Myers, FL 0 1,438 4,371 0 1,146
WINDMILL VILLAGE N. Ft. Myers, FL 9,773 1,417 5,440 0 631
WINDMILL VILLAGE NORTH Sarasota, FL 9,208 1,523 5,063 0 347
WINDMILL VILLAGE SOUTH Sarasota, FL 5,822 1,106 3,162 0 248
HOLIDAY VILLAGE, IA Sioux City, IA 0 313 3,744 0 364
GOLF VISTA ESTATES Monee IL 0 2,843 4,719 0 758
WILLOW LAKE ESTATES Elgin, IL 12,366 6,136 21,033 2 336
BURNS HARBOR ESTATES Chesterton, IN 0 916 2,909 0 336
CANDLELIGHT VILLAGE Columbus, IN 0 1,513 4,538 250 774
OAKTREE VILLAGE Portage, IN 6,957 0 0 569 3,154
BONNER SPRINGS Bonner Springs, KS 0 343 1,041 0 104
CARRIAGE PARK Kansas City, KS 0 309 938 0 357
QUIVIRA HILLS Kansas City, KS 0 376 1,139 0 98
PHEASANT RIDGE Mount Airy, MD 0 376 1,779 0 102
CAMELOT ACRES Burnsville, MN 6,826 527 2,058 0 308
BRIARWOOD Brookline, MO 0 423 1,282 0 138
DELLWOOD ESTATES Warrensburg, MO 0 300 912 0 79
NORTH STAR VILLAGE Kansas City, MO 0 451 1,365 0 177
CASA VILLAGE Billings, MT 7,143 1,011 3,109 181 1,051
DEL REY Albuquerque, NM 0 1,926 5,800 0 343
BONANZA VILLAGE Las Vegas, NV 10,288 908 2,643 0 272
CABANA Las Vegas, NV 0 2,648 7,989 0 57
FLAMINGO WEST Las Vegas, NV 0 1,732 5,266 0 96
VILLA BOREGA Las Vegas NV 2,447 2,896 8,774 0 28
</TABLE>
<TABLE>
<CAPTION>
Gross Amount Carried
at Close of
Period 12/31/97
---------------------
MANUFACTURED Depreciable Accumulated Date of
HOME COMMUNITIES Land Property Total Depreciation Acquisition
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ARROWHEAD VILLAGE 5,325 15,452 20,777 129 1997
BAY INDIES 10,483 31,858 42,341 4,186 1994
BAY LAKE ESTATES 990 3,571 4,561 410 1994
BUCCANEER ESTATES 4,207 14,752 18,959 1,651 1994
BULOW VILLAGE 3,637 2,797 6,434 193 1994
COLONIES OF MARGATE 5,890 20,551 26,441 2,296 1994
COUNTRY PLACE VILLAGE 681 5,309 5,990 1,219 1986
EAST BAY OAKS 1,240 3,594 4,834 1,685 1983
ELDORADO VILLAGE 778 2,572 3,350 1,194 1983
FFEC-SIX 401 3,665 4,066 386 1994
HERITAGE VILLAGE 2,403 7,380 9,783 890 1994
LAKE FAIRWAYS 6,075 18,385 24,460 1,945 1994
LAKE HAVEN 1,135 4,394 5,529 2,027 1983
LAKEWOOD VILLAGE 1,863 5,759 7,622 691 1994
MID-FLORIDA LAKES 5,997 21,319 27,316 2,375 1994
OAK BEND 850 2,806 3,656 399 1993
PINE LAKES 6,306 18,968 25,274 1,813 1994
SPANISH OAKS 2,250 7,042 9,292 979 1993
THE HERITAGE 1,438 5,517 6,955 733 1993
WINDMILL VILLAGE 1,417 6,071 7,488 2,719 1983
WINDMILL VILLAGE NORTH 1,523 5,410 6,933 2,520 1983
WINDMILL VILLAGE SOUTH 1,106 3,410 4,516 1,600 1983
HOLIDAY VILLAGE, IA 313 4,108 4,421 1,649 1986
GOLF VISTA ESTATES 2,843 5,477 8,320 122 1997
WILLOW LAKE ESTATES 6,138 21,369 27,507 2,379 1994
BURNS HARBOR ESTATES 916 3,245 4,161 553 1993
CANDLELIGHT VILLAGE 1,763 5,312 7,075 186 1996
OAKTREE VILLAGE 569 3,154 3,723 616 1987
BONNER SPRINGS 343 1,145 1,488 319 1989
CARRIAGE PARK 309 1,295 1,604 336 1989
QUIVIRA HILLS 376 1,237 1,613 341 1989
PHEASANT RIDGE 376 1,881 2,257 1,015 1988
CAMELOT ACRES 527 2,366 2,893 1,096 1983
BRIARWOOD 423 1,420 1,843 385 1989
DELLWOOD ESTATES 300 991 1,291 275 1989
NORTH STAR VILLAGE 451 1,542 1,993 422 1989
CASA VILLAGE 1,192 4,160 5,352 1,660 1983
DEL REY 1,926 6,143 8,069 965 1993
BONANZA VILLAGE 908 2,915 3,823 1,319 1983
CABANA 2,648 8,046 10,694 955 1994
FLAMINGO WEST 1,732 5,362 7,094 633 1994
VILLA BOREGA 2,896 8,802 11,698 97 1997
</TABLE>
S-3
<PAGE> 53
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
---------------------- ----------------------
MANUFACTURED Depreciable Depreciable
HOME COMMUNITIES LOCATION Encumbrances Land Property Land Property
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ROCKWOOD VILLAGE Tulsa, OK 0 645 1,622 0 205
FALCON WOOD Eugene OR 0 1,112 3,426 0 6
QUAIL HOLLOW Fairview OR 0 0 3,249 0 13
SHADOWBROOK Clackamas OR 0 1,197 3,693 0 91
GREEN ACRES LAND Breinigsville, PA 0 273 0 0 947
GREEN ACRES PARK Breinigsville, PA 15,418 2,407 7,479 0 760
ALL SEASONS Salt Lake City UT 0 510 1,623 0 41
WESTWOOD Farr West UT 0 1,346 4,179 0 133
MEADOWS OF CHANTILLY Chantilly, VA 0 5,430 16,440 0 760
KLOSHE ILLAHEE Federal Way WA 3,384 2,408 7,286 0 9
INDEPENDENCE HILL Morgantown, WV 0 299 898 0 135
ELLENBURG COMMUNITIES Various 33,623 36,590 136,172 0 0
MANAGEMENT BUSINESS Chicago, IL 0 0 436 0 3,759
-------------------------------------------------------------------------
$ 403,656 $ 205,072 $ 682,333 $1,303 $ 47,610
=========================================================================
<CAPTION>
Gross Amount Carried
at Close of
Period 12/31/97
----------------------
MANUFACTURED Depreciable Accumulated Date of
HOME COMMUNITIES Land Property Total Depreciation Acquisition
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ROCKWOOD VILLAGE 645 1,827 2,472 843 1983
FALCON WOOD 1,112 3,432 4,544 38 1997
QUAIL HOLLOW 0 3,262 3,262 36 1997
SHADOWBROOK 1,197 3,784 4,981 41 1997
GREEN ACRES LAND 273 947 1,220 58 1994
GREEN ACRES PARK 2,407 8,239 10,646 2,646 1988
ALL SEASONS 510 1,664 2,174 18 1997
WESTWOOD 1,346 4,312 5,658 46 1997
MEADOWS OF CHANTILLY 5,430 17,200 22,630 2,100 1994
KLOSHE ILLAHEE 2,408 7,295 9,703 81 1997
INDEPENDENCE HILL 299 1,033 1,332 277 1990
ELLENBURG COMMUNITIES 36,590 136,172 172,762 0 1997
MANAGEMENT BUSINESS 0 4,195 4,195 1,626
-------------------------------------------------------------------
$ 206,375 $ 729,943 $ 936,318 $ 89,208
===================================================================
</TABLE>
NOTES:
(1) For depreciable property, the Company uses a 30-year estimated life for
buildings acquired and structural and land improvements, a ten-to-fifteen year
estimated life for building upgrades and a three-to-seven year estimated life
for furniture and fixtures.
(2) The balance of furniture and fixtures included in the total amounts was
approximately $7.5 million as of December 31, 1997.
(3) The aggregate cost of land and depreciable property for Federal income tax
purposes was approximately $812 million, as of December 31, 1997.
(4) All properties were acquired, except for Country Place Village which was
constructed.
S-4
<PAGE> 54
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
DECEMBER 31, 1997
(IN THOUSANDS)
The changes in total real estate for the years ended December 31, 1997, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $597,650 $543,229 $541,775
Acquisitions.............. 332,272 46,531 600
Improvements.............. 6,643 8,062 7,810
Dispositions and other.... (247) (172) (6,956)
-------- -------- --------
Balance, end of year........ $936,318 $597,650 $543,229
======== ======== ========
</TABLE>
The changes in accumulated depreciation for the years ended December 31, 1997,
1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year.. $ 71,481 $ 56,403 $ 43,377
Depreciation expense...... 17,974 15,250 15,087
Dispositions and other.... (247) (172) (2,061)
-------- -------- --------
Balance, end of year........ $ 89,208 $ 71,481 $ 56,403
======== ======== ========
</TABLE>
S-5
<PAGE> 1
EX 10.31
MHC FINANCING LIMITED PARTNERSHIP TWO
AGREEMENT OF LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP (this "Agreement") has been executed
and delivered as of the seventeenth day of December, 1997, by and between
MHC-QRS TWO, INC. (the "General Partner"), a Delaware corporation, and MHC
OPERATING LIMITED PARTNERSHIP (the "Limited Partner"), an Illinois limited
partnership (the General Partner and the Limited Partner being each a "Partner"
and collectively the "Partners").
RECITALS
The General Partner and the Limited Partner are desirous of forming a
limited partnership in accordance with the Delaware Revised Uniform Limited
Partnership Act and this Agreement, for purposes of owning manufactured housing
community properties (each a "Property" and collectively the "Properties"), as
identified on Exhibit A hereto.
THEREFORE, in consideration of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Partners agree as follows:
1. FORMATION OF PARTNERSHIP. The General Partner and the Limited Partner
do hereby form a Delaware limited partnership according to all of the terms and
provisions of this Agreement and otherwise in accordance with the Act. The
General Partner is the sole general partner and the Limited Partner is the sole
limited partner of the Partnership. The Partnership name shall be "MHC
Financing Limited Partnership Two", but the General Partner may from time to
time change the name of the Partnership or may adopt such trade or fictitious
names as it may determine. No Partner has any interest in any Partnership
property but the interests of all Partners in the Partnership are, for all
purposes, personal property.
2. DEFINITIONS.
2.1 As used in this Agreement, the following terms shall have the meanings
set forth respectively after each:
"Act" shall mean the Delaware Revised Uniform Limited Partnership Act, as
amended from time to time, and any successor statute.
"Adjusted Capital Account Deficit" shall mean, at any time, the then
balance in the Capital Account of a Partner, after giving effect to the
following adjustments:
(i) credit to such Capital Account any amounts that such
Partner is deemed obligated to restore as described in the
penultimate sentences of Regulations Section 1.704-2(g)(1) and
Regulations Section 1.704-2(i)(5), or any successor provisions;
and
(ii) debit to such Capital Account the items described in
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
<PAGE> 2
"Agreement" shall mean this Agreement of Limited Partnership, as it may be
amended from time to time.
"Bankruptcy" of a Partner shall mean (a) the filing by a Partner of a
voluntary petition seeking liquidation, reorganization, arrangement or
readjustment, in any form, of its debts under Title 11 of the United States
Code (or corresponding provisions of future laws) or any other Federal or state
insolvency law, or a Partner's filing an answer consenting to or acquiescing in
any such petition, (b) the making by a Partner of any assignment for the
benefit of its creditors or the admission by a Partner in writing of its
inability to pay its debts as they mature, or (c) the expiration of sixty (60)
days after the filing of an involuntary petition under Title 11 of the United
States Code (or corresponding provisions of future laws), seeking an
application for the appointment of a receiver for the assets of a Partner, or
an involuntary petition seeking liquidation, reorganization, arrangement or
readjustment of its debts under any other Federal or state insolvency law,
provided that the same shall not have been vacated, set aside or stayed within
such 60-day period.
"Capital Account" shall mean the capital account maintained by the
Partnership for each Partner as described in Section 3.4 hereof.
"Capital Cash Flow" shall have the meaning provided in Section 8.2 hereof.
"Capital Contribution" shall mean, when used in respect of a Partner, the
initial capital contribution of such Partner as set forth in Section 3.1
hereof and any other amounts of money or the fair market value of other
property contributed by such Partner to the capital of the Partnership pursuant
to the terms of this Agreement, including the Capital Contribution made by any
predecessor holder of the Partnership Interest of such Partner.
"Code" shall mean the Internal Revenue Code of 1986, as the same may be
amended from time to time, and any successor statute.
"Depreciation" shall mean for any fiscal year or portion thereof, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such period for Federal income tax
purposes, except that if the Gross Asset Value of an asset differs from its
adjusted basis for Federal income tax purposes at the beginning of such period,
Depreciation shall be an amount that bears the same relationship to such
beginning Gross Asset Value as the depreciation, amortization or cost recovery
deduction in such period for Federal income tax purposes bears to the beginning
adjusted tax basis; provided, however, that if the adjusted basis for Federal
income tax purposes of an asset at the beginning of such period is zero,
Depreciation shall be determined with reference to such beginning Gross Asset
Value using any reasonable method selected by the General Partner.
"General Partner" means MHC-QRS Two, Inc., a Delaware corporation.
"Gross Asset Value" means, with respect to any Partnership asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by
a Partner to the Partnership shall be the gross fair market value
of such asset as determined by the General Partner;
2
<PAGE> 3
(ii) The Gross Asset Value of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as
determined by the General Partner, as of the following times: (a)
the acquisition of an additional interest in the Partnership by
any new or existing Partner in exchange for more than a de minimis
Capital Contribution; (b) the distribution by the Partnership to a
Partner of more than a de minimis amount of Partnership property
as consideration for an interest in the Partnership; and (c) the
liquidation of the Partnership within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g); provided, however, that adjustments
pursuant to clauses (a) and (b) above shall be made only if the
General Partner reasonably determines that such adjustments are
necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership;
(iii) The Gross Asset Value of any Partnership asset
distributed to any Partner shall be adjusted to equal the gross
fair market value of such asset on the date of distribution as
determined by the General Partner; and
(iv) The Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the
adjusted basis of such assets pursuant to Code Section 734(b) or
Code Section 743(b), but only to the extent that such adjustments
are taken into account in determining Capital Accounts pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m) and paragraph (vi) of the
definition of Profits and Losses and Section 7.3(G) hereof;
provided, however, that Gross Asset Values shall not be adjusted
pursuant to this paragraph (iv) to the extent the General Partner
determines that an adjustment pursuant to paragraph (ii) above is
necessary or appropriate in connection with a transaction that
would otherwise result in an adjustment pursuant to this paragraph
(iv).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to paragraphs (i), (ii) or (iv) above, such Gross Asset Value shall
thereafter be adjusted by the Depreciation taken into account with respect to
such asset for purposes of computing Profits and Losses.
"Limited Partner" shall mean MHC Operating Limited Partnership, an
Delaware limited partnership.
"Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(c).
"Operating Cash Flow" shall have the meaning provided in Section 8.1
hereof.
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(i)(2).
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"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i).
"Partners" shall mean, collectively, the General Partner and the Limited
Partner, or any additional or successor partners of the Partnership. Reference
to a Partner shall be to any one of the Partners.
"Partnership Interest" shall mean the ownership interest of a Partner in
the Partnership at any particular time, including the right of such Partner to
any and all benefits to which such Partner may be entitled as provided in this
Agreement, and to the extent not inconsistent with this Agreement, under the
Act, together with the obligations of such Partner to comply with all of the
terms and provisions of this Agreement and of the Act.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Sections 1.704-2(b) (2) and 1.704-2(d).
"Percentage Interest" of a Partner in the Partnership shall mean the
percentage interest of such Partner as stated in Schedule A hereto, as such
percentage interest may be adjusted from time to time in accordance with the
provisions of this Agreement.
"Profits" and "Losses" shall mean for each fiscal year or portion
thereof, an amount equal to the Partnership's items of taxable income or loss
for such year or period, determined in accordance with section 703(a) of the
Code with the following adjustments:
(i) any income which is exempt from Federal income tax and
not otherwise taken into account in computing Net Profits or Net
Losses shall be added to taxable income or loss;
(ii) any expenditures of the Partnership described in Code
Section 705(a)(2)(B) or treated as Section 705(a)(2)(B)
expenditures under Regulations Section 1.704-1(b)(2)(iv)(i) and
not otherwise taken into account in computing Profits or Losses,
will be subtracted from taxable income or loss;
(iii) in the event that the Gross Asset Value of any
Partnership asset is adjusted pursuant to the definition of Gross
Asset Value contained in this Section 2, the amount of such
adjustment shall be taken into account as gain or loss from the
disposition of such asset for purposes of computing Profits and
Losses;
(iv) gain or loss resulting from any disposition of
Partnership assets with respect to which gain or loss is
recognized for Federal income tax purposes shall be computed by
reference to the Gross Asset Value of the property disposed of,
notwithstanding that the adjusted tax basis of such property
differs from its Gross Asset Value;
(v) in lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for
such fiscal year or other period;
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(vi) to the extent an adjustment to the adjusted tax basis of
any Partnership asset pursuant to Code Section 734(b) or Code
Section 743(b) is required pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining
Capital Accounts as a result of a distribution other than in
complete liquidation of a Partner's Partnership Interest, the
amount of such adjustment shall be treated as an item of gain (if
the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the disposition
of the asset and shall be taken into account for purposes of
computing Profits or Losses; and
(vii) any items specially allocated pursuant to Section 7.3
or Section 7.4 hereof shall not be considered in determining
Profits or Losses.
"Regulations" shall mean the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
3. CAPITAL.
3.1 INITIAL CAPITAL. As its initial Capital Contribution to the
Partnership:
(a) the General Partner shall contribute as its Capital
Contribution to the Partnership an amount equal to its Percentage
interest multiplied by the amount from time to time of the Partners'
total Capital Contributions; and
(b) the Limited Partner is contributing all of its right, title and
interest in and to the Properties.
3.2 ADDITIONAL CAPITAL. No Partner shall be assessed or required to
contribute additional funds or other property to the Partnership. Any
additional funds or other property required by the Partnership, as determined
by the General Partner in its sole discretion, may, at the option of the
General Partner and without an obligation to do so, be contributed by the
General Partner as additional Capital Contributions. The General Partner shall
also have the right (but not the obligation) to raise any additional funds
required for the Partnership by loaning the money to the Partnership or by
causing the Partnership to borrow the money needed from third parties, in
either case on such terms and conditions as the General Partner shall deem
appropriate in its sole discretion. If the Partnership borrows the additional
funds, the General Partner may cause one or more of the Partnership's assets to
be encumbered to secure the loan. No Partner shall have the right to
contribute additional Capital Contributions to the Partnership without the
prior written consent of the General Partner.
3.3 CAPITAL ACCOUNTS. A separate capital account ("Capital Account")
shall be maintained for each Partner.
A. To each Partner's Capital Account there shall be credited such
Partner's Capital Contributions, such Partner's distributive share of Profits
and any items in the nature of income or gain which are specially allocated
pursuant to Section 7.3 or Section 7.4 hereof, and the amount of any
Partnership liabilities assumed by such Partner or which are secured by any
Partnership property distributed to such Partner.
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B. To each Partner's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Partnership property
distributed to such Partner pursuant to any provision of this Agreement, such
Partner's distributive share of Losses and any items in the nature of expenses
or losses which are specially allocated pursuant to Section 7.3 or Section 7.4
hereof, and the amount of any liabilities of such Partner assumed by the
Partnership or which are secured by any property contributed by such Partner to
the Partnership.
C. In the event all or a portion of a Partnership Interest is
transferred in accordance with the terms of this Agreement, the transferee
shall succeed to the Capital Account of the transferor to the extent it relates
to the transferred Partnership interest.
D. In determining the amount of any liability for purposes of Sections
3.4(A) and 3.4(B) hereof, there shall be taken into account Code Section 752(c)
and any other applicable provisions of the Code and Regulations.
E. This Section 3.4 and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a
manner consistent with such Regulations. In the event the General Partner
shall determine that it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits thereto (including, without limitation,
debits or credits relating to liabilities which are secured by contributed or
distributed property or which are assumed by the Partnership, or the Partners)
are computed in order to comply with such Regulations, the General Partner may
make such modification, provided that it is not likely to have a material
effect on the amounts distributed to any Partner pursuant to Section 14 hereof
upon the dissolution of the Partnership. The General Partner also shall (i)
make any adjustments that are necessary or appropriate to maintain equality
between the Capital Accounts of the Partners and the amount of Partnership
capital reflected on the Partnership's balance sheet, as computed for book
purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(g), and (ii)
make any appropriate modifications in the event unanticipated events (for
example, the acquisition by the Partnership of oil or gas properties) might
otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b).
3.4 INTEREST ON AND RETURN OF CAPITAL.
A. No Partner shall be entitled to any interest on its Capital
Account or on its contributions to the capital of the Partnership.
B. Except as expressly provided for in this Agreement, no Partner shall
have the right to demand or to receive the return of all or any part of his
Capital Contributions to the Partnership and there shall be no priority of one
Partner over the other as to the return of Capital Contributions or withdrawals
or distributions of profits. No Partner shall have the right to demand or
receive property other than cash in return for the Capital Contributions of
such Partner to the Partnership.
3.5 NEGATIVE CAPITAL ACCOUNTS. No Partner shall be required to pay to the
Partnership any deficit balance which may exist in its Capital Account;
provided, however, that upon dissolution of the Partnership the General Partner
shall be obligated to pay to the Partnership any such deficit balance to the
extent of the lesser of (i) such deficit balance and (ii)
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the excess of 1.01% of the total Capital Contributions of the Limited
Partner over all Capital Contributions previously made by the General Partner.
3.6 LIMIT ON CONTRIBUTIONS AND OBLIGATIONS OF PARTNERS. Neither the
Limited Partner nor the General Partner shall be required to make any
additional advances or Capital Contributions to or on behalf of the Partnership
or to endorse any obligations of the Partnership.
4. PRINCIPAL OFFICE. The principal office of the Partnership shall be
located at Two North Riverside Plaza, Suite 800, Chicago, Illinois 60606, or at
such other place as the General Partner may designate after giving written
notice of such designation to the other Partners.
5. PURPOSE AND POWERS OF PARTNERSHIP.
A. The purposes of the Partnership shall be to acquire, own, operate,
manage, develop, redevelop, finance, refinance, sell, lease and otherwise deal
with the Properties and assets related thereto, and interests therein, whether
directly or indirectly, alone or in association with others. The purposes of
the Partnership include, but are not limited to:
(i) acquiring, developing, operating, leasing and managing the
Properties and conducting any other lawful business relating thereto;
(ii) mortgaging, exchanging, selling, encumbering or otherwise
disposing of any one or more of the Properties or any interest therein;
(iii) constructing, reconstructing, altering, modifying and
subtracting from or adding to any one or more of the Properties or any
part thereof; and
(iv) in general, the making of any investments or expenditures, the
borrowing and lending of money and the taking of any and all other
actions which are incidental or related to any of the purposes recited
above.
It is agreed that each of the foregoing is an ordinary part of the
Partnership's business and affairs. Property may be acquired subject to, or by
assuming, the liens, encumbrances, and other title exceptions which affect such
property.
B. The Partnership purposes may be accomplished by taking any action
which is not prohibited under the Act and which is related to the acquisition,
ownership, development, improvement, operation, management, financing, leasing,
exchanging, selling or otherwise encumbering or disposing of all or any portion
of the assets of the Partnership, or any interest therein.
6. TERM. The term of the Partnership shall continue until the Partnership
is terminated upon the occurrence of an event described in Section 14.1 below.
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7. ALLOCATIONS.
7.1 PROFITS. After giving effect to the special allocations set forth in
Section 7.3 and 7.4 hereof, Profits for any fiscal year shall be allocated
among the Partners in proportion to their respective Percentage Interests.
7.2 LOSSES
A. After giving effect to the special allocations set forth in
Section 7.3 and 7.4 hereof, Losses for any fiscal year shall be allocated
among the Partners in proportion to their respective Percentage Interests.
B. The Losses allocated pursuant to Section 7.2(A) hereof shall not
exceed the maximum amount of Losses that can be so allocated without causing the
Limited Partner to have an Adjusted Capital Account Deficit at the end of any
fiscal year. All Losses in excess of the limitations set forth in this Section
7.2(B) shall be allocated to the General Partner.
7.3 SPECIAL ALLOCATIONS. The following special allocations shall be made
in the following order:
A. MINIMUM GAIN CHARGEBACK. Except as otherwise provided in
Regulations Section 1.704-2(f), notwithstanding any other provision of this
Section 7, if there is a net decrease in Partnership Minimum Gain during any
fiscal year, each Partner shall be specially allocated items of Partnership
income and gain for such fiscal year (and, if necessary, subsequent fiscal
years) in an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain, determined in accordance with Regulations Section
1.704-2(g). The items to be so allocated shall be determined in accordance
with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 7.3(A)
is intended to comply with the minimum gain chargeback requirement in Section
1.704-2(f) of the Regulations and shall be interpreted consistently therewith.
B. PARTNER MINIMUM GAIN CHARGEBACK. Except as otherwise provided in
Regulations Section 1.704-2(i)(4), notwithstanding any other provision of this
Section 7, if there is a net decrease in Partner Nonrecourse Debt Minimum Gain
attributable to a Partner Nonrecourse Debt during any Partnership fiscal year,
each Partner who has a share of the Partner Nonrecourse Debt Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in accordance with
Regulations Section 1.704-2(i)(5), shall be specially allocated items of
Partnership income and gain for such fiscal year (and, if necessary, subsequent
fiscal years) in an amount equal to such Partner's share of the net decrease in
Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse
Debt, determined in accordance with Regulations Section 1.704-2(i)(4). The
items to be so allocated shall be determined in accordance with Regulations
Sections 1.704-2(i)(4) and 1.704-2(i)(2). This Section 7.3(B) is intended to
comply with the minimum gain chargeback requirement in Regulations Section
1.704-2(i)(4) and shall be interpreted consistently therewith.
C. QUALIFIED INCOME OFFSET. In the event any Partner unexpectedly
receives any adjustments, allocations, or distributions described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), Section 1.704-1(b)(2)(ii)(d)(5),
or Section 1.704-1(b)(2)(ii)(d)(6), items of
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Partnership income and gain shall be specially allocated to each such
Partner in an amount and manner sufficient to eliminate, to the extent required
by the Regulations, the Adjusted Capital Account Deficit of such Partner as
quickly as possible, provided that an allocation pursuant to this Section
7.3(C) shall be made only if and to the extent that such Partner would have an
Adjusted Capital Account Deficit after all other allocations provided for this
Section 7 have been tentatively made, as if this Section 7.3(C) were not in the
Agreement.
D. GROSS INCOME ALLOCATION. In the event any Partner has a deficit
Capital Account at the end of any Partnership fiscal year which is in excess of
the sum of (i) the amount such Partner is obligated to restore pursuant to any
provision of this Agreement, and (ii) the amount such Partner is deemed to be
obligated to restore pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Partner shall be
specifically allocated items of Partnership income and gain in the amount of
such excess as quickly as possible, provided that an allocation pursuant to
this Section 7.3(D) shall be made only if and to the extent that such Partner
would have a deficit Capital Account in excess of such sum after other
allocations provided for in this Section 7 have been made as if in Section
7.3(C) hereof and this Section 7.3(D) were not in the Agreement.
E. NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any fiscal year
shall be allocated among the Partners in accordance with their respective
Percentage Interests.
F. PARTNER NONRECOURSE DEDUCTIONS. Any Partner Nonrecourse Deductions
for any fiscal year shall be specially allocated to the Partner who bears the
economic risk of loss with respect to the Partner Nonrecourse Debt to which
such Partner Nonrecourse Deductions are attributable, in accordance with
Regulations Section 1.704-2(i)(1)
G. SECTION 754 ADJUSTMENTS. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or
Code Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be
taken into account in determining Capital Accounts as the result of a
distribution to a Partner in complete liquidation of his interest in the
Partnership, the amount of such adjustment to Capital Accounts shall be treated
as an item of gain (if the adjustment increases the basis of the asset) or loss
(if the adjustment decreases such basis) and such gain or loss shall be
specifically allocated to the Partners in accordance with their respective
Percentage Interests in the event that Regulations Section
1.704-1(b)(2)(iv)(m)(2) applies, or the Partner to whom such distribution was
made in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
7.4 CURATIVE ALLOCATIONS. The allocations set forth in Sections 7.2(B),
7.3(A), 7.3(B), 7.3(C), 7.3(D), 7.3(E), 7.3(F) and 7.3(G) hereof (the
"Regulatory Allocations") are intended to comply with certain requirements of
the Regulations under Sections 704(b) and 514(c)(9)(E) of the Code. It is the
intent of the Partners that, to the extent possible, all Regulatory
Allocations shall be offset either with other Regulatory Allocations or with
special allocations of other items of Partnership income, gain, loss, or
deduction pursuant to this Section 7.4. Therefore, notwithstanding any other
provision of this Section 7 (other than the Regulatory Allocations), the
General Partner shall make such offsetting special allocations of Partnership
income, gain, loss, or deduction in whatever manner, it determines appropriate
so that, after such offsetting allocations are made, each Partner's Capital
Account balance is, to
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the extent possible, equal to the Capital Account balance such Partner
would have had if the Regulatory Allocations were not part of the Agreement and
all Partnership items were allocated pursuant to Sections 7.1 and 7.2(A), and
so that, to the greatest extent possible, such allocations comply with the
Regulations under Code Section 514(c)(9)(E). in exercising its discretion under
this Section 7.4, the General Partner shall take into account future Regulatory
Allocations under Sections 7.3(A) and 7.3(B) that, although not yet made, are
likely to offset other Regulatory Allocations previously made under Sections
7.3(E) and 7.3(F).
7.5 OTHER ALLOCATION RULES.
A. For purposes of determining the Profits, Losses, or any other items
allocable to any period, Profits, Losses, and any such other items shall be
determined in a daily, monthly, or other basis, as determined by the General
Partner using any permissible method under Code Section 706 and the Regulations
thereunder.
B. The Partners are aware of the income tax consequences of the
allocations made by this Section 7 and hereby agree to be bound by the
provisions of this Section 7 in reporting their shares of Partnership income
and loss for tax purposes.
C. Solely for purposes of determining a Partner's proportionate share
of the "excess nonrecourse liabilities" of the Partnership within the meaning of
Regulations Section 1.752-3(a)(3), the Partners' interests in Partnership
profits are equal to their respective Percentage Interests.
7.6 TAX ALLOCATIONS: CODE SECTION 704(C).
A. Income, gain, loss, and deduction with respect to any property
contributed to the capital of the Partnership shall, solely for tax purposes,
be allocated among the Partners so as to take account of any variation between
the adjusted basis of such property to the Partnership for federal income tax
purposes and its initial Gross Asset Value in accordance with any permissible
manner or manners under Code Section 704(c) and the Regulations thereunder.
B. In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to the definition of "Gross Asset Value" contained in Section
2 hereof, subsequent allocations of income gain, loss, and deduction with
respect to such asset shall take account of any variation between the adjusted
basis of such asset for federal income tax purposes and its Gross Asset Value
in the same manner or manners permitted under Code Section 704(c) and the
Regulation thereunder.
C. Any elections or other decisions relating to such allocations
shall be made by the General Partner in any permissible manner under the
Code or the Regulations that the General Partner may elect in its sole
discretion. Allocations pursuant to this Section 7.6 are solely for purposes of
federal, state, and local taxes and shall not affect, or in any way be taken
into account in computing, any Partner's Capital Account or share of Profits,
Losses, other items, or distributions pursuant to any provision in this
Agreement.
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8. CASH AVAILABLE FOR DISTRIBUTION.
8.1 OPERATING CASH FLOW. As used in this Agreement, "Operating Cash Flow"
shall mean and be defined as all cash receipts of the Partnership from whatever
source (but excluding Capital Cash Flow) during the period in question in
excess of all items of Partnership expense (other than non-cash expenses such
as depreciation) and other cash needs of the Partnership, including, without
limitation, amounts paid by the Partnership as principal on debts and advances,
during such period, capital expenditures and any reserves (as determined by the
General Partner) established or increased during such period. Operating Cash
Flow shall be distributed to or for the benefit of the Partners not less
frequently than annually, and shall be distributed to the Partners in
accordance with the respective Percentage Interests of the Partners.
8.2 CAPITAL CASH FLOW. As used in this Agreement, "Capital Cash Flow"
shall mean and be defined as collectively (a) gross proceeds realized in
connection with the sale of any assets of the Partnership, (b) gross financing
or refinancing proceeds, (c) gross condemnation proceeds (excluding
condemnation proceeds applied to restoration of remaining property) and (d)
gross insurance proceeds (excluding rental insurance proceeds or insurance
proceeds applied to restoration of property), less (w) closing costs, (x) the
cost to discharge any Partnership financing encumbering or otherwise associated
with the asset(s) in question, (y) the establishment of reserves (as determined
by the General Partner), and (z) other expenses of the Partnership then due and
owing. Subject to Section 14.2 below, if applicable, Capital Cash Flow shall
be distributed to or for the benefit of the Partners not less frequently than
annually and shall be distributed to the Partners in accordance with the
respective Percentage Interests of the Partners.
8.3 CONSENT TO DISTRIBUTIONS. Each of the Partners hereby consents to the
distributions provided for in this Agreement.
9. MANAGEMENT OF PARTNERSHIP.
9.1 GENERAL PARTNER. The General Partner shall be the sole manager of the
Partnership business, and shall have the right and power to make all decisions
and take any and every action with respect to the property, the business and
affairs of the Partnership and shall have all the rights, power and authority
generally conferred by law, or necessary, advisable or consistent with
accomplishing the purposes of the Partnership. All such decisions or actions
made or taken by the General Partner hereunder shall be binding upon all of the
Partners and the Partnership. The powers of the General Partner to manage the
Partnership business shall include, without limitation, the power and authority
to:
(i) operate any business normal, or customary for the owner of or
investor in manufactured housing community property;
(ii) perform any and all acts necessary or appropriate to the
operation of the Partnership assets, including, but not limited
to, applications for rezoning, objections to rezoning of other
property and the establishment of bank accounts in the name of the
Partnership;
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(iii) procure and maintain with responsible companies such
insurance as may be available in such amounts and covering such
risks as are deemed appropriate by the General Partner;
(iv) take and hold all real, personal and mixed property of
the Partnership in the name of the Partnership;
(v) execute and deliver leases on behalf of and in the name
of the Partnership;
(vi) borrow money, finance and refinance the assets of the
Partnership or any part thereof or interest therein;
(vii) coordinate all accounting and clerical functions of the
Partnership and employ such accountants, lawyers, property
managers, leasing agents and other management or service personnel
as may from time to time be required to carry on the business of
the Partnership; and
(viii) acquire, encumber, sell, lend, lease or otherwise
dispose of any or all of the assets of the Partnership, or any
part thereof or interest therein.
9.2 LIMITATIONS ON POWERS AND AUTHORITIES OF PARTNERS. Notwithstanding
the powers of the General Partner set forth in Section 8.1 above, no Partner
shall have the right or power to do any of the following:
(a) do any act in contravention of this Agreement, or any
amendment hereto;
(b) do any act which would make it impossible to carry on the
ordinary business of the Partnership, except to the extent that
such act is specifically permitted by the terms hereof (it being
understood and agreed that a sale of any or all of the assets of
the Partnership, for example, would be an ordinary part of the
Partnership's business and affairs); or
(c) confess a judgment against the Partnership.
9.3 LIMITED PARTNER. The Limited Partner shall not have any right or
authority to act for or to bind the Partnership and the Limited Partner shall
not participate in the conduct or control of the Partnership's affairs or
business.
9.4 LIABILITY OF GENERAL PARTNER. The General Partner shall not be liable
or accountable, in damages or otherwise, to the Partnership or to any other
Partner for any error of judgment or for any mistakes of fact or law or for
anything which it may do or refrain from doing hereafter in connection with the
business and affairs of the Partnership except (i) in the case of fraud,
willful misconduct (such as an intentional breach of fiduciary duty or an
intentional breach of this Agreement) or gross negligence, and (ii) for other
breaches of this Agreement, but, subject, to Section 3.5 hereof, the liability
of the General Partner under this clause (ii) shall be limited to its interest
in the Partnership as more particularly provided for in
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Section 9.8 below. The General Partner shall not have any personal liability
for the return of the Limited Partner's capital.
9.5 INDEMNITY. The Partnership shall indemnify and shall hold the General
Partner (and the officers and directors thereof) harmless from any loss or
damage, including without limitation reasonable legal fees and court costs,
incurred by it by reason of anything it may do or refrain from doing hereafter
for and on behalf of the Partnership or in connection with its business or
affairs; provided, however, that (i) the Partnership shall not be required to
indemnify the General Partner (or any officer or director thereof) for any loss
or damage which it might incur as a result of its fraud, willful misconduct or
gross negligence in the performance of its duties hereunder and (ii) this
indemnification shall not relieve the General Partner of its proportionate part
of the obligations of the Partnership as a Partner. In addition, the General
Partner shall be entitled to reimbursement by the Partnership for any amounts
paid by it in satisfaction of indemnification obligations owed by the General
Partner to present or former directors of the General Partner to present or
former directors of the General Partner or its predecessors, as provided for in
or pursuant to the Articles of Incorporation and By-Laws of the General
Partner. The right of indemnification set forth in this Section 9.5 shall be
in addition to any rights to which the person or entity seeking indemnification
may otherwise be entitled and shall inure to the benefit of the successors and
assigns of any such person or entity. No Partner shall be personally liable
with respect to any claim for indemnification pursuant to this Section 9.5, but
such claim shall be satisfied solely out of assets of the Partnership.
9.6 OTHER ACTIVITIES OF PARTNERS AND AGREEMENTS WITH RELATED PARTIES. The
General Partner shall devote its full-time efforts in furtherance of the
Partnership business, it being expressly understood that the General Partner
shall conduct all of its activities with respect to the manufactured housing
community property business exclusively through the Partnership and shall not
conduct or engage in any way in any other business. Except as may otherwise be
agreed to in writing, the Limited Partner, and its affiliates, shall be free to
engage in, to conduct or to participate in any business or activity whatsoever,
including, without limitation, the acquisition, development, management and
exploitation of real and personal property (other than property of the
Partnership), without any accountability, Iiability or obligation whatsoever to
the Partnership or to the General Partner, even if such business or activity
competes with or is enhanced by the business of the Partnership. The General
Partner, in the exercise of its power and authority under this Agreement, may
contract and otherwise deal with or otherwise obligate the Partnership to
entities in which the General Partner, or any one or more of the officers,
directors or shareholders of the General Partner may have an ownership other
financial interest, whether direct or indirect.
9.7 OTHER MATTERS CONCERNING THE GENERAL PARTNER.
A. The General Partner shall be protected in relying, acting or
refraining from acting on any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond, debenture,
or other paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties.
B. The General Partner may exercise any of the powers granted or
perform any of the duties imposed by this Agreement either directly or through
agents. The General Partner may consult with counsel, accountants, appraisers,
management consultants, investment banks and other consultants selected by it,
each of whom may serve as consultants
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for the Partnership. An opinion by any consultant, on a matter which the
General Partner believes to be within its professional or expert competence
shall be full and complete protection as to any action taken or omitted by the
General Partner based on the opinion and taken or omitted in good faith. The
General Partner shall not be responsible for the misconduct, negligence, acts
or omissions of any consultant or contractor of the Partnership or to the
General Partner, and shall assume no obligations other than to use due care in
the selection of all consultants and contractors.
C. No mortgagee, grantee, creditor or any other person dealing with the
Partnership shall be required to investigate the authority of the General
Partner or secure the approval of or confirmation by the Limited Partner of any
act of the General Partner in connection with the conduct of the Partnership
business.
D. The General Partner may retain such persons or entities as it shall
determine (including the General Partner or any entity in which the General
Partner shall have an interest or with which it is affiliated) to provide
services to or on behalf of the Partnership. The General Partner shall be
entitled to reimbursement from the Partnership for its out-of-pocket expenses
(including, without limitation, amounts paid or payable by the General Partner
or any entity in which the General Partner shall have an interest or with which
it is affiliated) incurred in connection with Partnership business. Such
expenses shall be deemed to include those expenses required in connection with
the administration of the Partnership such as the maintenance of Partnership
books and records, management of the Partnership property and assets and
preparation of information respecting the Partnership needed by the Partners in
the preparation of their individual tax returns.
9.8 PARTNER EXCULPATION. Subject to Section 3.5 hereof except for fraud,
willful misconduct and gross negligence, no Partner shall have any personal
liability whatever, whether to the Partnership or to the other Partner, for the
debts or liabilities of the Partnership or its obligations hereunder, and the
full recourse of the other Partner shall be limited to the interest of that
Partner in the Partnership. To the fullest extent permitted by law, no
officer, director or shareholder of the General Partner shall be liable to the
Partnership for money damages except for (i) active and deliberate dishonesty
established by a final judgment or (ii) actual receipt of an improper benefit
or profit in money, property or services. Without limitation of the foregoing,
and except for fraud, willful misconduct and gross negligence, no property or
assets of any Partner, other than its interest in the Partnership, shall be
subject to levy, execution or other enforcement procedures for the satisfaction
of any judgment (or other judicial process) in favor of any other Partner(s)
and arising out of, or in connection with, this Agreement. This Agreement is
executed by the officers of each Partner solely as officers of the same and not
in their own individual capacities. No advisor, trustee, director, officer,
partner, employee, beneficiary, shareholder, participant or agent of any
Partner (or of any partner of a Partner) shall be personally liable in any
matter or to any extent under or in connection with this Agreement, and the
Partnership, each Partner, and their respective successors and assigns shall
look solely to the interest of the other Partner in the Partnership for the
payment of any claim or for any performance hereunder.
9.9 GENERAL PARTNER EXPENSES AND LIABILITIES. All costs and expenses
incurred by the General Partner in connection with its activities as the
General Partner hereunder, all costs and expenses incurred by the General
Partner in connection with its continued corporate existence, qualification as
a "qualified REIT subsidiary" under the Code
14
<PAGE> 15
and otherwise, and all other liabilities incurred or suffered by the General
Partner in connection with the pursuit of its business and affairs as
contemplated hereunder and in connection herewith, shall be paid (or reimbursed
to the General Partner, if paid by the General Partner) by the Partnership.
10. BANKING. The funds of the Partnership shall be kept in accounts
designated by the General Partner and all withdrawals therefrom shall be made
on such signature or signatures as shall be designated by the General Partner.
11. ACCOUNTING.
11.1 FISCAL YEAR. The fiscal year of the Partnership shall end on the
last day of December of each year, unless another fiscal year end is selected
by the General Partner.
11.2 BOOKS OF ACCOUNT. The Partnership books of account shall be
maintained at the principal office designated in Section 4 above or at such
other locations and by such person or persons as may be designated by the
General Partner. The Partnership shall pay the expense of maintaining its
books of account. Each Partner shall have, during reasonable business hours
and upon reasonable prior notice, access to the books of the Partnership and in
addition, at its expense, shall have the right to copy such books. The General
Partner, at the expense of the Partnership, shall cause to be prepared and
distributed to the Partners annual financial data sufficient to reflect the
status and operations of the Partnership and its assets and to enable each
Partner to file its federal income tax return.
11.3 METHOD OF ACCOUNTING. The Partnership books of account shall be
maintained and kept, and its income, gains, losses and deductions shall be
accounted for, in accordance with sound principles of accounting consistently
applied, or such other method of accounting as may be adopted hereafter by the
General Partner. All elections and options available to the Partnership for
Federal or state income tax purposes shall be taken or rejected by the
Partnership in the sole discretion of the General Partner.
11.4 SECTION 754 ELECTION. In case of a distribution of property made in
the manner provided in Section 734 of the Code (or any similar provision
enacted in lieu thereof), or in the case of a transfer of any interest in the
Partnership permitted by this Agreement made in the manner provided in Section
743 of the Code (or any similar, provision enacted in lieu thereof), the
General Partner, on behalf of the Partnership, may, in its sole discretion,
file an election under Section 754 of the Code (or any similar provision
enacted in lieu thereof) in accordance with the procedures set forth in the
applicable Treasury regulations.
11.5 TAX MATTERS PARTNER. The General Partner is hereby designated the
Tax Matters Partner (hereinafter referred to as the "TMP") of the Partnership
and shall have all the rights and obligations of the TMP under the Code.
11.6 ADMINISTRATIVE ADJUSTMENTS. If the TMP receives notice of a Final
Partnership Administrative Adjustment (the "FPAA") or if a request for an
administrative adjustment made by the TMP is not allowed by the United States
Internal Revenue Service (the "IRS") and the IRS does not notify the TMP of the
beginning of an administrative proceeding with respect to the Partnership's
taxable year to which such request relates (or if the IRS so notifies the TMP
but fails to mail a timely notice of an FPAA), the TMP may, but shall not be
15
<PAGE> 16
obligated to, petition a Court for readjustment of partnership items. In the
case of notice of an FPAA, if the TMP determines that, the United States
District Court or Claims Court is the most appropriate forum for such a
petition, the TMP shall notify each person who was a Partner at any time during
the Partnership's taxable year to which the IRS notice relates of the
approximate amount by which its tax liability would be increased (based on such
assumptions as the TMP may in good faith make) if the treatment of partnership
items on his return was made consistent with the treatment of partnership items
on the Partnership's return, as adjusted by the FPAA. Unless each such person
deposits with the TMP, for deposit with IRS, the approximate amount of his
increased tax liability, together with a written agreement to make additional
deposits if required to satisfy the jurisdictional requirements of the Court,
within thirty days after the TMP's notice to such person, the TMP shall not
file a petition in such Court. Instead, the TMP may, but shall not be
obligated to, file a petition in the United States Tax Court.
12. TRANSFERS OF PARTNERSHIP INTERESTS. In no event may any Partner
assign, sell, transfer, pledge, hypothecate or otherwise dispose of all or any
portion of its Partnership Interest, except by operation of law. Any purported
assignment, sale, transfer, pledge, hypothecation or other disposition shall be
void ab initio.
13. DEATH, LEGAL INCOMPETENCY, ETC. OF A LIMITED PARTNER. The death,
legal incompetency, insolvency, dissolution or Bankruptcy of a Limited Partner
shall not dissolve or terminate the Partnership.
14. TERMINATION, LIQUIDATION AND DISSOLUTION OF PARTNERSHIP.
14.1 TERMINATION EVENTS. The Partnership shall be dissolved and its
affairs wound up in the manner hereinafter provided upon the earliest to occur
of the following events:
(a) December 31, 2080; or
(b) the agreement of all Partners that the Partnership
should be dissolved.
14.2 METHOD OF LIQUIDATION. Upon the happening of any of the events
specified in Section 14.1 above, the General Partner (or if there be no General
Partner, a liquidating trustee selected by the Limited Partner) shall
immediately commence to wind up the Partnership's affairs and shall liquidate
the assets of the Partnership as promptly as possible, unless the General
Partner, or the liquidating trustee, shall determine that an immediate sale of
Partnership assets would cause undue loss to the Partnership), in which event
the liquidation may be deferred for a reasonable time. The Partners shall
continue to share Operating Cash Flow, Capital Cash Flow, Profits and Losses
during the period of liquidation in the same proportions as before dissolution.
The proceeds from liquidation of the Partnership, shall be applied in the
order of priority as follows:
(a) Debts of the Partnership, including repayment of principal and
interest on loans and advances made by the General Partner pursuant to
Section 3.2 above; then
16
<PAGE> 17
(b) To the establishment of any reserves deemed necessary or
appropriate by the General Partner, or by the person(s) winding up
the affairs of the Partnership in the event there is no remaining
General Partner of the Partnership, for any contingent or
unforeseen Iiabilities or obligations of the Partnership. Such
reserves established hereunder shall be held for the purpose of
paying any such contingent or unforeseen liabilities or
obligations and, at the expiration of such period as the General
Partner, or such person(s) deems advisable, the balance of such
reserves shall be distributed in the manner provided hereinafter
in this Section 14.2 as though such reserves had been distributed
contemporaneously with the other funds distributed hereunder;
(c) Then, to the Partners in accordance with their respective
Capital Account balances, after giving effect to all
contributions, distributions and allocations for all periods.
14.3 DATE OF TERMINATION. The Partnership shall be terminated when all
notes received in connection with such disposition have been paid and all of
the cash or property available for application and distribution under Section
14.2 above (including reserves) shall have been applied and distributed in
accordance therewith.
15. MISCELLANEOUS.
15.1 NOTICES. Any notice, election or other communication provided for or
required by this Agreement shall be in writing and shall be deemed to have been
given when delivered by hand or by telecopy or other facsimile transmission,
the first business day after sent by overnight courier (such as Federal
Express), or on the second business day after deposit in the United States
Mail, certified or registered, return receipt requested, postage prepaid,
properly addressed to the Partner to whom such notice is intended to be given
at the address for the Partner set forth on the signature pages of this
Agreement, or at such other address as such person may have previously
furnished in writing to the Partnership and each Partner with copies to:
Manufacturted Home Communities, Inc.
Two North Riverside Plaza
Suite 800
Chicago, Illinois 60606
Attention: General Counsel
15.2 MODIFICATIONS. No change or modification of this Agreement shall be
valid or binding upon the Partners, nor shall any waiver of any term or
condition in the future, unless such change or modification or waiver shall be
in writing and signed by all of the Partners, except as provided to the
contrary in this Agreement.
15.3 SUCCESSORS AND ASSIGNS. Any person acquiring or claiming an interest
in the Partnership, in any manner whatsoever, shall be subject to and bound by
all of the terms, conditions and obligations of this Agreement to which his
predecessor-in-interest was subject or bound, without regard to whether such a
person has executed a counterpart hereof or any other document contemplated
hereby. No person, including the legal representative, heir or legatee
17
<PAGE> 18
of a deceased Partner, shall have any rights or obligations greater than
those set forth in this Agreement, and no person shall acquire an interest in
the Partnership or become a Partner thereof except as expressly permitted by
and pursuant to the terms of this Agreement. Subject to the foregoing, and the
provisions of Section 12 above, this Agreement shall be binding upon and inure
to the benefit of the Partners and their respective successors, assigns, heirs,
legal representatives, executors and administrators.
15.4 DUPLICATE ORIGINALS. For the convenience of the Partners, any number
of counterparts hereof may be executed, and each such counterpart shall be
deemed to be an original instrument, and all of which taken together shall
constitute one agreement.
15.5 CONSTRUCTION. The titles of the Sections and subsections herein have
been inserted as a matter of convenience of reference only and shall not
control or affect the meaning or construction of any of the terms or provisions
herein.
15.6 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Delaware. Except to the extent the Act is inconsistent with the
provisions of this Agreement, the provisions of such Act shall apply to the
Partnership.
15.7 OTHER INSTRUMENTS. The parties hereto covenant and agree that they
will execute such other and further instruments and documents as, in the
opinion of the General Partner, are or may become necessary or desirable to
effectuate and carry out the Partnership as provided for by this Agreement.
15.8 LEGAL CONSTRUCTION. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
15.9 GENDER. Whenever the context shall so require, all words herein in
any gender shall be deemed to include the masculine, feminine or neuter gender,
all singular words shall include the plural, and all plural words shall include
the singular.
15.10 PRIOR AGREEMENTS SUPERSEDED. This Agreement supersedes any prior
understandings or written or oral agreements amongst the Partners, or any of
them, respecting the within subject matter and contains the entire
understanding amongst the Partners with respect thereto.
15.11 NO THIRD PARTY BENEFICIARIES. The terms and provisions of this
Agreement are for the exclusive use and benefit of the General Partner and the
Limited Partner and shall not inure to the benefit of any other person or
entity.
15.12 WAIVER. No consent or waiver, express or implied, by any Partner to
or of any breach or default by any other Partner in the performance by such
other Partner of its obligations hereunder shall be deemed or construed to be a
consent to or waiver of any other breach or default in the performance by such
other Partner of the same or any other obligations of such Partner hereunder.
Failure on the part of any Partner to complain of any act or failure to act on
the part of any other Partner or to declare any other Partner in default,
irrespective of
18
<PAGE> 19
how long such failure continues, shall not constitute a waiver by such Partner
of its rights hereunder.
15.13 TIME OF ESSENCE. Time is hereby expressly made of the essence with
respect to the performance by the parties of their respective obligations under
this Agreement.
15.14 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, which when taken together, shall constitute but one original.
IN WITNESS WHEREOF, this Agreement has been executed and sworn to as of
the day and year first above written by the General Partner and the Limited
Partner.
PERCENTAGE INTEREST GENERAL PARTNER
- ------------------- ---------------
1% MHC-QRS TWO, INC., a Delaware corporation
By: /s/ Ellen Kellcher
-----------------------------------------
Title: Exec. VP/Genl. Counsel
LIMITED PARTNER
---------------
99% MHC OPERATING LIMITED PARTNERSHIP, an Illinois
limited partnership, by its sole general partner:
Manufactured Home Communities, Inc., a
Maryland corporation
By: /s/ Ellen Kellcher
-----------------------------------------
Title: Exec. VP/Genl. Counsel
19
<PAGE> 20
EXHIBIT A
<TABLE>
<CAPTION>
Property State
- -------- -----
<S> <C>
Em Ja Ha Arizona
Fairview Manor Arizona
Mesa Regal Arizona
Colony Park California
Laguna Lake (undivided 9.4% interest) California
Laguna Lake (undivided 44.15% interest) California
Rancho Mesa California
Bear Creek Village Colorado
Carriage Cove Florida
Country Meadows Florida
Hillcrest Florida
Holiday Ranch Florida
Indian Oaks Florida
Pickwick Village Florida
Sherwood Forest Florida
Southern Palms Florida
The Landings Florida
Windmill Manor Florida
Five Seasons Iowa
Creekside Michigan
Boulder Cascade Nevada
Brook Gardens New York
</TABLE>
20
<PAGE> 1
EXHIBIT 12
MANUFACTURED HOME COMMUNITIES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1997 1996 1995 1994 1993
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income before allocation to minority
interests and extraordinary loss on early
extinguishment of debt $33,469 $26,943 $20,023 $16,616 $10,957
Fixed Charges 21,753 18,264 19,562 11,146 9,070
---------------------------------------------------------------------
Earnings $55,222 $45,207 $39,585 $27,762 $20,027
=====================================================================
Interest incurred $20,708 $16,794 $16,807 $ 9,699 $ 5,879
Amortization of deferred financing costs 1,045 1,470 2,755 1,447 3,191
---------------------------------------------------------------------
Fixed Charges $21,753 $18,264 $19,562 $11,146 $ 9,070
=====================================================================
Earnings/Fixed Charges 2.54 2.48 2.02 2.49 2.21
=====================================================================
</TABLE>
<PAGE> 1
EXHIBIT 21
MANUFACTURED HOME COMMUNITIES, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State of Incorporation
or Organization
----------------------
<S> <C>
MHC Operating Limited Partnership Illinois
MHC Financing Limited Partnership Illinois
MHC Management Limited Partnership Illinois
MHC Financing Limited Partnership Two Delaware
Blue Ribbon Communities Limited Partnership Delaware
LP Management Corporation Delaware
MHC-QRS, Inc. Delaware
MHC-QRS Two, Inc. Delaware
MHC-QRS Blue Ribbon Communities, Inc. Delaware
MHC Lending Limited Partnership Illinois
MHC-Lending QRS, Inc. Illinois
MHC-DeAnza Financing Limited Partnership Illinois
MHC-QRS DeAnza, Inc. Illinois
MHC-DAG Management Limited Partnership Illinois
MHC-Bay Indies Financing Limited Partnership Illinois
MHC-QRS Bay Indies, Inc. Illinois
MHC Systems, Inc. Illinois
</TABLE>
<PAGE> 1
EXHIBIT 23
MANUFACTURED HOME COMMUNITIES, INC.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-25295, Form S-3 Form 333-25297, Form S-3 No. 333-1710, No.
33-82902 and No. 33-97288 and Form S-8 No. 33-76486) of Manufactured Home
Communities, Inc., and in the related Prospectuses, of our report dated January
28, 1998, except for Note 15, as to which the date is February 23, 1998, with
respect to the consolidated financial statements and schedules of Manufactured
Home Communities, Inc., included in this Annual Report (Form 10-K) for the year
ended December 31, 1997.
ERNST & YOUNG LLP
Chicago, Illinois
March 13, 1998
<PAGE> 1
EXHIBIT 23.1
MANUFACTURED HOME COMMUNITIES, INC.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Manufactured Home Communities, Inc. on Form S-8 (File Nos. 33-76846 and
333-25292) and on Form S-3 (File Nos. 33-82902, 33-97288, 333-1710 and
333-25297) of our report dated February 16, 1996, on our audit of the
consolidated financial statements and financial statement schedule of
Manufactured Home Communities, Inc. for the year ended December 31, 1995,
which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 9, 1998
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
-----------------
STATE OF ILLINOIS )
) SS
COUNTY OF Cook )
----------
KNOW ALL MEN BY THESE PRESENTS that John F. Podjasek, Jr., having an
address at Barrington, Illinois, has made, constituted and appointed and BY
THESE PRESENTS, does make, constitute and appoint Thomas P. Heneghan and Howard
Walker, or either of them, having an address at Two North Riverside Plaza,
Chicago, Illinois 60606, his true and lawful Attorney-in-Fact for him and in
his name, place and stead to sign and execute in any and all capacities this
Annual Report on Form 10-K and any or all amendments to this Annual Report on
Form 10-K, and to file the same with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, giving
and granting unto each of such, Attorney-in-Fact, full power and authority to
do and perform each and every act and thing, requisite and necessary to be done
in and about the premises, as fully, to all intents and purposes as he might or
could do if personally present at the doing thereof, with full power of
substitution and revocation, hereby ratifying and confirming all that each of
such Attorney-in-Fact or his substitutes shall lawfully do or cause to be done
by virtue hereof.
This power of Attorney shall remain in full force and effect until
terminated by the undersigned through the instrumentality of a signed writing.
IN WITNESS WHEREOF, John F. Podjasek, Jr., has hereunto, set his hand this
11th day of March, 1998.
- ---- -----
/s/ John F. Podjasek, Jr.
-------------------------
John F. Podjasek, Jr.
I, Leah J. Banks, a Notary Public in and for said County in the State
aforesaid, do hereby certify that John F. Podjasek, Jr., personally know to me
to be the same person whose name is subscribed to the foregoing instrument
appeared before me this day in person and acknowledged that he signed and
delivered said instrument as his own free voluntary act for the uses and
purposes therein set forth.
Given under my hand and notarial seal this 11th day of March, 1998.
---- -----
/s/ Leah J. Banks
-------------------------
(Notary Public)
My Commission Expires:
January 7, 2002
- --------------------------
<PAGE> 1
EXHIBIT 24.2
POWER OF ATTORNEY
-----------------
STATE OF CALIFORNIA )
) SS
COUNTY OF Alameda )
-------------
KNOW ALL MEN BY THESE PRESENTS that Michael A. Torres, having an address
at Alameda, California, has made, constituted and appointed and BY THESE
PRESENTS, does make, constitute and appoint Thomas P. Heneghan and Howard
Walker, or either of them, having an address at Two North Riverside Plaza,
Chicago, Illinois 60606, his true and lawful Attorney-in-Fact for him and in
his name, place and stead to sign and execute in any and all capacities this
Annual Report on Form 10-K and any or all amendments to this Annual Report on
Form 10-K, and to file the same with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, giving
and granting unto each of such, Attorney-in-Fact, full power and authority to
do and perform each and every act and thing, requisite and necessary to be done
in and about the premises, as fully, to all intents and purposes as he might or
could do if personally present at the doing thereof, with full power of
substitution and revocation, hereby ratifying and confirming all that each of
such Attorney-in-Fact or his substitutes shall lawfully do or cause to be done
by virtue hereof.
This power of Attorney shall remain in full force and effect until
terminated by the undersigned through the instrumentality of a signed writing.
IN WITNESS WHEREOF, Michael A. Torres, has hereunto, set his hand this
11th day of March, 1998.
- ---- -----
/s/ Michael A. Torres
-----------------------
Michael A. Torres
I, Nancy K. Hagel, a Notary Public in and for said County in the State
aforesaid, do hereby certify that Michael A. Torres, personally know to me to
be the same person whose name is subscribed to the foregoing instrument
appeared before me this day in person and acknowledged that he signed and
delivered said instrument as his own free voluntary act for the uses and
purposes therein set forth.
Given under my hand and notarial seal this 11th day of March, 1998.
---- -----
/s/ Nancy K. Hagel
-----------------------
(Notary Public)
My Commission Expires:
March 16, 2001
- ------------------------
<PAGE> 1
EXHIBIT 24.3
POWER OF ATTORNEY
-----------------
STATE OF NEW YORK )
) SS
COUNTY OF New York )
------------
KNOW ALL MEN BY THESE PRESENTS that Thomas E. Dobrowski, having an address
at New York, New York, has made, constituted and appointed and BY THESE
PRESENTS, does make, constitute and appoint Thomas P. Heneghan and Howard
Walker, or either of them, having an address at Two North Riverside Plaza,
Chicago, Illinois 60606, his true and lawful Attorney-in-Fact for him and in
his name, place and stead to sign and execute in any and all capacities this
Annual Report on Form 10-K and any or all amendments to this Annual Report on
Form 10-K, and to file the same with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, giving
and granting unto each of such, Attorney-in-Fact, full power and authority to
do and perform each and every act and thing, requisite and necessary to be done
in and about the premises, as fully, to all intents and purposes as he might or
could do if personally present at the doing thereof, with full power of
substitution and revocation, hereby ratifying and confirming all that each of
such Attorney-in-Fact or his substitutes shall lawfully do or cause to be done
by virtue hereof.
This power of Attorney shall remain in full force and effect until
terminated by the undersigned through the instrumentality of a signed writing.
IN WITNESS WHEREOF, Thomas E. Dobrowski, has hereunto, set his hand this
6th day of March, 1998.
- --- -----
/s/ Thomas E. Dobrowski
------------------------
Thomas E. Dobrowski
I, Rosemarie Sobel, a Notary Public in and for said County in the State
aforesaid, do hereby certify that Thomas E. Dobrowski, personally know to me to
be the same person whose name is subscribed to the foregoing instrument
appeared before me this day in person and acknowledged that he signed and
delivered said instrument as his own free voluntary act for the uses and
purposes therein set forth.
Given under my hand and notarial seal this 6th day of March, 1998.
--- -----
/s/ Rosemarie Sobel
------------------------
(Notary Public)
My Commission Expires:
October 31, 1998
- --------------------------
<PAGE> 1
EXHIBIT 24.4
POWER OF ATTORNEY
-----------------
STATE OF ILLINOIS )
) SS
COUNTY OF Cook )
--------
KNOW ALL MEN BY THESE PRESENTS that Gary L. Waterman, having an address at
Seattle, Washington, has made, constituted and appointed and BY THESE PRESENTS,
does make, constitute and appoint Thomas P. Heneghan and Howard Walker, or
either of them, having an address at Two North Riverside Plaza, Chicago,
Illinois 60606, his true and lawful Attorney-in-Fact for him and in his name,
place and stead to sign and execute in any and all capacities this Annual
Report on Form 10-K and any or all amendments to this Annual Report on Form
10-K, and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, giving and
granting unto each of such, Attorney-in-Fact, full power and authority to do
and perform each and every act and thing, requisite and necessary to be done in
and about the premises, as fully, to all intents and purposes as he might or
could do if personally present at the doing thereof, with full power of
substitution and revocation, hereby ratifying and confirming all that each of
such Attorney-in-Fact or his substitutes shall lawfully do or cause to be done
by virtue hereof.
This power of Attorney shall remain in full force and effect until
terminated by the undersigned through the instrumentality of a signed writing.
IN WITNESS WHEREOF, Gary L. Waterman, has hereunto, set his hand this
10th day of March, 1998.
- ---- -----
/s/ Gary L. Waterman
------------------------
Gary L. Waterman
I, Leah J. Banks, a Notary Public in and for said County in the State
aforesaid, do hereby certify that Gary L. Waterman, personally know to me to be
the same person whose name is subscribed to the foregoing instrument appeared
before me this day in person and acknowledged that he signed and delivered said
instrument as his own free voluntary act for the uses and purposes therein set
forth.
Given under my hand and notarial seal this 10th day of March, 1998.
---- -----
/s/ Leah J. Banks
------------------------
(Notary Public)
My Commission Expires:
January 7, 2002
- --------------------------
<PAGE> 1
EXHIBIT 24.5
POWER OF ATTORNEY
-----------------
STATE OF MICHIGAN )
) SS
COUNTY OF Washtenaw )
-------------
KNOW ALL MEN BY THESE PRESENTS that Donald S. Chisholm, having an address
at Ann Arbor, Michigan, has made, constituted and appointed and BY THESE
PRESENTS, does make, constitute and appoint Thomas P. Heneghan and Howard
Walker, or either of them, having an address at Two North Riverside Plaza,
Chicago, Illinois 60606, his true and lawful Attorney-in-Fact for him and in
his name, place and stead to sign and execute in any and all capacities this
Annual Report on Form 10-K and any or all amendments to this Annual Report on
Form 10-K, and to file the same with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, giving
and granting unto each of such, Attorney-in-Fact, full power and authority to
do and perform each and every act and thing, requisite and necessary to be done
in and about the premises, as fully, to all intents and purposes as he might or
could do if personally present at the doing thereof, with full power of
substitution and revocation, hereby ratifying and confirming all that each of
such Attorney-in-Fact or his substitutes shall lawfully do or cause to be done
by virtue hereof.
This power of Attorney shall remain in full force and effect until
terminated by the undersigned through the instrumentality of a signed writing.
IN WITNESS WHEREOF, Donald S. Chisholm, has hereunto, set his hand this
5th day of March, 1998.
- --- -----
/s/ Donald S. Chisholm
-----------------------
Donald S. Chisholm
I, Barbara A. Miller, a Notary Public in and for said County in the State
aforesaid, do hereby certify that Donald S. Chisholm, personally know to me to
be the same person whose name is subscribed to the foregoing instrument
appeared before me this day in person and acknowledged that he signed and
delivered said instrument as his own free voluntary act for the uses and
purposes therein set forth.
Given under my hand and notarial seal this 5th day of March, 1998.
--- -----
/s/ Barbara A. Miller
-----------------------
(Notary Public)
My Commission Expires:
August 5, 1998
- ------------------------
<PAGE> 1
EXHIBIT 24.6
POWER OF ATTORNEY
-----------------
STATE OF CALIFORNIA )
) SS
COUNTY OF Orange )
----------
KNOW ALL MEN BY THESE PRESENTS that Louis H. Masotti, having an address at
San Diego, California, has made, constituted and appointed and BY THESE
PRESENTS, does make, constitute and appoint Thomas P. Heneghan and Howard
Walker, or either of them, having an address at Two North Riverside Plaza,
Chicago, Illinois 60606, his true and lawful Attorney-in-Fact for him and in
his name, place and stead to sign and execute in any and all capacities this
Annual Report on Form 10-K and any or all amendments to this Annual Report on
Form 10-K, and to file the same with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, giving
and granting unto each of such, Attorney-in-Fact, full power and authority to
do and perform each and every act and thing, requisite and necessary to be done
in and about the premises, as fully, to all intents and purposes as he might or
could do if personally present at the doing thereof, with full power of
substitution and revocation, hereby ratifying and confirming all that each of
such Attorney-in-Fact or his substitutes shall lawfully do or cause to be done
by virtue hereof.
This power of Attorney shall remain in full force and effect until
terminated by the undersigned through the instrumentality of a signed writing.
IN WITNESS WHEREOF, Louis H. Masotti, has hereunto, set his hand this
11th day of March, 1998.
- ---- -----
/s/ Louis H. Masotti
---------------------
Louis H. Masotti
I, Vicki L. Ranck, a Notary Public in and for said County in the State
aforesaid, do hereby certify that Louis H. Masotti, personally know to me to be
the same person whose name is subscribed to the foregoing instrument appeared
before me this day in person and acknowledged that he signed and delivered said
instrument as his own free voluntary act for the uses and purposes therein set
forth.
Given under my hand and notarial seal this 11th day of March, 1998.
/s/ Vicki L. Ranck
---------------------
(Notary Public)
My Commission Expires:
December 17, 1999
- ---------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and statements of operations and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000895417
<NAME> MANUFACTURED HOME COMMUNITIES, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 909
<SECURITIES> 0
<RECEIVABLES> 787
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 936,318
<DEPRECIATION> 89,208
<TOTAL-ASSETS> 864,365
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 248
<OTHER-SE> 280,327
<TOTAL-LIABILITY-AND-EQUITY> 864,365
<SALES> 120,769
<TOTAL-REVENUES> 123,510
<CGS> 0
<TOTAL-COSTS> 45,774
<OTHER-EXPENSES> 4,559
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,753
<INCOME-PRETAX> 33,469
<INCOME-TAX> 0
<INCOME-CONTINUING> 29,096
<DISCONTINUED> 0
<EXTRAORDINARY> 451
<CHANGES> 0
<NET-INCOME> 28,645
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.15
</TABLE>
