<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999.
OR
[_] Transition pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
COMMISSION FILE NUMBER 1-12616
SUN COMMUNITIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Maryland 38-2730780
(State of Incorporation) (I.R.S. Employer Identification No.)
31700 Middlebelt Road 48334
Suite 145 (Zip Code)
Farmington Hills, Michigan
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (248) 932-3100
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
17,315,699 shares of Common Stock, $.01 par value as of April 26, 1999
Page 1 of 18
<PAGE> 2
SUN COMMUNITIES, INC.
INDEX
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<TABLE>
<CAPTION>
PAGES
-----
PART I
- ------
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998 3
Consolidated Statements of Income for the Three Months
Ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-16
PART II
- -------
Item 6.(a) Exhibits required by Item 601 of Regulation S-K 17
Item 6.(b) Reports on Form 8-K 17
Signatures 18
</TABLE>
2
<PAGE> 3
SUN COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS)
--------
<TABLE>
<CAPTION>
ASSETS 1999 1998
--------------- -------------
<S> <C> <C>
Investment in rental property, net $ 752,881 $ 732,212
Cash and cash equivalents 2,067 9,646
Investment in and advances to affiliates 43,084 26,355
Notes receivable 32,345 26,685
Other assets 28,240 26,541
--------------- -------------
Total assets $ 858,617 $ 821,439
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Line of credit $ 50,000 $ 26,000
Debt 350,785 339,164
Accounts payable and accrued expenses 14,356 12,637
Deposits and other liabilities 12,744 12,051
Distributions payable 10,879 --
--------------- -------------
Total liabilities 438,764 389,852
--------------- -------------
Minority interests 89,478 91,223
--------------- -------------
Stockholders' equity:
Preferred stock, $.01 par value, 10,000 shares
authorized; no shares issued and outstanding -- --
Common stock, $.01 par value, 100,000 shares
authorized; 17,299 and 17,256 issued and
outstanding in 1999 and 1998, respectively 173 172
Paid-in capital 389,462 389,448
Officers' notes (11,609) (11,609)
Unearned compensation (5,162) (5,302)
Distributions in excess of accumulated earnings (42,489) (32,345)
---------------- -------------
Total stockholders' equity 330,375 340,364
--------------- -------------
Total liabilities and stockholders' equity $ 858,617 $ 821,439
=============== =============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE> 4
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
------
<TABLE>
<CAPTION>
1999 1998
----------- -----------
Revenues:
<S> <C> <C>
Income from property $ 31,374 $ 28,605
Other income 1,705 814
----------- -----------
Total revenues 33,079 29,419
----------- -----------
Expenses:
Property operating and maintenance 6,849 6,419
Real estate taxes 2,205 2,167
Property management 611 479
General and administrative 910 837
Depreciation and amortization 6,882 5,940
Interest 6,684 5,578
----------- -----------
Total expenses 24,141 21,420
----------- -----------
Income before minority interests and other 8,938 7,999
Other, net -- 937
----------- -----------
Income before minority interests 8,938 8,936
Less income allocated to minority interests:
Preferred OP Units 626 626
Common OP Units 1,177 1,009
----------- -----------
Net income $ 7,135 $ 7,301
=========== ===========
Earnings per common share:
Basic $ 0.42 $ 0.44
=========== ===========
Diluted $ 0.41 $ 0.43
=========== ===========
Weighted average common shares
outstanding - basic 17,113 16,682
=========== ===========
Distributions declared per common
share outstanding $ 0.51 $ 0.49
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE> 5
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(IN THOUSANDS)
------
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,135 $ 7,301
Adjustments to reconcile net income to net
cash provided by operating activities:
Income allocated to minority interests 1,177 1,009
Other, net -- (937)
Depreciation and amortization 6,882 5,940
Deferred financing costs 196 137
(Increase) decrease in other assets (2,487) 748
Increase in accounts payable and other liabilities 3,038 5,019
------------- ------------
Net cash provided by operating activities 15,941 19,217
------------- ------------
Cash flows from investing activities:
Investment in rental properties (14,611) (39,135)
Investment in and advances to affiliates (16,729) (5,313)
Proceeds related to asset sales -- 4,913
Investment in notes receivable (5,660) --
Net cash used in investing activities (37,000) (39,535)
-------------- ------------
Cash flows from financing activities:
Borrowings on line of credit, net 24,000 37,000
Repayments on notes payable and other debt (684) (246)
Proceeds from stock options, dividend reinvestment
plan and other 15 509
Distributions (9,830) (8,278)
Payments for deferred financing costs (21) (73)
------------- ------------
Net cash provided by financing activities 13,480 28,912
------------- ------------
Net increase (decrease) in cash and cash equivalents (7,579) 8,594
Cash and cash equivalents, beginning of period 9,646 2,198
------------- ------------
Cash and cash equivalents, end of period $ 2,067 $ 10,792
============= ============
Supplemental Information:
Debt assumed for rental properties $ 1,700 $ 16,393
Capitalized lease obligation for rental properties $ 10,605 $ 9,479
OP units issued for rental properties $ -- $ 1,704
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
5
<PAGE> 6
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----
1. BASIS OF PRESENTATION:
These unaudited consolidated financial statements of Sun Communities,
Inc., a Maryland corporation, (the "Company"), have been prepared
pursuant to the Securities and Exchange Commission ("SEC") rules and
regulations and should be read in conjunction with the financial
statements and notes thereto of the Company as of December 31, 1998. The
following notes to consolidated financial statements present interim
disclosures as required by the SEC. The accompanying consolidated
financial statements reflect, in the opinion of management, all
adjustments necessary for a fair presentation of the interim financial
statements. All such adjustments are of a normal and recurring nature.
Certain reclassifications have been made to the prior period financial
statements to conform with current period presentation.
2. RENTAL PROPERTY:
The following summarizes rental property (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- ---------------
<S> <C> <C>
Land $ 73,700 $ 71,930
Land improvements and buildings 700,639 679,755
Furniture, fixtures, equipment 16,099 15,209
Land held for future development 21,129 26,511
Property under development 18,501 9,747
------------- ---------------
830,068 803,152
Accumulated depreciation 77,187 70,940
------------- ---------------
Rental property, net $ 752,881 $ 732,212
============= ===============
</TABLE>
Through March 31, 1999, acquisitions have totaled approximately $17.1
million for three existing communities comprising 661 developed sites and
195 development sites and $1.0 million for one development community
planned for approximately 523 sites.
6
<PAGE> 7
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
<TABLE>
<CAPTION>
3. NOTES RECEIVABLE:
Notes receivable consisted of the following (in thousands):
March 31, December 31,
1999 1998
--------- ----------
<S> <C> <C>
Mortgage notes receivable with minimum monthly interest payments at
7%, maturing June 30, 2012 collateralized by communities
located in Dover, DE(a). $ 15,093 $ 15,093
Mortgage note receivable, bears interest at 9% maturing July 1, 1999,
collateralized by land in Harris County, Texas. 4,400 4,400
Installment loans on manufactured homes with interest payable monthly
at a weighted average interest rate and maturity of 10% and 22
years, respectively.(b) 10,863 5,339
Notes receivable, other, various interest rates ranging from 6% to
9.5% or prime + 1.5%, various maturity dates through December 31,
2003. 1,989 1,853
--------- ----------
$ 32,345 $ 26,685
========= ==========
</TABLE>
(a) The stated interest rate is 12%. The excess of the interest
earned at the stated rate over the pay rate is recognized upon
receipt of payment.
(b) Loans purchased from Bingham Financial Services, Corp.("BFSC"),
an affiliate, with BFSC retaining full recourse.
The officers' notes are 10 year, LIBOR + 1.75% notes, with a minimum and
maximum interest rate of 6% and 9%, respectively, collateralized by
372,206 shares of the Company's common stock and 127,794 OP Units with
substantial personal recourse.
7
<PAGE> 8
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
4. DEBT:
The following table sets forth certain information regarding debt (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- -----------
<S> <C> <C>
Collateralized term loan, interest at 7.01%,
due September 9, 2007 $ 44,303 $ 44,425
Senior notes, interest at 7.375%, due May 1, 2001 65,000 65,000
Senior notes, interest at 7.625%, due May 1, 2003 85,000 85,000
Senior notes, interest at 6.97%, due December 3, 2007 35,000 35,000
Callable/redeemable notes, interest at 6.77%, due
May 14, 2015, callable/redeemable May 16, 2005 65,000 65,000
Capitalized lease obligations, interest ranging from
5.5% to 6.3%, due March 2001 through
January 2004 36,992 26,542
Mortgage notes, other 19,490 18,197
--------- -----------
$ 350,785 $ 339,164
========= ===========
</TABLE>
The Company had $50 million available to borrow under its line of
credit at March 31, 1999.
5. MINORITY INTERESTS:
Minority interests include 2,803,540 and 2,815,440 Common Operating
Partnership Units at March 31, 1999 and December 31, 1998, respectively,
and 1,325,275 Convertible Preferred Operating Partnership Units ("POP
Units") at March 31, 1999 and December 31, 1998.
6. OTHER INCOME:
The components of other income are as follows for the three months
ended March 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Other, principally interest $ 915 $ 506
Income from affiliates 790 308
--------- --------
$ 1,705 $ 814
========= ========
</TABLE>
8
<PAGE> 9
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----
7. EARNINGS PER SHARE:
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1999 1998
-------- --------
<S> <C> <C>
Earnings used for basic and diluted earnings per
share computation $ 7,135 $ 7,301
======== ========
Total shares used for basic earnings per share 17,113 16,682
Dilutive securities, principally stock options 124 203
-------- --------
Total shares used for diluted earnings per share
computation 17,237 16,885
======== ========
</TABLE>
Diluted earnings per share reflect the potential dilution that would
occur if securities were exercised or converted into common stock.
Convertible POP Units are excluded from the computations as their
inclusion would have an antidilutive effect on earnings per share in 1999
and 1998.
9
<PAGE> 10
SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
----
OVERVIEW
The following discussion and analysis of the consolidated financial condition
and results of operations should be read in conjunction with the consolidated
financial statements and the notes thereto. Capitalized terms are used as
defined elsewhere in this Form 10-Q.
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 1999 and 1998
For the three months ended March 31, 1999, income before other, net and minority
interests increased by 11.7 percent from $8.0 million to $8.9 million, when
compared to the three months ended March 31, 1998. The increase was due to
increased revenues of $3.6 million while expenses increased by $2.7 million.
Income from property increased by $2.8 million from $28.6 million to $31.4
million or 9.7 percent, due to acquisitions ($1.4 million), lease up of
manufactured home sites including new development ($0.6 million) and increases
in rents and other community revenues ($0.8 million).
Other income increased by $0.9 million from $0.8 million to $1.7 million. $0.5
million of the increase in other income relates to income from affiliates and
the remaining $.4 million of the increase relates to interest income.
Property operating and maintenance increased by $0.4 million from $6.4 million
to $6.8 million or 6.7 percent due primarily to acquisitions ($0.3 million).
Real estate taxes remained constant at $2.2 million during 1999 and 1998.
Property management expenses increased by $0.1 million from $0.5 million to $0.6
million representing 1.9 percent and 1.7 percent of income from property in 1999
and 1998, respectively.
General and administrative expenses increased by $0.1 million from $0.8 million
to $0.9 million or 8.7 percent due primarily to increased staffing to manage the
growth of the Company. General and administrative expenses as a percentage of
income from property remained constant at 2.9 percent in both periods.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
increased by $3.0 million from $19.5 million to $22.5 million. EBITDA as a
percent of revenues increased to 68.0 percent in 1999 compared to 66.3 percent
in 1998.
Depreciation and amortization increased by $1.0 million from $5.9 million to
$6.9 million or 15.9 percent due primarily to the acquisition of communities in
1999 and 1998.
Interest expense increased by $1.1 million from $5.6 million to $6.7 million or
19.8 percent primarily due
10
<PAGE> 11
SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
----
RESULTS OF OPERATIONS CONTINUED
to increased average debt outstanding.
Other, net of $.9 million in 1998 represents a gain from the disposition of
certain assets.
SAME PROPERTY INFORMATION
The following table reflects property-level financial information as of and for
the three months ended March 31, 1999 and 1998. The "Same Property" data
represents information regarding the operation of communities owned as of
January 1, 1998 and March 31, 1999. Site, occupancy, and rent data for those
communities is presented as of the last day of each period presented. The table
includes sites where the Company is providing financing and managing the
properties. Such amounts relate to the total portfolio data and include 923
sites in 1999 and 1998.
<TABLE>
<CAPTION>
SAME PROPERTY TOTAL PORTFOLIO
--------------------- -------------------
1999 1998 1999 1998
------- ------- ---------- -------
<S> <C> <C> <C> <C>
Income from property $21,660 $20,346 $31,374 $28,605
------- ------- ------- -------
Property operating expenses:
Property operating and maintenance 3,824 3,622 6,849 6,419
Real estate taxes 1,679 1,733 2,205 2,167
------- ------- ------- -------
Property operating expenses 5,503 5,355 9,054 8,586
------- ------- ------- -------
Property EBITDA $16,157 $14,991 $22,320 $20,019
======= ======= ======= =======
Number of properties 79 79 107 104
Developed sites 27,369 26,554 38,240 36,720
Occupied sites 25,945 25,357 35,427 34,122
Occupancy % 94.8%(1) 95.5%(1) 94.9(1) 95.3%(1)
Weighted average monthly rent per site $ 271 (1) $ 260 (1) $ 272(1) $ 263 (1)
Sites available for development 1,320 2,338 8,478 4,700
Sites planned for development in current year 185 105 2,327 1,694
</TABLE>
(1) Occupancy % and weighted average rent relates to manufactured housing sites,
excluding recreational vehicle sites.
On a same property basis, property revenues increased by $1.3 million from $20.4
million to $21.7 million, or 6.5 percent, due primarily to increases in rents
and occupancy related charges including water and property tax pass throughs.
Also contributing to revenue growth was the increase of 588 leased sites at
March 31, 1999 compared to March 31, 1998.
Property operating expenses increased by $0.1 million from $5.4 million to $5.5
million or 2.8 percent, due to increased occupancies and costs. Property EBITDA
increased by $1.2 million from $15.0 million to $16.2 million, or 7.8 percent.
11
<PAGE> 12
SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-----
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $7.6 million to $2.1 million at March 31,
1999 compared to $9.7 million at December 31, 1998 primarily because cash used
in investing activities exceeded cash provided by operating and financing
activities.
Net cash provided by operating activities decreased by $3.3 million to $15.9
million for the three months ended March 31, 1999 compared to $19.2 million for
the same period in 1998. This decrease was due to other assets increasing by
$3.2 million and accounts payable and other liabilities decreasing by $2.0
million offset by a $1.9 million increase in income before minority interests,
depreciation and amortization and other.
Net cash used in investing activities decreased by $2.5 million to $37.0 million
from $39.5 million primarily due to a decrease of $24.5 million in rental
property acquisition activities offset by an increase of $17.1 million used to
finance investments in affiliates and notes receivable and a decrease in
proceeds of $4.9 million related to asset sales.
Net cash provided by financing activities decreased by $15.4 million to $13.5
million for the three months ended March 31, 1999 compared to $28.9 million for
the same period in 1998. $13.4 million of this decrease was due to reduced
borrowings on the line of credit and increased repayments on notes payable and
other debt.
The Company expects to meet its short-term liquidity requirements generally
through its working capital provided by operating activities. The Company
expects to meet certain long-term liquidity requirements such as scheduled debt
maturities and property acquisitions through the issuance of equity or debt
securities, or interests in the Operating Partnership. The Company considers
these sources to be adequate and anticipates they will continue to be adequate
to meet operating requirements, capital improvements, investment in development,
and payment of distributions by the Company in accordance with REIT requirements
in both the short and long term. The Company can also meet these short-term and
long-term requirements by utilizing its $100 million line of credit which bears
interest at LIBOR plus .90% and is due November 1, 1999.
At March 31, 1999, the Company's debt to total market capitalization
approximated 37.0% (assuming conversion of all Common and Preferred OP Units to
shares of common stock), with a weighted average maturity of approximately 5.5
years and a weighted average interest rate of 7.0%.
Recurring capital expenditures approximated $1.4 million for the three months
ended March 31, 1999, including $0.2 million for additional space and related
costs at corporate headquarters.
12
<PAGE> 13
SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-----
OTHER
Funds from operations ("FFO") is defined by the National Association of Real
Estate Investment Trusts ("NAREIT") as "net income (computed in accordance with
generally accepted accounting principles) excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures." Industry
analysts consider FFO to be an appropriate supplemental measure of the operating
performance of an equity REIT primarily because the computation of FFO excludes
historical cost depreciation as an expense and thereby facilitates the
comparison of REITs which have different cost bases in their assets. Historical
cost accounting for real estate assets implicitly assumes that the value of real
estate assets diminishes predictably over time, whereas real estate values have
instead historically risen or fallen based upon market conditions. FFO does not
represent cash flow from operations as defined by generally accepted accounting
principles and is a supplemental measure of performance that does not replace
net income as a measure of performance or net cash provided by operating
activities as a measure of liquidity. In addition, FFO is not intended as a
measure of a REIT's ability to meet debt principal repayments and other cash
requirements, nor as a measure of working capital. The following table
calculates FFO for the three months ended March 31, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Income before gain on asset sales and
minority interest $ 8,938 $ 7,999
Add depreciation and amortization, net
of corporate office depreciation 6,822 5,898
Deduct distribution to Preferred OP Units (626) (626)
---------- -----------
Funds from operations $ 15,134 $ 13,271
========== ===========
Weighted average OP Units outstanding
used for basic FFO per share/unit 19,937 19,017
Dilutive securities:
Stock options 124 203
Convertible preferred OP Units 1,280 1,197
---------- -----------
Weighted average OP Units used for
diluted FFO per share/unit 21,341 20,417
========== ===========
FFO, per share/unit:
Basic $ 0.76 $ 0.70
========== ===========
Diluted $ 0.74 $ 0.68
========== ===========
</TABLE>
13
<PAGE> 14
SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
----
OTHER CONTINUED:
Year 2000 Update
The Year 2000 ("Y2K") issue concerns the inability of computerized information
systems and non-information systems to accurately calculate, store or use a date
after 1999. This could result in computer system failures or miscalculations
causing disruptions of operations.
In 1997, the Company implemented a corporate-wide Y2K program to minimize any
such disruption caused by the failures of its own internal systems or those of
its business supply chain. In the first phase of the project, the Company
reviewed its inventory of computer hardware and software, and other devices with
embedded microprocessors. The Company also discussed its software applications
and internal operational programs with its current information systems' vendors.
Finally, in this assessment phase, key members of the business supply chain were
contacted and interviewed regarding their awareness of the Y2K problem and the
status of their own Y2K project. The first phase was completed on schedule and
all key members of the Company's business supply chain reported that they were
aware of the Y2K problem and were in the process of readying for the Y2K issue.
In the second phase of the project, all systems found to be Y2K non-compliant
were upgraded, fixed, replaced and tested. The second phase was also completed
on schedule in December 1998. The Company believes that as a result of this
Implementation/Testing phase, its applications and programs will properly
recognize calendar dates beginning in the year 2000. The Company plans to
continue monitoring Y2K communications from its software vendors and anticipates
that some vendors will recommend further patches/upgrades and testing.
In the third and final phase of the Y2K program, the Company surveyed its
material third-party service providers, such as its banks, payroll processor,
stock transfer agent and telecommunications provider. The purpose of the survey
is to follow-up on the status of their Y2K compliance efforts and assess what
effect their possible non-compliance might have on the Company. In addition, the
Company discussed with its material vendors the possibility of any interface
difficulties and/or electrical or mechanical problems relating to the Y2K which
may affect properties owned or operated by the Company. The third phase was
completed on schedule in April 1999. While all surveyed vendors reported that
they were aware of the Y2K issue and were scheduled to have all systems remedied
before December 31, 1999, most vendors were reluctant to guarantee that their
Y2K issues would not adversely affect the operations of the Company. The Company
therefore is developing contingency plans for all key members of its business
supply chain.
The Company believes that its expenditures for assessing its Y2K issues, though
difficult to quantify, to date have not been material because the Company's Y2K
evaluation has been conducted by its own personnel or by its vendors in
connection with their servicing operations. The Company received a third-party
assessment of its Y2K program methodology and will address the recommendations
that are deemed appropriate by the Company by June 30, 1999. The Company is not
aware of any other Y2K related conditions that it believes would likely require
material expenditures in the future.
14
<PAGE> 15
SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
----
OTHER CONTINUED:
Year 2000 Update, Continued
Based on its current information, the Company believes that the risk posed by
any foreseeable Y2K related problem with its internal systems and the systems at
its properties (including both information and non-information systems) or with
its vendors is minimal. Y2K related problems with the Company's software
applications and internal operational programs or with the electrical or
mechanical systems at its properties are unlikely to cause more than minor
disruptions in the Company's operations. The Company believes that the risk
posed by Y2K related problems for certain third-party service providers is
marginally greater, though, based on its current information, the Company does
not believe any such problems would have a material effect on its operations.
Any Y2K related problems at these third-party service providers could delay the
processing of financial transactions or payroll and could disrupt the Company's
internal and external communications.
While the Company believes that it will be Y2K capable by December 31, 1999,
there can be no assurance that the Company has been or will be successful in
identifying and assessing Y2K issues, or that, to the extent identified, the
Company's efforts to resolve such issues will be effective such that Y2K issues
will not have a material adverse effect on the Company's business, financial
condition, or results of operation.
Safe Harbor Statement
This Form 10-Q contains various "forward-looking statements" within the meaning
of the Securities Act of 1933 and the Securities Exchange Act of 1934, and the
Company intends that such forward-looking statements be subject to the safe
harbors created thereby. The words "may", "will", "expect", "believe",
"anticipate", "should", "estimate", and similar expressions identify
forward-looking statements. These forward-looking statements reflect the
Company's current views with respect to future events and financial performance,
but are based upon current assumptions regarding the Company's operations,
future results and prospects, and are subject to many uncertainties and factors
relating to the Company's operations and business environment which may cause
the actual results of the Company to be materially different from any future
results expressed or implied by such forward-looking statements. Please see the
section entitled "Risk Factors" of the Company's Registration Statement on Form
S-3 filed with the Securities and Exchange Commission on February 16, 1999 for a
list of uncertainties and factors.
Such factors include, but are not limited to, the following: (i) changes in the
general economic climate; (ii) increased competition in the geographic areas in
which the Company owns and operates manufactured housing communities; (iii)
changes in government laws and regulations affecting manufactured housing
communities; and (iv) the ability of the Company to continue to identify,
negotiate and acquire manufactured housing communities and/or vacant land which
may be developed into manufactured housing communities on terms favorable to the
Company. The Company undertakes no obligation to publicly update or revise any
forward-looking statements whether as a result of new information, future
events, or otherwise.
15
<PAGE> 16
SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
----
OTHER CONTINUED:
Recent Accounting Pronouncements
In June 1998, FASB issued SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). This statement establishes accounting and
reporting standards for derivative instruments including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. This statement will be adopted
effective January 1, 2000. The Company has not yet determined the impact of SFAS
133 on the earnings and financial position of the Company.
16
<PAGE> 17
SUN COMMUNITIES, INC.
PART II
ITEM 6.(A) - EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
EXHIBIT NO. DESCRIPTION
----------- -----------
27 Financial Data Schedule
ITEM 6.(B) - REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the period covered by
this Form 10-Q.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 6, 1999
SUN COMMUNITIES, INC.
BY: /s/ Jeffrey P. Jorissen
---------------------------------------
Jeffrey P. Jorissen, Chief Financial
Officer and Secretary
18
<PAGE> 19
SUN COMMUNITIES, INC.
EXHIBIT INDEX
PAGE
FILED NUMBER
EXHIBIT NO. DESCRIPTION HEREWITH HEREIN
- ----------- ----------- -------- ------
27 Financial Data Schedule X
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,067
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 830,068
<DEPRECIATION> 77,187
<TOTAL-ASSETS> 858,617
<CURRENT-LIABILITIES> 50,000
<BONDS> 350,785
0
0
<COMMON> 173
<OTHER-SE> 330,202
<TOTAL-LIABILITY-AND-EQUITY> 858,617
<SALES> 0
<TOTAL-REVENUES> 33,079
<CGS> 0
<TOTAL-COSTS> 9,054
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,684
<INCOME-PRETAX> 8,938
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,938
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,135
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.41
</TABLE>
