<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly report pursuant to Section 13 of 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998.
OR
[_] Transition pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
COMMISSION FILE NUMBER 333-2522-01
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in its Charter)
Michigan 38-3144240
(State of Incorporation) (I.R.S. Employer Identification No.)
31700 Middlebelt Road
Suite 145
Farmington Hills, Michigan 48334
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (248) 932-3100
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Page 1 of 17
<PAGE> 2
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
INDEX
<TABLE>
<CAPTION>
PAGES
-----
PART I
- ------
<S> <C> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997 3
Consolidated Statements of Income for the Periods
Ended September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-15
<CAPTION>
PART II
- -------
Item 6.(a) Exhibits required by Item 601 of Regulation S-K 16
Item 6.(b) Reports on Form 8-K 16
Signatures 17
</TABLE>
2
<PAGE> 3
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(IN THOUSANDS)
-------
<TABLE>
<CAPTION>
ASSETS 1998 1997
--------------- -------------
<S> <C> <C>
Investment in rental property, net $ 714,665 $ 634,737
Cash and cash equivalents 12,168 2,198
Investment in affiliates 31,785 16,559
Notes receivable 18,531 21,869
Other assets 23,463 18,151
--------------- -------------
Total assets $ 800,612 $ 693,514
=============== =============
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Line of credit $ 21,000 $ 17,000
Debt 339,391 247,264
Accounts payable and accrued expenses 16,166 8,765
Deposits and other liabilities 11,107 8,853
Distributions payable 10,054 --
--------------- -------------
Total liabilities 397,718 281,882
--------------- -------------
Partners' Capital:
Preferred Operating Partnership Units ("POP Units"),
unlimited authorized, 1,325 issued and outstanding
in 1998 and 1997 35,783 35,783
Operating Partnership Units ("OP Units"), unlimited
authorized; 19,240 and 18,946 issued and
outstanding in 1998 and 1997, respectively
General partner 325,904 329,380
Limited partners 46,838 46,469
Unearned compensation (5,631) --
--------------- -------------
Total partners' capital 402,894 411,632
--------------- -------------
Total liabilities and partners' capital $ 800,612 $ 693,514
=============== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
-------
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
----------- ----------- ----------- ----------
Revenues:
<S> <C> <C> <C> <C>
Income from property $ 28,294 $ 23,177 $ 85,180 $ 68,632
Other income 2,109 940 4,466 2,111
----------- ----------- ----------- ----------
Total revenues 30,403 24,117 89,646 70,743
----------- ----------- ----------- ----------
Expenses:
Property operating and maintenance 6,544 5,423 19,095 15,620
Real estate taxes 2,122 1,838 6,502 5,578
General and administrative 1,417 1,116 4,126 3,312
Depreciation and amortization 6,115 5,150 18,121 14,927
Interest 6,178 3,598 17,808 10,397
----------- ----------- ----------- ----------
Total expenses 22,376 17,125 65,652 49,834
----------- ----------- ----------- ----------
Income before gain on asset sales 8,027 6,992 23,994 20,909
Gain on asset sales 2,093 -- 3,030 --
----------- ----------- ----------- ----------
Net income 10,120 6,992 27,024 20,909
Less distribution to Preferred OP Units 627 627 1,879 1,879
----------- ----------- ----------- ----------
Earnings attributable to OP Units $ 9,493 $ 6,365 $ 25,145 $ 19,030
=========== =========== =========== ==========
Net income attributed to:
General Partner $ 8,410 $ 5,573 $ 22,214 $ 16,588
Limited Partners 1,083 792 2,931 2,442
----------- ----------- ----------- ----------
$ 9,493 $ 6,365 $ 25,145 $ 19,030
=========== =========== =========== ==========
Earnings per OP Unit:
Basic $ 0.50 $ 0.34 $ 1.32 $ 1.04
=========== =========== =========== ==========
Diluted $ 0.49 $ 0.34 $ 1.30 $ 1.03
=========== =========== =========== ==========
Weighted average OP Units outstanding - basic 19,075 18,602 19,048 18,296
=========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS)
-------
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Earnings attributable to OP Units $ 25,145 $ 19,030
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 18,121 14,927
Gain on asset sales (3,030) --
Deferred financing costs 491 116
Increase in other assets (4,355) (4,599)
Increase in accounts payable and other liabilities 10,281 5,025
------------- ------------
Net cash provided by operating activities 46,653 34,499
------------- ------------
Cash flows from investing activities:
Investment in rental properties (80,755) (42,214)
Investment in affiliates (15,226) (12,927)
Proceeds related to asset sales 20,773 --
Notes receivable (674) (16,342)
------------- ------------
Net cash used in investing activities (75,882) (71,483)
------------- ------------
Cash flows from financing activities:
Distributions (27,660) (24,982)
Proceeds from borrowings, including line of credit, net 69,000 30,000
Repayments on borrowings (708) --
Payments for deferred financing costs (2,770) (2,355)
Capital contribution 1,337 26,815
------------- ------------
Net cash provided by financing activities 39,199 29,478
------------- ------------
Net increase (decrease) in cash and cash equivalents 9,970 (7,506)
Cash and cash equivalents, beginning of period 2,198 9,236
------------- ------------
Cash and cash equivalents, end of period $ 12,168 $ 1,730
============= ============
Supplemental information:
OP units issued for rental properties $ 1,704 --
Debt assumed for rental properties $ 18,356 --
Capitalized lease obligation for rental properties $ 9,479 --
OP units issued as unearned compensation $ 5,631 --
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE> 6
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
1. BASIS OF PRESENTATION: These unaudited consolidated financial
statements of Sun Communities Operating Limited Partnership, (the
"Company"), have been prepared pursuant to the Securities and Exchange
Commission ("SEC") rules and regulations and should be read in conjunction
with the financial statements and notes thereto of the Company as of
December 31, 1997. The following notes to consolidated financial statements
present interim disclosures as required by the SEC. The accompanying
consolidated financial statements reflect, in the opinion of management, all
adjustments necessary for a fair presentation of the interim financial
statements. All such adjustments are of a normal and recurring nature.
Certain reclassifications have been made to the prior period financial
statements to conform with current period presentation.
Sun Communities, Inc. ("Sun"), a self-administered and self-managed Real
Estate Investment Trust with no independent operations of its own, is the
sole general partner of the Company. As general partner, Sun has unilateral
control and complete responsibility for management of the Company. Pursuant
to the terms of the Company's partnership agreement, the Company is required
to reimburse Sun for the net expenses incurred by Sun. Amounts paid on
behalf of Sun by the Company are reflected in the statement of operations as
general and administrative expenses. The balance sheet of Sun as of
September 30, 1998 is identical to the accompanying Company balance sheet,
except as follows:
<TABLE>
<CAPTION>
As Presented
Herein Sun Communities, Inc.
Sept. 30, 1998 Adjustments Sept. 30, 1998
-------------- -------------- --------------
(in thousands)
<S> <C> <C> <C>
Notes receivable...........................$ 18,531 $ (2,600) $ 15,931
============== ============== ==============
Total assets...............................$ 800,612 $ (2,600) $ 798,012
============== ============== ==============
Minority interests ........................ -- $ 82,621 $ 82,621
==============
Preferred OP Units.........................$ 35,783 (35,783)
OP Units:
General partner........................ 325,904 (325,904)
Limited partners....................... 46,838 (46,838)
Common stock............................... 171 $ 171
Additional paid-in capital................. 370,969 370,969
Officers' notes............................ (11,609) (11,609)
Unearned compensation...................... (5,631) (5,631)
Distributions in excess of
accumulated earnings.................... (36,227) (36,227)
-------------- -------------- --------------
Partners' capital/Stockholders'.........
equity..............................$ 402,894 $ (2,600) $ 317,673
============== ============== ==============
Total liabilities and partners'
capital/stockholders' equity....$ 800,612 $ (2,600) $ 798,012
============== ============== ==============
</TABLE>
6
<PAGE> 7
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
2. RENTAL PROPERTY:
The following summarizes rental property (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Land $ 94,166 $ 67,677
Land improvements and buildings 660,299 598,699
Furniture, fixtures, equipment 14,624 12,676
Property under development 10,542 5,769
------------- ------------
779,631 684,821
Accumulated depreciation 64,966 50,084
------------- ------------
Rental property, net $ 714,665 $ 634,737
============= ============
</TABLE>
Through September 30, 1998, acquisitions have totaled approximately $65.6
million for ten communities and $14.1 million for six land parcels
comprising approximately 2,100 developed sites and 3,700 sites suitable for
development.
3. NOTES RECEIVABLE:
Notes receivable consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<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) $ 15,931 $ 15,093
Second mortgage and third shared appreciation
mortgage notes with monthly interest
payments at an average rate of 17 percent
and excess interest as defined -- 4,176
10 year note to an officer of the general partner
bearing interest at LIBOR + 1.75%
collateralized by 80,000 shares of Sun
Communities, Inc. common stock with
substantial personal recourse 2,600 2,600
-------------- ------------
$ 18,531 $ 21,869
============== ============
</TABLE>
(a) The stated interest rate is 12%. The excess of the interest
rate earned at the stated rate over the pay rate is added to
the principal balance and will also accrue interest at the
stated rate.
7
<PAGE> 8
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
4. DEBT:
The following table sets forth certain information regarding debt (in
thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Collateralized term loan, interest at 7.01%,
due September 9, 2007 $ 44,544 $ 44,889
Senior notes, interest at 7.375%, due May 1, 2001 65,000 65,000
Senior notes, interest at 7.625%, due May 1, 2003 85,000 85,000
Senior notes, interest at 6.97%, due December 3, 2007 35,000 35,000
Callable/redeemable notes, interest at 6.77%, due
May 14, 2015, callable/redeemable May 16, 2005 65,000 --
Collateralized lease obligations, interest ranging
from 6.1% to 6.3%, due March 10, 2001 through
December 1, 2002 26,611 17,375
Mortgage note, interest at 8.24%, due April 1, 2006 7,004 --
Mortgage note, interest at 8.0%, due May 1, 2017 8,257 --
Mortgage note, other 2,975 --
------------- ------------
$ 339,391 $ 247,264
============= ============
</TABLE>
At September 30, 1998, the Company has Treasury Rate Locks for a total
notional amount of $37.5 million and an unrealized loss of $3.6 million for
the purpose of hedging against the potential for increased interest expense
on anticipated future fixed rate financings. At the present time, the
Company anticipates issuing fixed rate securities in 1999 with a maturity of
at least five to ten years. Should medium term interest rates increase, the
value of the Treasury Rate Locks will increase offsetting a portion of the
additional interest expense incurred. Alternatively, should medium term
interest rates decrease, the Company will incur costs which should be offset
by lower interest expense.
8
<PAGE> 9
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
5. OTHER INCOME:
The components of other income are as follows for the periods ended
September 30, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest $ 1,062 $ 438 $ 2,270 $ 1,222
Equity earnings - Sun Home Services, Inc. 786 493 1,480 875
Other, principally brokerage commissions 261 9 716 14
--------- --------- --------- ---------
$ 2,109 $ 940 $ 4,466 $ 2,111
========= ========= ========= =========
</TABLE>
6. EARNINGS PER OP UNIT:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Earnings used for basic and diluted earnings per
OP unit computation $ 9,493 $ 6,365 $ 25,145 $ 19,030
========= ========= ========= =========
Total units used for basic earnings per OP unit 19,075 18,602 19,048 18,296
Dilutive securities, principally stock options 140 226 167 181
--------- --------- --------- ---------
Total shares used for diluted earnings per OP unit
computation 19,215 18,828 19,215 18,477
========= ========= ========= =========
</TABLE>
Diluted earnings per OP Unit reflect the potential dilution that would occur
if securities were exercised or converted into OP Units. Convertible POP
Units are excluded from the computations as their inclusion would have an
antidilutive effect on earnings per OP Unit in 1998 and 1997.
9
<PAGE> 10
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-------
OVERVIEW
The following discussion and analysis of the consolidated financial condition
and results of operations should be read in conjunction with the consolidated
financial statements and the notes thereto. Capitalized terms are used as
defined elsewhere in this Form 10-Q.
RESULTS OF OPERATIONS
Comparison of the nine months ended September 30, 1998 and 1997
For the nine months ended September 30, 1998, income before gain on asset sales
and distribution to Preferred OP Units increased by 14.7 percent from $20.9
million to $24.0 million, when compared to the nine months ended September 30,
1997. The increase was due to increased revenues of $18.9 million while expenses
increased by $15.8 million.
Income from property increased by $16.6 million from $68.6 million to $85.2
million or 24.1 percent, due to acquisitions ($12.0 million), lease up of
manufactured home sites ($1.9 million) and increases in rents and other
community revenues ($2.7 million).
Other income increased by $2.4 million from $2.1 million to $4.5 million. $1.3
million of the increase was due to the improved results of SHS, including
brokerage commissions and the remaining $1.1 million of the increase relates to
interest income.
Property operating and maintenance increased by $3.5 million from $15.6 million
to $19.1 million or 22.2 percent due primarily to acquisitions ($2.8 million).
Real estate taxes increased by $.9 million from $5.6 million to $6.5 million or
16.6 percent due primarily to acquisitions ($.7 million).
General and administrative expenses increased by $.8 million from $3.3 million
to $4.1 million or 24.6 percent due primarily to increased staffing to manage
the growth of the company. General and administrative expenses as a percentage
of income from property remained constant at 4.8 percent.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
increased by $13.7 million from $46.2 million to $59.9 million or 29.6 percent.
Depreciation and amortization increased by $3.2 million from $14.9 million to
$18.1 million or 21.4 percent due primarily to acquisitions.
Interest expense increased by $7.4 million from $10.4 million to $17.8 million
or 71.3 percent primarily due to increased average debt outstanding.
The $3.0 million gain on asset sales resulted from the disposal of certain
assets during the current nine month period.
10
<PAGE> 11
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-------
RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 1998 and 1997
For the three months ended September 30, 1998, income before gain on asset sales
and distribution to Preferred OP Units increased by 14.8 percent from $7.0
million to $8.0 million, when compared to the three months ended September 30,
1997. The increase was due to increased revenues of $6.3 million while expenses
increased by $5.3 million.
Income from property increased by $5.1 million from $23.2 million to $28.3
million or 22.1 percent, due to acquisitions ($3.7 million), lease up of
manufactured home sites ($.9 million) and increases in rents and other community
revenues ($1.5 million).
Other income increased by $1.2 million from $.9 million to $2.1 million. $.6
million of the increase in other income relates to the improved results of SHS,
including brokerage commissions and the remaining $.6 million of the increase
relates to interest income.
Property operating and maintenance increased by $1.1 million from $5.4 million
to $6.5 million or 20.7 percent due almost entirely to acquisitions.
Real estate taxes increased by $.3 million from $1.8 million to $2.1 million or
15.5 percent due almost entirely to acquisitions.
General and administrative expenses increased by $.3 million from $1.1 million
to $1.4 million or 27.0 percent due primarily to increased staffing to manage
the growth of the company. General and administrative expenses as a percentage
of income from property increased from 4.8 percent to 5.0 percent.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
increased by $4.6 million from $15.7 million to $20.3 million or 29.1 percent
due primarily to acquisitions.
Depreciation and amortization increased by $1.0 million from $5.1 million to
$6.1 million or 18.7 percent due primarily to acquisitions.
Interest expense increased by $2.6 million from $3.6 million to $6.2 million or
71.7 percent primarily due to increased average debt outstanding.
The $2.1 million gain on asset sales results from the disposal of certain assets
during the current three month period.
11
<PAGE> 12
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-------
SAME PROPERTY INFORMATION
The following table reflects property-level financial information as of and for
the nine months ended September 30, 1998 and 1997. The "Same Property" data
represents information regarding the operation of communities owned as of
January 1, 1997 and September 30, 1998. Site, occupancy, and rent data for those
communities is presented as of the last day of each period presented. The table
includes sites where the Company's interest is in the form of shared
appreciation mortgage notes or where the Company is providing financing and
managing the properties. Such amounts relate to the total portfolio data and
include 923 and 2,040 sites in 1998 and 1997, respectively.
<TABLE>
<CAPTION>
SAME PROPERTY TOTAL PORTFOLIO
-------------------- ------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income from property $ 56,619 $ 52,555 $ 85,180 $ 68,632
-------- -------- -------- --------
Property operating expenses:
Property operating and maintenance 10,706 10,422 19,095 15,620
Real estate taxes 4,893 4,525 6,502 5,578
-------- -------- -------- --------
Property operating expenses 15,599 14,947 25,597 21,198
-------- -------- -------- --------
Property EBITDA $ 41,020 $ 37,608 $ 59,583 $ 47,434
======== ======== ======== ========
Number of properties 72 72 104 95
Developed sites 24,593 23,930 36,956 33,326
Occupied sites 23,342 22,739 33,484 30,965
Occupancy % 94.9%(1) 95.0%(1) 95.2%(1) 95.2%(1)
Weighted average monthly rent per site $ 265(1) $ 253(1) $ 267(1) $ 256(1)
Sites available for development 1,744 2,405 5,854 3,288
Sites in development 374 497 1,220 762
</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 $4.1 million from $52.5
million to $56.6 million, or 7.7 percent, due primarily to increases in rents
and occupancy related charges including water and property tax pass through.
Also contributing to revenue growth was the increase of 603 leased sites at
September 30, 1998 compared to September 30, 1997.
Property operating expenses increased by $.7 million from $14.9 million to $15.6
million or 4.4 percent, due to increased occupancies and costs and increases in
assessments and millage rates by local taxing authorities. Property EBITDA
increased by $3.4 million from $37.6 million to $41.0 million, or 9.1 percent.
Sites available for development in the total portfolio increased by 2,566 from
3,288 to 5,854 primarily in conjunction with land acquisitions for new
communities to be developed in Arizona, Michigan, Texas and Nevada.
12
<PAGE> 13
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-------
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $10.0 million to $12.2 million at
September 30, 1998 compared to $2.2 million at December 31, 1997 primarily
because cash provided by operating and financing activities exceeded cash used
in investing activities.
Net cash provided by operating activities increased by $12.2 million to $46.7
million for the nine months ended September 30, 1998 compared to $34.5 million
for the same period in 1997. Net income before depreciation and amortization and
gain on asset sales increased by $6.7 million and changes in working capital
increased by $5.5 million.
Net cash used in investing activities increased by $4.4 million to $75.9 million
from $71.5 million primarily due to an increase of $38.5 million in rental
property acquisition activities offset by $20.8 million in proceeds from asset
sales and a reduction of $12.9 million used to finance notes receivable.
Net cash provided by financing activities increased by $9.7 million to $39.2
million for the nine months ended September 30, 1998 compared to $29.5 million
for the same period in 1997. $37.9 million of this increase was due to
additional net debt borrowings, net of deferred financing costs offset by a
$25.5 million reduction in the proceeds received from capital contributions and
a $2.7 million increase in distributions.
The Company expects to meet its short term liquidity requirements generally
through its working capital provided by operating activities. The Company
expects to meet certain long-term liquidity requirements such as scheduled debt
maturities and property acquisitions through the issuance of debt securities, or
general or limited partnership interests. The Company considers these sources to
be adequate and anticipates they will continue to be adequate to meet operating
requirements, capital improvements, investment in development, and payment of
distributions by the Company in both the short and long term. The Company can
also meet these short-term and long-term requirements by utilizing its $100
million line of credit which bears interest at LIBOR plus .90% and is due
November 1, 1999.
In May 1998, the Company issued $65 million of senior notes which bear interest
at 6.77%, mature May 14, 2015, and are callable/redeemable May 16, 2005.
Proceeds from this debt issuance were used to repay line of credit borrowings.
At September 30, 1998, the Company's debt to total market capitalization
approximated 33.6% (assuming conversion of all Common and Preferred OP Units to
shares of common stock), with a weighted average maturity of approximately 7.5
years and a weighted average interest rate of 7.1%.
Recurring capital expenditures approximated $4.1 million for the nine months
ended September 30, 1998, including $.3 million for additional space and related
costs at corporate headquarters.
13
<PAGE> 14
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-------
OTHER CONTINUED:
Year 2000 Update
The Year 2000 Compliance issue concerns the inability of computerized
information systems and non-information systems to accurately calculate, store
or use a date after 1999. This could result in computer system failures or
miscalculations causing disruptions of operations. The Year 2000 issue affects
almost all companies and organizations.
The Company has discussed its software applications and internal operational
programs with its current information systems' vendors and, based on such
discussions, believes that such applications and programs will properly
recognize calendar dates beginning in the year 2000. The Company is discussing
with its material third-party service providers, such as its banks, payroll
processor, stock transfer agent and telecommunications provider, their Year 2000
compliance efforts and is assessing what effect their possible non-compliance
might have on the Company. In addition, the Company is discussing with its
material vendors the possibility of any interface difficulties and/or electrical
or mechanical problems relating to the year 2000 which may affect properties
owned or operated by the Company. The Company plans to complete its assessment
of Year 2000 compliance by such parties by December 31, 1998. Until such time,
the Company cannot estimate any potential adverse impact resulting from the
failure of vendors or third-party service providers to address their Year 2000
issues; however, to date, no significant Year 2000 related conditions have been
identified.
The Company believes that its expenditures for assessing its Year 2000 issues,
though difficult to quantify, to date have not been material because the
Company's Year 2000 evaluation has been conducted by its own personnel or by its
vendors in connection with their servicing operations. In addition, the Company
is not aware of any Year 2000 related conditions that it believes would likely
require material expenditures in the future.
Based on its current information, the Company believes that the risk posed by
any forseeable Year 2000 related problem with its internal systems and the
systems at its properties (including both information and non-information
systems) or with its vendors is minimal. Year 2000 related problems with the
Company's software applications and internal operational programs or with the
electrical or mechanical systems at its properties are unlikely to cause more
than minor disruptions in the Company's operations. The Company believes that
the risk posed by Year 2000 related problems for certain third-party service
providers, such as its banks, payroll processor, stock transfer agent and
telecommunications provider is marginally greater, though, based on its current
information, the Company does not believe any such problems would have a
material effect on its operations. Any Year 2000 related problems at these
third-party service providers could delay the processing of financial
transactions and the Company's payroll and could disrupt the Company's internal
and external communications. At this time, no contingency plans exist, however,
the Company anticipates developing contingency plans if, and to the extent,
deemed necessary. The Company does plan to seek independent verification or
review of its assessment of its Year 2000 issues by
14
<PAGE> 15
SUN COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-------
OTHER CONTINUED:
Year 2000 Update, Continued
March 31, 1999. Pursuant to the results of the independent review, contingency
plans will be developed if, and to the extent deemed necessary.
While the Company believes that it will be Year 2000 compliant by December 31,
1999, there can be no assurance that the Company has been or will be successful
in identifying and assessing Year 2000 issues, or that, to the extent
identified, the Company's efforts to resolve such issues will be effective such
that Year 2000 issues will not have a material adverse effect on the Company's
business, financial condition, or results of operation.
Safe Harbor Statement
This Form 10-Q contains various "forward-looking statements" within the meaning
of the Securities Act of 1933 and the Securities Exchange Act of 1934, and the
Company intends that such forward-looking statements be subject to the safe
harbors created thereby. The words "may", "will", "expect", "believe",
"anticipate", "should", "estimate", and similar expressions identify
forward-looking statements. These forward-looking statements reflect the
Company's current views with respect to future events and financial performance,
but are based upon current assumptions regarding the Company's operations,
future results and prospects, and are subject to many uncertainties and factors
relating to the Company's operations and business environment which may cause
the actual results of the Company to be materially different from any future
results expressed or implied by such forward-looking statements. Please see the
section entitled "Risk Factors" of the Company's Registration Statement on Form
S-3 filed with the Securities and Exchange Commission on January 30, 1998 for a
list of uncertainties and factors.
Such factors include, but are not limited, to the following: (i) changes in the
general economic climate; (ii) increased competition in the geographic areas in
which the Company owns and operates manufactured housing communities; (iii)
changes in government laws and regulations affecting manufactured housing
communities; and (iv) the ability of the Company to continue to identify,
negotiate and acquire manufactured housing communities and/or vacant land which
may be developed into manufactured housing communities on terms favorable to the
Company. The Company undertakes no obligation to publicly update or revise any
forward-looking statements whether as a result of new information, future
events, or otherwise.
15
<PAGE> 16
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
PART II
ITEM 6.(a) - EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
EXHIBIT NO. DESCRIPTION
----------- -----------
27 Financial Data Schedule
ITEM 6.(b) - REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the period covered by
this Form 10-Q.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 10, 1998
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
BY: Sun Communities, Inc., General Partner
BY: /s/ Jeffrey P. Jorissen
----------------------------------------
Jeffrey P. Jorissen, Chief Financial
Officer and Secretary
17
<PAGE> 18
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
EXHIBIT INDEX
PAGE FILED NUMBER
EXHIBIT NO. DESCRIPTION HEREWITH HEREIN
- ----------- ----------- -------- ------
27 Financial Data Schedule X
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 12,168
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 779,631
<DEPRECIATION> 64,966
<TOTAL-ASSETS> 800,612
<CURRENT-LIABILITIES> 21,000
<BONDS> 339,391
0
0
<COMMON> 0
<OTHER-SE> 402,894
<TOTAL-LIABILITY-AND-EQUITY> 800,612
<SALES> 0
<TOTAL-REVENUES> 89,646
<CGS> 0
<TOTAL-COSTS> 25,597
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,808
<INCOME-PRETAX> 27,024
<INCOME-TAX> 0
<INCOME-CONTINUING> 27,024
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,145
<EPS-PRIMARY> 1.32<F1>
<EPS-DILUTED> 1.30
<FN>
<F1>
September 30, 1997 Earnings Per Share:
Basic: $1.04
Diluted: $1.03
</FN>
</TABLE>
