<PAGE> 1
FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 333-2522-01
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
STATE OF MICHIGAN 38-3144240
State of Organization I.R.S. Employer I.D. No.
31700 MIDDLEBELT ROAD
SUITE 145
FARMINGTON HILLS, MICHIGAN 48334
(248) 932-3100
(Address of principal executive offices and telephone number)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
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 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.
[ ]
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
--
As of March 5, 1999, the aggregate market value of the Registrant's
partnership units held by non-affiliates of the Registrant was approximately
$61,883,848 based on the closing sales price of Sun Communities, Inc. (into
which the partnership units are convertible on a one-for-one basis) on such date
using beneficial ownership of stock rules adopted pursuant to Section 13 of the
Securities Exchange Act of 1934 to exclude partnership units owned by directors
and officers of Sun Communities, Inc., some of whom may not be held to be
affiliates upon judicial determination.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive Proxy Statement to be filed by Sun
Communities, Inc. for its 1999 Annual Meeting of Shareholders are incorporated
by reference into Part III of this Report.
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Sun Communities Operating Limited Partnership, a Michigan limited
partnership (the "Company"), owns, operates and finances manufactured housing
communities concentrated in the midwestern and southeastern United States. Sun
Communities, Inc., a Maryland corporation and the sole general partner of the
Company ("General Partner"), is a fully integrated real estate company which,
together with its affiliates and predecessors, has been in the business of
acquiring, operating and expanding manufactured housing communities since 1975.
At December 31, 1998, the Company, in conjunction with its subsidiary, Sun
Communities Finance Limited Partnership, a Michigan limited partnership (the
"Financing Partnership"), owned and managed a portfolio of 102 developed
properties located in fourteen states (the "Properties"), including 91
manufactured housing communities, 5 recreational vehicle communities and 6
properties containing both manufactured housing and recreational vehicle sites.
At December 31, 1998, the Properties contained an aggregate of 31,512 developed
manufactured home sites, approximately 2,500 manufactured home sites suitable
for development and approximately 5,100 recreational vehicle sites. In order to
enhance property performance and cash flow, the Company, through Sun Home
Services, Inc., a Michigan corporation ("Home Services" or "SHS"), actively
markets and sells new and used manufactured homes for placement in the
Properties.
The General Partner made an election to be taxed as a REIT for federal
income tax purposes commencing with the calendar year beginning January 1, 1994,
and is self-administered and self-managed.
The Company's executive and principal property management office is
located at 31700 Middlebelt Road, Suite 145, Farmington Hills, Michigan 48334
and its telephone number is (248) 932-3100. The Company has regional property
management offices located in Indianapolis, Indiana, Orlando, Florida and
Austin, Texas. The Company employed 552 people as of December 31, 1998.
HISTORY OF THE COMPANY
The immediate predecessor to Sun Communities, Inc. was incorporated in
January 1985 to continue and expand the business of acquiring, owning and
operating manufactured housing communities that was originally started in 1975.
Since its inception, the General Partner's strategy has been to acquire and in
many cases expand or renovate existing manufactured housing communities. The
General Partner has maintained this strategy because it believes attractive
investment returns can be obtained by purchasing existing properties with
expansion potential.
STRUCTURE OF THE COMPANY
The operations of the General Partner are carried on through certain
subsidiaries (the "Subsidiaries"), including the Company and the Financing
Partnership, which, among other things, enables the General Partner to comply
with certain complex requirements under the Federal tax rules and regulations
applicable to REITs. The General Partner established the Company to allow the
General Partner to acquire manufactured housing communities in transactions that
defer some or all of the sellers' tax consequences. Substantially all of the
General Partner's assets are held by or through the Company, of which the
General Partner is the sole general partner, and wholly-owned subsidiaries of
the Company. In addition to the Company and the Financing Partnership, the
Subsidiaries include Home Services, which provides manufactured home sales and
other services to current and prospective tenants of the Properties. The Company
owns 100% of the non-voting preferred stock of Home Services, which entitles the
Company to 95% of the cash flow from operating activities of Home Services. The
voting common stock of Home Services is owned by Milton M. Shiffman, Gary A.
<PAGE> 3
Shiffman and Jeffrey P. Jorissen, executive officers of the General Partner,
entitling them to the remaining 5% of such cash flow from operating activities.
Sun Water Oak Golf, Inc. ("Sun Golf") is a wholly-owned subsidiary of Home
Services. Sun Golf was organized to own and operate the golf course, restaurant
and related facilities located on the Water Oak Property that were acquired in
November 1994.
THE MANUFACTURED HOUSING COMMUNITY INDUSTRY
A manufactured housing community is a residential subdivision designed
and improved with sites for the placement of manufactured homes and related
improvements and amenities. Manufactured homes are detached, single-family homes
which are produced off-site by manufacturers and installed on sites within the
community. Manufactured homes are available in a wide array of designs,
providing owners with a level of customization generally unavailable in other
forms of multi-family housing.
Modern manufactured housing communities, such as the Properties,
contain improvements similar to other garden-style residential developments,
including centralized entrances, paved streets, curbs and gutters, and parkways.
In addition, these communities also often provide a number of amenities, such as
a clubhouse, a swimming pool, shuffleboard courts, tennis courts, laundry
facilities and cable television service.
The owner of each home in the Company's communities leases the site on
which the home is located. The Company owns the underlying land, utility
connections, streets, lighting, driveways, common area amenities and other
capital improvements and is responsible for enforcement of community guidelines
and maintenance. Some communities provide water and sewer service through public
or private utilities, while others provide these services to residents from
on-site facilities. Each owner within the Company's communities is responsible
for the maintenance of his home and leased site. As a result, capital
expenditure needs tend to be less significant, relative to multi-family rental
apartment complexes.
PROPERTY MANAGEMENT
The Company's property management strategy emphasizes intensive,
hands-on management by dedicated, on-site community managers. The Company
believes that this on-site focus enables it to continually monitor and address
tenant concerns, the performance of competitive properties and local market
conditions. Of the Company's 552 employees, 492 are located on-site as property
managers, support staff, or maintenance personnel.
The Company's community managers are overseen by Brian W. Fannon,
Senior Vice President and Chief Operating Officer of the General Partner, who
has 29 years of property management experience, two Senior Vice Presidents, four
Regional Vice Presidents and twelve Regional Property Managers. In addition, the
Regional Property Managers are responsible for semi-annual market surveys of
competitive communities, interaction with local manufactured home dealers and
regular property inspections.
Each community manager performs regular inspections in order to
continually monitor the property's physical condition and provides managers with
the opportunity to understand and effectively address tenant concerns. In
addition to a community manager, each property has an on-site maintenance person
and management support staff. The Company holds periodic training sessions for
all property management personnel to ensure that management policies are
implemented effectively and professionally.
<PAGE> 4
HOME SALES
Home Services offers manufactured home sales services to tenants and
prospective tenants in the Company's communities. Since tenants often purchase a
home already on-site within a community, such services enhance occupancy and
property performance. Additionally, since many of the homes in the Properties
are sold through Home Services, better control of home quality in the Company's
communities can be maintained than if sales services were conducted solely
through third-party brokers.
COMPETITION
All of the Properties are located in developed areas that include other
manufactured housing community properties. The number of competitive
manufactured housing community properties in a particular area could have a
material effect on the Company's ability to lease sites and on rents charged at
the Properties or at any newly acquired properties. The Company may be competing
with others that have greater resources than the Company and whose officers and
directors have more experience than the Company's officers and directors. In
addition, other forms of multi-family residential properties, such as private
and federally funded or assisted multi-family housing and single-family housing,
provide housing alternatives to potential tenants of manufactured housing
communities.
REGULATIONS AND INSURANCE
General. Manufactured housing community properties 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 operating
permits and approvals.
Americans with Disabilities Act ("ADA"). The Properties and any newly
acquired manufactured housing communities must comply with the ADA. The ADA has
separate compliance requirements for "public accommodations" and "commercial
facilities," but generally requires that public facilities such as clubhouses,
pools and recreation areas be made accessible to people with disabilities.
Compliance with ADA requirements could require removal of access barriers and
other capital improvements at the Company's properties. Noncompliance could
result in imposition of fines or an award of damages to private litigants. The
Company does not believe the ADA will have a material adverse impact on the
Company's results of operations. If required property improvements involve a
greater expenditure than the Company currently anticipates, or if the
improvements must be made on a more accelerated basis than it anticipates, the
Company's ability to make expected distributions could be adversely affected.
The Company believes that its competitors face similar costs to comply with the
requirements of the ADA.
Rent Control Legislation. State and local rent control laws in certain
jurisdictions 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 operate manufactured housing community
properties, 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, 27 of the Properties are located in Florida, which has
enacted a law which provides that a majority of tenants in a manufactured
housing community may require that a proposed increase in site rental rates,
reduction in services or utilities or change in the community's rules and
regulations be submitted for formal mediation or arbitration if they believe
that the proposal is unreasonable.
<PAGE> 5
Insurance. Management believes that the Properties are covered by
adequate fire, flood, property and business interruption insurance provided by
reputable companies and with commercially reasonable deductibles and limits. The
Company maintains a blanket policy that covers all of the Properties. The
Company has obtained title insurance insuring fee title to the Properties in an
aggregate amount which the Company believes to be adequate.
ITEM 2. PROPERTIES
General. At December 31, 1998, the Properties consisted of 91
manufactured housing communities, 5 recreational vehicle communities and 6
properties containing both manufactured housing and recreational vehicle sites
concentrated in fourteen states in the midwestern and southeastern United
States. At December 31, 1998, the Properties contained 31,512 developed
manufactured home sites, approximately 2,500 manufactured home sites suitable
for development and approximately 5,100 recreational vehicle sites. In addition,
at December 31, 1998, the Company owned nine undeveloped properties on which the
Company plans to develop approximately 4,400 manufactured home sites. Most of
the Properties include amenities oriented towards family and retirement living.
Of the 102 Properties, 47 have more than 300 developed manufactured home sites,
with the largest having 913 developed manufactured home sites.
The Properties had an aggregate occupancy rate of 94.2% as of December
31, 1998, excluding recreational vehicle sites. Since January 1, 1998, the
Properties have averaged an aggregate annual turnover of homes (where the home
is moved out of the community) of approximately 3% and an average annual
turnover of residents (where the home is sold and remains within the community,
typically without interruption of rental income) of approximately 8%.
The Company believes that its Properties' high amenity levels
contribute to low turnover and generally high occupancy rates. All of the
Properties provide residents with attractive amenities with most offering a
clubhouse, a swimming pool, laundry facilities and cable television service.
Many Properties offer additional amenities such as sauna/whirlpool spas, tennis,
shuffleboard and basketball courts and/or exercise rooms.
The Company has sought to concentrate its communities within certain
geographic areas in order to achieve economies of scale in management and
operation. Except for five Properties located in Texas and one property located
in each of Colorado, Nevada and Oregon, the Properties are located in the
midwestern and southeastern United States. The Company has identified Florida as
a key market in which to expand its existing operations in the southeast because
of Florida's stable tenant base, relatively low cost of living and attractive
acquisition opportunities. Additionally, the Company's midwestern operations
serve as a source of prospective tenants for the Florida Properties, which are
generally oriented towards retirement living. Because the Company believes that
geographic diversification will help insulate the portfolio from regional
economic influences, the Company is also interested in acquiring properties in
the western United States.
<PAGE> 6
The following table sets forth certain information relating to the
Properties owned as of December 31, 1998:
<TABLE>
<CAPTION>
DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/98 (1) 12/31/96 (1) 12/31/97(1) 12/31/98(1)
- --------------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
MIDWEST
MICHIGAN
Allendale 352 97% 80%(2) 82%
Allendale, MI
Alpine 381 99% 99% 99 %
Grand Rapids, MI
Bedford Hills 339 94% 98% 100%
Battle Creek, MI
Brentwood 197 99% 99% 98%
Kentwood, MI
Byron Center 143 97% 100% 99%
Byron Center, MI
Candlewick Court 211 99% 98% 100%
Owosso, MI
College Park Estates 230 99% 99% 99%
Canton, MI
Continental Estates 385 93% 92% 93%
Davison, MI
Continental North 474 95% 96% 70%(2)
Davison, MI
Country Acres 182 98% 96% 99%
Cadillac, MI
Country Meadows 577 99% 96%(2) 100%
Flat Rock, MI
Countryside Village 359 96% 96% 97%
Perry, MI
Creekwood (3) 238 --- 98% 86%
Burton, MI
Cutler Estates 281 98% 98% 98%
Grand Rapids, MI
Davison East 190 99% 97% 97%
Davison, MI
Fisherman's Cove 162 97% 97% 98%
Flint, MI
Grand 311 98% 99% 96%
Grand Rapids, MI
Hamlin 146 100% 98% 99%
Webberville, MI
Kensington Meadows 289 67% (6) 77%(2) 80%
Lansing, MI
Kings Court 639 92% (6) 95%(2) 98%
Traverse City, MI
Lafayette Place 254 (5) (5) 97%
Metro Detroit, MI
Lincoln Estates 191 97% 100% 99%
Holland, MI
Maple Grove Estates 46 100% 98% 100%
Dorr, MI
Meadow Lake Estates 425 100% 100% 100%
White Lake, MI
Meadowbrook Estates 453 100% 100% 100%
Monroe, MI
Meadowstream Village 159 99% 99% 97%
Sodus, MI
Parkwood 249 97% 98% 99%
Grand Blanc, MI
Presidential 364 98% 92%(2) 99%
Hudsonville, MI
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/98 (1) 12/31/96 (1) 12/31/97(1) 12/31/98(1)
- --------------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Richmond Place (8) 117 (5) (5) 98%
Metro Detroit, MI
Scio Farms 913 99% 100% 100%
Ann Arbor, MI
Sherman Oaks 366 99% 98% 99%
Jackson, MI
St. Clair Place (8) 100 (5) (5) 99%
Metro Detroit, MI
Timberline Estates 296 100% 100% 98 %
Grand Rapids, MI
Town & Country 192 100% 99% 99%
Traverse City, MI
White Lake 268 (4) 97% 99%
White Lake, MI
White Oak Estates 422 (4) 97% 88%(2)
Mt. Morris, MI
Windham Estates 189 (5) (5) 59%(2)
Jackson, MI
Woodhaven Place (8) 220 (5) (5) 100%
Metro Detroit, MI
Village Trails 61 (5) (5) 82%
Howard City, MI -- --- --- ---
Michigan Total 11,371 98% 97% 95%
====== === === ===
INDIANA
Brookside Village 521 99% 84%(2) 84%(2)
Goshen, IN
Carrington Pointe 320 (4) 76% 55%(2)
Ft. Wayne, IN
Clear Water Village 227 97% 94%(2) 96%
South Bend, IN
Cobus Green 386 98% 98% 99%
Elkhart, IN
Holiday Village 326 99% 98% 99%
Elkhart, IN
Liberty Farms 220 92% (2) 100% 100%
Valparaiso, IN
Maplewood 207 99% 97% 98%
Lawrence, IN
Meadows 330 98% 99% 98%
Nappanee, IN
Pine Hills 128 96% 94% 92%
Middlebury, IN
Timberbrook 567 88% (2) 97% 98%
Bristol, IN
Valleybrook 799 98% 98% 98%
Indianapolis, IN
West Glen Village 552 99% 99% 100%
Indianapolis, IN
Woodlake 225 (5) (5) 93%
Ft. Wayne, IN
Woods Edge 509 99% 98% 84%
West Lafayette, IN --- --- --- - ---
Indiana Total 5,317 97% 94% 93%
===== === === ===
OTHER
Autumn Ridge 413 98% 99% 97%
Ankeny, IA
Boulder Ridge 362 --- 18%(6) 82%(2)
Pflugerville, TX
Branch Creek Estates 392 94% (6) 99% 99%
Austin, TX
Candlelight 309 95% 99% 98%
Chicago Heights, IL
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/98 (1) 12/31/96 (1) 12/31/97(1) 12/31/98(1)
- --------------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Casa del Valle (9) 114 (4) 96% 100%
Alamo, TX
Catalina Community 462 99% 97% 98%
Middletown, OH
Chisholm Point Estates 410 83% (2) 98% 99%
Pflugerville, TX
Douglas 202 95% 96% 96%
Atlanta, GA
Edwardsville 634 93% 90%(2) 95%
Edwardsville, KS
Flagview 200 98% 100% 98%
Atlanta, GA
Oakwood Village 284 (5) (5) 100%
Dayton, Ohio
Paradise 277 98% 100% 97%
Chicago Heights, IL
Pine Ridge 245 98% 99% 98%
Petersburg, VA
Pin Oak Parc 508 99% 96%(2) 79%(2)
O'Fallon, MO
Snow to Sun (9) 176 (4) 98% 99%
Weslaco, TX
Southfork 476 (4) 98% 95%
Belton, MO
Sun Villa Estates 324 (5) (5) 100%
Reno, NV
Timber Ridge 581 100% 100% 99%
Ft. Collins, CO
Willowbrook (8) 266 (4) 97% 98%
Toledo, OH
Woodland Park Estates 399 (5) (5) 100%
Eugene, OR
Woodside Terrace (8) 439 (4) 98% 99%
Holland, OH
Worthington Arms 224 100% 99% 99%
Delaware, OH --- ---- --- ---
Other Total 7,697 96% 96% 96%
===== === === ===
SOUTHEAST
FLORIDA
Arbor Terrace (7) --- --- ---
Bradenton, FL
Ariana Village 209 78% (6) 79% 82%
Lakeland, FL
Bonita Lake (7) --- --- ---
Bonita Springs, FL
Breezy Hill (9) 169 99% 94% 97%
Pompano Beach, FL
Chain O'Lakes 308 95% 95% 92%
Grand Island, FL
Elmwood Mobile Home Park 100 (4) 100% 100%
Daytona Beach, FL
Gold Coaster (9) 250 (4) 100% 100%
Florida City, FL
Golden Lakes 426 92% 94% 94%
Plant City, FL
Groves RV Resort (7) --- --- ---
Lee County, FL
Holly Forrest Estates 402 (4) 100% 100%
Holly Hill, FL
Indian Creek (9) 353 100% 100% 100%
Ft. Myers Beach, FL
</TABLE>
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<TABLE>
<CAPTION>
DEVELOPED OCCUPANCY OCCUPANCY OCCUPANCY
SITES AS OF AS OF AS OF AS OF
PROPERTY AND LOCATION 12/31/98 (1) 12/31/96 (1) 12/31/97(1) 12/31/98(1)
- --------------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Island Lakes 301 100% 99% 100%
Merritt Island, FL
Kings Lake 245 66% (6) 76% 82%
Debary, FL
Kings Pointe 229 48% (6) 52% 53%
Winter Haven, FL
Kissimmee Gardens 239 100% 100% 100%
Kissimmee, FL
Lake Juliana 293 57% (6) 59% 63%
Auburndale, FL
Lake San Marino (7) --- --- ---
Naples, FL
Leesburg Landing 96 54% (6) 50% 59%
Lake County, FL
Meadowbrook Village 257 97% 100% 99%
Tampa, FL
Orange Tree 246 83% (6) 89% 92%
Orange City, FL
Royal Country 864 99% 99% 99%
Miami, FL
Saddle Oak Club 376 100% 99% 99%
Ocala, FL
Siesta Bay (7) --- --- ---
Ft. Myers Beach, FL
Silver Star 426 96% 95% 93%
Orlando, FL
Tallowwood 270 63% 68% 71%
Coconut Creek, FL
Water Oak Country Club Estates 744 100% 100% 100%
Lady Lake, FL
Whispering Palm (9) 324 96% 92% 92%
Sebastian, FL --- --- --- ---
Florida Total 7,127 93% 92% 92%
===== === === ===
TOTAL/AVERAGE 31,512 95% 95% 94.2%
====== === === =====
</TABLE>
(1) Excludes approximately 5,100 recreational vehicle sites owned at December
31, 1998.
(2) Occupancy in these Properties reflects the recent development of sites
which are in their initial lease-up phase.
(3) This Property is owned by a joint venture in which the Operating
Partnership has a 50% interest.
(4) Acquired in 1997.
(5) Acquired in 1998.
(6) Occupancy in these Properties reflects the fact that these communities are
in their initial lease-up phase.
(7) This Property contains only recreational vehicle sites.
(8) The Company leases this Property. The Company has the option to purchase
the Property upon the expiration of the lease. If the Company does not
exercise its option to purchase, the lessor has the right to cause the
Company to purchase the Property at the expiration of the lease at the
option price.
(9) This Property also contains recreational vehicle sites.
Leases. The typical lease entered into between a tenant and the Company
for the rental of a site is month-to-month or year-to-year, renewable upon the
consent of both parties, or, in some instances, as provided by statute. In some
cases, leases are for one-year terms, with up to ten renewal
<PAGE> 10
options exercisable by the tenant, with rent adjusted for increases in the
consumer price index. These leases are cancelable for non-payment of rent,
violation of community rules and regulations or other specified defaults. See
"Regulations and Insurance."
ITEM 3. LEGAL PROCEEDINGS
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 Company's results of
operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
There is no established public market for any class of the Company's
equity securities. On March 5, 1999, 20,102,845 partnership units of the Company
were held by 95 holders of record.
The General Partner's Common Stock has been listed on the New York
Stock Exchange ("NYSE") since December 8, 1993 under the symbol "SUI." On March
5, 1999, the closing sales price of the Common Stock was $32.25 and the Common
Stock was held by approximately 1,213 holders of record. The following table
sets forth the high and low closing sales prices per share for the Common Stock
for the periods indicated as reported by the NYSE and the distributions paid by
the General Partner with respect to each such period (the Company paid
equivalent distributions per partnership unit to its partners during such
periods).
<TABLE>
<CAPTION>
High Low Distribution
---- --- ------------
FISCAL YEAR ENDED DECEMBER 31, 1997
<S> <C> <C> <C>
First Quarter of 1997.......................................... 33 5/8 31 1/2 .47
Second Quarter of 1997......................................... 34 3/4 30 1/2 .47
Third Quarter of 1997.......................................... 37 7/8 33 9/16 .47
Fourth Quarter of 1997......................................... 36 9/16 33 7/8 .47
FISCAL YEAR ENDED DECEMBER 31, 1998
First Quarter of 1998.......................................... 361/4 333/4 .49
Second Quarter of 1998......................................... 35 32 3/8 .49
Third Quarter of 1998.......................................... 34 301/2 .49
Fourth Quarter of 1998......................................... 34 13/16 311/2 .49
</TABLE>
<PAGE> 11
RECENT SALES OF UNREGISTERED SECURITIES
In 1996, the Company issued an aggregate of 1,496,942 units ("OP
Units") to certain sellers in exchange for property. In 1997, the Company issued
an aggregate of 38,021 OP Units to certain sellers in exchange for property. In
1998, the Company issued an aggregate of 90,704 OP Units to certain sellers in
exchange for property. On December 15, 1998, the Company issued an aggregate of
679,025 OP Units to certain officers, directors and consultants of the General
Partner and its subsidiaries for a purchase price of $31.75 per OP Unit.
In 1996, the General Partner issued an aggregate of 2,917 shares of
Common Stock upon conversion of an aggregate of 2,917 OP Units. In 1997, the
General Partner issued an aggregate of 41,621 shares of Common Stock upon
conversion of an aggregate of 41,621 OP Units. In 1998, the General Partner
issued an aggregate of 312,870 shares of Common Stock upon conversion of an
aggregate of 312,870 OP Units. On June 5, 1998, the General Partner issued, as
compensation, an aggregate of 165,000 shares of Common Stock to certain of its
officers, which shares are restricted by the terms of certain Restricted Stock
Award Agreements. On December 15, 1998, the General Partner issued an aggregate
of 122,600 shares of Common Stock to certain employees and consultants of the
General Partner and its subsidiaries for a purchase price of $31.75 per share.
All of the above OP Units and shares of Common Stock were issued in
private placements in reliance on Section 4(2) of the Securities Act of 1933, as
amended, including Regulation D promulgated thereunder. No underwriters were
used in connection with any of such issuances.
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
YEAR ENDED DECEMBER 31, (2)
---------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------
OPERATING DATA: (IN THOUSANDS EXCEPT OTHER DATA AND PROPERTY DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Income from property......................$ 114,346 $ 93,188 $ 71,312 $ 44,048 $ 30,461
Income from affiliates.................... 4,415 1,518 506 325 432
Other income.............................. 1,827 1,535 1,381 739 1,450
----------- ----------- ----------- ----------- ----------
Total revenues.................... 120,588 96,241 73,199 45,112 32,343
----------- ----------- ----------- ----------- ----------
Expenses:
Property operating and maintenance........ 25,647 21,111 15,970 9,838 7,404
Real estate taxes......................... 8,728 7,481 5,654 2,981 2,167
Property management....................... 2,269 1,903 1,246 937 908
General and administrative................ 3,339 2,617 2,212 1,598 1,097
Depreciation and amortization............. 24,961 20,668 14,887 9,747 6,949
Interest.................................. 24,245 14,534 11,277 6,420 4,894
----------- ----------- ----------- ----------- ----------
Total expenses.................... 89,189 68,314 51,246 31,521 23,419
----------- ----------- ----------- ----------- ----------
Income before other, net and
extraordinary item........................ 31,399 27,927 21,953 13,591 8,924
Other, net .................................. 655 -- -- -- --
Extraordinary item, early extinguishment
of debt .................................. -- -- (6,896) -- --
----------- ----------- ----------- ----------- ----------
Net income .................................. 32,054 27,927 15,057 13,591 8,924
Less distribution to Preferred OP Units........ 2,505 2,505 1,670 -- --
----------- ----------- ----------- ----------- ----------
Earnings attributable to OP Units..............$ 29,549 $ 25,422 $ 13,387 $ 13,591 $ 8,924
=========== =========== =========== =========== ==========
Earnings attributed to:
General Partner...........................$ 26,096 $ 22,255 $ 11,704 $ 11,661 $ 7,786
Limited Partners.......................... 3,453 3,167 1,683 1,930 1,138
----------- ----------- ----------- ----------- ----------
$ 29,549 $ 25,422 $ 13,387 $ 13,591 $ 8,924
=========== =========== =========== ========== ==========
Earnings per OP Unit:
Basic ..................................$ 1.55 $ 1.38 $ .85 $ 1.19 $ 1.05
=========== =========== =========== =========== ==========
Diluted ..................................$ 1.53 $ 1.37 $ .85 $ 1.19 $ 1.04
=========== =========== =========== =========== ==========
Weighted average OP Units outstanding.......... 19,101 18,444 15,646 11,420 8,535
=========== =========== =========== =========== ==========
Distribution per OP Unit (1)...................$ 1.94 $ 1.865 $ 1.81 $ 1.335 $ 1.78
=========== =========== =========== =========== ==========
OTHER DATA:
Total properties (at end of period)(3).... 104 99 83 54 46
Total sites (at end of period)(3)......... 37,566 35,936 30,026 18,145 14,318
BALANCE SHEET DATA:
Rental property, before accumulated
depreciation............................$ 803,152 $ 684,821 $ 588,813 $ 326,613 $ 257,030
Total assets..............................$ 824,039 $ 693,514 $ 585,056 $ 325,104 $ 267,370
Total debt................................$ 365,164 $ 264,264 $ 185,000 $ 107,055 $ 62,931
Partners' capital.........................$ 434,187 $ 411,632 $ 383,215 $ 209,475 $ 195,680
</TABLE>
(1) The distribution of $.445 per OP Unit for the fourth quarter of 1995 was
declared and paid in January 1996, and accordingly is not included in the
$1.335.
(2) See the Consolidated Financial Statements of the Company included elsewhere
herein.
(3) Includes communities financed by the Company.
<PAGE> 13
ITEM 7. 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 notes thereto.
RESULTS OF OPERATIONS
Comparison of year ended December 31, 1998 to year ended December 31, 1997
For the year ended December 31, 1998, income before other, net
increased by $3.5 million from $27.9 million to $31.4 million, when compared to
the year ended December 31, 1997. The increase was due to increased revenues of
$24.3 million while expenses increased by $20.9 million.
Income from property increased by $21.1 million from $93.2 million to
$114.3 million due primarily to the acquisition of 10 communities comprising
approximately 2,100 developed sites during 1998 and 14 communities comprising
approximately 5,200 developed sites during 1997.
Income from affiliates increased by $2.9 million to $4.4 million from
$1.5 million due to increased sales of homes by Sun Home Services, Inc. ("SHS")
and interest income earned on advances to Bingham Financial Services Corporation
("BFSC").
Property operating and maintenance expenses increased by $4.5 million
from $21.1 million to $25.6 million due primarily to the acquired communities.
Real estate taxes increased by $1.2 million from $7.5 million to $8.7
million due primarily to the acquired communities.
Property management expenses increased by $.4 million from $1.9 million
to $2.3 million representing 2.0 percent of income from property in 1998 and
1997.
General and administrative expenses increased by $.7 million from $2.6
million to $3.3 million due primarily to additional staff and facilities as a
result of the Company's growth.
Interest expense increased by $9.7 million from $14.5 million to $24.2
million due primarily to investments in rental property. Included in interest is
amortization of deferred finance costs of $.7 million and $.2 million in 1998
and 1997, respectively.
Earnings before interest, taxes, depreciation and amortization
("EBITDA") increased by $17.5 million from $63.1 million to $80.6 million.
EBITDA as a percent of revenues was 66.8% compared to 65.6% in 1997.
Depreciation and amortization expense increased by $4.3 million from
$20.7 million to $25.0 million due primarily to the acquisition of communities
in 1998 and 1997.
Included in other, net of $.6 million are $1.5 million in net gains on
asset sales offset by $.9 million related to an unsuccessful portfolio
acquisition.
Comparison of year ended December 31, 1997 to year ended December 31, 1996
For the year ended December 31, 1997, income before other, net and
extraordinary item increased by $5.9 million from $22.0 million to $27.9
million, when compared to the year ended
<PAGE> 14
December 31, 1996. The increase was due to increased revenues of $23.0 million
while expenses increased by $17.1 million.
Income from property increased by $21.9 million from $71.3 million to
$93.2 million due primarily to the acquisition and financing of 14 communities
comprising approximately 5,200 developed sites during 1997 and 29 communities
comprising in excess of 11,300 developed sites during 1996.
Income from affiliates increased by $1.0 million to $1.5 million from
$.5 million due to increased sales of homes by SHS and interest income earned on
advances to BFSC.
Property operating and maintenance expenses increased by $5.1 million
from $16.0 million to $21.1 million due primarily to the acquired communities.
Real estate taxes increased by $1.8 million from $5.7 million to $7.5
million due primarily to the acquired communities.
Property management expenses increased by $.7 million to $1.9 million
from $1.2 million representing 2.0 percent and 1.7 percent of income from
property in 1997 and 1996, respectively.
General and administrative expenses increased by $.4 million from $2.2
million to $2.6 million due primarily to additional staff and facilities as a
result of the Company's growth.
Interest expense increased by $3.2 million from $11.3 million to $14.5
million due primarily to $150 million Senior Notes which were issued May 1,
1996. Included in interest is amortization of deferred finance costs of $.2
million in 1997 and 1996.
EBITDA increased by $15.0 million from $48.1 million to $63.1 million.
EBITDA as a percent of revenues was 65.6% compared to 65.7% in 1996.
Depreciation and amortization expense increased by $5.8 million from
$14.9 million to $20.7 million due primarily to the acquisition of communities
in 1997 and 1996.
SAME PROPERTY INFORMATION
The following table reflects property-level financial information as of
and for the years ended December 31, 1998 and 1997. The "Same Property" data
represents information regarding the operation of communities owned as of
January 1, 1997. 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 notes or
where the Company is providing financing and managing the properties. Such
amounts relate to 766 sites in 1998 and 1,873 sites in 1997.
<PAGE> 15
<TABLE>
<CAPTION>
SAME PROPERTY TOTAL PORTFOLIO
--------------------------- ------------------------------
1998 1997 1998 1997
---- ---- ---- ----
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Income from property $ 75,954 $ 70,580 $114,346 $ 93,188
-------- -------- -------- --------
Property operating expenses:
Property operating and maintenance 14,223 13,927 25,647 21,111
Real estate taxes 6,573 5,987 8,728 7,481
-------- -------- -------- --------
Property operating expenses 20,796 19,914 34,375 28,592
-------- -------- -------- --------
Property EBITDA $ 55,158 $ 50,666 $ 79,971 $ 64,596
======== ======== ======== ========
Number of properties 72 72 104 99
Developed sites 24,979 24,164 37,566 35,936
Occupied sites 23,482 22,907 34,644 33,415
Occupancy % 94.0% (1) 94.7% (1) 94.3% (1) 95.0% (1)
Weighted average monthly rent per site $ 266 (1) $ 254 (1) $ 267 (1) $ 255 (1)
Sites available for development 1,316 2,142 6,924 3,641
Sites under development 145 542 2,019 904
</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 $5.4 million
from $70.6 million to $76.0 million, or 7.6 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 575 leased
sites at December 31, 1998 compared to December 31, 1997.
Property operating expenses increased by $.9 million from $19.9 million
to $20.8 million, or 4.4 percent, due to increased occupancies and costs and
increases in assessments and millage by local taxing authorities. Property
EBITDA increased by $4.5 million from $50.7 million to $55.2 million, or 8.9
percent.
LIQUIDITY SOURCES AND REQUIREMENTS
Net cash provided by operating activities increased by $12.4 million
from $40.2 million to $52.6 million for the year ended December 31, 1998 as
compared to the year ended December 31, 1997. This increase was due primarily to
a $7.8 million increase in income before depreciation and amortization and
other, net and a $6.3 million increase in accounts payable and other liabilities
offset by a $2.1 million increase in other assets.
Net cash used in investing activities decreased by $1.8 million from
$107.7 million to $105.9 million for the year ended December 31, 1998 as
compared to the year ended December 31, 1997. This was due to a $7.7 million
reduction of cash used for notes receivable and investment in and advances to
affiliates offset by a $5.9 million increase in investment in rental properties,
net of proceeds from asset sales.
<PAGE> 16
Net cash provided by financing activities increased by $.2 million from
$60.5 million to $60.7 million for the year ended December 31, 1998 as compared
to the year ended December 31, 1997. This increase was due to a $12.8 million
increase in proceeds from net borrowings including payments for deferred
financing costs, offset by an increase of $3.3 million in distributions and a
$9.2 million reduction in capital contributions.
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.
At December 31, 1998, the Company's debt to total market capitalization
approximated 32.4% (assuming conversion of all Preferred OP Units), with a
weighted average maturity of approximately 6.1 years and a weighted average
interest rate of 7.07%.
Capital expenditures for 1998 included recurring capital expenditures of
$5.3 million including $.4 million for additional space and related costs at
corporate headquarters and revenue producing capital expenditures of $.9 million
which principally consisted of water metering programs.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the years ended
December 31, 1998, 1997, and 1996 was 2.04:1, 2.40:1, and 2.49:1 respectively.
INFLATION
Most of the leases allow for periodic rent increases which provide the
Company with the opportunity to achieve increases in rental income as each lease
expires. Such types of leases generally minimize the risk of inflation to the
Company.
SAFE HARBOR STATEMENT
This Form 10-K 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
<PAGE> 17
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.
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 during 1998 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 is
surveying 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 is discussing with its material vendors the possibility of
any interface difficulties and/or electrical or mechanical problems relating to
Y2K which may affect properties owned or operated by the Company. The Company
plans to complete its assessment of Y2K compliance by such parties by April 30,
1999. 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 Y2K issues; however, to date, no significant Y2K related
conditions have been identified.
Expenditures for assessing the Company's Y2K issues have not been
material because the evaluation has been conducted by its own personnel or by
its vendors in connection with their servicing operations. The Company has
contracted a consultant for $25,000 to assess the methodology of its Y2K
program. The Company plans to remedy any exceptions found during this review
process and deemed as material by the Company by June 30, 1999.
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
<PAGE> 18
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.
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.
OTHER
Industry analysts consider funds from operations ("FFO") to be an
appropriate measure of the performance of an equity REIT. It is defined as
income before minority interests plus non-cash items such as depreciation and
amortization. FFO should not be considered as an alternative to net income as an
indication of the Company's performance or to cash flows as a measure of
liquidity.
The following table presents FFO for each of the quarters during 1998, 1997
and 1996:
<TABLE>
<CAPTION>
Quarters Ended 1998 1997 1996
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
March 31 $ 13,271 $ 11,204 $ 6,201
June 30 13,366 11,178 8,960
September 30 13,473 11,485 9,652
December 31 13,577 12,081 10,282
---------- ---------- ----------
$ 53,687 $ 45,948 $ 35,095
========== ========== ==========
<CAPTION>
For the year ended December 31, 1998 1997 1996
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average
OP Units used for basic FFO per share 19,101 18,444 15,646
Dilutive securities:
Stock options and other 176 187 87
Convertible preferred OP Units 1,210 1,224 883
---------- ---------- ----------
Weighted average OP
Units used for diluted FFO per share 20,487 19,855 16,616
========== ========== ==========
</TABLE>
Diluted FFO per unit reflects the potential dilution that would occur
if securities were exercised or converted into OP Units. For purposes of
calculating diluted FFO per OP Unit, $2,505, $2,505 and $1,670 would be added to
FFO in 1998, 1997 and 1996, respectively.
<PAGE> 19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's principle market risk exposure is interest rate risk.
The Company's exposure to market risk for changes in interest rates relates
primarily to refinancing long-term fixed rate obligations, the opportunity cost
of fixed rate obligations in a falling interest rate environment and its
variable rate line of credit. The Company primarily enters into debt obligations
to support general corporate purposes including acquisitions, capital
improvements and working capital needs. The Company has used interest rate hedge
agreements to hedge against rising interest rates in anticipation of refinancing
or new debt issuance. Information relating to quantitative and qualitative
disclosure about market risk as it relates to hedging transactions is described
in Note 5 "Debt" to the Company's Consolidated Financial Statements and is
incorporated herein by reference.
The table below presents principal, interest and related weighted
average interest rates by year of maturity (in thousands):
<TABLE>
<CAPTION>
Cash Flows
----------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt (all fixed rate except line
of credit)
Unsecured debt
Principal $ -- $ -- $65,000 $ -- $85,000 $100,000 $250,000 $250,000
Interest $18,115 $18,115 $14,919 $13,321 $ 9,000 $ 59,624 $133,094
Average interest rate 7.25% 7.25% 7.22% 7.20% 7.01% 6.80% 7.02%
Mortgage notes
Principal amortization $ 1,355 $ 1,370 $ 1,416 $ 1,153 $ 1,037 $56,290 $62,622 $ 62,622
Interest $ 4,499 $ 4,456 $ 4,372 $ 4,294 $ 4,209 $16,511 $38,291
Average interest rate 7.27% 7.32% 7.33% 7.33% 7.34% 7.34% 7.32%
Capitalized lease obligations
Principal $ 357 $457 $9,776 $15,952 _____ _____ $26,542 $ 26,542
Interest $ 1,627 $1,602 $1,132 $ 915 _____ _____ $5,276
Average interest rate 6.17% 6.17% 6.10% 6.09% _____ _____ 6.14%
Line of Credit
Principal $26,000 $26,000 $ 26,000
Interest $ 1,847 $1,847
Average interest rate 6.74% 6.74%
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data are filed herewith under
Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in the Company's independent public
accountants during the past two fiscal years.
<PAGE> 20
PART III
The General Partner is the sole general partner of the Company and,
therefore, the information required by ITEMS 10, 11, 12 AND 13 will be included
in the General Partner's proxy statement for its 1999 Annual Meeting of
Shareholders, and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed herewith as part of this Form
10-K:
(1) A list of the financial statements required to be filed as a part
of this Form 10-K is shown in the "Index to the Consolidated Financial
Statements and Financial Statement Schedule" filed herewith.
(2) A list of the financial statement schedules required to be filed as
a part of this Form 10-K is shown in the "Index to the Consolidated Financial
Statements and Financial Statement Schedule" filed herewith.
(3) A list of the exhibits required by Item 601 of Regulation S-K to be
filed as a part of this Form 10-K is shown on the "Exhibit Index" filed
herewith.
(b) Reports on Form 8-K
None.
<PAGE> 21
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
<S> <C>
Report of Independent Accountants.............................................................................F-2
Financial Statements:
Consolidated Balance Sheet as of December 31, 1998 and 1997................................................F-3
Consolidated Statement of Income
for the Years Ended December 31, 1998, 1997 and 1996................................................F-4
Consolidated Statement of Partners' Capital for the Years
Ended December 31, 1998, 1997 and 1996..............................................................F-5
Consolidated Statement of Cash Flows for the
Years Ended December 31, 1998, 1997 and 1996........................................................F-6
Notes to Consolidated Financial Statements..........................................................F-7 - F-13
Schedule III - Real Estate and Accumulated Depreciation...............................................F-14 - F-18
</TABLE>
F-1
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Sun Communities
Operating Limited Partnership:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, partners' capital and of cash flows present
fairly, in all material respects, the financial position of Sun Communities
Operating Limited Partnership (the "Company") at December 31, 1998 and December
31, 1997, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 14(a)(1)
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Detroit, Michigan
February 12, 1999
F-2
<PAGE> 23
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 AND 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1998 1997
--------- ---------
<S> <C> <C>
Investment in rental property, net $ 732,212 $ 634,737
Cash and cash equivalents 9,646 2,198
Investments in and advances to affiliates 26,355 16,559
Notes receivable 29,285 21,869
Other assets 26,541 18,151
--------- ---------
Total assets $ 824,039 $ 693,514
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Line of credit $ 26,000 $ 17,000
Debt 339,164 247,264
Accounts payable and accrued expenses 12,637 8,765
Deposits and other liabilities 12,051 8,853
--------- ---------
389,852 281,882
--------- ---------
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 ("OP Units") unlimited authorized, 20,072 and 18,946
issued and outstanding in 1998 and 1997, respectively
General partner 348,266 329,380
Limited partners 55,440 46,469
Unearned Compensation (5,302) --
--------- ---------
Total partners' capital 434,187 411,632
--------- ---------
Total liabilities and partners' capital $ 824,039 $ 693,514
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 24
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AMOUNTS IN THOUSANDS EXCEPT FOR PER UNIT DATA)
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ----------
REVENUES
<S> <C> <C> <C>
Income from property................................................................$ 114,346 $ 93,188 $ 71,312
Income from affiliates.............................................................. 4,415 1,518 506
Other income, principally interest.................................................. 1,827 1,535 1,381
----------- --------- ---------
Total revenues................................................................... 120,588 96,241 73,199
----------- --------- ---------
EXPENSES
Property operating and maintenance.................................................. 25,647 21,111 15,970
Real estate taxes................................................................... 8,728 7,481 5,654
Property management................................................................. 2,269 1,903 1,246
General and administrative.......................................................... 3,339 2,617 2,212
Depreciation and amortization....................................................... 24,961 20,668 14,887
Interest............................................................................ 24,245 14,534 11,277
----------- --------- ---------
Total expenses................................................................... 89,189 68,314 51,246
----------- --------- ---------
Income before other, net and extraordinary item......................................... 31,399 27,927 21,953
Other, net.............................................................................. 655 -- --
Extraordinary item, early extinguishment of debt........................................ -- -- (6,896)
----------- --------- ----------
Net income.............................................................................. 32,054 27,927 15,057
Less distribution to Preferred OP Units................................................. 2,505 2,505 1,670
----------- --------- ----------
Earnings attributable to OP Units.......................................................$ 29,549 $ 25,422 $ 13,387
=========== ========= ==========
Earnings attributed to:
General Partner..................................................................$ 26,096 $ 22,255 $ 11,704
Limited Partners................................................................. 3,453 3,167 1,683
----------- --------- ----------
$ 29,549 $ 25,422 $ 13,387
=========== ========= ==========
Basic earnings per OP Unit:
Income before extraordinary item.................................................$ 1.55 $ 1.38 $ 1.35
Extraordinary item............................................................... -- -- .50
----------- --------- ---------
$ 1.55 $ 1.38 $ .85
=========== ========= ==========
Weighted average OP Units outstanding................................................... 19,101 18,444 15,646
=========== ========= ==========
Diluted earnings per OP Unit:
Income before extraordinary item.................................................$ 1.53 $ 1.37 $ 1.35
Extraordinary item............................................................... -- -- .50
----------- --------- ----------
$ 1.53 $ 1.37 $ .85
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 25
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AMOUNTS IN THOUSANDS EXCEPT FOR PER UNIT DATA)
<TABLE>
<CAPTION>
UNEARNED
GENERAL PARTNER LIMITED PARTNERS COMPENSATION
--------------- ---------------- ------------
<S> <C> <C> <C>
Balance, January 1, 1996 $ 177,593 $ 31,882
Issuance of POP and OP Units for rental property 17,654
Net contributions 132,975
Net income 11,704 1,683
Distributions declared of $1.81 per OP Unit (22,643) (3,416)
Reclassification and conversion of limited partnership
interests 1,303 (1,303)
-------------- ------------
Balance, December 31, 1996 300,932 46,500
Issuance of OP Units for rental property 19
Net contributions 36,724
Net income 22,255 3,167
Distributions declared of $1.865 per OP Unit (29,548) (4,200)
Reclassification and conversion of limited partnership
interests (983) 983
-------------- -----------
Balance, December 31, 1997 329,380 46,469
Issuance of OP Units 23,808
Net contributions 11,587
Net income 26,096 3,453
Distributions declared of $1.94 per OP Unit (32,777) (4,310)
Reclassification and conversion of limited partnership
interests 13,980 (13,980)
Issuance of General Partner's restricted common
stock awards, net -- -- $ (5,302)
-------------- ----------- ---------------
Balance, December 31, 1998 $ 348,266 $ 55,440 $ (5,302)
============== =========== ===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 26
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income........................................................................$ 29,549 $ 25,422 $ 13,387
Adjustments to reconcile net income to
cash provided by operating activities:
Other, net.................................................................... (655) -- --
Extraordinary item, net of prepayment penalties............................... -- -- 1,390
Depreciation and amortization costs........................................... 24,961 20,668 14,887
Amortization of deferred financing costs...................................... 681 235 236
Increase in other assets...................................................... (9,019) (6,919) (2,659)
Increase in accounts payable and
other liabilities.......................................................... 7,070 796 8,173
----------- ----------- -----------
Net cash provided by operating activities..................................... 52,587 40,202 35,414
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in rental properties................................................... (105,268) (78,552) (78,722)
Proceeds related to asset sales................................................... 20,773 -- --
Investment in notes receivable.................................................... (11,592) (17,693) --
Investment in and advances to affiliates.......................................... (9,796) (11,456) 1,804
----------- ----------- -----------
Net cash used in investing activities......................................... (105,883) (107,701) (76,918)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions............................................................. 27,560 36,724 132,975
Borrowings (repayments) on line of credit, net.................................... 9,000 17,000 (37,300)
Proceeds from notes payable and other debt........................................ 65,000 45,000 185,000
Repayments on notes payable and other debt........................................ (935) (189) (203,814)
Payments for deferred financing costs............................................. (2,794) (4,326) (277)
Distributions..................................................................... (37,087) (33,748) (25,965)
----------- ----------- -----------
Net cash provided by financing activities..................................... 60,744 60,461 50,619
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents.............................. 7,448 (7,038) 9,115
Cash and cash equivalents, beginning of year...................................... 2,198 9,236 121
----------- ----------- -----------
Cash and cash equivalents, end of year............................................$ 9,646 $ 2,198 $ 9,236
=========== =========== ===========
SUPPLEMENTAL INFORMATION
Cash paid for interest including capitalized amounts of $787,
$645 and $380 in 1998, 1997 and 1996, respectively.........................$ 23,517 $ 14,742 $ 9,958
Noncash investing and financing activities:
Rental properties and other assets acquired through
issuance of OP and POP Units............................................... 2,204 -- 53,437
Debt assumed for rental properties and other.................................. 18,356 -- 134,059
Capitalized lease obligations for rental properties and other ................ 9,479 17,453 --
Restricted common stock issued as unearned
compensation by the general partner........................................ 5,631 -- --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 27
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
1. BASIS OF PRESENTATION:
Sun Communities Operating Limited Partnership (the "Company") owns and
operates or finances manufactured housing community properties. 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 operating 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
income as general and administrative expenses. The balance sheet of Sun as
of December 31, 1998 is identical to the accompanying Company balance
sheet, except as follows:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
-----------------------------------------------------------------------
AS PRESENTED
HEREIN SUN COMMUNITIES, INC.
DECEMBER 31, 1998 ADJUSTMENTS DECEMBER 31, 1998
----------------- ----------- -----------------------
<S> <C> <C> <C>
Notes receivable ....................... $ 29,285 $ (2,600) $ 26,685
========= ========= =========
Total assets ........................... $ 824,039 $ (2,600) $ 821,439
========= ========= =========
Minority interests ..................... -- $ 91,223 $ 91,223
=========
Preferred OP Units ..................... $ 35,783 (35,783)
General partner ........................ 348,266 (348,266)
Limited partners ....................... 55,440 (55,440)
Common stock ........................... 172 $ 172
Additional paid-in capital ............. 389,448 389,448
Unearned compensation .................. (5,302) -- (5,302)
Distributions in excess of accumulated
earnings .......................... (32,345) (32,345)
Officers' notes ........................ (11,609) (11,609)
--------- --------- ---------
Partners' capital/Stockholders'
equity ....................... $ 434,187 $ (2,600) $ 340,364
========= ========= =========
Total liabilities and partners' capital/
Stockholders' equity .............. $ 824,039 $ (2,600) $ 821,439
========= ========= =========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
A. BUSINESS: The Company and its subsidiaries own and operate or finance
104 manufactured housing communities located in 15 states concentrated
principally in the Midwest and Southeast comprising approximately
37,500 developed sites and approximately 6,900 sites suitable for
development.
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
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates.
F-7
<PAGE> 28
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, CONTINUED:
B. PRINCIPLES OF CONSOLIDATION: The accompanying financial statements
include the accounts of the Company and all its 99 percent owned
subsidiary partnerships and limited liability companies. All
significant inter-entity balances and transactions have been eliminated
in consolidation. The limited partnership interests are adjusted to
their relative ownership interest by reclassification to/from general
partnership interests. Minority interests represented by Sun's one
percent indirect interest in the aforementioned subsidiaries is not
separately recognized in the Company's financial statements because the
Company reimburses Sun for all of its expenses in excess of the income
Sun earns through its one percent interest.
Also included in these financial statements are 1.3 million Preferred
OP Units ("POP Units") issued at $27 per unit bearing an annual
cumulative distribution of 7% and are redeemable at par in June, 2002.
The POP Units are convertible one-for-one into OP Units based upon the
current trading price of Sun's common stock up to $31.50 per unit. At
prices above $31.50 per unit, the POP Units are convertible into OP
Units based on a formula the numerator of which is $31.50 plus 25
percent of unit price appreciation above $36 per unit. The denominator
is the then unit price. Had conversion occurred at Sun's December 31,
1998 stock price of $34.81, the 1.325 million POP Units would have
converted into 1.2 million OP Units.
C. RENTAL PROPERTY: Rental property is recorded at the lower of cost, less
accumulated depreciation or fair value. Management evaluates the
recoverability of its investment in rental property whenever events or
changes in circumstances such as recent operating results, expected net
operating cash flow and plans for future operations indicate that full
asset recoverability is questionable.
Depreciation is computed on a straight-line basis over the estimated
useful lives of the assets. Useful lives are 30 years for land
improvements and buildings and 7 to 15 years for furniture, fixtures
and equipment. Expenditures for ordinary maintenance and repairs are
charged to operations as incurred and significant renovations and
improvements, which improve and/or extend the useful life of the asset,
are capitalized and depreciated over their estimated useful lives.
D. CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments with an initial maturity of three months or less to be cash
and cash equivalents.
E. INVESTMENTS IN AND ADVANCES TO AFFILIATES: Sun Home Services ("SHS")
provides home sales and other services to current and prospective
tenants. The Company owns 100 percent of the outstanding preferred
stock of SHS, is entitled to 95 percent of the operating cash flow, and
accounts for its investment utilizing the equity method of accounting.
The common stock is owned by three officers of the Company who are
entitled to receive 5 percent of the operating cash flow.
Bingham Financial Services, Corp. ("BFSC") is a specialty finance
company whose primary business activities include the financing of
manufactured homes and all aspects of commercial real estate mortgage
banking, including originating, underwriting, placing, securitizing and
servicing commercial real estate loans. The Company owns 25,000 shares
of the common stock of BFSC (less than 2% of the issued and outstanding
shares of common stock of BFSC) and the Company owns warrants to
purchase 680,000 shares of common stock of BFSC exercisable at prices
ranging from $10 to $14 per share from 2001 through 2018. The market
price of BFSC stock at December 31, 1998 was $14.50. Interest earned on
advances to BFSC is included in income from affiliates.
F. REVENUE RECOGNITION: Rental income attributable to leases is recorded
on a straight-line basis when earned from tenants. Leases entered into
by tenants range from month-to-month to twelve years and are renewable
by mutual agreement of the Company and resident or, in some cases, as
provided by statute.
F-8
<PAGE> 29
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, CONTINUED:
G. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying value of financial
instruments which includes cash and cash investments, mortgages and
notes receivable and debt approximates fair value.
H. TAXES: As a partnership, the Company does not pay federal or state
income taxes.
I. CASH FLOW HEDGES: The Company periodically enters into hedge
transactions utilizing Treasury securities to lock-in the basic
interest cost of financing acquisitions. The gain or loss on such
hedges is amortized as an adjustment to interest expense over the term
of the related financing.
J. RECLASSIFICATIONS: Certain 1997 and 1996 amounts have been reclassified
to conform with the 1998 financial statement presentation. Such
reclassifications have no effect on operations as originally presented.
3. RENTAL PROPERTY (AMOUNTS IN THOUSANDS):
<TABLE>
<CAPTION>
AT DECEMBER 31
-------------------------
1998 1997
---- ----
<S> <C> <C>
Land..................................................................................... $ 98,441 $ 67,677
Land improvements and buildings ......................................................... 679,755 598,699
Furniture, fixtures, equipment .......................................................... 15,209 12,676
Property under development .............................................................. 9,747 5,769
--------- ---------
803,152 684,821
Less accumulated depreciation ...................................................... (70,940) (50,084)
--------- ---------
$ 732,212 $ 634,737
========= =========
</TABLE>
Land improvements and buildings consist primarily of infrastructure, roads,
landscaping, and clubhouses, maintenance buildings and amenities. Included
in rental property at December 31, 1998 and 1997 are net carrying amounts
related to capitalized leases of $29.8 million and $18.4 million,
respectively.
During 1998, the Company acquired 10 manufactured housing communities
comprising 2,100 developed sites and 1,000 sites suitable for development
for $65.5 million and 8 development communities comprising 3,650 sites for
$20.1 million. During 1997, the Company acquired 12 manufactured housing
communities comprising 4,250 developed sites and 425 sites suitable for
development for $69.8 million. These transactions have been accounted for
as purchases, and the statements of income include the operations of the
acquired communities from the dates of their respective acquisitions. In
conjunction with a prior year acquisition, the Company is obligated to
issue $11.1 million of OP Units over the expected lease-up of the community
through 2009 based on the per unit price of the OP Units on each annual
date.
F-9
<PAGE> 30
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
4. NOTES RECEIVABLE:
Notes receivable consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31
-----------------------
1998 1997
---- ----
<S> <C> <C>
Mortgage notes receivable with minimum monthly interest payments at 7%,
maturing June 30, 2012, collateralized by manufactured
housing/recreational
vehicle 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 --
Installment loans on manufactured homes with interest payable monthly
at a weighted average interest rate
and maturity of 10% and 22 years, respectively. (b) 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 1,853 4,176
10 year note to an officer of the general partner bearing interest
at LIBOR + 1.75%, with a minimum and maximum interest rate of 6%
and 9%, respectively, collateralized by 80,000 shares of Sun's
common
stock with personal liability up to $1.3 million 2,600 2,600
------- -------
$29,285 $21,869
======= =======
</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 BFSC in December 1998 with BFSC retaining full
recourse.
At December 31, 1997, notes receivable, other included shared appreciation
mortgage notes of $4.2 million which were received in 1998 resulting in a
gain of $.9 million included in other, net.
5. DEBT (AMOUNTS IN THOUSANDS):
<TABLE>
<CAPTION>
AT DECEMBER 31
-----------------------------
1998 1997
--------- ----------
<S> <C> <C>
Collateralized term loan, interest at 7.01%, due September 9, 2007...................... $ 44,425 $ 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 --
Capitalized lease obligations, interest ranging from 6.1% to
6.3%, due March 2001 through December 2002......................................... 26,542 17,375
Mortgage notes, other................................................................... 18,197 --
--------- ----------
$ 339,164 $ 247,264
========= ==========
</TABLE>
F-10
<PAGE> 31
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
5. DEBT CONTINUED:
The Company has a $100 million unsecured line of credit at LIBOR plus .90%
maturing in November, 1999, of which $74 million was available at December
31, 1998. The average interest rate of outstanding borrowings at December
31, 1998 was 6.30%.
The term loan is collateralized by 7 communities comprising approximately
3,400 sites. Annual payments under capitalized lease obligations range from
$1.3 million to $1.4 million during their terms. The extraordinary item of
$6.9 million in 1996 results from the early extinguishment of debt and
includes prepayment penalties and related deferred financing costs.
At December 31, 1998, the Company has Treasury Rate Locks for a total
notional amount of $52.8 million and an unrealized loss of $1.5 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 would be offset
by lower interest expense.
At December 31, 1998, the maturities of debt, excluding the line of credit,
during the next five years were approximately as follows: 1999 - $1.7
million; 2000 - $1.8 million; 2001 - $76.2 million; 2002 $17.1 million; and
2003 - $86.0 million.
6. SUN'S STOCK OPTIONS:
Data pertaining to Sun's stock option plans are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Options outstanding, January 1.............................. 965,900 767,434 301,167
Options granted............................................. 162,500 262,000 482,950
Option price.......................................... $33.75-$34.13 $27-$34.91 $26.625-$28.637
Options exercised........................................... 66,800 61,033 16,683
Option price............................................ $20-$33.75 $20-$28.64 $20-$23.125
Options forfeited........................................... 6,000 2,501 --
Option price.......................................... $33.75-$34.91 $24.88 - $28.64 --
Options outstanding, December 31............................ 1,055,600(a) 965,900 767,434
Option price............................................ $20-$35.39 $20-$35.39 $20-$28.637
Options exercisable, December 31............................ 601,410(a) 482,651 392,949
</TABLE>
(a) There are 278,900 and 274,066 options outstanding and exercisable,
respectively, which range from $20.00 - $27.99 with a weighted average
life of 6.0 years related to the outstanding options. The weighted
average exercise price for these outstanding and exercisable options is
$22.82 and $22.74, respectively. There are 776,700 and 327,344 options
outstanding and exercisable, respectively, which range from $28.00 -
$35.99 with a weighted average life of 6.3 years related to the
outstanding options. The weighted average exercise price for these
outstanding and exercisable options is $30.93 and $29.38, respectively.
Sun's stock option plans provide for up to 1.6 million shares/units of
common stock/partnership interests that may be granted to directors,
executive officers and other key employees of Sun or the Company. At
December 31, 1998, 171,000 shares/units of common stock/partnership
interests were available for the granting of options. Options are
granted at fair market value and generally vest over a two-year period
and may be exercised for 10 years after date of grant. In addition, the
Company established a Long-Term Incentive Plan for its nonexecutive
F-11
<PAGE> 32
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
6. SUN'S STOCK OPTIONS CONTINUED:
officer employees permitting a grant of up to 240,000 options which were
granted in 1997, and become exercisable in equal installments in 2002-2004
based on corporate profit performance.
The Company has opted to measure compensation cost utilizing the intrinsic
value method. The fair value of each option grant was estimated as of the
date of grant using the Black-Scholes option-pricing model with the
following assumptions for options granted in:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Estimated fair value per share/unit of options granted during year......................$ 2.43 $ 2.82 $ 1.94
Assumptions:
Annualized dividend yield .......................................................... 7.0% 7.1% 6.9%
Common stock/partnership interest price volatility ................................. 15.9% 15.6% 15.1%
Risk-free rate of return ........................................................... 5.4% 6.7% 6.2%
Expected option term (in years) .................................................... 4 7 8
</TABLE>
If compensation cost for stock option grants had been recognized based on the
fair value at the grant date, this would have resulted in net income of $29.3
million, $25.0 million and $13.2 million and net income per OP Unit of $1.53,
$1.36 and $.84 in 1998, 1997 and 1996 respectively.
7. PARTNERS CAPITAL:
In June 1998, the Company's general partner issued stock awards of 165,00
restricted shares to executive officers which are being amortized over
their 10 year vesting period.
In December 1998, the Company and its general partner issued common stock
and OP units aggregating $25.5 million to directors, employees and
consultants. The purchase was financed by personal bank loans guaranteed by
the Company.
8. EARNINGS PER OP UNIT (AMOUNTS IN THOUSANDS):
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
Earnings used for basic and diluted earnings per
OP Unit computation $29,549 $25,422 $13,387
======= ======= =======
Total units used for basic earnings per OP Unit 19,101 18,444 15,646
Dilutive securities:
Sun's stock options 175 187 87
------- ------- -------
Total shares used for diluted earnings per OP Unit
computation 19,276 18,631 15,733
======= ======= =======
</TABLE>
Diluted earnings per OP Unit reflect the potential dilution that would
occur if securities were exercised or converted into OP Units. Convertible
POP Units are excluded from the computations as their inclusion would have
an anti-dilutive effect on earnings per OP Unit in 1998, 1997 and 1996.
F-12
<PAGE> 33
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
9. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following unaudited quarterly amounts are in thousands, except for per
unit amounts:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
1998
<S> <C> <C> <C> <C>
Total revenues..................................................$ 29,419 $ 29,824 $ 30,403 $ 30,942
Operating income (a)............................................$ 19,517 $ 20,086 $ 20,320 $ 20,682
Income before other, net........................................$ 7,999 $ 7,968 $ 8,027 $ 7,405
Other, net (b)..................................................$ 937 $ -- $ 2,093 $ (2,375)
Earnings attributable to OP Units...............................$ 8,310 $ 7,342 $ 9,493 $ 4,404
Weighted average OP Units....................................... 19,017 19,051 19,075 19,261
Earnings per OP Unit............................................$ .44 $ .38 $ .50 $ .23
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
1997
<S> <C> <C> <C> <C>
Total revenues..................................................$ 23,393 $ 23,233 $ 24,117 $ 25,498
Operating income (a)............................................$ 15,305 $ 15,188 $ 15,740 $ 16,896
Earnings attributable to OP Units...............................$ 6,413 $ 6,252 $ 6,365 $ 6,392
Weighted average OP Units....................................... 18,005 18,282 18,602 18,885
Earnings per OP Unit............................................$ 0.36 $ 0.34 $ 0.34 $ 0.34
</TABLE>
(a) Operating income is defined as total revenues less property operating and
maintenance expense, real estate tax expense, property management and
general and administrative expenses. Operating income is a measure of the
performance of the operations of the properties before the effects of
depreciation, amortization and interest expense. Operating income is not
necessarily an indication of the performance of the Company or a measure of
liquidity.
(b) Other, net consists of gains on asset sales in the first and third quarters
of 1998, and fourth quarter write-offs relating to a pending asset sale and
an unsuccessful portfolio acquisition.
F-13
<PAGE> 34
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED
SUBSEQUENT TO
ACQUISITION
INITIAL COST ------------------------
TO COMPANY IMPROVEMENTS
---------------------- ------------------------
BUILDING BUILDING
AND AND
PROPERTY NAME LOCATION ENCUMBRANCE LAND FIXTURES LAND FIXTURES
- ------------- -------- ----------- ---- -------- ---- --------
(A)
- ---
<S> <C> <C> <C> <C> <C> <C>
Allendale Allendale, MI - $ 393 $ 3,684 - $ 2.773
Alpine Grand Rapids, MI - 729 6,692 - 694
Arbor Terrace Bradenton, FL - 481 4,410 - 118
Ariana Village Lakeland, FL - 240 2,195 - 320
Autumn Ridge Ankeny, IO - 890 8,054 - 496
Bedford Hills Battle Creek, MI (1) 1,265 11,562 - 170
Bonita Lake Bonita Springs, FL - 285 2,641 - 56
Boulder Ridge Pflugerville, TX - 1,000 500 $ 518 6,335
Branch Creek Austin, TX - 796 3,716 - 4,057
Breezy Hill Pompano Beach, FL - 1,778 16,085 - 101
Brentwood Kentwood, MI - 385 3,592 - 94
Brookside Village Goshen, IN - 260 1,080 386 5,595
Byron Center Byron Center, MI - 257 2,402 -4 75
Candlelight Village Chicago Heights, IL - 600 5,623 - 245
Candlewick Court Owosso, MI - 125 1,900 132 836
Carrington Pointe Ft. Wayne, IN - 1,076 3,632 - 1,391
Casa Del Valle Alamo, TX - 246 2,316 - 216
Catalina Middletown, OH - 653 5,858 - 295
Cave Creek Evans, CO - 2,170 - - 39
Chain O=Lakes Grand Island, FL - 551 5,003 - 135
Chisholm Point Pflugerville, TX - 609 5,286 - 1,339
Clearwater Village South Bend, IN - 80 1,270 61 1,608
Cobus Green Elkhart, IN - 762 7,037 - 418
College Park Estates Canton, MI - 75 800 174 4,354
Continental Estates Davison, MI - 1,625 16,581 150 1,997
Country Acres Cadillac, MI - 380 3,495 - 82
Country Meadows Flat Rock, MI - 924 7,583 296 7,941
Countryside Village Perry, MI (1) 275 3,920 185 1,586
<CAPTION>
GROSS AMOUNT
CARRIED AT
DECEMBER 31, 1998
--------------------------
BUILDING DATE OF
AND ACCUMULATED CONSTRUCTION (C)
PROPERTY NAME LAND FIXTURES TOTAL DEPRECIATION ACQUISITION (A)
- ------------- ---- -------- ----- ------------ -----------
(A)
- ---
<S> <C> <C> <C> <C> <C>
Allendale $ 393 $ 6,457 $ 6,850 $ 421 1996(A)
Alpine 729 7,386 8,115 617 1996(A)
Arbor Terrace 481 4,528 5,009 392 1996(A)
Ariana Village 240 2,515 2,755 376 1994(A)
Autumn Ridge 890 8,550 9,440 704 1996(A)
Bedford Hills 1,265 11,732 12,997 1,004 1996(A)
Bonita Lake 285 2,697 2,982 232 1996(A)
Boulder Ridge 1,518 6,835 8,353 186 1998(C)
Branch Creek 796 7,773 8,569 566 1995(A)
Breezy Hill 1,778 14,686(3) 16,464 1,401 1996(A)
Brentwood 385 3,686 4,071 324 1996(A)
Brookside Village 646 6,675 7,321 752 1985(A)
Byron Center 253 2,477 2,730 221 1996(A)
Candlelight Village 600 5,868 6,468 505 1996(A)
Candlewick Court 257 2,736 2,993 463 1985(A)
Carrington Pointe 1,076 5,023 6,099 218 1997(A)
Casa Del Valle 246 2,532 2,778 133 1997(A)
Catalina 653 6,153 6,806 1,073 1993(A)
Cave Creek 2,170 39 2,209 0 1998(A)
Chain O=Lakes 551 5,138 5,689 500 1996(A)
Chisholm Point 609 6,625 7,234 687 1995(A)
Clearwater Village 141 2,878 3,019 355 1986(A)
Cobus Green 762 7,455 8,217 1,256 1993(A)
College Park Estates 249 5,154 5,403 769 1978(A)
Continental Estates 1,775 18,578 20,353 1,459 1996(A)
Country Acres 380 3,577 3,957 308 1996(A)
Country Meadows 1,220 15,524 16,744 1,766 1994(A)
Countryside Village 460 5,506 5,966 844 1987(A)
</TABLE>
F-14
<PAGE> 35
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION, CONTINUED
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED
SUBSEQUENT TO
ACQUISITION
INITIAL COST ------------------------
TO COMPANY IMPROVEMENTS
---------------------- ------------------------
BUILDING BUILDING
AND AND
PROPERTY NAME LOCATION ENCUMBRANCE LAND FIXTURES LAND FIXTURES
- ------------- -------- ----------- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C>
(A)
Creekwood Meadows Burton, MI - 808 2,043 404 3,258
Cutler Estates Grand Rapids, MI (1) 822 7,604 - 79
Del Camino Firestone, CO - 4,073 150 - 2,240
Desert View Village West Wendover, NV - 1,180 - 403 352
Douglas Estates Austell, GA - 508 2,125 - 756
Edwardsville Edwardsville, KS (1) 425 8,805 541 1,800
Elmwood Holly Hill, FL - 230 2,076 - 29
Fisherman's Cove Flint, MI - 380 3,438 - 363
Flagview Village Douglasville, GA - 508 2,125 - 596
Goldcoaster Homestead, FL - 446 4,234 38 550
Golden Lakes Plant City, FL - 1,092 7,161 1 727
Grand Grand Rapids, MI - 578 5,396 - 64
Groves Ft. Myers, FL - 249 2,396 - 136
Hamlin Webberville, MI - 125 1,675 77 821
Holiday Village Elkhart, IN - 100 3,207 143 946
Holly Forest Holly Hill, FL - 920 8,376 - 116
Hunter's Glen Leighton Twp., MI - 1,063 - 39 176
Indian Creek Ft. Myers Beach, FL - 3,832 34,660 - 284
Island Lake Merritt Island, FL - 700 6,431 - 146
Kensington Meadows Lansing, MI - 250 2,699 - 2,601
King=s Court Traverse City, MI - 1,473 13,782 - 778
King's Lake Debary, FL - 280 2,542 - 1,317
King's Pointe Winter Haven, FL - 262 2,359 - 211
Kissimmee Gardens Kissimmee, FL - 594 5,522 - 199
Lafayette Place Warren, MI - 669 5,979 - 480
Lake Juliana Auburndale, FL - 335 2,848 - 373
Lake San Marino Naples, FL - 650 5,760 - 192
Leesburg Landing Leesburg, FL - 50 429 - 129
Liberty Farms Valparaiso, IN - 66 1,201 116 1,655
Lincoln Estates Holland, MI - 455 4,201 - 197
Maple Grove Estates Dorr, MI - 15 210 19 244
</TABLE>
<TABLE>
<CAPTION>
GROSS AMOUNT
CARRIED AT
DECEMBER 31, 1998
--------------------------
BUILDING DATE OF
AND ACCUMULATED CONSTRUCTION (C)
PROPERTY NAME LOCATION LAND FIXTURES TOTAL DEPRECIATION ACQUISITION (A)
- ------------- -------- ---- -------- ----- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
(A)
Creekwood Meadows Burton, MI 1,212 5,301 6,513 190 1997(C)
Cutler Estates Grand Rapids, MI 822 7,683 8,505 662 1996(A)
Del Camino Firestone, CO 4,073 2,390 6,463 2 1998(A)
Desert View Village West Wendover, NV 1,583 352 1,935 - 1998(A)
Douglas Estates Austell, GA 508 2,881 3,389 431 1988(A)
Edwardsville Edwardsville, KS 966 10,605 11,571 1,703 1987(A)
Elmwood Holly Hill, FL 230 2,105 2,335 105 1997(A)
Fisherman's Cove Flint, MI 380 3,801 4,181 636 1993(A)
Flagview Village Douglasville, GA 508 2,721 3,229 425 1988(A)
Goldcoaster Homestead, FL 484 4,784 5,268 241 1997(A)
Golden Lakes Plant City, FL 1,093 7,888 8,981 1,322 1993(A)
Grand Grand Rapids, MI 578 5,460 6,038 477 1996(A)
Groves Ft. Myers, FL 249 2,532 2,781 134 1997(A)
Hamlin Webberville, MI 202 2,496 2,698 387 1984(A)
Holiday Village Elkhart, IN 243 4,153 4,396 713 1986(A)
Holly Forest Holly Hill, FL 920 8,492 9,412 428 1997(A)
Hunter's Glen Leighton Twp., MI 1,102 176 1,278 - 1998(A)
Indian Creek Ft. Myers Beach, FL 3,832 34,944 38,776 3,030 1996(A)
Island Lake Merritt Island, FL 700 6,577 7,277 771 1995(A)
Kensington Meadows Lansing, MI 250 5,300 5,550 428 1995(A)
King=s Court Traverse City, MI 1,473 14,560 16,033 1,217 1996(A)
King's Lake Debary, FL 280 3,859 4,139 486 1994(A)
King's Pointe Winter Haven, FL 262 2,570 2,832 392 1994(A)
Kissimmee Gardens Kissimmee, FL 594 5,721 6,315 1,030 1993(A)
Lafayette Place Warren, MI 669 6,459 7,128 112 1998(A)
Lake Juliana Auburndale, FL 335 3,221 3,556 489 1994(A)
Lake San Marino Naples, FL 650 5,952 6,602 510 1996(A)
Leesburg Landing Leesburg, FL 50 558 608 45 1996(A)
Liberty Farms Valparaiso, IN 182 2,856 3,038 446 1985(A)
Lincoln Estates Holland, MI 455 4,398 4,853 375 1996(A)
Maple Grove Estates Dorr, MI 34 454 488 76 1979(A)
</TABLE>
F-15
<PAGE> 36
SUN COMMUNITIES, OPERATING LIMITED PARTNERSHIP SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION, CONTINUED
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED
SUBSEQUENT TO
INITIAL COST AQUISITION
----------
TO COMPANY IMPROVEMENTS
---------- ------------
BUILDING BUILDING
AND AND
PROPERTY NAME LOCATION ENCUMBRANCE LAND FIXTURES LAND FIXTURES
- ------------------- ----------------- ------------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Maplewood Lawrence, IN -- 280 2,122 -- 544
Meadow Lake Estates White Lake, MI -- 1,188 11,498 127 1,232
Meadowbrook Estates Monroe, MI -- 431 3,320 379 5,452
Meadowbrook Village Tampa, FL -- 519 4,728 -- 189
Meadows Nappanee, IN -- 300 2,300 -7 1,934
Meadowstream Village Sodus, MI -- 100 1,175 109 1,143
Oakcrest Austin, TX -- 3,543 -- 35 18
Oakwood Village Miamisburg, OH 1,024 1,964 6,401 -- 519
Orange Tree Orange City, FL -- 283 2,530 15 381
Paradise Chicago Heights, IL -- 723 6,638 -- 127
Parkwood Grand Blanc, MI -- 477 4,279 -- 488
Pin Oak Parc St. Louis, MO -- 1,038 3,250 467 2,962
Pine Hills Middlebury, IN -- 72 544 56 1,466
Pine Ridge Petersburg, VA -- 405 2,397 -- 950
Presidential Hudsonville, MI -- 680 6,314 -- 925
Richmond Richmond, MI (2) 501 2,040 -- 215
River Ridge Austin, TX -- 1,458 -- -- 486
Royal Country Miami, FL (1) 2,290 20,758 -- 383
Saddle Oak Club Ocala, FL -- 730 6,743 -- 264
Scio Farms Ann Arbor, MI -- 2,300 22,659 -- 2,634
Sherman Oaks Jackson, MI (1) 200 2,400 240 3,135
Siesta Bay Ft. Myers Beach, FL -- 2,051 18,549 -- 176
Silver Star Orlando, FL -- 1,067 9,685 -- 144
Snow to Sun Weslaco, TX -- 190 2,143 15 504
Southfork Belton, MO -- 1,000 9,011 -- 574
St. Clair Place St. Clair, MI (2) 501 2,029 -- 206
Sun Villa Reno, NV 6,987 2,385 11,773 -- 117
Superstition Falls Apache Junction, AZ -- 5,368 -- 61 683
<CAPTION>
GROSS AMOUNT
CARRIED AT
DECEMBER 31, 1998
-----------------
BUILDING DATE OF
AND ACCUMULATED CONSTRUCTION (C)
PROPERTY NAME LOCATION LAND FIXTURES TOTAL DEPRECIATION ACQUISTION (A)
------------- -------- ---- -------- ----- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Maplewood Lawrence, IN 280 2,666 2,946 446 1989(A)
Meadow Lake Estates White Lake, MI 1,315 12,730 14,045 1,968 1994(A)
Meadowbrook Estates Monroe, MI 810 8,772 9,582 1,480 1986(A)
Meadowbrook Village Tampa, FL 519 4,917 5,436 824 1994(A)
Meadows Nappanee, IN 293 4,234 4,527 654 1987(A)
Meadowstream Village Sodus, MI 209 2,318 2,527 399 1984(A)
Oakcrest Austin, TX 3,578 18 3,596 -- 1998(A)
Oakwood Village Miamisburg, OH 1,964 6,920 8,884 118 1998(A)
Orange Tree Orange City, FL 298 2,911 3,209 423 1994(A)
Paradise Chicago Heights, IL 723 6,765 7,488 582 1996(A)
Parkwood Grand Blanc, MI 477 4,767 5,244 784 1993(A)
Pin Oak Parc St. Louis, MO 1,505 6,212 7,717 633 1994(A)
Pine Hills Middlebury, IN 128 2,010 2,138 327 1980(A)
Pine Ridge Petersburg, VA 405 3,347 3,752 559 1986(A)
Presidential Hudsonville, MI 680 7,239 7,919 588 1996(A)
Richmond Richmond, MI 501 2,255 2,756 41 1998(A)
River Ridge Austin, TX 1,458 486 1,944 -- 1998(A)
Royal Country Miami, FL 2,290 21,141 23,431 3,565 1994(A)
Saddle Oak Club Ocala, FL 730 7,007 7,737 982 1995(A)
Scio Farms Ann Arbor, MI 2,300 25,293 27,593 2,846 1995(A)
Sherman Oaks Jackson, MI 440 5,535 5,975 921 1986(A)
Siesta Bay Ft. Myers Beach, FL 2,051 18,725 20,776 1,622 1996(A)
Silver Star Orlando, FL 1,067 9,829 10,896 852 1996(A)
Snow to Sun Weslaco, TX 205 2,647 2,852 128 1997(A)
Southfork Belton, MO 1,000 9,585 10,585 164 1997(A)
St. Clair Place St. Clair, MI 501 2,235 2,736 48 1998(A)
Sun Villa Reno, NV 2,385 11,890 14,275 202 1998(A)
Superstition Falls Apache Junction, AZ 5,429 683 6,112 -- 1998(A)
</TABLE>
F-16
<PAGE> 37
SCHEDULE III
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION, CONTINUED
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED
SUBSEQUENT TO
AQUISITION
INITIAL COST -------------
TO COMPANY IMPROVEMENTS
------------ ------------
BUILDING BUILDING
AND AND
PROPERTY NAME LOCATION ENCUMBRANCE LAND FIXTURES LAND FIXTURES
- ------------------- ---------------- ------------- ------- ------------ ------- ---------
(A)
<S> <C> <C> <C> <C> <C> <C>
Sunset Ridge Portland, MI -- 2,044 -- -- --
Stonebridge Richfield Twp., MI 1,119 2,044 -- 17 --
Tallowwood Coconut Creek, FL -- 510 5,099 -- 583
Timber Ridge Ft. Collins, CO -- 990 9,231 -- 313
Timberbrook Bristol, IN (1) 490 3,400 101 4,355
Timberline Estates Grand Rapids, MI -- 536 4,867 -- 329
Town and Country Traverse City, MI -- 406 3,736 -- 128
Valley Brook Indianapolis, IN -- 150 3,500 1,277 7,894
Village Trails Howard City, MI 858 988 1,472 -- 143
Water Oak Country Club Est Lady Lake, FL -- 2,503 17,478 -- 1,825
West Glen Village Indianapolis, IN -- 1,100 10,028 -- 515
Whispering Palm Sebastian, FL -- 975 8,754 -- 325
White Lake White Lake, MI -- 673 6,179 -- 1,879
White Oak Mt. Morris, MI -- 782 7,245 68 1,471
Willowbrook Toledo, OH (2) 781 7,054 -- 229
Windham Hills Jackson, MI -- 2,673 2,364 -- 1,360
Woodhaven Place Wood Haven, MI (2) 501 4,541 -- 561
Woodlake Estates Yoder, IN -- 632 3,674 -- 150
Woodland Park Estates Eugene, OR 8,209 1,593 14,398 -- 101
Woods Edge West Lafayette, IN -- 100 2,600 3 3,302
Woodside Terrace Holland, OH (2) 1,064 9,625 -- 720
Worthington Arms Delaware, OH -- 376 2,624 -- 862
Corporate Headquarters Farmington Hills, MI -- -- -- -- 1,595
Property Under Development -- -- -- -- 829
-------- ------- -------- --------
$ 96,003 $579,506 $ 6,642 $122,501
<CAPTION>
GROSS AMOUNT
CARRIED AT
DECEMBER 31, 1998
-----------------
BUILDING DATE OF
AND ACCUMULATED CONSTRUCTION (C)
PROPERTY NAME LOCATION LAND FIXTURES TOTAL DEPRECIATION ACQUISTION (A)
------------- -------- ---- -------- ----- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Sunset Ridge Portland, MI 2,044 -- 2,044 -- 1998(A)
Stonebridge Richfield Twp., MI 2,061 -- 2,061 -- 1998(A)
Tallowwood Coconut Creek, FL 510 5,682 6,192 850 1994(A)
Timber Ridge Ft. Collins, CO 990 9,544 10,534 820 1996(A)
Timberbrook Bristol, IN 591 7,755 8,346 1,167 1987(A)
Timberline Estates Grand Rapids, MI 536 5,196 5,732 801 1994(A)
Town and Country Traverse City, MI 406 3,864 4,270 331 1996(A)
Valley Brook Indianapolis, IN 1,427 11,394 12,821 1,604 1989(A)
Village Trails Howard City, MI 988 1,615 2,603 29 1998(A)
Water Oak Country Club Est Lady Lake, FL 2,503 19,303 21,806 3,264 1993(A)
West Glen Village Indianapolis, IN 1,100 10,543 11,643 1,584 1994(A)
Whispering Palm Sebastian, FL 975 9,079 10,054 767 1996(A)
White Lake White Lake, MI 673 8,058 8,731 348 1997(A)
White Oak Mt. Morris, MI 850 8,716 9,566 400 1997(A)
Willowbrook Toledo, OH 781 7,283 8,064 124 1997(A)
Windham Hills Jackson, MI 2,673 3,724 6,397 67 1998(A)
Woodhaven Place Wood Haven, MI 501 5,102 5,603 89 1998(A)
Woodlake Estates Yoder, IN 632 3,824 4,456 66 1998(A)
Woodland Park Estates Eugene, OR 1,593 14,499 16,092 247 1998(A)
Woods Edge West Lafayette, IN 103 5,902 6,005 690 1985(A)
Woodside Terrace Holland, OH 1,064 10,345 11,409 502 1997(A)
Worthington Arms Delaware, OH 376 3,486 3,862 591 1990(A)
Corporate Headquarters Farmington Hills, MI -- 1,595 1,595 648 Various
Property Under Development -- 829 829 -- 1998(A)
-------- -------- -------- --------
$102,645(4) $700,507 $803,152 $ 70,940
</TABLE>
(1) These communities collateralize $44.4 million of secured debt.
(2) These communities are financed by $26.5 million of collateralized lease
obligations.
(3) Carrying value reduced by $1.5 million writedown due to pending sale.
(4) Includes $4.2 million of land in property under development in Footnote 3
"Rental Property" to the Company's Consolidated Financial Statements
included elsewhere herein.
F-17
<PAGE> 38
SCHEDULE III
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION, CONTINUED
(AMOUNTS IN THOUSANDS)
The change in investment in real estate for the years ended December 31, 1998,
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year $ 684,821 $ 588,813 $ 326,613
Community and land acquisitions, including
immediate improvements 102,248 73,065 251,181
Community expansion and development 26,874 17,300 11,425
Improvements, other 6,193 5,643 3,628
Dispositions and other (16,984) -- (4,034)
----------- ----------- -----------
Balance, end of year $ 803,152 $ 684,821 $ 588,813
=========== =========== ===========
</TABLE>
The change in accumulated depreciation for the years ended December 31, 1998,
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year $ 50,084 $ 30,535 $ 16,583
Depreciation for the period 22,765 19,549 14,250
Dispositions and other (1,909) -- (298)
----------- ----------- -----------
Balance, end of year $ 70,940 $ 50,084 $ 30,535
=========== =========== ===========
</TABLE>
F-18
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 5, 1999
SUN COMMUNITIES OPERATING LIMITED
PARTNERSHIP
By: Sun Communities, Inc., General
Partner
By: /s/ Gary A. Shiffman
---------------------------
Gary A. Shiffman, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Milton M. Shiffman Chairman of the Board of Directors March 5, 1999
--------------------------
Milton M. Shiffman
/s/ Gary A. Shiffman Chief Executive Officer, President March 5, 1999
-------------------------- and Director
Gary A. Shiffman
/s/ Jeffrey P. Jorissen Senior Vice President, March 5, 1999
-------------------------- Chief Financial Officer, Treasurer,
Jeffrey P. Jorissen Secretary and Principal Accounting Officer
/s/ Paul D. Lapides Director March 5, 1999
--------------------------
Paul D. Lapides
/s/ Ted J. Simon Director March 5, 1999
--------------------------
Ted J. Simon
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Clunet R. Lewis Director March 5, 1999
--------------------------
Clunet R. Lewis
/s/ Ronald L. Piasecki Director March 5, 1999
--------------------------
Ronald L. Piasecki
/s/ Arthur A. Weiss Director March 5, 1999
--------------------------
Arthur A. Weiss
</TABLE>
<PAGE> 41
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION FOOTNOTE
- ------ ----------- --------
<S> <C> <C>
2.1 Form of Sun Communities, Inc.'s Common Stock Certificate (1)
3.1 Amended and Restated Articles of Incorporation of Sun Communities, Inc. (1)
3.2 Bylaws of Sun Communities, Inc. (3)
4.1 Indenture, dated as of April 24, 1996, among Sun Communities, Inc., Sun Communities (4)
Operating Limited Partnership and Bankers Trust Company, as Trustee
4.2 Form of Note for the 2001 Notes (4)
4.3 Form of Note for the 2003 Notes (4)
4.4 First Supplemental Indenture, dated as of August 20, 1997, by and Sun Communities Operating (9)
Limited Partnership and Bankers Trust Company, as Trustee
4.5 Form of Medium-Term Note (Floating Rate) (9)
4.6 Form of Medium-Term Note (Fixed Rate) (9)
10.1 Second Amended and Restated Agreement of Limited Partnership of Sun Communities Operating (8)
Limited Partnership
10.2 Amended and Restated 1993 Stock Option Plan# (8)
10.3 Amended and Restated 1993 Non-Employee Director Stock Option Plan# (8)
10.4 Form of Stock Option Agreement between Sun Communities, Inc. and certain directors, officers (1)
and other individuals#
10.5 Form of Non-Employee Director Stock Option Agreement between Sun Communities, Inc. and (5)
certain directors#
10.6 Employment Agreement between Sun Communities, Inc. and Gary A. Shiffman# (8)
10.7 Registration Rights and Lock-Up Agreement with Sun Communities, Inc. (5)
10.8 Senior Unsecured Line of Credit Agreement with Lehman Brothers Holdings Inc. (9)
10.9 Amended and Restated Loan Agreement between Sun Communities Funding Limited Partnership and (9)
Lehman Brothers Holdings Inc.
10.10 Amended and Restated Loan Agreement among Miami Lakes Venture Associates, Sun Communities (9)
Funding Limited Partnership and Lehman Brothers Holdings Inc.
10.11 Form of Indemnification Agreement between each officer and director of Sun Communities, Inc. (9)
and Sun Communities, Inc.
</TABLE>
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION FOOTNOTE
- ------ ----------- --------
<S> <C> <C>
10.12 Loan Agreement among Sun Communities Operating Limited Partnership, Sea Breeze Limited (9)
Partnership and High Point Associates, LP.
10.13 Option Agreement by and between Sun Communities Operating Limited Partnership and Sea Breeze (9)
Limited Partnership
10.14 Option Agreement by and between Sun Communities Operating Limited Partnership and High Point (9)
Associates, LP
10.15 $1,022,538.12 Promissory Note from Gary A. Shiffman to Sun Communities Operating Limited (7)
Partnership
10.16 $1,022,538.13 Promissory Note from Gary A. Shiffman to Sun Communities Operating Limited (7)
Partnership
10.17 $6,604,923.75 Promissory Note from Gary A. Shiffman to Sun Communities Operating Limited (7)
Partnership
10.18 Stock Pledge Agreement between Gary A. Shiffman and Sun Communities Operating Limited (7)
Partnership for 94,570 shares of Common Stock
10.19 Stock Pledge Agreement between Gary A. Shiffman and Sun Communities Operating Limited (7)
Partnership for 305,430 shares of Common Stock
10.20 $ 1,300,195.40 Promissory Note from Gary A. Shiffman to Sun Communities Operating Limited (9)
Partnership
10.21 $ 1,300,195.40 Promissory Note from Gary A. Shiffman to Sun Communities Operating Limited (9)
Partnership
10.22 Stock Pledge Agreement between Gary A. Shiffman and Sun Communities Operating Limited (9)
Partnership with respect to 80,000 shares of Common Stock
10.23 Registration Rights Agreement between Gary A. Shiffman and Sun Communities Operating Limited (3)
Partnership
10.24 Registration Rights and Lock Up Agreement among Sun Committees, Inc. and the partners of (3)
Miami Lakes Venture Associates, as amended
10.25 Registration Rights and Lock Up Agreement among Sun Communities, Inc. and the partners of (3)
Scio Farms Estates Limited Partnership
10.26 Registration Rights and Lock Up Agreement among Sun Communities, Inc. and the partners of (3)
Kensington Meadows Associates
10.27 Registration Rights and Lock Up Agreement among Sun Communities, Inc. and certain affiliates (8)
of Aspen Enterprises, Ltd. (Preferred OP Units)
10.28 Registration Rights and Lock Up Agreement among Sun Communities, Inc. and certain affiliates (8)
of Aspen Enterprises, Ltd. (Common OP Units)
10.29 Registration Rights Agreement among Sun Communities, Inc. and the partners of S&K Smith Co. (8)
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION FOOTNOTE
- ------ ----------- --------
<S> <C> <C>
10.30 Employment Agreement between Sun Communities, Inc. and Jeffrey P. Jorissen# (11)
10.31 Long Term Incentive Plan (9)
10.32 Restricted Stock Award Agreement between Sun Communities, Inc. and Gary A. Shiffman, dated (11)
June 5, 1998#
10.33 Restricted Stock Award Agreement between Sun Communities, Inc. and Jeffrey P. Jorissen, (11)
dated June 5, 1998#
10.34 Restricted Stock Award Agreement between Sun Communities, Inc. and Jonathan M. Colman, dated (11)
June 5, 1998#
10.35 Restricted Stock Award Agreement between Sun Communities, Inc. and Brian W. Fannon, dated (11)
June 5, 1998#
10.36 Sun Communities, Inc. 1998 Stock Purchase Plan# (11)
10.37 Employment Agreement between Sun Home Services, Inc. and Brian Fannon# (11)
10.38 Facility and Guaranty Agreement among Sun Communities, Inc., Sun Communities Operating (11)
Limited Partnership, Certain Subsidiary Guarantors and First National Bank of Chicago, dated
December 10, 1998
10.39 Rights Agreement between Sun Communities, Inc. and State Street Bank and Trust Company, (10)
dated April 24, 1998
10.40 Articles Supplementary of Board of Directors of Sun Communities, Inc. Designating a Series (11)
of Preferred Stock and Fixing Distribution and other Rights in such Series
10.41 Employment Agreement between Sun Communities, Inc. and Brian W. Fannon# (11)
21 List of Subsidiaries of Sun Communities Operating Limited Partnership (12)
23 Consent of PricewaterhouseCoopers LLP, independent accountants (12)
27 Financial Data Schedule (12)
- -----------------------
</TABLE>
(1) Incorporated by reference to Sun Communities, Inc.'s Registration
Statement No. 33-69340.
(2) Incorporated by reference to Sun Communities, Inc.'s Current Report on
Form 8-K dated March 20, 1996.
(3) Incorporated by reference to Sun Communities, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1995.
(4) Incorporated by reference to Sun Communities, Inc.'s Current Report on
Form 8-K dated April 24, 1996.
<PAGE> 44
<TABLE>
<S> <C>
(5) Incorporated by reference to Sun Communities, Inc.'s Registration Statement No. 33-80972.
(6) Incorporated by reference to Sun Communities, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1994.
(7) Incorporated by reference to Sun Communities, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended September 30, 1995.
(8) Incorporated by reference to Sun Communities, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1996.
(9) Incorporated by reference to Sun Communities, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997.
(10) Incorporated by reference to Sun Communities, Inc.'s Current Report on Form 8-K dated April 24, 1998.
(11) Incorporated by reference to Sun Communities, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1998.
(12) Filed herewith.
</TABLE>
# Management contract or compensatory plan or arrangement required to be
identified by Form 10-K Item 14.
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
8920 Associates, a Florida general partnership
Aspen-Allendale Project, L.L.C., a Michigan limited liability company
Aspen-Alpine Project, L.L.C., a Michigan limited liability company
Aspen-Arbor Terrace, L.P., a Delaware limited partnership
Aspen-Bonita Lake Resort Limited Partnership, a Michigan limited partnership
Aspen-Breezy Project Limited Partnership, a Michigan limited partnership
Aspen-Brentwood Project, L.L.C., a Michigan limited liability company
Aspen-Byron Project, L.L.C., a Michigan limited liability company
Aspen-Country Project, L.L.C., a Michigan limited liability company
Aspen-Cutler Associates, L.L.C., a Michigan limited liability company
Aspen-Ft. Collins Limited Partnership, a Michigan limited partnership
Aspen-Grand Project, L.L.C., a Michigan limited liability company
Aspen-Holland Estates, L.L.C., a Michigan limited liability company
Aspen-Indian Project Limited Partnership, a Michigan limited partnership
Aspen-Kings Court, L.L.C., a Michigan limited liability company
Aspen-Paradise Park II Limited Partnership, a Michigan limited partnership
Aspen-Presidential Project, L.L.C., a Michigan limited liability company
Aspen-Siesta Bay Limited Partnership, a Michigan limited partnership
Aspen-Silver Star II Limited Partnership, a Michigan limited partnership
Aspen-Town & Country Associates II, L.L.C., a Michigan limited liability company
Bedford Hills Mobile Village, L.L.C., a Michigan limited liability company
Miami Lakes Venture Associates, a Florida general partnership
Mt. Morris MHC, L.L.C., a Michigan limited liability company
Sun Communities Alberta Limited Partnership, a Michigan limited partnership
Sun Communities Finance Limited Partnership, a Michigan limited partnership
Sun Communities Funding Limited Partnership, a Michigan limited partnership
Sun Communities Houston Limited Partnership, a Michigan limited partnership
Sun Communities Nevada GP L.L.C., a Michigan limited liability company
<PAGE> 2
Sun Communities Nevada Limited Partnership, a Michigan limited partnership
Sun Communities Texas Limited Partnership, a Michigan limited partnership
Sun Communities Funding GP L.L.C., a Michigan limited liability company
Sun GP L.L.C., a Michigan limited liability company
Arizona Finance L.L.C., a Michigan limited liability company
White Oak Estates, L.L.C., a Michigan limited liability company
Sun Houston QRS, Inc., a Michigan corporation
Sun QRS, Inc., a Michigan corporation
Sun Texas QRS, Inc., a Michigan corporation
SCF Manager, Inc., a Michigan corporation
Sun Acquiring, Inc., a Kansas corporation
Sun Florida QRS, Inc., a Michigan corporation
Tallowwood Property Owners Association, Inc., a Florida non-profit corporation
K.S. Park Property, Owners Association, Inc., a Florida non-profit corporation
Sun Home Services, Inc., a Michigan corporation
Family Retreat, Inc., a Michigan corporation
Sun Water Oak Golf, Inc., a Michigan corporation
SCN Manager, Inc., a Michigan corporation
Apache Junction MHC, LLC, a Michigan limited liability company
Sun Texas Financial, LLC, a Michigan limited liability company
Sun/York L.L.C., a Michigan limited liability company
Snowbird Concessions, Inc., a Texas corporation
CM-GL Services, Inc., a Florida corporation
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Sun Communities Operating Limited Partnership on Forms S-3 (File No. 333-2522;
File No. 333-14595) of our report dated February 12, 1999 on our audits of the
consolidated financial statements and financial statement schedule of Sun
Communities Operating Limited Partnership as of December 31, 1998 and 1997, and
for the years ended December 31, 1998, 1997 and 1996, which report is included
in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Detroit, Michigan
March 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,646
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 803,152
<DEPRECIATION> 70,940
<TOTAL-ASSETS> 824,039
<CURRENT-LIABILITIES> 26,000
<BONDS> 339,164
0
0
<COMMON> 0
<OTHER-SE> 434,187
<TOTAL-LIABILITY-AND-EQUITY> 824,039
<SALES> 0
<TOTAL-REVENUES> 120,588
<CGS> 36,644
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,245
<INCOME-PRETAX> 32,054
<INCOME-TAX> 0
<INCOME-CONTINUING> 32,054
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,549
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.53
</TABLE>
