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, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO --------------- --------------- Commission File No. 1-12616 SUN COMMUNITIES, INC. (Exact name of registrant as specified in its charter) STATE OF MARYLAND 38-2730780 State of Incorporation I.R.S. Employer I.D. No. 31700 MIDDLEBELT ROAD SUITE 145 FARMINGTON HILLS, MICHIGAN 48334 (810) 932-3100 (Address of principal executive offices and telephone number) Securities Registered Pursuant to Section 12(b) of the Act: COMMON STOCK, PAR VALUE $.01 PER SHARE 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. [X] 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 3, 1997, the aggregate market value of the Registrant's voting stock held by non-affiliates of the Registrant was approximately $475,000,000 determined in accordance with the highest price at which the stock was sold on such date as reported by the New York Stock Exchange. As of March 3, 1997, there were 15,697,365 shares of the Registrant's common stock issued and outstanding.
2 PART I ITEM 1. BUSINESS GENERAL Sun Communities, Inc. (the "Company") owns and operates manufactured housing communities concentrated in the midwestern and southeastern United States. The Company 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. As of March 1, 1997, the Company owned and managed a portfolio of 83 manufactured housing community properties (the "Properties") located in 12 states. The Properties contain an aggregate of 29,500 developed sites and approximately 3,500 sites suitable for development. In order to enhance property performance and cash flow, the Company, through Sun Home Services, Inc., a Michigan corporation ("Home Services"), actively markets and sells new and used manufactured homes for placement in the Properties. The Company expects to qualify and has made an election to be taxed as a REIT for federal income tax purposes commencing with the calendar year beginning January 1, 1994, and will be 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 (810) 932-3100. The Company has regional property management offices located in Elkhart, Indiana and Tampa, Florida. The Company, which is a Maryland corporation, employed 437 people as of March 1, 1997. 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 Company's strategy has been to acquire and in many cases expand or renovate existing manufactured housing communities. The Company has maintained this strategy because it believes attractive investment returns can be obtained by purchasing existing properties with expansion potential. MAJOR ACQUISITION On May 1, 1996, the Company, through Sun Communities Operating Limited Partnership, a Michigan limited partnership (the "Operating Partnership"), and a wholly-owned subsidiary, Sun GP L.L.C., a Michigan limited liability company ("GP"), acquired 25 manufactured housing communities (the "Aspen Properties") from affiliates of Aspen Enterprises, Ltd., (collectively, "Aspen") for a purchase price of $226.0 million (excluding related transaction costs). The Aspen Properties are located primarily in Florida and Michigan and, as of March 1, 1997, contained a total of 10,367 developed sites and approximately 286 sites suitable for development. Of the $226.0 million purchase price for the Aspen Properties, $4.2 million was issued in the form of limited partnership interests in the Operating Partnership (the "Common OP Units"), and $35.8 million was issued in the form of convertible preferred units in the Operating Partnership (the "Preferred OP Units"). Both the Common OP Units and the Preferred OP Units were issued to Aspen affiliates, including certain former Aspen employees who became employees of the Company upon the closing of the acquisition of the Aspen Properties. For tax and other purposes, the Company acquired 100% of the partnership interests in certain Aspen Properties rather than directly acquiring such properties. The 1,325,275 Preferred OP Units represent equity interests in the Operating Partnership and have the effect of increasing the minority interest reflected on the Company's consolidated financial 2
3 statements. The issue price of the Preferred OP Units was $27 per unit (the "Issue Price"). The Preferred OP Units are entitled to a fixed quarterly distribution equal to 7.00% per annum of the Issue Price, which distribution is payable by the Operating Partnership prior to any distributions to its other general or limited partners, including distributions in respect of the shares of the Company's common stock (the "Common Stock"). To the extent the Company issues additional preferred securities, payment of distributions for such preferred securities must rank pari passu or junior to distribution payments on the Preferred OP Units. The distributions payable to holders of Preferred OP Units will not increase to the extent the Operating Partnership increases the distributions to its other partners. In June 2002, the Preferred OP Units will be convertible into Common OP Units or redeemable for cash at the Issue Price, at the option of the holder. If converted, holders of Preferred OP Units will receive a number of Common OP Units that will give them the benefit of: (i) 100% of the first $4.50 per share increase in the average closing price of the shares of Common Stock for the ten business days prior to conversion (the "Conversion Date Price") over the Issue Price; (ii) none of the increase in the Conversion Date Price over the Issue Price to the extent such difference is greater than $4.50 per share but less than $9.00 per share; and (iii) 25% of the increase in the Conversion Date Price over the Issue Price to the extent such difference exceeds $9.00 per share. The Company structured this conversion formula to encourage holders of the Preferred OP Units to convert, rather than redeem, their units to the extent the market price of the Common Stock increases by June 2002. If the Company fails to make any Preferred OP Unit distribution payment within 20 days of its due date, the Company's redemption obligation is subject to acceleration by the holders of the Preferred OP Units. The Company's obligation to redeem the Preferred OP Units is currently unsecured. If the Company and Aspen do not agree upon appropriate security for the Company's obligation to redeem the Preferred OP Units and the Company (i) does not maintain an investment-grade credit rating for the Company's unsecured debt for any consecutive 60-day period or (ii) issues additional equity securities that do not rank junior to the Preferred OP Units, the Company's obligation to redeem the Preferred OP Units can be accelerated by the holders of the Preferred OP Units. The Company has continuously maintained an investment-grade credit rating for the Company's unsecured debt since the issuance of the Preferred OP Units. The acquisition of the Aspen Properties was funded by utilizing a portion of the proceeds of the offering of 4,700,000 shares of the Common Stock that closed on April 8, 1996, and, through the Operating Partnership, a $150 million debt offering of investment-grade, senior unsecured notes that closed on April 29, 1996. STRUCTURE OF THE COMPANY The operations of the Company are carried on through certain subsidiaries (the "Subsidiaries"), including the Operating Partnership, which, among other things, enables the Company to comply with certain complex requirements under the Federal tax rules and regulations applicable to REITs. The Company established the Operating Partnership to allow the Company to acquire manufactured housing communities in transactions that defer some or all of the sellers' tax consequences. Substantially all of the Company's assets are held by or through the Operating Partnership, of which the Company is the sole general partner, and wholly-owned subsidiaries of the Company. In addition to the Operating Partnership, the Subsidiaries include Home Services, which provides manufactured home sales and brokerage services to current and prospective tenants of the Properties. The Operating Partnership owns 100% of the non-voting preferred stock of Home Services, which entitles the Operating Partnership to 95% of the cash flow from operating activities of Home Services. As of March 1, 1997, the voting common stock of Home Services was owned by Milton M. Shiffman, Gary A. Shiffman and Jeffrey P. Jorissen, executive officers of the Company, 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. 3
4 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 property 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 437 employees, 396 are located on-site as property managers, support staff, or maintenance personnel. The Company's property managers are overseen by Brian W. Fannon, Senior Vice President and Chief Operating Officer, who has 27 years of property management experience, three Vice Presidents and eight Regional Property Managers. In addition, the Regional Property Managers are responsible for semi-annual market surveys of competitive parks, interaction with local manufactured home dealers and regular property inspections. Each property 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 property 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. BROKERAGE AND HOME SALES Home Services offers manufactured home brokerage and 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 brokerage and sales services were conducted solely through third-party brokers. 4
5 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, 25 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. 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. As of March 1, 1997, the Properties consisted of 83 manufactured housing communities concentrated in 12 states in the midwestern and southeastern United States, containing 29,500 developed sites and approximately 3,500 sites suitable for development. Most of the Properties include amenities oriented towards family and retirement living. Of the 83 Properties, 67 have more than 200 sites, with the largest having 1,272 sites. 5
6 The Properties had an aggregate occupancy rate of 95% as of December 31, 1996, excluding seasonal RV sites. Since January 1, 1996, 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 9%. 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 three Properties located in Texas, 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. 6
7 The following table sets forth certain information relating to the Properties owned as of March 1, 1997: <TABLE> <CAPTION> DEVELOPED SITES AS OF OCCUPANCY AS OF OCCUPANCY AS OF OCCUPANCY AS OF PROPERTY AND LOCATION 12/31/96 (1) 12/31/94 (1) 12/31/95 (1) 12/31/96 (1) - --------------------- -------------------- -------------------- -------------------- --------------- <S> <C> <C> <C> <C> MIDWEST MICHIGAN Allendale Allendale, MI........ 223 98% 96% 97% Alpine Grand Rapids, MI..... 381 99% 96% 99% Bedford Hills Battle Creek, MI..... 340 95% 94% 94% Brentwood Kentwood, MI......... 197 98% 97% 99% Creekwood Burton, MI (2)....... 0 --- --- --- Byron Center Byron Center, MI..... 143 96% 92% 97% Candlewick Court Owosso, MI........... 211 99% 100% 99% College Park Estates Canton, MI........... 230 98% 98% 99% Continental Estates Davison, MI.......... 386 (3) (3) 93% Continental North Davison, MI.......... 334 (3) (3) 95% Country Acres Cadillac, MI......... 182 98% 98% 98% Country Meadows Flat Rock, MI........ 489 87% 99% 99% Countryside Village Perry, MI............ 359 96% 99% 96% Cutler Estates Grand Rapids, MI..... 281 97% 96% 98% Davison East Davison, MI.......... 190 (3) (3) 99% Fisherman's Cove Flint, MI............ 162 99% 98% 97% Grand Grand Rapids, MI..... 312 97% 95% 98% Hamlin Webberville, MI...... 146 100% 99% 100% Kensington Meadows Lansing, MI.......... 206 (4) 94% 67% (6) Kings Court Traverse City, MI.... 588 93% 94% 92% (6) Lincoln Estates Holland, MI.......... 191 98% 98% 97% Maple Grove Estates Dorr, MI............. 46 100% 100% 100% Meadow Lake Estates White Lake, MI....... 425 98% 97% 100% Meadowbrook Estates Monroe, MI........... 453 100% 100% 100% </TABLE> 7
8 <TABLE> <CAPTION> DEVELOPED SITES AS OF OCCUPANCY AS OF OCCUPANCY AS OF OCCUPANCY AS OF PROPERTY AND LOCATION 12/31/96 (1) 12/31/94 (1) 12/31/95 (1) 12/31/96 (1) - --------------------- -------------------- -------------------- -------------------- --------------- <S> <C> <C> <C> <C> Meadowstream Village Sodus, MI............. 159 99% 98% 99% Parkwood Grand Blanc, MI....... 250 97% 96% 97% Presidential Hudsonville, MI....... 326 98% 96% 98% Scio Farms Ann Arbor, MI......... 913 (4) 100% 99% Sherman Oaks Jackson, MI........... 366 92% 100% 99% Timberline Estates Grand Rapids, MI...... 296 99% 98% 100% Town & Country Traverse City, MI..... 192 100% 98% 100% ----- ---- ---- ------- Michigan Total........ 8,977 97% 97% 98% ===== ==== ==== ======= INDIANA Brookside Village Goshen, IN............ 338 99% 99% 99% Carrington Pointe Ft. Wayne, IN......... 170 (5) (5) (5) Clear Water Village South Bend, IN........ 162 98% 93% 97% Cobus Green Elkhart, IN........... 386 94% 98% 98% Holiday Village Elkhart, IN........... 326 96% 98% 99% Liberty Farms Valparaiso, IN........ 220 96% 100% 92%(6) Maplewood Lawrence, IN.......... 207 95% 97% 99% Meadows Nappanee, IN.......... 330 93% 96% 98% Meadowbrook Indianapolis, IN...... 343 94% 96% 98% Pine Hills Middlebury, IN........ 126 98% 99% 96% Timberbrook Bristol, IN........... 567 92% 84% 88% (6) Valley Mills Indianapolis, IN...... 357 97% 99% 98% West Glen Village Indianapolis, IN...... 552 99% 99% 99% Woods Edge West Lafayette, IN.... 430 97% 92% 99% ----- ---- ---- ------- Indiana Total......... 4,514 96% 96% 97% ===== ==== ==== ======= OTHER Branch Creek Estates Austin, TX............ 321 (4) 98% 94% (6) Candlelight Chicago Heights, IL... 309 97% 93% 95% Catalina Community Middletown, OH........ 462 99% 98% 99% Chisholm Point Estates Pflugerville, TX...... 405 (4) 98% 83% (6) </TABLE> 8
9 <TABLE> <CAPTION> DEVELOPED SITES AS OF OCCUPANCY AS OF OCCUPANCY AS OF OCCUPANCY AS OF PROPERTY AND LOCATION 12/31/96 (1) 12/31/94 (1) 12/31/95 (1) 12/31/96 (1) - --------------------- -------------------- -------------------- -------------------- --------------- <S> <C> <C> <C> <C> Douglas Atlanta, GA.......... 204 74% 89% 95% Edwardsville Edwardsville, KS..... 597 82% 90% 93% Flagview Atlanta, GA.......... 196 75% 93% 98% Four Seasons Ankeny, IA........... 400 100% 100% 98% Paradise Chicago Heights, IL.. 278 99% 99% 98% Pine Ridge Petersburg, VA....... 245 98% 100% 98% Pin Oak Parc O'Fallon, MO......... 380 98% 99% 99% Snow to Sun Weslaco, TX.......... 497 (5) (5) (5) Timber Ridge Ft. Collins, CO...... 582 99% 100% 100% Worthington Arms Delaware, OH......... 224 98% 99% 100% ----- ------ ------- ------- Other Total.......... 5,100 96% 97% 96% ===== ====== ======= ======= SOUTHEAST FLORIDA Arbor Terrace Bradenton, FL........ 213 100% 100% 100% Ariana Village Lakeland, FL......... 210 72% (7) 72% (7) 78% (7) Bonita Lake Bonita Springs, FL... 65 100% 100% 100% Breezy Hills Pompano Beach, FL.... 578 100% 100% 99% Chain O'Lakes Grand Island, FL..... 325 92% 97% 95% Golden Lakes Plant City, FL....... 426 93% 91% 92% Indian Creek Ft. Myers Beach, FL.. 1272 100% 100% 100% Island Lakes Merritt Island, FL... 301 (4) 100% 100% Kings Lake Debary, FL........... 245 53% (7) 62% (7) 66% (7) Kings Pointe Winter Haven, FL..... 229 39% (7) 43% (7) 48% (7) Kissimmee Gardens Kissimmee, FL........ 239 100% 99% 100% Lake Juliana Auburndale, FL....... 293 52% (7) 54% (7) 57% (7) Lake San Marino Naples, FL........... 272 100% 100% 100% Leesburg Landing Lake County, FL...... 94 (3) (3) 54% (7) Meadowbrook Village Tampa, FL............ 257 95% 100% 97% </TABLE> 9
10 <TABLE> <CAPTION> DEVELOPED SITES AS OF OCCUPANCY AS OF OCCUPANCY AS OF OCCUPANCY AS OF PROPERTY AND LOCATION 12/31/96 (1) 12/31/94 (1) 12/31/95 (1) 12/31/96 (1) - --------------------- -------------------- -------------------- -------------------- --------------- <S> <C> <C> <C> <C> Orange Tree Orange City, FL....... 246 76% (7) 78% (7) 83% (7) Plantation Manor Ft. Pierce, FL........ 376 97% 95% 97% Pleasure Cove Ft. Pierce, FL........ 209 98% 95% 95% Royal Country Miami, FL............. 863 100% 100% 99% Saddle Oak Club Ocala, FL............. 376 (4) 98% 100% Siesta Bay Ft. Myers Beach, FL... 703 100% 100% 100% Silver Star Orlando, FL........... 426 98% 96% 96% Tallowwood Coconut Creek, FL..... 279 62% 62% 63% Water Oak Country Club Estates Lady Lake, FL......... 688 100% 100% 100% Whispering Palm Sebastian, FL......... 428 100% 100% 96% ------ ------- ------- ------- Florida Total......... 9,613 88% 89% 93% ====== ======= ======= ======= TOTAL/AVERAGE......... 28,204 93% 93% 95% ====== ======= ======= ======= </TABLE> (1) Excludes 1,223 seasonal RV Sites owned at December 31, 1996, which are leased during the season. (2) This Property is owned by a joint venture in which the Operating Partnership has a 50% interest. (3) Acquired in 1996. (4) Acquired in 1995. (5) Acquired in 1997. (6) Occupancy in these communities reflects the recent development of sites which are in their initial lease-up phase. (7) Occupancy in these communities reflects the fact that these communities are in their initial lease-up phase. 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 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 Certain partnerships which previously owned twenty-four of the Properties (the "Sun Partnerships") were involved in a variety of legal proceedings arising in the ordinary course of business prior to the transfer of the Properties to the Operating Partnership, and the Company has become a successor party-in-interest to these proceedings as a result of the contribution of the Properties to the Company, as well as other proceedings that have arose in the ordinary course of 10
11 operating the Properties. All such proceedings, taken together, are not expected to have a material adverse impact on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 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 The Company's Common Stock has been listed on the New York Stock Exchange ("NYSE") since December 8, 1993 under the symbol "SUI." On March 3, 1997, the closing sales price of the Common Stock was $32 1/8 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 Company with respect to each such period. <TABLE> <CAPTION> High Low Distribution ---- ------ ------------ <S> <C> <C> <C> FISCAL YEAR ENDED DECEMBER 31, 1995 First Quarter of 1995.............. 23 1/8 21 1/8 .445 Second Quarter of 1995............. 25 21 1/8 .445 Third Quarter of 1995.............. 26 24 1/4 .445 Fourth Quarter of 1995............. 26 3/8 24 5/8 .445 FISCAL YEAR ENDED DECEMBER 31, 1996 First Quarter of 1996.............. 27 5/8 25 1/4 .455 Second Quarter of 1996............. 27 3/8 24 7/8 .455 Third Quarter of 1996.............. 29 25 5/8 .455 Fourth Quarter of 1996............. 34 3/4 28 1/8 .455 </TABLE> 11
12 ITEM 6. SELECTED FINANCIAL DATA SUN COMMUNITIES, INC. AND PREDECESSOR BUSINESS <TABLE> <CAPTION> YEAR ENDED DECEMBER 31,(2) -------------------------------------------------------------------- 1996 1995 1994 1993 1992 -------- ------------- ------------- ------------- ------------- (IN THOUSANDS EXCEPT OTHER DATA AND PROPERTY DATA) <S> <C> <C> <C> <C> <C> OPERATING DATA: Revenues: Rental income.......................... $69,849 $42,909 $30,461 $14,222 $12,989 Other income........................... 3,350 2,203 1,882 199 199 -------- ------------- ------------- ------------- ------------- Total revenues......................... 73,199 45,112 32,343 14,421 13,188 -------- ------------- ------------- ------------- ------------- Expenses: Property operating and maintenance..... 15,970 9,838 7,404 3,222 2,995 Real estate taxes...................... 5,654 2,981 2,167 1,024 980 General and administrative............. 3,458 2,535 2,005 893 764 Depreciation and amortization.......... 14,887 9,747 6,949 2,611 2,655 Interest............................... 11,277 6,420 4,894 5,280 5,522 Predecessor business expenses.......... - - - 1,315 - -------- ------------- ------------- ------------- ------------- Total expenses......................... 51,246 31,521 23,419 14,345 12,916 -------- ------------- ------------- ------------- ------------- Income (loss) of predecessor business............................... $272 ------------- Income before extraordinary item/minority interests/predecessor business............................... 21,953 13,591 8,924 76 Extraordinary item, early extinguishment of debt................................... (6,896) - - - -------- ------------- ------------- ------------- Income before allocation to minority interests/predecessor business......... 15,057 13,591 8,924 76 Income (loss) allocated to minority interests/predecessor business, net.... 3,353 1,930 1,138 (212) -------- ------------- ------------- ------------- Net income............................. $11,704 $11,661 $7,786 $288 ======== ============= ============= ============= Net income per weighted average share.................................. $.85 $1.19 $1.05 $.05 ======== ============= ============= ============= Weighted average common shares outstanding............................ 13,733 9,792 7,416 5,326 ======== ============= ============= ============= Distribution per common share(1)....... $1.81 $1.335 $1.78 $.077 ======== ============= ============= ============= OTHER DATA: Total properties (at end of period).... 81 52 46 31 24 Total sites (at end of period)......... 28,785 16,888 14,318 9,036 6,349 BALANCE SHEET DATA: Rental property, before accumulated depreciation........................... $588,813 $326,613 $257,030 $148,668 $74,145 Total assets........................... $585,056 $325,104 $267,370 $157,462 $62,978 Total debt............................. $185,000 $107,055 $62,931 $46,413 $60,629 Predecessor Business equity (deficit).. _ _ _ _ $(275) Stockholders' equity................... $300,932 $177,593 $174,978 $92,985 _ </TABLE> (1) The distribution of $.445 per share 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. 12
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, 1996 to year ended December 31, 1995 For the year ended December 31, 1996, income before extraordinary item and minority interests increased by $8.4 million from $13.6 million to $22.0 million, when compared to the year ended December 31, 1995. The increase was due to increased revenues of $28.1 million while expenses increased by $19.7 million. Rental income increased by $26.9 million from $42.9 million to $69.8 million due primarily to the acquisition of 29 communities comprising in excess of 11,300 developed sites during 1996 and six additional communities comprising in excess of 2,200 developed sites during 1995. Other income increased by $1.1 million from $2.2 million to $3.3 million due to higher levels of interest income resulting primarily from investment of proceeds of financings and interest on mortgage notes receivable for a full year in 1996. Property operating and maintenance expenses increased by $6.2 million from $9.8 million to $16.0 million due primarily to the acquired communities. Real estate taxes increased by $2.7 million from $3.0 million to $5.7 million due primarily to the acquired communities. General and administrative expenses increased by $1.0 million from $2.5 million to $3.5 million due primarily to additional staff as a result of the Company's growth. Interest expense increased by $4.9 million from $6.4 million to $11.3 million due to higher levels of borrowings at a slightly higher weighted average interest rate. Included in interest is amortization of deferred finance costs of $.2 million and $.6 million in 1996 and 1995, respectively. Earnings before interest, taxes, depreciation and amortization ("EBITDA") increased by $18.3 million from $29.8 million to $48.1 million. EBITDA as a percent of revenues was 65.7% compared to 66.0 percent in 1995. Depreciation and amortization expense increased by $5.2 million from $9.7 million to $14.9 million due primarily to the acquisition of communities in 1996 and 1995. 13
14 Comparison of year ended December 31, 1995 to year ended December 31, 1994 For the year ended December 31, 1995, income before minority interests increased by $4.7 million from $8.9 million to $13.6 million, when compared to the year ended December 31, 1994. The increase was due to increased revenues of $12.7 million while expenses increased by $8.1 million. Rental income increased by $12.4 million from $30.5 million to $42.9 million due primarily to the acquisition of fifteen communities comprising in excess of 5,100 developed sites during 1994 and six additional communities throughout 1995 comprising in excess of 2,200 developed sites. Property operating and maintenance expenses increased by $2.4 million from $7.4 million to $9.8 million due primarily to the acquired communities. Real estate taxes increased by $.8 million from $2.2 million to $3.0 million due primarily to the acquired communities. General and administrative expenses increased by $.5 million from $2.0 million to $2.5 million due primarily to additional staff as a result of the Company's growth. Interest expense increased by $1.5 million from $4.9 million to $6.4 million due to higher levels of borrowings partially offset by lower interest rates and increased capitalization of interest in conjunction with the Company's community expansions. Included in interest is amortization of deferred finance costs of $.6 million and $.3 million in 1995 and 1994, respectively. EBITDA increased by $9.0 million from $20.8 million to $29.8 million. EBITDA as a percent of revenues was 66.0 percent compared to 64.2 percent in 1994. Depreciation and amortization expense increased by $2.8 million from $6.9 million to $9.7 million due primarily to the acquisition of communities in 1994 and 1995. SAME PROPERTY INFORMATION The following table reflects property-level financial information as of and for the years ended December 31, 1996 and 1995. The "Same Property" data represents information regarding the operation of communities owned as of January 1, 1995. Site, occupancy, and rent data for those communities is presented as of the last day of each period presented. The table excludes the 1,218 sites where the Company's interest is in the form of a shared appreciation mortgage note. 14
15 <TABLE> <CAPTION> SAME PROPERTY TOTAL PORTFOLIO ------------------ ---------------- 1996 1995 1996 1995 -------- -------- ------- ------- (in thousands) (in thousands) <S> <C> <C> <C> <C> Property revenues, including other $42,278 $39,125 $70,359 $43,544 -------- -------- ------- ------- Property operating expenses: Property operating and maintenance 9,705 9,158 15,970 9,838 Real estate taxes 3,059 2,713 5,654 2,981 -------- -------- ------- ------- Property operating expenses 12,764 11,871 21,624 12,819 -------- -------- ------- ------- Property EBITDA $29,514 $27,254 $48,735 $30,725 ======== ======== ======= ======= Number of properties 46 46 81 52 Developed sites 14,805 14,646 28,785 16,888 Occupied sites 13,961 13,624 26,865 15,846 Occupancy % 94.3% 93.0% 93.3% 93.8% Weighted average monthly rent per site $ 242 $ 231 $ 250 $ 234 Sites available for development 1,795 1,729 3,268 2,324 Sites in development 401 167 779 474 </TABLE> On a same property basis, property revenues increased by $3.2 million from $39.1 million to $42.3 million, or 8.1 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 337 leased sites at December 31, 1996 compared to December 31, 1995. Property operating expenses increased by $.9 million from $11.9 million to $12.8 million, or 7.5 percent, due to increased occupancies and costs and increases in assessments and millage by local taxing authorities. Property EBITDA increased by $2.2 million from $27.3 million to $29.5 million, or 8.3 percent. Sites available for development in the total portfolio increased by 944 from 2,324 to 3,268 with 779 of those sites in development in our markets in Michigan, Indiana and Texas. LIQUIDITY SOURCES AND REQUIREMENTS Cash and cash equivalents increased by $9.1 million to $9.2 million at December 31, 1996 compared to $.1 million at December 31, 1995 primarily because cash provided by operating and financing activities exceeded investments in rental properties. Net cash provided by operating activities increased by $10.4 million from $25.0 million to $35.4 million for the year ended December 31, 1996 as compared to the year ended December 31, 1995. This increase was due primarily to increases in non-cash expenses and accounts payable and other liabilities. Net cash used in investing activities increased by $36.4 million from $40.5 million to $76.9 million for the year ended December 31, 1996 as compared to the year ended December 31, 1995. This was due primarily to an increased level of acquisitions and investments in rental properties. Net cash provided by financing activities increased by $40.4 million from $10.2 million to $50.6 million for the year ended December 31, 1996 as compared to the year ended December 31, 1995. This was due to increased proceeds from equity offerings and the dividend reinvestment plan partially offset by the change in net borrowings. During the second quarter the Company (I) issued 4.8 million shares of common stock at $26.125 per share resulting in net proceeds of approximately $118.3 million; (ii) sold $150 million of five and seven year notes resulting in net proceeds of approximately $148.7 million; (iii) obtained a $30 million 18 month secured term loan; (iv) issued $4.2 million of common OP units and $35.8 15
16 million of preferred OP units; and (v) replaced an $85 million secured line of credit with a $75 million, 42 month unsecured line of credit. These proceeds were utilized to acquire the Aspen Properties for approximately $226 million and to retire substantially all of the Company's previously outstanding secured debt. At December 31, 1996, seven of the Company's properties comprising approximately 3,400 sites collateralized secured borrowings. The $150 million of notes are rated "Baa3" by Moody's Investors Service, "BBB-" by Standard & Poor's Ratings Services and "BBB-" by Fitch Investors Service. The Company expects to meet its short-term liquidity requirements generally through its working capital provided by operating activities and proceeds from the Company's Dividend Reinvestment Plan. The Company considers these sources to be adequate and anticipates they will continue to be adequate to meet operating requirements, capital improvements, investment in development, and payment of distributions by the Company in accordance with REIT requirements in both the short and long term. The Company expects to meet certain long-term liquidity requirements such as scheduled debt maturities and property acquisitions through the issuance of equity or debt securities, or interests in the Operating Partnership. The Company can also meet these requirements by utilizing its $75 million line of credit which bears interest at LIBOR plus 1.50% and is due November 1, 1999. At December 31, 1996, the Company's debt to total market capitalization approximated 22% (assuming conversion of all Common and Preferred OP Units to shares of common stock), with a weighted average maturity of approximately 4.6 years and a weighted average interest rate of 7.42%. Capital expenditures for 1996 included recurring capital expenditures of $2.5 million and revenue producing capital expenditures of $1.2 million which principally consisted of water metering programs. Development costs, including land acquisitions of $2.7 million, aggregated $13.2 million for the year ended at December 31, 1996. The acquisition of incremental sites in owned communities where sites are being leased by the former owners aggregated $1.4 million in 1996. RATIO OF EARNINGS TO FIXED CHARGES The Company's ratio of earnings to fixed charges for the years ended December 31, 1993, 1994, 1995, and 1996 was 1.05:1, 2.79:1, 3.03:1, 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. 16
17 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. <TABLE> <CAPTION> Quarters Ended 1994 1995 1996 --------------------------------------- <S> <C> <C> <C> March 31 $ 3,359 $ 5,288 $ 6,201 June 30 3,357 5,878 8,960 September 30 4,096 5,998 9,652 December 31 5,021 6,114 10,282 ------- ------- ------- $15,833 $23,278 $35,095 ======= ======= ======= </TABLE> IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board ("FASB") issued Financial Accounting Standards No. 128 Earnings Per Share ("EPS"). This Statement simplifies the previous standards for computing EPS and makes such standards comparable to international EPS standards. This Statement requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and it requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. The Company will adopt Statement 128 as of December 31, 1997 (earlier adoption is not permitted). The Company cannot presently determine the impact of adoption of Statement 128 as it cannot anticipate its capital structure and stock prices at December 31, 1997. Had the Company adopted Statement 128 in 1996, the impact would have been immaterial as the Company has few dilutive securities. 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 and the Company does not disagree with such accountants on any matter of accounting principles, practices or financial statement disclosure. PART III The information required by ITEMS 10, 11, 12 AND 13 will be included in the Company's proxy statement for its 1997 Annual Meeting of Shareholders, and is incorporated herein by reference. 17
18 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 The Company did not file any reports on Form 8-K regarding events occurring during the months included in the fourth quarter of the Company's fiscal year. 18
19 SUN COMMUNITIES, INC. INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS PAGES Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . F-2 Financial Statements: Consolidated Balance Sheet as of December 31, 1996 and 1995 . . . . . F-3 Consolidated Statement of Income for the Years Ended December 31, 1996, 1995 and 1994 . . . . . . F-4 Consolidated Statement of Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . F-5 Consolidated Statement of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 . . . . . . . . . . F-6 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . F-7 Schedule III - Real Estate and Accumulated Depreciation . . . . . . . . . F-12 F-1
20 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Sun Communities, Inc.: We have audited the accompanying consolidated balance sheet of Sun Communities, Inc. as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. We have also audited the consolidated financial statement schedule listed under 14(a)(2) of this form 10-K. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sun Communities, Inc. as of December 31, 1996 and 1995 and the consolidated results of its operations and cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information stated therein. /s/ Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P. Detroit, Michigan February 25, 1997 F-2
21 SUN COMMUNITIES, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 1996 AND 1995 (AMOUNTS IN THOUSANDS) <TABLE> <CAPTION> ASSETS 1996 1995 ---- ---- <S> <C> <C> Investment in rental property, net $ 558,278 $ 310,030 Cash and cash equivalents 9,236 121 Investment in Sun Home Services, Inc. ("SHS") 5,103 3,187 Other assets 12,439 11,766 ----------- ----------- Total assets $ 585,056 $ 325,104 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Debt $ 185,000 $ 107,055 Accounts payable and accrued expenses 7,718 2,451 Deposits and other liabilities 9,123 6,123 ----------- ----------- 201,841 115,629 ----------- ----------- Minority interests 82,283 31,882 ----------- ----------- Stockholders' equity: Preferred stock, $.01 par value, 10,000 shares authorized, none issued Common stock, $.01 par value, 100,000 shares authorized, 15,389 and 9,931 issued and outstanding in 1996 and 1995, respectively 154 99 Paid-in capital 328,321 193,575 Officers' notes (9,173) (8,650) Distributions in excess of accumulated earnings (18,370) (7,431) ----------- ----------- Total stockholders' equity 300,932 177,593 ----------- ----------- Total liabilities and stockholders' equity $ 585,056 $ 325,104 =========== =========== </TABLE> The accompanying notes are an integral part of the consolidated financial statements. F-3
22 SUN COMMUNITIES, INC. CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA) <TABLE> <CAPTION> 1996 1995 1994 ---- ---- ---- <S> <C> <C> <C> REVENUES Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 69,849 $ 42,909 $ 30,461 Income from SHS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 506 325 432 Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,844 1,878 1,450 --------- --------- --------- Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,199 45,112 32,343 --------- --------- --------- EXPENSES Property operating and maintenance . . . . . . . . . . . . . . . . . . . . . . . 15,970 9,838 7,404 Real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,654 2,981 2,167 General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,458 2,535 2,005 Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . 14,887 9,747 6,949 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,277 6,420 4,894 --------- --------- --------- Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,246 31,521 23,419 --------- --------- --------- Income before extraordinary item and minority interests . . . . . . . . . . . . . . 21,953 13,591 8,924 Extraordinary item, early extinguishment of debt . . . . . . . . . . . . . . . . . . (6,896) -- -- --------- --------- --------- Income before minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . 15,057 13,591 8,924 Less income allocated to minority interests: Preferred OP Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,670 -- -- Common OP Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,683 1,930 1,138 --------- --------- --------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,704 $ 11,661 $ 7,786 ========= ========= ========= Earnings per share: Income before extraordinary item . . . . . . . . . . . . . . . . . . . . . . . $ 1.35 $ 1.19 $ 1.05 Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.50) -- -- --------- --------- --------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .85 $ 1.19 $ 1.05 ========= ========= ========= Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . 13,733 9,792 7,416 ========= ========= ========= </TABLE> The accompanying notes are an integral part of the consolidated financial statements. F-4
23 SUN COMMUNITIES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA) <TABLE> <CAPTION> DISTRIBUTIONS COMMON PAID-IN IN EXCESS STOCK CAPITAL OF EARNINGS ---------- ------- --------------- <S> <C> <C> <C> Balance, January 1, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 53 $ 93,053 $ (122) Issuance of 4,131 shares of common stock . . . . . . . . . . . . . . . . . . . . 42 85,765 Reclassification of minority interests . . . . . . . . . . . . . . . . . . . . . 2,126 Net income for the year ended December 31, 1994 . . . . . . . . . . . . . . . . . 7,786 Cash distributions of $1.78 per share . . . . . . . . . . . . . . . . . . . . . . (13,725) ----- ---------- ---------- Balance, December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 180,944 (6,061) Issuance of 400 shares of common stock for officer notes . . . . . . . . . . . . 4 8,646 Exercise of stock options and other, net . . . . . . . . . . . . . . . . . . . . 887 Reclassification and conversion of minority interests . . . . . . . . . . . . . . 3,098 Net income for the year ended December 31, 1995 . . . . . . . . . . . . . . . . . 11,661 Cash distributions declared of $1.335 per share . . . . . . . . . . . . . . . . . (13,031) ----- ---------- ---------- Balance, December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 193,575 (7,431) Issuance of 4,807 shares of common stock . . . . . . . . . . . . . . . . . . . . 48 118,245 Dividend reinvestment plan and other, net . . . . . . . . . . . . . . . . . . . . 7 15,198 Reclassification and conversion of minority interests . . . . . . . . . . . . . . 1,303 Net income for the year ended December 31, 1996 . . . . . . . . . . . . . . . . . 11,704 Cash distributions declared of $1.81 per share . . . . . . . . . . . . . . . . . (22,643) ----- ---------- ---------- Balance, December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 154 $ 328,321 $ (18,370) ===== ========== ========== </TABLE> The accompanying notes are an integral part of the consolidated financial statements. F-5
24 SUN COMMUNITIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (AMOUNTS IN THOUSANDS) <TABLE> <CAPTION> 1996 1995 1994 ------------ ------------ ------------- <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,704 $ 11,661 $ 7,786 Adjustments to reconcile net income to cash provided by operating activities: Income allocated to minority interests . . . . . . . . . . . . . . . . . 1,683 1,930 1,138 Extraordinary item, net of prepayment penalties . . . . . . . . . . . . . 1,390 -- -- Depreciation and amortization costs . . . . . . . . . . . . . . . . . . . 14,887 9,747 6,949 Deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . 236 598 325 Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . (2,659) (3,474) (1,505) Increase in accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 8,173 4,521 192 ----------- ---------- ----------- Net cash provided by operating activities . . . . . . . . . . . . . . . . 35,414 24,983 14,885 ----------- ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Investment in rental properties . . . . . . . . . . . . . . . . . . . . . . . (78,722) (38,214) (78,644) Investment in notes receivable . . . . . . . . . . . . . . . . . . . . . . . -- (4,143) -- Investment in SHS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,804 1,872 (7,131) ----------- ---------- ----------- Net cash used in investing activities . . . . . . . . . . . . . . . . . . (76,918) (40,485) (85,775) ----------- ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from sales of common stock . . . . . . . . . . . . . . . . . . . 117,770 -- 85,806 Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . 185,000 41,257 -- Repayments on borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . (241,114) (10,077) (3,587) Payments for deferred financing costs . . . . . . . . . . . . . . . . . . . . (277) (990) (675) Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,965) (19,832) (11,463) Retirement of operating partnership units . . . . . . . . . . . . . . . . . . -- (1,001) -- Dividend reinvestment plan and other, net . . . . . . . . . . . . . . . . . . 15,205 887 -- ----------- ---------- ----------- Net cash provided by financing activities . . . . . . . . . . . . . . . . 50,619 10,244 70,081 ----------- ---------- ----------- Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . 9,115 (5,258) (809) Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . 121 5,379 6,188 ----------- ---------- ----------- Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . $ 9,236 $ 121 $ 5,379 =========== ========== =========== SUPPLEMENTAL INFORMATION Cash paid for interest including capitalized amounts of $380, $192 and $58 in 1996, 1995 and 1994, respectively . . . . . . . . . . $ 9,958 $ 5,499 $ 4,458 Noncash investing and financing activities: Increase in minority interests for rental properties and other assets . . 53,437 15,444 9,934 Debt assumed for rental properties and other . . . . . . . . . . . . . . 134,059 12,944 20,105 Transfer of rental homes with SHS . . . . . . . . . . . . . . . . . . . . (3,720) 4,018 -- Issuance of common stock for officers' notes . . . . . . . . . . . . . . 523 8,650 -- </TABLE> The accompanying notes are an integral part of the consolidated financial statements. F-6
25 SUN COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A. BUSINESS: Sun Communities, Inc. and its subsidiaries (the "Company") is a real estate investment trust ("REIT") which owns and operates 81 manufactured housing communities located in 12 states concentrated principally in the Midwest and Southeast comprising approximately 28,800 developed sites and approximately 3,300 sites suitable for development. The Company generally will not be subject to federal or state income taxes to the extent it distributes its REIT taxable income to its stockholders. 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. B. PRINCIPLES OF CONSOLIDATION: The accompanying financial statements include the accounts of the Company and all majority-owned subsidiaries. The minority interests include Common Operating Partnership Units ("OP Units") which are convertible into an equivalent number of shares of the Company's common stock. Such conversion would have no effect on earnings per share since the allocation of earnings to an OP Unit is equivalent to earnings allocated to a share of common stock. Of the 17.8 million OP Units outstanding, the Company owns 15.4 million or 86.7 percent. The minority interest is adjusted to its relative ownership interest annually by reclassification to paid in capital. Also included in minority interest are 1.3 million Preferred OP Units ("POP Units") issued at $27 per unit bearing an annual dividend of 7% and redeemable at par in June, 2002. The POP Units are convertible one-for-one into OP Units at prices up to $31.50 per share. At prices above $31.50 per share, the POP Units are convertible into OP Units based on a formula the numerator of which is $31.50 plus 25 percent of stock price appreciation above $36 per share. The denominator is the then stock price. SHS provides sales, brokerage 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. C. RENTAL PROPERTY: Rental property is recorded at cost, less accumulated depreciation. 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 & CASH EQUIVALENTS: The Company considers all highly liquid investments with an initial maturity of three months or less to be cash and cash equivalents. F-7
26 SUN COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED DECEMBER 31, 1996, 1995 AND 1994 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: E. 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. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amount of financial instruments which includes cash and cash investments, mortgages and notes receivable, and debt approximates fair value. G. TAX STATUS OF DIVIDENDS: Approximately 56.6, 47.8, and 40.2 percent of the distributions paid in 1996, 1995, and 1994, respectively, represent a return of capital. The return of capital is subject to significant variability depending primarily on the extent and financing of acquisitions and the incurrence of nonoperating transactions entering into the determination of taxable income. H. RECLASSIFICATIONS: Certain 1994 and 1995 amounts have been reclassified to conform with the 1996 financial statement presentation. Such reclassifications have no effect on operations as originally presented. 2. ACQUISITIONS: During 1996, the Company acquired 29 manufactured housing communities comprising in excess of 11,350 development sites and 500 sites suitable for development. The cost of acquisitions aggregated $247.9 million, consisting of $229.2 million in the second quarter and $18.7 million in the fourth quarter. Consideration consisted of $134.1 million in the assumption or issuance of debt, $53.4 million in issuance of Common and Preferred OP Units and $60.4 million of cash. During 1995, the Company acquired six manufactured housing communities comprising in excess of 2,200 developed sites and 425 expansion sites. The cost of the acquisitions aggregated $52 million, consisting of $24 million, $17 million, and $11 million in the first three quarters, respectively. Consideration consisted of $12 million in the assumption or issuance of debt, $15 million in issuance of OP Units and $25 million of cash borrowed under the Company's line of credit. 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 an acquisition, the Company is obligated to issue $12.1 million of OP Units through 2009 based on the per unit price of the OP Units on each annual date. The following unaudited table of pro forma information has been prepared as if the Company's acquisition of six manufactured housing communities in 1995 and 29 manufactured housing communities in 1996 had occurred as of January 1, 1995. In management's opinion, the pro forma information is not necessarily indicative of consolidated results of operations that may have occurred had the above transactions taken place on January 1 of each year. In the following table, the amounts are in thousands except per share amounts: F-8
27 SUN COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED DECEMBER 31, 1996, 1995 AND 1994 2. ACQUISITIONS, CONTINUED: <TABLE> <CAPTION> PRO FORMA FOR THE YEAR ENDED DECEMBER 31 ------------------------------ (UNAUDITED) ------------------------------ 1996 1995 ----------- ---------- <S> <C> <C> Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 86,080 $ 80,071 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56,527 $ 52,611 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,900 $ 17,744 Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.26 $ 1.04 </TABLE> Net income has not been reduced for minority interests and net income per share assumes that all OP Units have been converted to shares of the Company's common stock. Operating income is defined as total revenues less property operating and maintenance expense, real estate tax expense and general and administrative expense. Operating income is not necessarily an indication of the performance of the Company or a measure of liquidity. <TABLE> <CAPTION> 3. RENTAL PROPERTY: AT DECEMBER 31 ---------------------------- 1996 1995 ----------- ---------- <S> <C> <C> Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 58,943 $ 32,565 Land improvements and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . 510,726 282,121 Furniture, fixtures, equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 9,826 9,852 Property under development . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,318 2,075 ----------- ---------- 588,813 326,613 Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . (30,535) (16,583) ----------- ---------- $ 558,278 $ 310,030 =========== ========== </TABLE> Land improvements and buildings consist primarily of infrastructure, roads, landscaping, and clubhouses, maintenance buildings and amenities. 4. NOTES RECEIVABLE: Included in other assets are $4.2 million of second and third mortgage notes collateralized by manufactured housing communities located in Alberta, Canada bearing interest at an average rate of 17 percent. The principal is due in April 2000 and the Company is entitled to 73 percent of excess cash flow, as defined. The officers' notes are 10 year, LIBOR +1.75% notes collateralized by 420,000 shares of the Company's common stock with personal liability up to approximately $5 million. Interest income of $.6 million has been recognized in 1996 and 1995. At December 31, 1996, accrued interest approximated $.3 million of which $.2 million was paid in January, 1997. F-9
28 SUN COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED DECEMBER 31, 1996, 1995 AND 1994 5. DEBT: <TABLE> <CAPTION> AT DECEMBER 31 ------------------------------ 1996 1995 ----------- ---------- <S> <C> <C> Secured term loan, interest at LIBOR plus 1.50% (7% at December 31, 1996), due November 1, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,000 Senior notes, interest at 7.375%, due May 1, 2001 . . . . . . . . . . . . . . . . . 65,000 Senior notes, interest at 7.625%, due May 1, 2003 . . . . . . . . . . . . . . . . . 85,000 Prior year debt, repaid April, 1996 . . . . . . . . . . . . . . . . . . . . . . . . -- $ 107,055 ----------- ---------- $ 185,000 $ 107,055 =========== ========== </TABLE> The Company has a $75 million unsecured line of credit at LIBOR plus 1.50% on which no balance was owing at December 31, 1996. Fees and costs incurred to obtain financing are amortized on a straight-line basis over the terms of the respective loans. The Company intends to refinance the secured term loan for a ten year period during 1997 and has hedged its interest rate exposure utilizing 10-year U.S. Treasury Bonds. The realized gain or loss on the hedged position (unrealized loss of $1.3 million at December 31, 1996) will be amortized as an adjustment to interest expense over the term of the refinanced secured debt. The extraordinary item of $6.9 million results from the early extinguishment of debt and includes prepayment penalties and related deferred financing costs. 6. STOCK OPTIONS: Data pertaining to stock option plans are as follows: <TABLE> <CAPTION> 1996 1995 1994 ----------- ----------- ---------- <S> <C> <C> <C> Options outstanding, January 1 . . . . . . . . . . . . . . . . 301,167 300,000 200,000 Options granted . . . . . . . . . . . . . . . . . . . . . . . . 482,950 375,430 100,000 Option price . . . . . . . . . . . . . . . . . . . . $26.625-$28.637 $21.625-$24.875 $22.50-$22.75 Options exercised . . . . . . . . . . . . . . . . . . . . . . . 16,683 356,763 -- Option price . . . . . . . . . . . . . . . . . . . . . . $20-$23.125 $20-$21.625 Options forfeited . . . . . . . . . . . . . . . . . . . . . . . -- 17,500 -- Option price . . . . . . . . . . . . . . . . . . . . . . . $22.00-$23.125 Options outstanding, December 31 . . . . . . . . . . . . . . . 767,434 301,167 300,000 Option price . . . . . . . . . . . . . . . . . . . . . . $20-$28.637 $20-$24.875 $20-$22.75 Options exercisable, December 31 . . . . . . . . . . . . . . . 359,616 232,833 220,000 </TABLE> At December 31, 1996, 322,000 shares of common stock 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. The plans provide for the grant of up to 1,485,000 options. At December 31, 1996, the weighted average remaining contractual life relating to options was 8.5 years. 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 Block-Scholes option-pricing model with the following assumptions for options granted in: F-10
29 SUN COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 6. STOCK OPTIONS, CONTINUED: <TABLE> <CAPTION> 1996 1995 ----------- ---------- <S> <C> <C> Estimated fair value per share of options granted during year . . . . . . . . . . . $1.94 $2.22 Assumptions: Annualized dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9% 7.7% Common stock price volatility . . . . . . . . . . . . . . . . . . . . . . . . 15.1% 15.3% Risk-free rate of return . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2% 6.4% Expected option term (in years) . . . . . . . . . . . . . . . . . . . . . . . 8 8 </TABLE> This accounting would have resulted in net income of $11.5 million and $11.1 million and net income per share of $.84 and $1.13 in 1996 and 1995, respectively. 7. QUARTERLY FINANCIAL DATA (UNAUDITED): The following unaudited quarterly amounts are in thousands, except for per share amounts: <TABLE> <CAPTION> FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER MARCH 31 JUNE 30(B) SEPT. 30 DEC. 31 -------- ---------- -------- ------- 1996 <S> <C> <C> <C> <C> Total revenues . . . . . . . . . . . . . . . . . . . . . . $ 12,442 $ 18,149 $ 20,862 $ 21,746 Operating income (a) . . . . . . . . . . . . . . . . . . . $ 8,254 $ 12,063 $ 13,538 $ 14,262 Income before allocation to minority interests . . . . . . $ 3,456 $ 5,647 $ 6,278 $ 6,572 Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 2,937 $ 4,631 $ 5,012 $ 5,230 Weighted average common shares outstanding . . . . . . . . 10,013 14,489 15,092 15,337 Earnings per common share . . . . . . . . . . . . . . . . . $ .29 $ .32 $ .33 $ .34 1995 Total revenues . . . . . . . . . . . . . . . . . . . . . . $ 9,770 $ 11,250 $ 11,906 $ 12,186 Operating income (a) . . . . . . . . . . . . . . . . . . . $ 6,420 $ 7,386 $ 7,780 $ 8,172 Income before allocation to minority interests . . . . . . $ 3,206 $ 3,567 $ 3,525 $ 3,293 Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 2,867 $ 3,018 $ 2,984 $ 2,792 Weighted average common shares outstanding . . . . . . . . 9,458 9,890 9,906 9,924 Earnings per common share . . . . . . . . . . . . . . . . . $ 0.30 $ 0.31 $ 0.30 $ 0.28 </TABLE> (a) Operating income is defined as total revenues less property operating and maintenance expense, real estate tax expense, 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) Net income and earnings per share are presented before an extraordinary item arising from debt extinguishment of which $6,106 or $.42 per share is attributable to common stockholders. F-11
30 SUN COMMUNITIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 (AMOUNTS IN THOUSANDS) <TABLE> <CAPTION> COST CAPITALIZED INITIAL COST SUBSEQUENT TO TO COMPANY ACQUISITION ---------------------- ------------ BUILDING IMPROVEMENTS AND ------------ PROPERTY NAME LOCATION ENCUMBRANCE LAND FIXTURES LAND ------------- -------- ----------- ---- -------- ---- <S> <C> <C> <C> <C> <C> Allendale Allendale, MI $ 393 $ 3,684 - Alpine Grand Rapids, MI 729 6,692 - Arbor Terrace Bradenton, FL 481 4,410 - Ariana Village Lakeland, FL - 240 2,195 - Bedford Hills Battle Creek, MI - (1) 1,265 11,562 - Bonita Lake Bonita Springs, FL - 285 2,641 - Boulder Creek Pflugerville, TX - 1,000 500 - Branch Creek Austin, TX - 796 3,716 - Breezy Hill Pompano Beach, FL - 1,778 16,085 - Brentwood Kentwood, MI - 385 3,592 - Brookside Village Goshen, IN - 260 1,080 $ 386 Byron Center Byron Center, MI - 257 2,402 - Candlelight Village Chicago Heights, IL - 600 5,623 - Candlewick Court Owosso, MI - 125 1,900 132 Catalina Middletown, OH - 653 5,858 - Chain O'Lakes Grand Island, FL - 551 5,003 - Chisholm Point Pflugerville, TX - 609 5,286 - Clearwater Village South Bend, IN - 80 1,270 61 Cobus Green Elkhart, IN - 762 7,037 - College Park Estates Canton, MI - 75 800 174 Continental Estates Davison, MI - 1,625 16,581 - Country Acres Cadillac, MI - 380 3,495 - Country Meadows Flat Rock, MI - 924 7,583 296 Countryside Village Perry, MI - (1) 275 3,920 185 Creekwood Meadows Burton, MI - 808 2,043 - Cutler Estates Grand Rapids, MI - (1) 822 7,604 - Douglas Estates Austell, GA - 508 2,125 - Edwardsville Edwardsville, KS - (1) 425 8,805 541 Fisherman's Cove Flint, MI - 380 3,438 - Flagview Village Douglasville, GA - 508 2,125 - Four Seasons Ankeny, IO - 890 8,054 - <CAPTION> COST CAPITALIZED SUBSEQUENT TO ACQUISITION GROSS AMOUNT -------------- CARRIED AT IMPROVEMENTS DECEMBER 31, 1996 -------------- ----------------------- BUILDING BUILDING AND AND ACCUMULATED DATE OF PROPERTY NAME FIXTURES LAND FIXTURES TOTAL DEPRECIATION ACQUISITION ------------- -------- ---- -------- ----- ------------ ----------- <S> <C> <C> <C> <C> <C> <C> Allendale - $ 393 $ 3,684 $ 4,077 $ 62 1996 Alpine - 729 6,692 7,421 115 1996 Arbor Terrace - 481 4,410 4,891 76 1996 Ariana Village $ 159 240 2,354 2,594 202 1994 Bedford Hills - 1,265 11,562 12,827 200 1996 Bonita Lake - 285 2,641 2,926 45 1996 Boulder Creek - 1,000 500 1,500 - 1996 Branch Creek 1,982 796 5,698 6,494 180 1995 Breezy Hill - 1,778 16,085 17,863 281 1996 Brentwood - 385 3,592 3,977 61 1996 Brookside Village 3,242 646 4,322 4,968 394 1985 Byron Center - 257 2,402 2,659 41 1996 Candlelight Village - 600 5,623 6,223 98 1996 Candlewick Court 702 257 2,602 2,859 267 1985 Catalina 95 653 5,953 6,606 643 1993 Chain O'Lakes - 551 5,003 5,554 143 1996 Chisholm Point 758 609 6,044 6,653 255 1995 Clearwater Village 570 141 1,840 1,981 179 1986 Cobus Green 213 762 7,250 8,012 745 1993 College Park Estates 4,254 249 5,054 5,303 418 1978 Continental Estates - 1,625 16,581 18,206 286 1996 Country Acres - 380 3,495 3,875 60 1996 Country Meadows 5,469 1,220 13,052 14,272 778 1994 Countryside Village 1,313 460 5,233 5,693 494 1987 Creekwood Meadows - 808 2,043 2,851 - 1996 Cutler Estates - 822 7,604 8,426 130 1996 Douglas Estates 191 508 2,316 2,824 243 1988 Edwardsville 743 966 9,548 10,514 1,001 1987 Fisherman's Cove 240 380 3,678 4,058 371 1993 Flagview Village 167 508 2,292 2,800 245 1988 Four Seasons - 890 8,054 8,944 140 1996 </TABLE> F-12
31 SUN COMMUNITIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION, CONTINUED (AMOUNTS IN THOUSANDS) <TABLE> <CAPTION> COST CAPITALIZED INITIAL COST SUBSEQUENT TO TO COMPANY ACQUISITION ---------------------- ------------ BUILDING IMPROVEMENTS AND ------------ PROPERTY NAME LOCATION ENCUMBRANCE LAND FIXTURES LAND ------------- -------- ----------- ---- -------- ---- <S> <C> <C> <C> <C> <C> Golden Lakes Plant City, FL - 1,092 7,161 1 Grand Grand Rapids, MI - 578 5,396 - Hamlin Webberville, MI - 125 1,675 77 Holiday Village Elkhart, IN - 100 3,207 143 Indian Creek Ft. Myers Beach, FL - 3,832 34,660 - Island Lake Merritt Island, FL - 700 6,431 - Kensington Meadows Lansing, MI - 250 2,699 - King's Court Traverse City, MI - 1,473 13,782 - King's Lake Debary, FL - 280 2,542 - King's Pointe Winter Haven, FL - 262 2,359 - Kissimmee Gardens Kissimmee, FL - 594 5,522 - Lake Juliana Auburndale, FL - 335 2,848 - Lake San Marino Naples, FL - 650 5,760 - Leesburg Landing Leesburg, FL - 50 429 - Liberty Farms Valparaiso, IN - 66 1,201 116 Lincoln Estates Holland, MI - 455 4,201 - Maple Grove Estates Dorr, MI - 15 210 19 Maplewood Lawrence, IN - 280 2,122 - Meadow Lake Estates White Lake, MI - 1,188 11,498 127 Meadowbrook Indianapolis, IN - 927 3,833 331 Meadowbrook Estates Monroe, MI - 431 3,320 379 Meadowbrook Village Tampa, FL - 519 4,728 - Meadows Nappanee, IN - 300 2,300 3 Meadowstream Village Sodus, MI - 100 1,175 109 Orange Tree Orange City, FL - 283 2,530 - Paradise Chicago Heights, IL - 723 6,638 - Parkwood Grand Blanc, MI - 477 4,279 - Pin Oak Parc St. Louis, MO - 1,038 3,250 44 Pine Hills Middlebury, IN - 72 544 52 <CAPTION> COST CAPITALIZED SUBSEQUENT TO ACQUISITION GROSS AMOUNT -------------- CARRIED AT IMPROVEMENTS DECEMBER 31, 1996 -------------- ----------------------- BUILDING BUILDING AND AND ACCUMULATED DATE OF PROPERTY NAME FIXTURES LAND FIXTURES TOTAL DEPRECIATION ACQUISITION ------------- -------- ---- -------- ----- ------------ ----------- <S> <C> <C> <C> <C> <C> <C> Golden Lakes 189 1,093 7,350 8,443 777 1993 Grand - 578 5,396 5,974 91 1996 Hamlin 490 202 2,165 2,367 226 1984 Holiday Village 692 243 3,899 4,142 421 1986 Indian Creek - 3,832 34,660 38,492 606 1996 Island Lake 23 700 6,454 7,154 316 1995 Kensington Meadows 827 250 3,526 3,776 143 1995 King's Court - 1,473 13,782 15,255 233 1996 King's Lake 380 280 2,922 3,202 240 1994 King's Pointe 63 262 2,422 2,684 211 1994 Kissimmee Gardens 45 594 5,567 6,161 616 1993 Lake Juliana 119 335 2,967 3,302 264 1994 Lake San Marino - 650 5,760 6,410 100 1996 Leesburg Landing - 50 429 479 9 1996 Liberty Farms 1,520 182 2,721 2,903 239 1985 Lincoln Estates - 455 4,201 4,656 72 1996 Maple Grove Estates 216 34 426 460 47 1979 Maplewood 371 280 2,493 2,773 260 1989 Meadow Lake Estates 1,059 1,315 12,557 13,872 1,119 1994 Meadowbrook 708 1,258 4,541 5,799 471 1989 Meadowbrook Estates 5,285 810 8,605 9,415 881 1986 Meadowbrook Village 30 519 4,758 5,277 488 1994 Meadows 1,644 303 3,944 4,247 375 1987 Meadowstream Village 1,016 209 2,191 2,400 241 1984 Orange Tree 63 283 2,593 2,876 225 1994 Paradise - 723 6,638 7,361 114 1996 Parkwood 215 477 4,494 4,971 465 1993 Pin Oak Parc 1,058 1,082 4,308 5,390 335 1994 Pine Hills 1,263 124 1,807 1,931 188 1980 </TABLE> F-13
32 SUN COMMUNITIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION, CONTINUED (AMOUNTS IN THOUSANDS) <TABLE> <CAPTION> COST CAPITALIZED INITIAL COST SUBSEQUENT TO TO COMPANY ACQUISITION ---------------------- ------------ BUILDING IMPROVEMENTS AND ------------ PROPERTY NAME LOCATION ENCUMBRANCE LAND FIXTURES LAND ------------- -------- ----------- ---- -------- ---- <S> <C> <C> <C> <C> <C> Pine Ridge Petersburg, VA - 405 2,397 - Plantation Manor Ft. Pierce, FL - 950 8,891 - Pleasure Cove Ft. Pierce, FL - 550 5,005 - Presidential Hudsonville, MI - 680 6,314 - Royal Country Miami, FL - (1) 2,290 20,758 - Saddle Oak Club Ocala, FL - 730 6,743 - Scio Farms Ann Arbor, MI - 2,300 22,659 - Sherman Oaks Jackson, MI - (1) 200 2,400 240 Siesta Bay Ft. Myers Beach, FL - 2,051 18,549 - Silver Star Orlando, FL - 1,067 9,685 - Tallowwood Coconut Creek, FL - 510 5,099 - Timber Ridge Ft. Collins, CO - 990 9,231 - Timberbrook Bristol, IN - (1) 490 3,400 101 Timberline Estates Grand Rapids, MI - 536 4,867 - Town and Country Traverse City, MI - 406 3,736 - Valley Mills Indianapolis, IN - 150 3,500 - Water Oak Country Club Est. Lady Lake, FL - 2,503 17,478 - West Glen Village Indianapolis, IN - 1,100 10,028 - Whispering Palm Sebastian, FL - 975 8,754 - Woods Edge West Lafayette, IN - 100 2,600 3 Worthington Arms Delaware, OH - 376 2,624 - Corporate Headquarters Farmington Hills, MI - - - - ----------- --------- ---------- -------- $ 55,423 $ 478,127 $ 3,520 ========= ========== ======== <CAPTION> COST CAPITALIZED SUBSEQUENT TO ACQUISITION GROSS AMOUNT -------------- CARRIED AT IMPROVEMENTS DECEMBER 31, 1996 -------------- ----------------------- BUILDING BUILDING AND AND ACCUMULATED DATE OF PROPERTY NAME FIXTURES LAND FIXTURES TOTAL DEPRECIATION ACQUISITION ------------- -------- ---- -------- ----- ------------ ----------- <S> <C> <C> <C> <C> <C> <C> Pine Ridge 809 405 3,206 3,611 327 1986 Plantation Manor 16 950 8,907 9,857 765 1994 Pleasure Cove - 550 5,005 5,555 434 1994 Presidential - 680 6,314 6,994 107 1996 Royal Country 160 2,290 20,918 23,208 2,123 1994 Saddle Oak Club 167 730 6,910 7,640 485 1995 Scio Farms 1,749 2,300 24,408 26,708 1,157 1995 Sherman Oaks 2,874 440 5,274 5,714 544 1986 Siesta Bay - 2,051 18,549 20,600 324 1996 Silver Star - 1,067 9,685 10,752 169 1996 Tallowwood 126 510 5,225 5,735 455 1994 Timber Ridge - 990 9,231 10,221 156 1996 Timberbrook 3,668 591 7,068 7,659 640 1987 Timberline Estates 198 536 5,065 5,601 439 1994 Town and Country - 406 3,736 4,142 64 1996 Valley Mills 336 150 3,836 3,986 404 1989 Water Oak Country Club Est. 873 2,503 18,351 20,854 1,968 1993 West Glen Village 270 1,100 10,298 11,398 870 1994 Whispering Palm - 975 8,754 9,729 152 1996 Woods Edge 1,192 103 3,792 3,895 376 1985 Worthington Arms 740 376 3,364 3,740 347 1990 Corporate Headquarters 1,191 - 1,191 1,191 303 VARIOUS -------- -------- ----------- ----------- --------- $ 51,743 $ 58,943 $ 529,870 $ 588,813 $ 30,535 ======== ======== =========== =========== ========= </TABLE> (1) These communities collateralize $35 million of secured debt. F-14
33 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 28, 1997 SUN COMMUNITIES, INC. 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 March 28, 1997 - ---------------------- of Directors Milton M. Shiffman /s/ Gary A. Shiffman Chief Executive March 28, 1997 - -------------------- Officer, President Gary A. Shiffman and Director /s/ Jeffrey P. Jorissen Senior Vice President, March 28, 1997 - ----------------------- Chief Financial Jeffrey P. Jorissen Officer, Treasurer, Secretary and Principal Accounting Officer /s/ Carl R. Weinert Director March 28, 1997 - ------------------- Carl R. Weinert /s/ Paul D. Lapides Director March 28, 1997 - ------------------- Paul D. Lapides /s/ Ted J. Simon Director March 28, 1997 - ---------------- Ted J. Simon </TABLE>
34 <TABLE> <S> <C> <C> /s/ Clunet R. Lewis Director March 28, 1997 - ------------------- Clunet R. Lewis /s/ Ronald L. Piasecki Director March 28, 1997 - ---------------------- Ronald L. Piasecki /s/ Arthur A. Weiss Director March 28, 1997 - ------------------- Arthur A. Weiss </TABLE>
35 EXHIBIT INDEX <TABLE> <CAPTION> SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ------ ------------------------------------------------------------------------- ------------ <S> <C> <C> 2.1 Form of Common Stock Certificate (1) 2.2 Master Contribution and Sale Agreement pertaining to the Aspen Properties (2) 2.3 Contribution Agreement pertaining to Leesburg Landing 2.4 Contribution Agreement pertaining to Continental Estates 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 the Operating Partnership, (4) the Company 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) 10.1 Second Amended and Restated Agreement of Limited Partnership of Sun Communities Operating Limited Partnership 10.2 Amended and Restated 1993 Stock Option Plan# 10.3 Amended and Restated 1993 Non-Employee Director Stock Option Plan# 10.4 Form of Stock Option Agreement between the Company and certain (1) directors, officers and other individuals# 10.5 Form of Non-Employee Director Stock Option Agreement between the Company (5) and certain directors# 10.6 Employment Agreement between the Company and Gary A. Shiffman# 10.7 Agreement regarding termination of Robert B. Bayer's Employment (6) Agreement# 10.8 Registration Rights and Lock-Up Agreement with the Company (5) 10.9 Revolving Credit Agreement with NBD Bank, N.A. (5) 10.10 Line of Credit Agreement with Lehman Brothers Holdings Inc. (3) 10.11 Property Management and Leasing Agreement between the Financing (5) Partnership and Sun Management, Inc. 10.12 Property Management and Leasing Termination Agreement between the Financing Partnership and Sun Management, Inc. 10.13 Purchase Agreement with respect to Mortgage Debt (1) 10.14 Credit Agreement between Fort McMurray Housing Inc. and Sun Communities (3) Alberta Limited Partnership 10.15 First Amending Agreement to Credit Agreement between Fort McMurray (3) Housing Inc. and Sun Communities Alberta Limited Partnership 10.16 Demand Note Agreement from Sun Communities Operating Limited Partnership (3) to NBD Bank, Canada 10.17 Fee and Commission Agreement between Sun Communities Operating Limited (3) Partnership and Fort McMurray Housing Inc. </TABLE>
36 <TABLE> <CAPTION> SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ------ ------------------------------------------------------------------------- ------------ <S> <C> <C> 10.18 $1,022,538.12 Promissory Note from Gary A. Shiffman to the Company (7) 10.19 $1,022,538.13 Promissory Note from Gary A. Shiffman to the Company (7) 10.20 $6,604,923.75 Promissory Note from Gary A. Shiffman to the Company (7) 10.21 Stock Pledge Agreement between Gary A. Shiffman and the Company (7) for 94,570 shares of Company stock 10.22 Stock Pledge Agreement between Gary A. Shiffman and the Company (7) for 305,430 shares of Company stock 10.23 Registration Rights Agreement between Gary A. Shiffman and the (3) Company 10.24 Registration Rights and Lock Up Agreement among the Company and (3) the partners of Miami Lakes Venture Associates, as amended 10.25 Registration Rights and Lock Up Agreement among the Company and (3) the partners of Scio Farms Estates Limited Partnership 10.26 Registration Rights and Lock Up Agreement among the Company and (3) the partners of Kensington Meadows Associates 10.27 Registration Rights and Lock Up Agreement among the Company and certain affiliates of Aspen Enterprises, Ltd. (Preferred OP Units) 10.28 Registration Rights and Lock Up Agreement among the Company and certain affiliates of Aspen Enterprises, Ltd. (Common OP Units) 10.29 Registration Rights Agreement among the Company and the partners of S&K Smith Co. 10.30 Employment Agreement between the Company and Jeffrey P. Jorissen# 12.1 Calculation of Ratios of Earnings to Fixed Charges 21 List of Subsidiaries 23 Consent of Coopers & Lybrand L.L.P., independent accountants 27 Financial Data Schedule </TABLE> (1) Incorporated by reference to the Company's Registration Statement No. 33-69340. (2) Incorporated by reference to the Company's Current Report on Form 8-K dated March 20, 1996. (3) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. (4) Incorporated by reference to the Company's Current Report on Form 8-K dated April 24, 1996. (5) Incorporated by reference to the Company's Registration Statement No. 33-80972. (6) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
37 (7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. # Management contract or compensatory plan or arrangement required to be identified by Form 10-K Item 14.