1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001. OR |_| Transition pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 COMMISSION FILE NUMBER 1-2616 SUN COMMUNITIES, INC. (Exact Name of Registrant as Specified in its Charter) Maryland 38-2730780 (State of Incorporation) (I.R.S. Employer Identification No.) 31700 Middlebelt Road Suite 145 Farmington Hills, Michigan 48334 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (248) 932-3100 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Number of shares of Common Stock, $.01 par value per share, outstanding as of July 31, 2001: 17,492,389 Page 1 of 17
2 SUN COMMUNITIES, INC. INDEX <TABLE> <CAPTION> PAGES ----- <S> <C> PART I Item 1. Financial Statements: Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000 3 Consolidated Statements of Income for the Periods Ended June 30, 2001 and 2000 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000 5 Notes to Consolidated Financial Statements 6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-15 PART II Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6.(a) Exhibits required by Item 601 of Regulation S-K 16 Item 6.(b) Reports on Form 8-K 16 Signatures 17 </TABLE> 2
3 SUN COMMUNITIES, INC. CONSOLIDATED BALANCE SHEETS JUNE 30, 2001 AND DECEMBER 31, 2000 (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) <TABLE> <CAPTION> ASSETS 2001 2000 --------------- ------------- <S> <C> <C> Investment in rental property, net $ 783,735 $ 751,820 Cash and cash equivalents 7,665 18,466 Notes and other receivables 136,888 156,349 Investment in and advances to affiliates 11,230 7,930 Other assets 28,556 32,063 --------------- ------------- Total assets $ 968,074 $ 966,628 =============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Line of credit $ 73,000 $ 12,000 Debt 389,494 452,508 Accounts payable and accrued expenses 19,195 16,304 Deposits and other liabilities 9,699 8,839 --------------- ------------- Total liabilities 491,388 489,651 --------------- ------------- Minority interests 145,636 140,943 --------------- ------------- Stockholders' equity: Preferred stock, $.01 par value, 10,000 shares authorized; no shares issued and outstanding -- -- Common stock, $.01 par value, 100,000 shares authorized; 17,694 and 17,516 issued and 17,492 and 17,509 outstanding for 2001 and 2000, respectively 177 175 Paid-in capital 397,116 393,771 Officers' notes (11,136) (11,257) Unearned compensation (7,550) (4,746) Distributions in excess of accumulated earnings (41,173) (41,688) Treasury stock, at cost, 202 and 7 shares for 2001 and 2000, respectively (6,384) (221) --------------- ------------- Total stockholders' equity 331,050 336,034 --------------- ------------- Total liabilities and stockholders' equity $ 968,074 $ 966,628 =============== ============= </TABLE> The accompanying notes are an integral part of the consolidated financial statements. 3
4 SUN COMMUNITIES, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIODS ENDED JUNE 30, 2001 AND 2000 (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) <TABLE> <CAPTION> For the Three Months For the Six Months Ended June 30, Ended June 30, 2001 2000 2001 2000 ------------ ----------- ----------- ----------- <S> <C> <C> <C> <C> Revenues: Income from property $ 34,616 $ 32,947 $ 69,241 $ 66,076 Other income 3,532 3,117 7,998 6,021 ------------ ----------- ----------- ----------- Total revenues 38,148 36,064 77,239 72,097 ------------ ----------- ----------- ----------- Expenses: Property operating and maintenance 6,975 6,703 14,386 13,875 Real estate taxes 2,334 2,271 4,590 4,518 Property management 652 709 1,436 1,449 General and administrative 1,200 1,001 2,342 2,052 Depreciation and amortization 8,216 7,678 16,070 15,224 Interest 7,886 7,306 16,266 14,153 ------------ ----------- ----------- ----------- Total expenses 27,263 25,668 55,090 51,271 ------------ ----------- ----------- ----------- Income before gain from property dispositions, net and minority interests 10,885 10,396 22,149 20,826 Gain from property dispositions, net 758 -- 4,275 -- ------------ ----------- ----------- ----------- Income before minority interest 11,643 10,396 26,424 20,826 Less income allocated to minority interests: Preferred OP Units 2,041 1,956 4,017 3,871 Common OP Units 1,282 1,135 2,983 2,293 ------------ ----------- ----------- ----------- Net income $ 8,320 $ 7,305 $ 19,424 $ 14,662 ============ =========== =========== =========== Earnings per common share: Basic $ 0.48 $ 0.42 $ 1.12 $ 0.85 ============ =========== =========== =========== Diluted $ 0.48 $ 0.42 $ 1.11 $ 0.84 ============ =========== =========== =========== Weighted average common shares outstanding: Basic 17,203 17,310 17,284 17,298 ============ =========== =========== =========== Diluted 17,375 17,433 17,433 17,389 ============ =========== =========== =========== Distributions declared per common share outstanding $ 0.55 $ 0.53 $ 1.08 $ 1.04 ============ =========== =========== =========== </TABLE> The accompanying notes are an integral part of the consolidated financial statements. 4
5 SUN COMMUNITIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (IN THOUSANDS) <TABLE> <CAPTION> 2001 2000 ------------- ------------ <S> <C> <C> Cash flows from operating activities: Net income $ 19,424 $ 14,662 Adjustments to reconcile net income to net cash provided by operating activities: Income allocated to minority interests 2,983 2,293 Gain from property dispositions, net (4,275) -- Depreciation and amortization 16,070 15,224 Amortization of deferred financing costs 524 317 (Increase) decrease in other assets 857 (3,140) Increase (decrease) in accounts payable and other liabilities 3,751 (207) ------------- ------------ Net cash provided by operating activities 39,334 29,149 ------------- ------------ Cash flows from investing activities: Investment in rental properties (41,376) (35,565) Proceeds related to property dispositions 17,331 -- Investment in and advances to affiliates (3,300) (18,592) Repayments of (investments in) notes receivable, net 19,582 (2,311) ------------- ------------ Net cash used in investing activities (7,763) (56,468) ------------- ------------ Cash flows from financing activities: Borrowings on line of credit, net 61,000 45,000 Repayments on notes payable and other debt (75,514) (1,063) Treasury stock and operating partnership unit purchases, net (6,066) (267) Distributions (21,792) (20,975) ------------- ------------ Net cash provided by (used in) financing activities (42,372) 22,695 ------------- ------------- Net decrease in cash and cash equivalents (10,801) (4,624) Cash and cash equivalents, beginning of period 18,466 11,330 ------------- ------------ Cash and cash equivalents, end of period $ 7,665 $ 6,706 ============= ============ Supplemental Information: Preferred OP Units issued for rental properties $ 4,612 $ 3,564 Conversion of partnership interest to notes receivable -- $ 11,011 Debt assumed for rental properties $ 12,500 $ -- Restricted common stock issued as unearned compensation, net of cancellations $ 3,233 $ -- </TABLE> The accompanying notes are an integral part of the consolidated financial statements 5
6 SUN COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION: These unaudited condensed consolidated financial statements of Sun Communities, Inc., a Maryland corporation, (the "Company"), have been prepared pursuant to the Securities and Exchange Commission ("SEC") rules and regulations and should be read in conjunction with the financial statements and notes thereto of the Company as of December 31, 2000. The following notes to consolidated financial statements present interim disclosures as required by the SEC. The accompanying consolidated financial statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of the interim financial statements. All such adjustments are of a normal and recurring nature. Certain reclassifications have been made to the prior period financial statements to conform with current period presentation. The Company owns 100 percent of the preferred stock of an affiliate, Sun Home Services, Inc. ("Sun Homes"), is entitled to 95 percent of the operating cash flow of Sun Homes, and accounts for its investment utilizing the equity method of accounting. The common stock is owned by two officers of the Company and the estate of a former officer of the Company who are entitled to receive five percent of the operating cash flow. 2. RENTAL PROPERTY: The following summarizes rental property (in thousands): <TABLE> <CAPTION> June 30, December 31, 2001 2000 -------------- ----------------- <S> <C> <C> Land $ 78,381 $ 76,120 Land improvements and buildings 767,426 739,858 Furniture, fixtures, equipment 18,587 17,498 Land held for future development 16,174 12,042 Property under development 29,094 21,859 ------------- --------------- 909,662 867,377 Accumulated depreciation (125,927) (115,557) ------------- --------------- Rental property, net $ 783,735 $ 751,820 ============= =============== </TABLE> In April 2001, in conjunction with a property acquisition, the Company issued 46,117 Series B-1 Preferred OP Units at a $100 mandatory redemption price with interest rates ranging from 6.85 percent to 9.19 percent and a maturity of April 16, 2012. The Series B-1 Preferred OP Units are subject to earlier redemption subsequent to April 15, 2006 or upon specified events. 6
7 SUN COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. NOTES RECEIVABLE: Notes receivable consisted of the following (in thousands): <TABLE> <CAPTION> June 30, December 31, 2001 2000 ------------- --------------- <S> <C> <C> Mortgage notes receivable with minimum monthly interest payments at LIBOR based floating rates of approximately LIBOR + 3.0%, maturing at various dates from September 2001 through June 2012, collateralized by manufactured home communities. $ 57,762 $ 60,491 Note receivable, subordinated, collateralized by all assets of the borrower, bears interest at the higher of LIBOR + 2.30% or 8% and payable on demand 32,083 35,849 Note receivable, subordinated, bears interest at 9.75% and matures September 2005. 4,000 4,000 Installment loans on manufactured homes with interest payable monthly at a weighted average interest rate and maturity of 8.6% and 18 years, respectively. 14,757 32,426 Other receivables 28,286 23,583 ------------- --------------- $ 136,888 $ 156,349 ============= =============== </TABLE> Officers' notes, presented as a reduction to stockholders' equity in the balance sheet, are 10 year, LIBOR + 1.75% notes, with a minimum and maximum interest rate of 6% and 9%, respectively, collateralized by 366,206 shares of the Company's common stock and 127,794 OP Units with substantial personal recourse. 7
8 SUN COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. DEBT: The following table sets forth certain information regarding debt (in thousands): <TABLE> <CAPTION> June 30, December 31, 2001 2000 -------------- -------------- <S> <C> <C> Collateralized term loan, interest at 7.01%, due September 9, 2007 $ 43,112 $ 43,393 Senior notes, interest at 8.20%, due August 15, 2008 100,000 100,000 Senior notes, interest at 7.375%, due May 1, 2001 -- 65,000 Senior notes, interest at 7.625%, due May 1, 2003 85,000 85,000 Senior notes, interest at 6.97%, due December 3, 2007 35,000 35,000 Callable/redeemable notes, interest at 6.77%, due May 14, 2015, callable/redeemable May 16, 2005 65,000 65,000 Capitalized lease obligations, interest at 6.1%, due through December 2003 26,333 36,009 Mortgage notes, other 35,049 23,106 --------------- --------------- $ 389,494 $ 452,508 =============== =============== </TABLE> The Company had $52 million of its $125 million line of credit available to borrow at June 30, 2001. Borrowings under the line of credit bear interest at the rate of LIBOR plus 1.0% and mature January 1, 2003. 5. OTHER INCOME: The components of other income are as follows for the periods ended June 30, 2001 and 2000 (in thousands): <TABLE> <CAPTION> For the Three Months For the Six Months Ended June 30, Ended June 30, 2001 2000 2001 2000 ---------- --------- ---------- --------- <S> <C> <C> <C> <C> Interest income $ 2,668 $ 2,174 $ 6,121 $ 4,398 Income (loss) from affiliate (27) 172 138 91 Other income 891 771 1,739 1,532 ---------- ---------- ---------- ---------- $ 3,532 $ 3,117 $ 7,998 $ 6,021 ========== ========== ========== ========== </TABLE> 8
9 SUN COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. EARNINGS PER SHARE (IN THOUSANDS): <TABLE> <CAPTION> For the Three Months For the Six Months Ended June 30, Ended June 30, 2001 2000 2001 2000 ------------ ----------- ----------- ----------- <S> <C> <C> <C> <C> Earnings used for basic and diluted earnings per share computation $ 8,320 $ 7,305 $ 19,424 $ 14,662 ============ =========== =========== =========== Total shares used for basic earnings per share 17,203 17,310 17,284 17,298 Dilutive securities, principally stock options 172 123 149 91 ------------ ----------- ----------- ----------- Total weighted average shares used for diluted earnings per share computation 17,375 17,433 17,433 17,389 ============ =========== =========== =========== </TABLE> Diluted earnings per share reflect the potential dilution that would occur if dilutive securities were exercised or converted into common stock. Convertible POP Units are excluded from the computations as their inclusion would have an anti-dilutive effect on earnings per share in 2001 and 2000. 9
10 SUN COMMUNITIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes thereto. Capitalized terms are used as defined elsewhere in this Form 10-Q. RESULTS OF OPERATIONS Comparison of the six months ended June 30, 2001 and 2000 For the six months ended June 30, 2001, income before gain from property dispositions, net and minority interests increased by 6.4 percent from $20.8 million to $22.1 million, when compared to the six months ended June 30, 2000. The increase was due to increased revenues of $5.1 million while expenses increased by $3.8 million. Income from property increased by $3.1 million from $66.1 million to $69.2 million, or 4.8 percent, due to rent increases and other community revenues ($3.2 million) and acquisitions ($2.1 million), offset by a revenue reduction of $2.2 million due to property dispositions. Other income increased by $2.0 million from $6.0 million to $8.0 million due primarily to an increase in interest income. Property operating and maintenance expenses increased by $0.5 million from $13.9 million to $14.4 million, or 3.7 percent, representing general cost increases ($0.8 million) and acquisitions ($0.3 million) offset by an expense reduction of $0.6 million due to property dispositions. Real estate taxes increased by $0.1 million from $4.5 million to $4.6 million. Property management expenses remained constant at approximately $1.4 million for both periods representing 2.1 percent and 2.2 percent of income from property in 2001 and 2000, respectively. General and administrative expenses increased by $0.3 million from $2.0 million to $2.3 million, representing 3.0 percent and 2.8 percent of total revenues in 2001 and 2000, respectively. Earnings before interest, taxes, depreciation and amortization ("EBITDA", an alternative financial performance measure that may not be comparable to similarly titled measures reported by other companies, defined as total revenues less property operating and maintenance, real estate taxes, property management, and general and administrative expenses) increased by $4.3 million from $50.2 million to $54.5 million. EBITDA as a percent of revenues increased to 70.5 percent in 2001 compared to 69.6 percent in 2000. Depreciation and amortization increased by $0.8 million from $15.2 million to $16.1 million, or 5.6 percent, due primarily to the net additional investment in rental properties. Interest expense increased by $2.1 million from $14.2 million to $16.3 million, or 14.9 percent, due primarily to financing additional investments in rental property. 10
11 SUN COMMUNITIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS, CONTINUED Comparison of the three months ended June 30, 2001 and 2000 For the three months ended June 30, 2001, income before gain from property dispositions, net and minority interests increased by 4.7 percent from $10.4 million to $10.9 million, when compared to the three months ended June 30, 2000. The increase was due to increased revenues of $2.1 million while expenses increased by $1.6 million. Income from property increased by $1.7 million from $32.9 million to $34.6 million, or 5.1 percent, due to rent increases and other community revenues ($1.5 million) and acquisitions ($1.3 million), offset by a revenue reduction of $1.1 million due to property dispositions. Other income increased by $0.4 million from $3.1 million to $3.5 million due primarily to an increase in interest income. Property operating and maintenance expenses increased by $0.3 million from $6.7 million to $7.0 million, or 4.1 percent, representing general cost increases ($0.4 million) and property acquisitions ($0.2 million), offset by an expense reduction of $0.2 million due to property dispositions. Real estate taxes remained constant at $2.3 million for both periods. Property management expenses remained constant at approximately $0.7 million for both periods representing 1.9 percent and 2.2 percent of income from property in 2001 and 2000, respectively. General and administrative expenses increased by $0.2 million from $1.0 million to $1.2 million, representing 3.1 percent and 2.8 percent of total revenues in 2001 and 2000, respectively. EBITDA, increased by $1.6 million from $25.4 million to $27.0 million. EBITDA as a percent of revenues increased to 70.7 percent in 2001 compared to 70.4 percent in 2000. Depreciation and amortization increased by $0.5 million from $7.7 million to $8.2 million, or 7.0 percent, due primarily to the net additional investment in rental properties. Interest expense increased by $0.6 million from $7.3 million to $8.4 million, or 7.9 percent, due primarily to financing additional investments in rental property. 11
12 SUN COMMUNITIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SAME PROPERTY INFORMATION The following table reflects property-level financial information as of and for the six months ended June 30, 2001 and 2000. The "Same Property" data represents information regarding the operation of communities owned as of January 1, 2000 and June 30, 2001. Site, occupancy, and rent data for those communities is presented as of the last day of each period presented. The "Total Portfolio" column differentiates from the "Same Property" column by including financial information for managed but not owned communities, recreational vehicle communities, new development and acquisition communities. <TABLE> <CAPTION> Same Property Total Portfolio ------------------------ ------------------------- 2001 2000 2001 2000 ----------- ---------- ----------- ---------- <S> <C> <C> <C> <C> Income from property $52,245 $49,437 $69,241 $66,076 ------- ------- ------- ------- Property operating expenses: Property operating and maintenance 8,993 8,726 14,386 13,875 Real estate taxes 3,902 3,720 4,590 4,518 ------- ------- ------- ------- Property operating expenses 12,895 12,446 18,976 18,393 ------- ------- ------- ------- Property EBITDA $39,350 $36,991 $50,265 $47,683 ======= ======= ======= ======= Number of operating properties 90 90 112 111 Developed sites 30,196 29,981 39,010 38,641 Occupied sites 28,677 28,641 36,087 36,631 Occupancy % 95.0% 95.5% 94.5%(1) 95.4%(1) Weighted average monthly rent per site $ 298 $ 285 $ 296 (1) $ 284 (1) Sites available for development 2,564 2,159 5,109 5,844 Sites planned for development in current year 345 427 753 1,190 </TABLE> (1) Occupancy % and weighted average rent relates to manufactured housing sites, excluding recreational vehicle sites. On a same property basis, property EBITDA increased by $2.4 million from $37.0 million to $39.4 million, or 6.4 percent. Property revenues increased by $2.8 million from $49.4 million to $52.2 million, or 5.7 percent, due primarily to increases in rents and occupancy related charges including water and property tax pass through. Property operating expenses increased by $0.4 million from $12.5 million to $12.9 million or 3.6 percent, due to increased occupancies and costs. 12
13 SUN COMMUNITIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased by $10.8 million to $7.7 million at June 30, 2001 from $18.5 million at December 31, 2000 because cash used for financing and investing activities exceeded cash provided by operating activities. Net cash provided by operating activities increased by $10.2 million to $39.3 million for the six months ended June 30, 2001 compared to $29.1 million for the same period in 2000. This increase was primarily due to accounts payable and other liabilities increasing by $4.0 million, other assets decreasing by $4.0 million and a $2.2 million increase in income before minority interests, depreciation and amortization and gain from property dispositions, net. Net cash used in investing activities decreased by $48.7 million to $7.8 million for the six months ended June 30, 2001 compared to $56.5 million for the same period in 2000. This decrease was primarily due to a $21.9 million decrease in investments in notes receivable, net, proceeds related to property dispositions of $17.3 million and $15.3 million related to investments in and advances to affiliates, offset by a $5.8 million increase in rental property acquisition activities. Net cash used in financing activities was $42.4 million for the six months ended June 30, 2001 compared to $22.7 million provided by financing activities during the same period in 2000. This change was primarily because of $74.5 million in additional repayments on notes payable and other debt, treasury stock and operating partnership unit purchases increasing by $5.8 million, distributions increasing by $0.8 million, offset by $16.0 million in additional line of credit borrowings. The Company expects to meet its short-term liquidity requirements generally through its working capital provided by operating activities. The Company expects to meet certain long-term liquidity requirements such as scheduled debt maturities and property acquisitions through the issuance of equity or debt securities, or interests in the Operating Partnership. The Company considers these sources to be adequate and anticipates they will continue to be adequate to meet operating requirements, capital improvements, investment in development, and payment of distributions by the Company in accordance with REIT requirements in both the short and long term. The Company may also meet these short-term and long-term requirements by utilizing its $125 million line of credit which bears interest at LIBOR plus 1.0% and is due January 1, 2003. At June 30, 2001, the Company's debt to total market capitalization approximated 36.1% (assuming conversion of all Common OP Units to shares of common stock and including Preferred OP Units). The debt has a weighted average maturity of approximately 5.9 years and a weighted average interest rate of 7.0%. Recurring capital expenditures approximated $1.9 million and $2.0 million for the six months ended June 30, 2001 and 2000, respectively. 13
14 SUN COMMUNITIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OTHER Funds from operations ("FFO") is defined by the National Association of Real Estate Investment Trusts ("NAREIT") as "net income (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from sales of property, plus rental property depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures." Industry analysts consider FFO to be an appropriate supplemental measure of the operating performance of an equity REIT primarily because the computation of FFO excludes historical cost depreciation as an expense and thereby facilitates the comparison of REITs which have different cost bases in their assets. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time, whereas real estate values have instead historically risen or fallen based upon market conditions. FFO does not represent cash flow from operations as defined by generally accepted accounting principles and is a supplemental measure of performance that does not replace net income as a measure of performance or net cash provided by operating activities as a measure of liquidity. In addition, FFO is not intended as a measure of a REIT's ability to meet debt principal repayments and other cash requirements, nor as a measure of working capital. The following table calculates FFO for both basic and diluted purposes for the periods ended June 30, 2001 and 2000 (in thousands): <TABLE> <CAPTION> For the Three Months For the Six Months Ended June 30, Ended June 30, 2001 2000 2001 2000 ------------ ----------- ----------- ----------- <S> <C> <C> <C> <C> Net income $ 8,320 $ 7,305 $ 19,424 $ 14,662 Deduct gain from property dispositions, net (758) -- (4,275) -- Add: Minority interest in earnings to common OP Unit holders 1,282 1,135 2,983 2,293 Depreciation and amortization, net of corporate office depreciation 8,141 7,613 15,920 15,094 ------------ ----------- ----------- ----------- Funds from operations $ 16,985 $ 16,053 $ 34,052 $ 32,049 ============ =========== =========== =========== Weighted average common shares OP Units outstanding used for basic per share/unit data 19,856 19,999 19,940 20,003 Dilutive securities: Stock options and awards 172 123 149 91 ------------ ----------- ----------- ----------- Weighted average common shares and OP Units used for diluted per share/unit data 20,028 20,122 20,089 20,094 ============ =========== =========== =========== </TABLE> 14
15 SUN COMMUNITIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OTHER CONTINUED: Special Note Regarding Forward-Looking Statements This Form 10-Q contains various "forward-looking statements" within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. The words "may", "will", "expect", "believe", "anticipate", "should", "estimate", and similar expressions identify forward-looking statements. These forward-looking statements reflect the Company's current views with respect to future events and financial performance, but are based upon current assumptions regarding the Company's operations, future results and prospects, and are subject to many uncertainties and factors relating to the Company's operations and business environment which may cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements. Please see the section entitled "Factors That May Affect Future Results" of the Company's Annual Report on Form 10-K for the year ended December 31,2000 filed with the Securities and Exchange Commission for a list of uncertainties and factors. Such factors include, but are not limited to, the following: (i) changes in the general economic climate; (ii) increased competition in the geographic areas in which the Company owns and operates manufactured housing communities; (iii) changes in government laws and regulations affecting manufactured housing communities; and (iv) the ability of the Company to continue to identify, negotiate and acquire manufactured housing communities and/or vacant land which may be developed into manufactured housing communities on terms favorable to the Company. The Company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") approved Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires, among other things, that the purchase method of accounting for business combinations be used for all business combinations initiated after June 30, 2001. SFAS 142 addresses the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS 142 requires, among other things, that goodwill and other indefinite-lived intangible assets no longer be amortized and that such assets be tested for impairment at least annually. SFAS 142 is effective for fiscal years beginning after December 15, 2001. The Company is currently evaluating the impact these standards will have on its financial statements. 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. The Company adopted SFAS 133 as amended by SFAS 137 and 138 effective January 1, 2001. There was no effect from the application of SFAS 133 on the earnings and financial position of the Company as the Company had no derivative instruments at June 30, 2001 and December 31, 2000. 15
16 SUN COMMUNITIES, INC. PART II ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 22, 2001, the Company held its Annual Meeting of Shareholders. The following matters were voted upon at the meeting: (a) The election of two directors to serve until the 2004 Annual Meeting of Shareholders or until their respective successors shall be elected and shall qualify. The results of the election appear below: <TABLE> <CAPTION> Votes Against Abstentions or Name Votes For or Withheld Broker Non-Votes ------------------- ------------- ------------------ ---------------- <S> <C> <C> <C> Clunet R. Lewis 14,307,806 0 46,838 Arthor A. Weiss 14,308,456 0 46,187 </TABLE> ITEM 6.(a) - EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K None ITEM 6.(b) - REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K during the period covered by this Form 10-Q. 16
17 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: August 13, 2001 SUN COMMUNITIES, INC. BY: /s/ Jeffrey P. Jorissen -------------------------------------------------------- Jeffrey P. Jorissen, Chief Financial Officer and Secretary (Duly authorized officer and principal financial officer) 17