UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
fiscal year ended December 31, 2009
Commission
file number 1-12616
SUN COMMUNITIES,
INC.
(Exact
Name of Registrant as Specified in its Charter)
Maryland
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38-2730780
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(State
of Incorporation)
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(I.R.S.
Employer Identification No.)
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27777
Franklin Rd.
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Suite
200
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Southfield,
Michigan
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48034
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(Registrant’s
telephone number, including area code)
Common
Stock, Par Value $0.01 per Share
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New
York Stock Exchange
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Securities
Registered Pursuant to Section 12(b) of the Act
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Name
of each exchange on which
registered
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Securities
Registered Pursuant to Section 12(g) of the Act:
None
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes
[ ] No [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange
Act. Yes[ ] No [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
[ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
[ ] No [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
(Check one):
Large
accelerated filer [ ]
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Accelerated
filer [ X]
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Non-accelerated
filer [ ]
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Smaller
reporting company [ ]
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Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes[ ] No
[X]
As of June
30, 2009, the aggregate market value of the Registrant’s stock held by
non-affiliates was approximately $229,522,000 (computed by reference to the
closing sales price of the Registrant’s common stock as of June 30, 2009). For
this computation, the Registrant has excluded the market value of all shares of
common stock reported as beneficially owned by executive officers and directors
of the Registrant; such exclusion shall not be deemed to constitute an admission
that any such person is an affiliate of the Registrant.
Number of
shares of Common Stock, $0.01 par value per share, outstanding as of March 1,
2010: 18,830,191
Table
of Contents
Item
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Description
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Page
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Part
I.
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3
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7
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15
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15
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20
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Part
II.
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21
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24
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25
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42
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42
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42
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43
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43
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Part
III.
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44
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51
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62
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64
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66
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Part
IV.
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67
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PART
I
GENERAL
Sun
Communities, Inc., a Maryland corporation, together with the Sun Communities
Operating Limited Partnership, a Michigan limited partnership (the “Operating
Partnership”) and other consolidated subsidiaries (the “Subsidiaries”) are
referred to herein as the “Company”, “us”, “we”, and “our”. We are a
self-administered and self-managed real estate investment trust
(“REIT”).
We are a
fully integrated real estate company which, together with our affiliates and
predecessors, has been in the business of acquiring, operating, and expanding
manufactured housing communities since 1975. We lease individual
parcels of land (“sites”) with utility access for placement of manufactured
homes and recreational vehicles to our customers. We are also engaged through a
taxable subsidiary, Sun Home Services, Inc., a Michigan corporation (“SHS”), in
the marketing, selling, and leasing of new and pre-owned homes to current and
future residents in our communities. The operations of SHS support
and enhance our occupancy levels, property performance, and cash
flows.
We own,
operate, and develop manufactured housing communities concentrated in the
midwestern, southern, and southeastern United States. As of December 31, 2009,
we owned and operated a portfolio of 136 properties located in 18 states (the
“Properties”, or “Property”), including 124 manufactured housing communities, 4
recreational vehicle communities, and 8 properties containing both manufactured
housing and recreational vehicle sites. As of December 31, 2009, the Properties
contained an aggregate of 47,572 developed sites comprised of 42,294 developed
manufactured home sites, 3,176 permanent recreational vehicle sites, 2,102
seasonal recreational vehicle sites, and approximately 6,000 additional
manufactured home sites suitable for development.
Our
executive and principal property management office is located at 27777 Franklin
Road, Suite 200, Southfield, Michigan 48034 and our telephone number is (248)
208-2500. We have regional property management offices located in Austin, Texas;
Dayton, Ohio; Grand Rapids, Michigan; Elkhart, Indiana; and Orlando, Florida,
and we employed an aggregate of 664 full and part time people as of December 31,
2009.
Our
website address is www.suncommunities.com
and we make available, free of charge, on or through our website all of our
periodic reports, including our annual report on Form 10-K, quarterly reports on
Form 10-Q and current reports on Form 8-K, as soon as reasonably practicable
after we file such reports with the Securities and Exchange
Commission.
RECENT
DEVELOPMENTS
Shelf
Registration
Our shelf
registration for up to $300.0 million of common stock, preferred stock and debt
securities expired December 31, 2008. In April 2009, we filed a new
shelf registration statement on Form S-3 with the SEC to replace the previous
shelf registration for a proposed offering of up to $300.0 million of our common
stock, preferred stock and debt securities. The SEC declared the new shelf
registration effective in May 2009.
Derivative
Instruments and Hedging Activities
We
entered into three new derivative contracts during 2009 consisting of two
interest rate swap agreements with a total notional amount of $45.0 million and
an interest rate cap agreement with a notional amount of $152.4
million. We utilize these derivative instruments to manage exposure
to interest rate movements thereby minimizing the effect of interest rate
changes and the effect it could have on future cash
flows. These derivative instruments effectively convert a
portion of our variable rate debt to fixed rate debt and cap the maximum
interest rate on certain variable rate borrowings. We do not enter into
derivative instruments for speculative purposes. Additional
information is included in Note 15 of the Notes to Consolidated Financial
Statements included herein.
Debt
Upon the
maturity of our $40.0 million floor plan facility in March 2009, we entered into
a new $10.0 million manufactured home floor plan facility. The floor plan
facility initially had a committed term of one year. In February
2010, the floor plan facility was renewed indefinitely until our lender provides
us 12 month notice of their intent to terminate the agreement. The
interest rate is 100 basis points over the greater of Prime or 6.0 percent
(effective rate 7.0 percent as of December 31, 2009). Prime means for
any month, the prevailing “prime rate” as quoted in the Wall Street Journal on
last day of such calendar month.
We
completed a financing of $18.5 million with Bank of America in June 2009. The
loan has a three year term. The loan is secured by three properties. The
interest rate is 400 basis points over LIBOR, with a minimum rate of 5.0 percent
(effective rate 5.0 percent as of December 31, 2009). Proceeds of $11.2 million
were used to repay mortgage notes that matured in June 2009. The remaining
proceeds were used to pay down our unsecured line of credit.
We have
completed various transactions involving our installment notes secured by
manufactured homes. We have received $31.3 million of cash proceeds
in exchange for relinquishing our right, title and interest in the installment
notes during 2009. These transactions were recorded as a transfer of
financial assets, and the cash proceeds related to these transactions were
recorded as a secured borrowing. Additional information is included
in Note 4 of the Notes to Consolidated Financial Statements included
herein.
Divestiture
of Cable Television Service Business
In the
fourth quarter of fiscal 2008, we announced our intention to exit the cable
television service business. We completed the sale of the business during the
third quarter ended September 30, 2009. Cash proceeds from this sale
were $0.3 million, resulting in a net gain on sale of $0.1 million. Additional
information is included in Note 2 of the Notes to Consolidated Financial
Statements included herein.
Georgia
Flood Damage
On
September 21, 2009, a flood caused substantial damage to our property,
Countryside Village of Atlanta, located in Lawrenceville, Georgia. We
have comprehensive insurance coverage for both property damage and business
interruption, subject to deductibles and certain limitations. We
believe the cost of the damage sustained from the flooding will be in excess of
our insurance deductible. We recorded a charge of $0.8 million during
the third quarter ended September 30, 2009 associated with the
flooding. This charge represents our deductible, net of expected
insurance recoveries for the replacement of assets that exceed the net book
value of assets damaged in the flood.
Equity
Offerings
We
entered into a sales agreement to issue and sell up to 1,600,000 shares of
common stock from time to time pursuant to our effective shelf registration
statement on Form S-3. Sales under the agreement commenced during the
third quarter of 2009 and we have issued 100,000 shares of common stock through
this program as of December 31, 2009. The shares of common stock were sold at
the prevailing market price of our common stock at the time of each sale with a
weighted average sale price of $19.98. We received net proceeds of
approximately $1.9 million during the year ended December 31, 2009 from the
sales of these shares of common stock. The proceeds were used to pay
down our unsecured line of credit.
Equity
Incentive Plan
At the
Annual Meeting of Stockholders held on July 29, 2009, the stockholders approved
the Sun Communities, Inc. Equity Incentive Plan (“2009 Equity
Plan”). The 2009 Equity Plan had been adopted by the Board and was
effective upon approval by our stockholders. The 2009 Equity Plan replaced the
Sun Communities, Inc. Stock Option Plan adopted in 1993, amended and restated in
1996 and 2000. The 2009 Equity Plan terminates automatically July 29,
2019. The maximum number of shares of common stock that may be issued
under the 2009 Equity Plan is 950,000 shares.
STRUCTURE
OF THE COMPANY
The
Operating Partnership is structured as an umbrella partnership REIT, or
UPREIT. We contributed our net assets to the Operating Partnership in
exchange for the sole general partner interest in the Operating Partnership and
the majority of all the Operating Partnership’s initial capital. We
substantially conduct our operations through the Operating
Partnership. The Operating Partnership owns, either directly or
indirectly through Subsidiaries, all of our assets. This UPREIT structure
enables us to comply with certain complex requirements under the Federal tax
rules and regulations applicable to REITs, and to acquire manufactured housing
communities in transactions that defer some or all of the sellers’ tax
consequences. The financial results of the Operating Partnership and
the Subsidiaries are consolidated in our Consolidated Financial
Statements. The financial results include certain activities that do
not necessarily qualify as REIT activities under the Internal Revenue Code of
1986, as amended (the “Code”). We have formed taxable REIT
subsidiaries, as defined in the Code, to engage in such activities. We use
taxable REIT subsidiaries to offer certain services to our residents and engage
in activities that would not otherwise be permitted under the REIT rules if
provided directly by us or by the Operating Partnership. The taxable
REIT subsidiaries include our home sales business, SHS, which provides
manufactured home sales, leasing and other services to current and prospective
tenants of the Properties.
We do not
own all the interests in the Operating Partnership. The interests in
the Operating Partnership held by limited partners other than Sun Communities,
Inc. are referred to as “OP Units”. The holders of Common OP Units
receive distributions in an amount equal to the dividends paid to holders of our
common stock. As of December 31, 2009, the Operating Partnership had
a total of approximately 21.0 million units outstanding. We held
approximately 18.8 million units, or 89.8% of the units (not including preferred
limited partnership units) in the Operating Partnership.
THE MANUFACTURED HOUSING
COMMUNITY
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, and laundry
facilities.
The owner
of each home on our Properties leases the site on which the home is located. We
own the underlying land, utility connections, streets, lighting, driveways,
common area amenities and other capital improvements and are responsible for
enforcement of community guidelines and maintenance. Some of the Properties
provide water and sewer service through public or private utilities, while
others provide these services to residents from on-site facilities. Each owner
within our Properties is responsible for the maintenance of the home and leased
site. As a result, capital expenditure needs tend to be less significant
relative to multi-family rental apartment complexes.
PROPERTY
MANAGEMENT
Our
property management strategy emphasizes intensive, hands-on management by
dedicated, on-site district and community managers. We believe that this on-site
focus enables us to continually monitor and address tenant concerns, the
performance of competitive properties and local market conditions. As
of December 31, 2009, we employed 664 full and part time employees, of which 548
were located on-site as property managers, support staff, or maintenance
personnel.
Our
community managers were overseen by John B. McLaren, Chief Operating Officer,
who has 14 years of manufactured housing and related financing experience, 3
Senior Vice Presidents of Operations and 12 Regional Vice Presidents. In
addition, the Regional Vice Presidents are responsible for semi-annual market
surveys of competitive communities, interaction with local manufactured home
dealers and regular property inspections.
Each
district or community manager performs regular inspections in order to
continually monitor the Property’s physical condition and provides managers with
the opportunity to understand and effectively address tenant concerns. In
addition to a district or community manager, each district or property has an
on-site maintenance personnel and management support staff. We hold mandatory
training sessions for all new property management personnel to ensure that
management policies and procedures are executed effectively and
professionally. All of our property management personnel participate
in on-going training to ensure that changes to management policies and
procedures are implemented consistently. We offer over 30 courses for
our team members which has led to increased knowledge and accountability of the
daily operations and policies and procedures.
HOME
SALES AND LEASING
SHS is
engaged in the marketing, selling, and leasing of new and pre-owned homes to
current and future residents in our communities. Since tenants often purchase a
home already on-site within a community, such services enhance occupancy and
property performance. Additionally, because many of the homes on the Properties
are sold through SHS, better control of home quality in our communities can be
maintained than if sales services were conducted solely through third-party
brokers. SHS also leases homes to prospective tenants. At December 31, 2009, SHS
had 5,747 occupied leased homes in its portfolio. Homes for this rental program
are purchased at discounted rates from finance companies that hold repossessed
homes within our communities. New homes are purchased as necessary to supplement
these repossessed home purchases. Leases associated with the rental program are,
in general, one year leases. This program requires intensive management of costs
associated with repair and refurbishment of these homes as the tenants vacate
and the homes are re-leased, similar to apartment rentals. We have added repair
and service supervisors in areas with high concentrations of rental homes to
aggressively pursue cost containment programs. The program is a strategic
response to capture the value inherent in the purchase of substantially
discounted repossessed homes in our communities. We receive approximately 19,000
applications each year to live in our Properties, providing a significant
“resident boarding” system allowing us to market purchasing a home to the best
applicants and to rent to the remainder of approved applicants. Through the
rental program we are able to demonstrate our product and lifestyle to the
renters, while monitoring their payment history and converting qualified renters
to owners.
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. We believe that each Property
has the necessary operating permits and approvals.
Insurance
Our
management believes that the Properties are covered by adequate fire, flood
(where appropriate), property and business interruption insurance provided by
reputable companies with commercially reasonable deductibles and limits. We
maintain a blanket policy that covers all of our Properties. We have obtained
title insurance insuring fee title to the Properties in an aggregate amount
which we believe to be adequate. Claims made to our insurance
carriers that are determined to be recoverable are classified in other
receivables as incurred.
SITE LEASES OR USAGE
RIGHTS
The
typical lease we enter into with a tenant for the rental of a manufactured home
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 (mainly in
Florida), 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. Generally, market rate adjustments are made on an annual
basis. These leases are cancelable for non-payment of rent, violation
of community rules and regulations or other specified defaults. During the past
five years, on average 3.0 percent of the homes in our communities have been
removed by their owners and 6.6 percent of the homes have been sold by their
owners to a new owner who then assumes rental obligations as a community
resident. The cost to move a home is approximately $4,000 to $10,000. The above
experience can be summarized as follows: the average resident remains in our
communities for approximately fifteen years, while the average home, which gives
rise to the rental stream, remains in our communities for approximately thirty
three years.
At
Properties zoned for recreational vehicle (“RV”) use, our customers have
short-term (“seasonal”) usage rights or long-term (“permanent”) usage
rights. The seasonal RV customers typically prepay for their stay or
leave deposits to reserve a site for the following year. Many of
these RV customers do not live full time on the Property.
FORWARD-LOOKING
STATEMENTS
This Form
10-K contains various “forward-looking statements” within the meaning of the
Securities Act of 1933 and the Securities Exchange Act of 1934, and we intend
that such forward-looking statements will be subject to the safe harbors created
thereby. For this purpose, any statements contained in this filing that relate
to prospective events or developments are deemed to be forward-looking
statements. Words such as “believes,” “forecasts,” “anticipates,” “intends,”
“plans,” “expects,” “may”, “will” and similar expressions are intended to
identify forward-looking statements. These forward-looking statements reflect
our current views with respect to future events and financial performance, but
involve known and unknown risks and uncertainties, both general and specific to
the matters discussed in this filing. These risks and uncertainties may cause
our actual results to be materially different from any future results expressed
or implied by such forward looking statements. Such risks and uncertainties
include the national, regional and local economic climates, the ability to
maintain rental rates and occupancy levels, competitive market forces, changes
in market rates of interest, the ability of manufactured home buyers to obtain
financing, the level of repossessions by manufactured home lenders and those
risks and uncertainties referenced under the headings entitled “Risk Factors”
contained in this Form 10-K and our filings with the Securities and Exchange
Commission. The forward-looking statements contained in this Form 10-K speak
only as of the date hereof and we expressly disclaims any obligation to provide
public updates, revisions or amendments to any forward-looking statements made
herein to reflect changes in our expectations of future events.
Our
prospects are subject to certain uncertainties and risks. Our future results
could differ materially from current results, and our actual results could
differ materially from those projected in forward-looking statements as a result
of certain risk factors. These risk factors include, but are not limited to,
those set forth below, other one-time events, and important factors disclosed
previously and from time to time in our other filings with the Securities and
Exchange Commission.
General
economic conditions and the concentration of our properties in Michigan,
Florida, Indiana, and Texas may affect our ability to generate sufficient
revenue.
The
market and economic conditions in our current markets generally, and
specifically in metropolitan areas of our current markets, may significantly
affect manufactured home occupancy or rental rates. Occupancy and rental rates,
in turn, may significantly affect our revenues, and if our communities do not
generate revenues sufficient to meet our operating expenses, including debt
service and capital expenditures, our cash flow and ability to pay or refinance
our debt obligations could be adversely affected. We derived significant amounts
of rental income for the twelve months ended December 31, 2009 from properties
located in Michigan, Florida, Indiana, and Texas. As of December 31, 2009, 47 of
our 136 Properties representing approximately 30% of developed sites, are
located in Michigan; 19 Properties representing approximately 21% of developed
sites, are located in Florida; 18 Properties representing approximately 14% of
developed sites, are located in Indiana; and 17 Properties representing
approximately 11% of developed sites are located in Texas. As a result of the
geographic concentration of our Properties in Michigan, Florida, Indiana, and
Texas, we are exposed to the risks of downturns in the local economy or other
local real estate market conditions which could adversely affect occupancy
rates, rental rates, and property values of properties in these
markets.
The
following factors, among others, may adversely affect the revenues generated by
our communities:
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the
national and local economic climate which may be adversely impacted by,
among other factors, plant closings, and industry
slowdowns;
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local
real estate market conditions such as the oversupply of manufactured
housing sites or a reduction in demand for manufactured housing sites in
an area;
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the
number of repossessed homes in a particular
market;
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the
lack of an established dealer
network;
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the
rental market which may limit the extent to which rents may be increased
to meet increased expenses without decreasing occupancy
rates;
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the
perceptions by prospective tenants of the safety, convenience and
attractiveness of our Properties and the neighborhoods where they are
located;
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zoning
or other regulatory restrictions;
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competition
from other available manufactured housing communities and alternative
forms of housing (such as apartment buildings and site-built single-family
homes);
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our
ability to provide adequate management, maintenance and
insurance;
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increased
operating costs, including insurance premiums, real estate taxes, and
utilities; and
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the
enactment of rent control laws or laws taxing the owners of manufactured
homes.
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REAL
ESTATE RISKS, CONTINUED
Our
income would also be adversely affected if tenants were unable to pay rent or if
sites were unable to be rented on favorable terms. If we were unable to promptly
relet or renew the leases for a significant number of the sites, or if the
rental rates upon such renewal or reletting were significantly lower than
expected rates, then our business and results of operations could be adversely
affected. In addition, certain expenditures associated with each Property (such
as real estate taxes and maintenance costs) generally are not reduced when
circumstances cause a reduction in income from the Property. Furthermore, real
estate investments are relatively illiquid and, therefore, will tend to limit
our ability to vary our portfolio promptly in response to changes in economic or
other conditions.
Competition
affects occupancy levels and rents which could adversely affect our
revenues.
All of
our 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 adverse effect
on our ability to lease sites and increase rents charged at our Properties or at
any newly acquired properties. We may be competing with others with greater
resources and whose officers and directors have more experience than our
officers and directors. In addition, other forms of multi-family residential
properties, such as private and federally funded or assisted multi-family
housing projects and single-family housing, provide housing alternatives to
potential tenants of manufactured housing communities.
Our
ability to sell or lease manufactured homes may be affected by various factors,
which may in turn adversely affect our profitability.
SHS
operates in the manufactured home market offering manufactured home sales and
leasing services to tenants and prospective tenants of our
communities. The market for the sale and lease of manufactured homes
may be adversely affected by the following factors:
·
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downturns
in economic conditions which adversely impact the housing
market;
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·
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an
oversupply of, or a reduced demand for, manufactured
homes;
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the
difficulty facing potential purchasers in obtaining affordable financing
as a result of heightened lending criteria;
and
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an
increase or decrease in the rate of manufactured home repossessions which
provide aggressively priced competition to new manufactured home
sales.
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Any of
the above listed factors could adversely impact our rate of manufactured home
sales and leases, which would result in a decrease in
profitability.
Increases
in taxes and regulatory compliance costs may reduce our revenue.
Costs
resulting from changes in real estate laws, income taxes, service or other
taxes, generally are not passed through to tenants under leases and may
adversely affect our funds from operations and our ability to pay or refinance
our debt. Similarly, changes in laws increasing the potential liability for
environmental conditions existing on properties or increasing the restrictions
on discharges or other conditions may result in significant unanticipated
expenditures, which would adversely affect our business and results of
operations.
REAL
ESTATE RISKS, CONTINUED
We
may not be able to integrate or finance our development activities.
From time
to time, we engage in the construction and development of new communities, and
may continue to engage in the development and construction business in the
future. Our development and construction business may be exposed to the
following risks which are in addition to those risks associated with the
ownership and operation of established manufactured housing
communities:
·
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we
may not be able to obtain financing with favorable terms for community
development which may make us unable to proceed with the
development;
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·
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we
may be unable to obtain, or face delays in obtaining, necessary zoning,
building and other governmental permits and authorizations, which could
result in increased costs and delays, and even require us to abandon
development of the community entirely if we are unable to obtain such
permits or authorizations;
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·
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we
may abandon development opportunities that we have already begun to
explore and as a result we may not recover expenses already incurred in
connection with exploring such development
opportunities;
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·
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we
may be unable to complete construction and lease-up of a community on
schedule resulting in increased debt service expense and construction
costs;
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·
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we
may incur construction and development costs for a community which exceed
our original estimates due to increased materials, labor or other costs,
which could make completion of the community uneconomical and we may not
be able to increase rents to compensate for the increase in development
costs which may impact our
profitability;
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·
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we
may be unable to secure long-term financing on completion of development
resulting in increased debt service and lower profitability;
and
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·
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occupancy
rates and rents at a newly developed community may fluctuate depending on
several factors, including market and economic conditions, which may
result in the community not being
profitable.
|
If any of
the above occurred, our business and results of operations could be adversely
affected.
We
may not be able to integrate or finance our acquisitions and our acquisitions
may not perform as expected.
We
acquire and intend to continue to acquire manufactured housing communities on a
select basis. Our acquisition activities and their success are subject to the
following risks:
·
|
we
may be unable to acquire a desired property because of competition from
other well capitalized real estate investors, including both publicly
traded real estate investment trusts and institutional investment
funds;
|
·
|
even
if we enter into an acquisition agreement for a property, it is usually
subject to customary conditions to closing, including completion of due
diligence investigations to our satisfaction, which may not be
satisfied;
|
·
|
even
if we are able to acquire a desired property, competition from other real
estate investors may significantly increase the purchase
price;
|
·
|
we
may be unable to finance acquisitions on favorable
terms;
|
·
|
acquired
properties may fail to perform as
expected;
|
·
|
acquired
properties may be located in new markets where we face risks associated
with a lack of market knowledge or understanding of the local economy,
lack of business relationships in the area and unfamiliarity with local
governmental and permitting procedures;
and
|
·
|
we
may be unable to quickly and efficiently integrate new acquisitions,
particularly acquisitions of portfolios of properties, into our existing
operations.
|
If any of
the above occurred, our business and results of operations could be adversely
affected.
REAL
ESTATE RISKS, CONTINUED
In
addition, we may acquire properties subject to liabilities and without any
recourse, or with only limited recourse, with respect to unknown liabilities. As
a result, if a liability were to be asserted against us based upon ownership of
those properties, we might have to pay substantial sums to settle it, which
could adversely affect our cash flow.
Rent
control legislation may harm our ability to increase rents.
State and
local rent control laws in certain jurisdictions may limit our 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. Certain Properties are located, and we may purchase
additional properties, in markets that are either subject to rent control or in
which rent-limiting legislation exists or may be enacted.
We
may be subject to environmental liability.
Under
various federal, state and local laws, ordinances and regulations, an owner or
operator of real estate is liable for the costs of removal or remediation of
certain hazardous substances at, on, under or in such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous substances. The presence of such
substances, or the failure to properly remediate such substances, may adversely
affect the owner’s ability to sell or rent such property, to borrow using such
property as collateral or to develop such property. Persons who arrange for the
disposal or treatment of hazardous substances also may be liable for the costs
of removal or remediation of such substances at a disposal or treatment facility
owned or operated by another person. In addition, certain environmental laws
impose liability for the management and disposal of asbestos-containing
materials and for the release of such materials into the air. These laws may
provide for third parties to seek recovery from owners or operators of real
properties for personal injury associated with asbestos-containing materials. In
connection with the ownership, operation, management, and development of real
properties, we may be considered an owner or operator of such properties and,
therefore, are potentially liable for removal or remediation costs, and also may
be liable for governmental fines and injuries to persons and property. When we
arrange for the treatment or disposal of hazardous substances at landfills or
other facilities owned by other persons, we may be liable for the removal or
remediation costs at such facilities.
All of
the Properties have been subject to a Phase I or similar environmental audit
(which involves general inspections without soil sampling or ground water
analysis) completed by independent environmental consultants. These
environmental audits have not revealed any significant environmental liability
that would have a material adverse effect on our business. These audits cannot
reflect conditions arising after the studies were completed, and no assurances
can be given that existing environmental studies reveal all environmental
liabilities, that any prior owner or operator of a property or neighboring owner
or operator did not create any material environmental condition not known to us,
or that a material environmental condition does not otherwise exist as to any
one or more Properties.
Losses
in excess of our insurance coverage or uninsured losses could adversely affect
our cash flow.
We
maintain comprehensive liability, fire, flood (where appropriate), extended
coverage, and rental loss insurance on the Properties with policy
specifications, limits, and deductibles which are customarily carried for
similar properties. Certain types of losses, however, may be either uninsurable
or not economically insurable, such as losses due to earthquakes, riots, or acts
of war. In the event an uninsured loss occurs, we could lose both our investment
in and anticipated profits and cash flow from the affected property. Any loss
could adversely affect our ability to repay our debt.
FINANCING AND INVESTMENT
RISKS
Our significant amount of debt could
limit our operational flexibility or otherwise adversely affect our financial
condition.
We have a
significant amount of debt. As of December 31, 2009, we had approximately $1.2
billion of total debt outstanding, consisting of approximately $1.1 billion in
debt that is collateralized by mortgage liens on 106 of the Properties (the
“Mortgage Debt”) and secured by collateralized receivables, $5.3 million is
collateralized by liens on manufactured homes, and $138.0 million in unsecured
debt. If we fail to meet our obligations under the Mortgage Debt, the lender
would be entitled to foreclose on all or some of the Properties securing such
debt which could have a material adverse effect on us and our ability to make
expected distributions, and could threaten our continued viability.
We are
subject to the risks normally associated with debt financing, including the
following risks:
·
|
our
cash flow may be insufficient to meet required payments of principal and
interest, or require us to dedicate a substantial portion of
our cash flow to pay our debt and the interest associated with our debt
rather than to other areas of our
business;
|
·
|
our
existing indebtedness may limit our operating flexibility due to financial
and other restrictive covenants, including restrictions on incurring
additional debt;
|
·
|
it
may be more difficult for us to obtain additional financing in the future
for our operations, working capital requirements, capital expenditures,
debt service or other general
requirements;
|
·
|
we
may be more vulnerable in the event of adverse economic and industry
conditions or a downturn in our
business;
|
·
|
we
may be placed at a competitive disadvantage compared to our competitors
that have less debt; and
|
·
|
we
may not be able to refinance at all or on favorable terms, as our debt
matures.
|
If any of
the above risks occurred, our financial condition and results of operations
could be materially adversely affected.
We
may be able to incur substantially more debt, which would increase the risks
associated with our substantial leverage.
Despite
our current indebtedness levels, we may still be able to incur substantially
more debt in the future. If new debt is added to our current debt levels, an
even greater portion of our cash flow will be needed to satisfy our debt service
obligations. As a result, the related risks that we now face could intensify and
increase the risk of a default on our indebtedness.
Our
equity investment in Origen Financial, Inc. may subject us to certain
risks.
In
October 2003, we purchased 5,000,000 shares of common stock of Origen Financial,
Inc. (“Origen”). We own approximately 19% of Origen as of December 31, 2009, and
we account for our investment using the equity method of
accounting. The carrying value of our investment in Origen was $1.6
million as of December 31, 2009.
In
December 2008, Origen voluntarily delisted its common stock from the NASDAQ
Global Market and deregistered its common stock under the Securities and
Exchange Act of 1934. Currently, Origen is actively managing its residual
interests in securitized loans, whole loans, and bond holdings which provide
continuing cash flows for the organization.
We
recorded equity losses from our investment in Origen of $1.7 million, $16.5
million, and $8.0 million for the years ended December 31, 2009, 2008, and 2007,
respectively. These equity losses included other than temporary
charges of $9.6 million and $1.9 million for the years ended December 31, 2008
and 2007, respectively.
If
Origen’s business and financial condition do not perform as expected, our
investment in Origen may result in additional equity losses and additional other
than temporary impairment charges, and our financial condition and results of
operations could be materially adversely affected.
FINANCING
AND INVESTMENT RISKS, CONTINUED
The
financial condition and solvency of our borrowers may adversely affect our
installment and other loans.
As of
December 31, 2009, we had outstanding approximately $64.8 million, net of
reserves, in installment loans to owners of manufactured homes. These
installment loans are collateralized by the manufactured homes. We may invest in
additional mortgages and installment loans in the future. By virtue of our
investment in the mortgages and the loans, we are subject to the following risks
of such investment:
·
|
the
borrowers may not be able to make debt service payments or pay principal
when due;
|
·
|
the
value of property securing the mortgages and installment notes receivable
may be less than the amounts owed;
and
|
·
|
interest
rates payable on the mortgages and installment notes receivable may be
lower than our cost of funds.
|
If any of
the above occurred, our business and results of operations could be adversely
affected.
TAX
RISKS
We
may suffer adverse tax consequences and be unable to attract capital if we fail
to qualify as a REIT.
We
believe that since our taxable year ended December 31, 1994, we have been
organized and operated, and intend to continue to operate, so as to qualify for
taxation as a REIT under the Code. Although we believe that we have been and
will continue to be organized and have operated and will continue to operate so
as to qualify for taxation as a REIT, we cannot be assured that we have been or
will continue to be organized or operated in a manner to so qualify or remain so
qualified. Qualification as a REIT involves the satisfaction of numerous
requirements (some on an annual and quarterly basis) established under highly
technical and complex Code provisions for which there are only limited judicial
or administrative interpretations, and involves the determination of various
factual matters and circumstances not entirely within our control. In addition,
frequent changes occur in the area of REIT taxation, which require us to
continually to monitor our tax status.
If we
fail to qualify as a REIT in any taxable year, we would be subject to federal
income tax (including any applicable alternative minimum tax) on our taxable
income at regular corporate rates. Moreover, unless entitled to relief under
certain statutory provisions, we also would be disqualified from treatment as a
REIT for the four taxable years following the year during which qualification
was lost. This treatment would reduce our net earnings available for investment
or distribution to stockholders because of the additional tax liability to us
for the years involved. In addition, distributions to stockholders would no
longer be required to be made. Even if we qualify for and maintain our REIT
status, we will be subject to certain federal, state and local taxes on our
property and certain of our operations.
TAX
RISKS, CONTINUED
We
intend for the Operating Partnership to qualify as a partnership, but we cannot
guarantee that it will qualify.
We
believe that the Operating Partnership has been organized as a partnership and
will qualify for treatment as such under the Code. However, if the Operating
Partnership is deemed to be a “publicly traded partnership,” it will be treated
as a corporation instead of a partnership for federal income tax purposes unless
at least 90% of its income is qualifying income as defined in the Code. The
income requirements applicable to REITs and the definition of “qualifying
income” for purposes of this 90% test are similar in most respects. Qualifying
income for the 90% test generally includes passive income, such as specified
types of real property rents, dividends and interest. We believe that the
Operating Partnership would meet this 90% test, but we cannot guarantee that it
would. If the Operating Partnership were to be taxed as a corporation, it would
incur substantial tax liabilities, we would fail to qualify as a REIT for
federal income tax purposes, and our ability to raise additional capital could
be significantly impaired.
Our
ability to accumulate cash may be restricted due to certain REIT distribution
requirements.
In order
to qualify as a REIT, we must distribute to our stockholders at least 90% of our
REIT taxable income (calculated without any deduction for dividends paid and
excluding net capital gain) and to avoid federal income taxation, our
distributions must not be less than 100% of our REIT taxable income, including
capital gains. As a result of the distribution requirements, we do not expect to
accumulate significant amounts of cash. Accordingly, these distributions could
significantly reduce the cash available to us in subsequent periods to fund our
operations and future growth.
BUSINESS
RISKS
Some
of our directors and officers may have conflicts of interest with respect to
certain related party transactions and other business interests.
Ownership of Origen. In the
2003 recapitalization of Origen Financial, Inc., (“Origen”), we purchased
5,000,000 shares of Origen common stock for $50.0 million and Shiffman Origen
LLC (which is owned by the Milton M. Shiffman Spouse’s Marital Trust, Gary A.
Shiffman (our Chief Executive Officer), and members of Mr. Shiffman’s family)
purchased 1,025,000 shares of Origen common stock for approximately $10.3
million. Gary A. Shiffman is a member of the board of directors of Origen and
Arthur A. Weiss, a director of the Company, is a trustee of the Milton M.
Shiffman Spouse’s Marital Trust. Accordingly, in all transactions
involving Origen, Mr. Shiffman and/or Mr. Weiss may have a conflict of interest
with respect to their respective obligations as an officer and/or director of
the Company.
Legal Counsel During 2009,
Jaffe, Raitt, Heuer, & Weiss, Professional Corporation (“JRH&W”) acted
as our general counsel and represented us in various matters. Arthur A. Weiss,
one of our directors, is the Chairman of the Board of Directors and a
shareholder of such firm. We incurred legal fees and expenses of approximately
$1.1 million in the year ended December 31, 2009 and approximately $1.0 million
in the years ended December 31, 2008 and 2007.
Lease of Executive
Offices. Gary A. Shiffman, together with certain family
members, indirectly owns a 21 percent equity interest in American Center LLC,
the entity from which we lease office space for our principal executive offices.
Arthur A. Weiss owns a 0.75 percent indirect interest in American Center LLC.
This lease was for an initial term of five years, beginning May 1, 2003, with
the right to extend the lease for an additional five year term. In December
2007, we exercised our option to extend our lease for our executive offices. The
extension was for a period of five years commencing on May 1, 2008. In August
2008, we modified our lease agreement to lease approximately 5,300
additional square feet, for a total of approximately 36,700 rentable square
feet, and extend the term of the lease until August 31, 2015, with an option to
renew for an additional five years. The annual base rent under the current lease
is $18.81 per square foot (gross) and will remain this amount through August 31,
2015. Mr. Shiffman and Mr. Weiss may have a conflict of interest with
respect to their obligations as our officer and/or director and their ownership
interest in American Center LLC.
Tax Consequences Upon Sale of
Properties. Gary A. Shiffman holds limited partnership interests in the
Operating Partnership which were received in connection with the contribution of
24 properties (four of which have been sold) from partnerships previously
affiliated with him (the “Sun Partnerships”). Prior to any redemption of these
limited partnership interests for our common stock, Mr. Shiffman will have tax
consequences different from those of us and our public stockholders on the sale
of any of the Sun Partnerships. Therefore, we and Mr. Shiffman may have
different objectives regarding the appropriate pricing and timing of any sale of
those properties.
BUSINESS
RISKS, CONTINUED
We rely on key
management.
We are
dependent on the efforts of our executive officers, particularly Gary A.
Shiffman, John B. McLaren, Karen J. Dearing and Jonathan M. Colman (together,
the “Senior Officers”). The loss of services of one or more of our executive
officers could have a temporary adverse effect on our operations. We do not
currently maintain or contemplate obtaining any “key-man” life insurance on the
Senior Officers.
Certain
provisions in our governing documents may make it difficult for a third-party to
acquire us.
9.8% Ownership Limit. In
order to qualify and maintain our qualification as a REIT, not more than 50% of
the outstanding shares of our capital stock may be owned, directly or
indirectly, by five or fewer individuals. Thus, ownership of more than 9.8% of
our outstanding shares of common stock by any single stockholder has been
restricted, with certain exceptions, for the purpose of maintaining our
qualification as a REIT under the Code. Such restrictions in our charter do not
apply to Gary A. Shiffman, the Milton M. Shiffman Spouse’s Marital Trust and the
Estate of Robert B. Bayer.
The 9.8%
ownership limit, as well as our ability to issue additional shares of common
stock or shares of other stock (which may have rights and preferences over the
common stock), may discourage a change of control of the Company and may also:
(1) deter tender offers for the common stock, which offers may be advantageous
to stockholders; and (2) limit the opportunity for stockholders to receive a
premium for their common stock that might otherwise exist if an investor were
attempting to assemble a block of common stock in excess of 9.8% of our
outstanding shares or otherwise effect a change of control of the
Company.
Staggered Board. Our Board of
Directors has been divided into three classes of directors. The term of one
class will expire each year. Directors for each class will be chosen for a
three-year term upon the expiration of such class’s term, and the directors in
the other two classes will continue in office. The staggered terms for directors
may affect the stockholders’ ability to change control of the Company even if a
change in control were in the stockholders’ interest.
Preferred Stock. Our charter
authorizes the Board of Directors to issue up to 10,000,000 shares of preferred
stock and to establish the preferences and rights (including the right to vote
and the right to convert into shares of common stock) of any shares issued. The
power to issue preferred stock could have the effect of delaying or preventing a
change in control of the Company even if a change in control were in the
stockholders’ interest.
Rights Plan. We adopted a
stockholders’ rights plan in 2008 that provides our stockholders (other than a
stockholder attempting to acquire a 15% or greater interest in us) with the
right to purchase our stock at a discount in the event any person attempts to
acquire a 15% or greater interest in us. Because this plan could make it more
expensive for a person to acquire a controlling interest in us, it could have
the effect of delaying or preventing a change in control even if a change in
control were in the stockholders’ interest.
Changes
in our investment and financing policies may be made without stockholder
approval.
Our
investment and financing policies, and our policies with respect to certain
other activities, including our growth, debt, capitalization, distributions,
REIT status, and operating policies, are determined by our Board of Directors.
Although the Board of Directors has no present intention to do so, these
policies may be amended or revised from time to time at the discretion of the
Board of Directors without notice to or a vote of our stockholders. Accordingly,
stockholders may not have control over changes in our policies and changes in
our policies may not fully serve the interests of all stockholders.
Substantial sales of our common
stock could cause our stock price to fall.
Sales of
a substantial number of shares of our common stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for shares.
As of December 31, 2009, up to approximately 2.7 million shares of our common
stock may be issued in the future to the limited partners of the Operating
Partnership in exchange for their common limited partnership interests (“Common
OP Units”) and preferred limited partnership interests (“Preferred OP Units”).
These Preferred OP Units are convertible into common shares at a price of $68
per share. The limited partners may sell such shares pursuant to registration
rights or an available exemption from registration. As of December 31, 2009,
options to purchase 151,961 shares of our common stock were outstanding under
our 1993 Employee Stock Option Plan, our 1993 Non-Employee Director Stock Option
Plan, our 2004 Non-Employee Director Option Plan and our Long-Term Incentive
Plan. In addition, we have the authority to issue restricted stock
awards or options to purchase up to an additional 870,000 shares of our common
stock pursuant to our 2009 Equity Incentive Plan. No prediction can
be made regarding the effect that future sales of shares of our common stock or
our other securities will have on the market price of shares.
BUSINESS
RISKS, CONTINUED
An
increase in interest rates may have an adverse effect on the price of our common
stock.
One of
the factors that may influence the price of our common stock in the public
market will be the annual distributions to stockholders relative to the
prevailing market price of the common stock. An increase in market interest
rates may tend to make the common stock less attractive relative to other
investments, which could adversely affect the market price of our common
stock.
The current volatility in economic
conditions and the financial markets may adversely affect our industry, business
and financial performance.
The
capital and credit markets have experienced unusual volatility and disruption
during the last two years. The economic uncertainty has resulted in
substantial fluctuations of the market prices for publicly traded securities and
also resulted in decreased availability of financing for many businesses.
Although steps have been taken by several U.S. government agencies to stabilize
the economy, it is not certain at this time what impact, if any, that these
financial market events or these government agency actions might have on us and
our business and cannot be estimated at this time. The other risk factors
presented in this Form 10-K discuss some of the principal risks inherent in our
business, including liquidity risks, operational risks, and credit risks, among
others. The turbulence in financial markets has accentuated each of these risks
and magnified their potential effect on us. At the same time, there appears to
be a general weakening of the U.S. economy and the economies of many other
countries. If these economic developments continue to worsen, there could be an
adverse impact on our access to capital, stock price and our operating
results.
ITEM 1B. UNRESOLVED STAFF
COMMENTS
None.
As of
December 31, 2009, the Properties consisted of 124 manufactured housing
communities, 4 recreational vehicle communities, and 8 properties containing
both manufactured housing and recreational vehicle sites located in 18 states.
As of December 31, 2009, the Properties contained an aggregate of 47,572
developed sites comprised of 42,294 developed manufactured home sites, 3,176
permanent recreational vehicle sites, 2,102 seasonal recreational vehicle sites,
and approximately 6,000 additional manufactured home sites suitable for
development. Most of the Properties include amenities oriented toward
family and retirement living. Of the 136 Properties, 65 have more than 300
developed manufactured home sites; with the largest having 999 developed
manufactured home sites.
As of
December 31, 2009, the Properties had an occupancy rate of 83.4 percent
excluding seasonal recreational vehicle sites. Since January 1, 2009, the
Properties have averaged an aggregate annual turnover of homes (where the home
is moved out of the community) of approximately 2.8 percent and an average
annual turnover of residents (where the resident-owned home is sold and remains
within the community, typically without interruption of rental income) of
approximately 4.9 percent. The average renewal rate for residents in our Rental
Program was 58.3 percent for the year ended December 31, 2009.
We
believe that our 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, and
laundry facilities. Many Properties offer additional amenities such as
sauna/whirlpool spas, tennis, shuffleboard and basketball courts and/or exercise
rooms.
We have
concentrated our communities within certain geographic areas in order to achieve
economies of scale in management and operation. The Properties are principally
concentrated in the midwestern, southern, and southeastern United States. We
believe that geographic diversification helps to insulate the portfolio from
regional economic influences.
The
following tables set forth certain information relating to the properties owned
as of December 31, 2009. The occupancy percentage includes
manufactured home sites (“MH Sites”) and permanent recreational vehicle sites
(“RV Sites”), and excludes seasonal RV sites.
Property
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City
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State
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MH
and
Permanent
RV
Sites
as of
12/31/09
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Seasonal
RV
Sites
as of
12/31/09
|
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Occupancy
as
of
12/31/09
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Occupancy
as
of
12/31/08
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Occupancy
as
of
12/31/07
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MIDWEST
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Michigan
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Allendale
Meadows Mobile Village
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Alpine
Meadows Mobile Village
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Bedford
Hills Mobile Village
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Byron
Center Mobile Village
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Country
Acres Mobile Village
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Country
Meadows Mobile Village
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Cutler
Estates Mobile Village
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Holly
Village/Hawaiian Gardens (1)
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Kings
Court Mobile Village
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Presidential
Estates Mobile Village
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Town
& Country Mobile Village
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White
Lake Mobile Home Village
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Windham
Hills Estates (3)
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Property
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City
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State
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MH
and
Permanent
RV
Sites
as of
12/31/09
|
|
Seasonal
RV
Sites
as of
12/31/09
|
|
Occupancy
as
of
12/31/09
|
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Occupancy
as
of
12/31/08
|
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Occupancy
as
of
12/31/07
|
MIDWEST
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Indiana
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Brookside
Mobile Home Village
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Clear
Water Mobile Village
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Cobus
Green Mobile Home Park
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Holiday
Mobile Home Village
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Woods
Edge Mobile Village (3)
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Apple
Creek Manufactured Home Community and Self Storage
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Kenwood
RV and Mobile Home Plaza
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Property
|
|
City
|
|
State
|
|
MH
and
Permanent
RV
Sites
as of
12/31/09
|
|
Seasonal
RV
Sites
as of
12/31/09
|
|
Occupancy
as
of
12/31/09
|
|
Occupancy
as
of
12/31/08
|
|
Occupancy
as
of
12/31/07
|
SOUTHEAST
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Florida
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Ariana
Village Mobile Home Park
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Silver
Star Mobile Village
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Water
Oak Country Club Estates
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Property
|
|
City
|
|
State
|
|
MH
and
Permanent
RV
Sites
as of
12/31/09
|
|
Seasonal
RV
Sites
as of
12/31/09
|
|
Occupancy
as
of
12/31/09
|
|
Occupancy
as
of
12/31/08
|
|
Occupancy
as
of
12/31/07
|
OTHER
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(1)
|
Properties
have two licenses but operate as one
community.
|
(2)
|
Occupancy
in these properties reflects the fact that these communities are newly
developed from the ground up.
|
(3)
|
Occupancy
in these properties reflects the fact that these communities are in a
lease-up phase following an
expansion.
|
(4)
|
This
Property is owned by an affiliate of Sunchamp LLC, an entity in which we
own approximately a 78.9 percent equity interest as of December 31,
2009.
|
(5)
|
Occupancy
percentage excludes seasonal RV sites. Percentage calculated by
dividing revenue producing sites by developed sites. A revenue
producing site is defined as a site that is occupied by a paying
resident. A developed site is defined as an adequate sized
parcel of land that has road and utility access which is zoned and
licensed (if required) for use as a home
site.
|
(6)
|
The
number of developed sites and occupancy percentage at this Property
includes sites that we believe will be covered under our comprehensive
insurance coverage (subject to deductibles and certain limitations) for
both property damage and business interruption from a flood that caused
substantial damage to this
Property.
|
ITEM
3. LEGAL PROCEEDINGS
On or
about November 19, 2009, Sun Secured Financing LLC, Aspen-Ft. Collins Limited
Partnership, Sun Secured Financing Houston Limited Partnership, Sun Communities
Finance, LLC, Sun Holly Forest LLC and Sun Saddle Oak LLC (collectively, the
“Plaintiffs”) filed suit against ARCS Commercial Mortgage Co., L.P., PNC ARCS,
LLC, and the Federal National Mortgage Association (collectively, the
“Defendants”) in the United States District Court for the District of Columbia
as Case No. 1:09-cv-02162. The essence of the dispute is whether the
terms of a commercial credit facility permitted Defendants to increase the
Variable Facility Fee applicable to the outstanding variable rate loans in
conjunction with an extension of the credit facility (and, if so, whether the
Defendants properly exercised that right). As of April 29, 2009, the
Plaintiffs have been paying the increased Variable Facility Fee. The
Plaintiffs seek a judgment for the amount paid above the original Variable
Facility Fee from April 29, 2009 to the date of judgment and an order that the
Variable Facility Fee shall be returned to the original rate of 58 basis points
on a going forward basis through the end of the extension period. The
Defendants have filed a motion to dismiss the lawsuit, which motion has been
fully briefed by the parties. Oral argument has not yet been
scheduled.
On April
9, 2003, T.J. Holdings, LLC (“TJ Holdings”), a member of Sun/Forest, LLC
(“Sun/Forest”) (which, in turn, owns an equity interest in SunChamp), filed a
complaint against us, SunChamp, certain other of our affiliates, including two
of our directors, in the Superior Court of Guilford County, North Carolina. The
complaint alleges that the defendants wrongfully deprived the plaintiff of
economic opportunities that they took for themselves in contravention of duties
allegedly owed to the plaintiff and purports to claim damages of $13.0 million
plus an unspecified amount for punitive damages. We believe the complaint and
the claims threatened therein have no merit and will defend it vigorously. These
proceedings were stayed by the Superior Court of Guilford County, North Carolina
in 2004 pending final determination by the Circuit Court of Oakland County,
Michigan as to whether the dispute should be submitted to arbitration and the
conclusion of all appeals therefrom. On March 13, 2007, the Michigan Court of
Appeals issued an order compelling arbitration of all claims brought in the
North Carolina case. TJ Holdings has filed an application for review in the
Michigan Supreme Court which has been denied and, accordingly, the North
Carolina case is permanently stayed. TJ Holdings had filed an arbitration demand
in Southfield, Michigan based on the same claims. We intend to
vigorously defend against the allegations.
We are
involved in various other legal proceedings arising in the ordinary course of
business. All such proceedings, taken together, are not expected to have a
material adverse impact on our results of operations or financial
condition.
PART
II
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MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
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Market
Information
Our
common stock has been listed on the New York Stock Exchange (“NYSE”) since
December 8, 1993, and traded under the symbol “SUI”. The following table sets
forth the high and low sales prices per share for the common stock for the
periods indicated as reported by the NYSE and the distributions per share paid
by us with respect to each period:
Year
Ended December 31, 2009
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Distributions
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Year
Ended December 31, 2008
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Low
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Distributions
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On March
1, 2010, the closing share price of our common stock was $19.49 per share on the
NYSE, and there were 282 holders of record for the approximately 18.8 million
outstanding shares of common stock. The Operating Partnership had
approximately 2.1 million OP Units outstanding which are convertible into an
equivalent number of shares of common stock. The holders of the OP
Units can exercise their conversion rights at any time.
We have
historically paid regular quarterly distributions to holders of our common stock
and OP Units. Future distributions will be at the discretion of our
Board of Directors and will depend on our actual funds from operations, our
financial condition, our capital requirements, and the annual distribution
requirements applicable to REITs, and other factors that our Board of Directors
deem relevant.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table reflects information about the securities authorized for
issuance under our equity compensation plans as of December 31,
2009.
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Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
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Weighted-average
exercise price of outstanding options, warrants and rights
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Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
a)
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Plan
Category
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(a)
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(b)
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(c)
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Equity
compensation plans approved by shareholders
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Equity
compensation plans not approved by shareholders (1)
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(1)
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On
May 29, 1997, we established a Long Term Incentive Plan (the “LTIP”)
pursuant to which all of our full-time salaried and full-time commission
only employees, excluding our officers, were entitled to receive options
to purchase shares of the our common stock at $32.75 per share (i.e., the
average of the highest and lowest selling prices for the common stock on
May 29, 1997), on January 31, 2002. In accordance with the terms of the
LTIP, (a) we granted the eligible participants options to purchase 167,918
shares of common stock; and (b) each eligible participant received an
option to purchase a number of shares of common stock equal to the product
of 167,918 and the quotient derived by dividing such participant’s total
compensation during the period beginning on January 1, 1997 and ending on
December 31, 2001 (the “Award Period”) by the aggregate compensation of
all of the eligible participants during the Award
Period.
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Issuer
Purchases of Equity Securities
In
November 2004, our Board of Directors authorized us to repurchase up to
1,000,000 shares of our common stock. We have 400,000 common shares
remaining in the repurchase program. No common shares were
repurchased under this program during 2009. There is no expiration
date specified for the buyback program.
Recent
Sales of Unregistered Securities
From time
to time, we may issue shares of common stock in exchange for OP Units tendered
to the Operating Partnership for redemption in accordance with the terms and
provisions of the limited partnership agreement of the Operating
Partnership. Such shares are issued based on an exchange ratio of one
share for each OP Unit. Common OP Unit holders can convert
their Common OP units into an equivalent number of shares of common stock at any
time.
In March
2009, our Operating Partnership issued 110,444 Common OP Units to Water Oak,
Ltd. During 2009, holders of Common OP Units have converted 158,207
units to common stock.
All of
the above partnership units and shares of common stock were issued in private
placements in reliance on Section 4(2) of the Securities Act of 1933, as
amended, including Regulation D promulgated there under. No underwriters were
used in connection with any of such issuances.
Use
of Proceeds from Sales of Registered Securities
We
received net proceeds of approximately $1.9 million from the sale of 100,000
shares of common stock during the year ended December 31, 2009. The
shares of common stock were sold at the prevailing market price of our common
stock at the time of each sale with a weighted average sale price of
$19.98. The proceeds
were used to pay down our unsecured line of credit.
Performance
Graph
Set forth
below is a line graph comparing the yearly percentage change in the cumulative
total shareholder return on our common stock against the cumulative total return
of a broad market index composed of all issuers listed on the New York Stock
Exchange and an industry index comprised of fifteen publicly traded residential
real estate investment trusts, for the five year period ending on December 31,
2009. This line graph assumes a $100 investment on December 31, 2004, a
reinvestment of dividends and actual increase of the market value of our common
stock relative to an initial investment of $100. The comparisons in this table
are required by the SEC and are not intended to forecast or be indicative of
possible future performance of our common stock.
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As
of December31,
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Index
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2004
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2005
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2006
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2007
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2008
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2009
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The
information included under the heading “Performance Graph” is not to be treated
as “soliciting material” or as “filed” with the SEC, and is not incorporated by
reference into any filing by the company under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, that is made on,
before or after the date of filing of this Annual Report on Form
10-K.
ITEM 6.
SELECTED FINANCIAL DATA
The
following table sets forth selected financial and operating information on a
historical basis. The historical financial data has been derived from
our historical financial statements. The following information should
be read in conjunction with the information included in “Management’s Discussion
and Analysis of Financial Condition and Results of Operations”, and the
financial statements and accompanying notes included herein.
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Years
Ended December 31,
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2009
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2008 (a)
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2007 (a)
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2006 (a)
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2005
(a)
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(In
thousands, except for share related data)
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OPERATING
DATA:
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Amounts
attributable to Sun Communities, Inc. common
stockholders:
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Loss
from continuing operations
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Loss
from continuing operations per share - basic and
diluted
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Distributions
per common share
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Investment
property before accumulated depreciation
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Total
debt and lines of credit
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Total
stockholders’ equity (deficit)
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Net
operating income (NOI) (b)
from:
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Home
sales and home rentals
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Funds
from operations (FFO) (c)
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Adjustment
for special items
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Adjusted
FFO(c)
per weighted average Common Share/OP Unit - Diluted
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(a)
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Financial
information has been restated to reflect the reclassification of our cable
television service business as a discontinued
operation. Additionally, financial information has been
restated to reflect the reclassification of our noncontrolling interest as
a component of stockholders’ equity (deficit) and to reflect the amounts
attributable to Sun Communities, Inc. common
stockholders.
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(b)
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Refer
to Item 7, Supplemental Measures, for information regarding the
presentation of the net operating income (“NOI”) financial
measure.
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(c)
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Refer
to Item 7, Supplemental Measures, for information regarding the
presentation of the funds from operations (“FFO”) and adjusted FFO
financial measure.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
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EXECUTIVE
SUMMARY
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 elsewhere herein.
We are a
fully integrated, self-administered and self-managed REIT. We own,
operate, and develop manufactured housing communities concentrated in the
midwestern, southern, and southeastern United States. As of December 31, 2009,
we owned and operated a portfolio of 136 developed properties located in 18
states, including 124 manufactured housing communities, 4 recreational vehicle
communities, and 8 properties containing both manufactured housing and
recreational vehicle sites.
The
majority of our revenue (Income from real property) is affected by occupancy and
our ability to raise rents. Our residents normally sign a one year lease and
then lease on a month to month basis for the next ten to fifteen years. Few of
our leases are tied to published CPI statistics or other indices therefore
allowing us significant flexibility in rental increases based on the markets in
which we operate. Weighted average rent increases over the last five years have
ranged from 2.8 percent to 3.9 percent and we expect to continue to be able to
increase rents at or near these levels in the future.
Our
rental program, established during the significant downturn in our industry
during the early to mid 2000’s, has become a significant contributor to the
stability and improvement of our occupancies and revenue stream. Over
the past several years, the rental program has been the single largest
contributor to the generation of applications to live in our communities, which
numbered nearly 19,000 in 2009. We own and rent approximately 6,000 homes
throughout our portfolio applying stringent approval standards (over 50% of our
rental applications are denied) to each applicant thereby ensuring maintenance
of the quality of our communities as desirable neighborhoods in which to live.
During 2009 occupants in the rental program increased by 230 and we anticipate
occupancy increases during 2010 of approximately 220 lessees.
Homes
sales and profit margins have increased over the past several years as we have
created focused programs to convert qualified renters to home owners. Units sold
have increased from 965 in 2008 to 1,116 in 2009 and we anticipate selling
nearly 1,300 homes in the coming year. Our ability to sell homes is dependent on
access to financing for the prospective buyer. Although the majority
of our home sales are financed through third party lenders, we do provide
financing for certain home purchasers who are unable to obtain financing through
other means.
The
economic downturns and market volatility during the past two years have
presented both challenges and opportunities. We provide affordable housing to
the marketplace which, in difficult times, requires the housing values that our
products and programs offer. This demand is somewhat offset by job losses in our
resident base resulting from businesses closing and layoffs which occur in times
of economic contraction.
The
broader financial markets which provide capital for funding our continued growth
and refinancing of debt remain constrained. We are focused on financing
opportunities which will allow us to replace our $115 million unsecured
revolving line of credit and $104 million of secured debt, both of which come
due in 2011. We have no significant debt maturities in 2010.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Management’s
Discussion and Analysis of Financial Condition and Results of Operations discuss
our Consolidated Financial Statements, which have been prepared in accordance
with generally accepted accounting principles in the United States (“GAAP”). The
preparation of these financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the 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. In preparing these financial statements, management has
made its best estimate and judgment of certain amounts included in the financial
statements. Nevertheless, actual results may differ from these estimates under
different assumptions or conditions. Management believes the
following significant accounting policies, among others, affect its more
significant judgments and estimates used in the preparation of our Consolidated
Financial Statements:
Investment
Property
Investment
property is recorded at cost, less accumulated depreciation. We
review the carrying value of long-lived assets to be held and used for
impairment whenever events or changes in circumstances indicate a possible
impairment. Circumstances that may prompt a test of recoverability may include a
significant decrease in the anticipated market price, and adverse change to the
extent for manner in which an asset may be used or in its physical condition or
other such events that may significantly change the value of the long-lived
asset. An impairment loss is recognized when a long-lived asset’s
carrying value is not recoverable and exceeds estimated fair value. We estimate
the fair value of our long lived assets based on future cash flows and any
potential disposition proceeds for a given asset. Forecasting cash flows
requires assumptions about such variables as the estimated holding period,
rental rates, occupancy and operating expenses during the holding period, as
well as disposition proceeds. Future events could occur which would
cause us to conclude that impairment indicators exist and an impairment loss is
warranted.
Investment
in Affiliates
Investments
in affiliates in which we do not have a controlling direct or indirect voting
interest, but can exercise significant influence over the entity with respect to
its operations and major decisions, are accounted for using the equity method of
accounting. The carrying value of our investment is adjusted for our
proportionate share of the affiliate’s net income or loss and reduced by
distributions received. We review the carrying value of our
investment in affiliates for other than temporary impairment whenever events or
changes in circumstances indicate a possible impairment. Financial
condition, operational performance, and other economic trends are some of the
factors we consider when we evaluate the existence of impairment
indicators.
Notes
and Accounts Receivable
We
evaluate the recoverability of our receivables whenever events occur or there
are changes in circumstances such that management believes it is probable that
it will be unable to collect all amounts due according to the contractual terms
of the loan and lease agreements. Receivables related to community rents are
reserved when we believe that collection is less than probable, which is
generally after a resident balance reaches 60 to 90 days past due.
The
ability to collect our notes receivable is measured based on current and
historical information and events. We consider numerous factors including:
length of delinquency, estimated costs to lease or sell, and repossession
history. We reserve for estimated unrecoverable costs associated with
our notes receivables. We estimate our unrecoverable costs to
be the repurchase price plus repair and remarketing costs that exceed the
estimated selling price of the home being repossessed. A historical
average of this excess cost is calculated based on prior repossessions and
applied to our estimated annual future repossessions to create the allowance for
our notes receivable.
Depreciation
and Amortization
Depreciation
and amortization are computed on a straight-line basis over the estimated useful
lives of the assets. Useful lives are 30 years for land improvements and
buildings, 10 years for rental homes, 7 to 15 years for furniture, fixtures and
equipment, and 7 years for intangible assets.
Revenue
Recognition
Rental
income attributable to site and home leases is recorded on a straight-line basis
when earned from tenants. Leases entered into by tenants generally range from
month-to-month to two years and are renewable by mutual agreement from us and
the resident, or in some cases, as provided by state statute. Revenue from the
sale of manufactured homes is recognized upon transfer of title at the closing
of the sales transaction. Interest income on notes receivable is
recorded on a level yield basis over the life of the notes.
Capitalized
Costs
We
capitalize certain costs incurred in connection with the development,
redevelopment, capital enhancement and leasing of our properties. Management is
required to use professional judgment in determining whether such costs meet the
criteria for immediate expense or capitalization. The amounts are dependent on
the volume and timing of such activities and the costs associated with such
activities. Maintenance, repairs and minor improvements to properties are
expensed when incurred. Renovations and improvements to properties are
capitalized and depreciated over their estimated useful lives and construction
costs related to the development of new community or expansion sites are
capitalized until the property is substantially complete. Costs incurred to
renovate repossessed homes for our Rental Program are capitalized and costs
incurred to refurbish the homes at turnover and repair the homes while occupied
are expensed. Certain expenditures to dealers and residents related to obtaining
lessees in our communities are capitalized and amortized over a seven year
period based on the anticipated term of occupancy of a resident. Costs
associated with implementing our computer systems are capitalized and amortized
over the estimated useful lives of the related software and
hardware.
Derivative
Instruments and Hedging Activities
We have
four derivative contracts consisting of three interest rate swap agreements with
a total notional amount of $70.0 million, and an interest rate cap agreement
with a notional amount of $152.4 million as of December 31, 2009. We do not
enter into derivative instruments for speculative purposes. We adjust
our balance sheet on a quarterly basis to reflect current fair market value of
our derivatives. Changes in the fair value of derivatives are recorded in
earnings or comprehensive income, as appropriate. The ineffective portion of the
hedge is immediately recognized in earnings to the extent that the change in
value of a derivative does not perfectly offset the change in value of the
instrument being hedged. The effective portion of the hedge is
recorded in accumulated other comprehensive income. We use standard
market conventions to determine the fair values of derivative instruments,
including the quoted market prices or quotes from brokers or dealers for the
same or similar instruments. All methods of assessing fair value result in a
general approximation of value and such value may never actually be
realized.
Income
Taxes
We have
elected to be taxed as a REIT as defined under Section 856(c) of the Code. In
order for us to qualify as a REIT, at least ninety-five percent (95%) of our
gross income in any year must be derived from qualifying sources. As a REIT, we
generally will not be subject to U.S. federal income taxes at the corporate
level if we distribute at least ninety percent (90%) of its REIT ordinary
taxable income to our stockholders, which we fully intends to do. If we fail to
qualify as a REIT in any taxable year, we will be subject to Federal income tax
(including any applicable alternative minimum tax) on our taxable income at
regular corporate rates. We remain subject to certain state and local taxes on
our income and property as well as Federal income and excise taxes on our
undistributed income.
We are
subject to certain state taxes that are considered income taxes and have certain
subsidiaries that are taxed as regular corporations. Deferred tax assets or
liabilities are recognized for temporary differences between the tax bases of
assets and liabilities and their carrying amounts in the financial statements
and net operating loss carry forwards. Deferred tax assets and liabilities are
measured using currently enacted tax rates. A valuation allowance is established
if based on available evidence it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
Recent
Accounting Pronouncements
In
December 2007 the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB 51”, which is included
within ASC Topic 810, Consolidation. ASC Topic 810 requires that
losses be allocated to the noncontrolling interest even when such allocation
results in a deficit balance, reducing the losses attributed to the controlling
interest. We applied the updated provisions of ASC Topic 810
beginning January 1, 2009. The adoption of this accounting standard
resulted in a change to our presentation of noncontrolling interest within our
Consolidated Financial Statements. Additionally, we were no longer
required to recognize distributions paid to our noncontrolling partners as a
charge to earnings.
SUPPLEMENTAL
MEASURES
In
addition to the results reported in accordance with GAAP, we have provided
information regarding Net Operating Income (“NOI”) in the following tables. NOI
is derived from revenues minus property operating expenses and real estate
taxes. We use NOI as the primary basis to evaluate the performance of our
operations. A reconciliation of NOI to net income (loss) attributable to Sun
Communities, Inc. is included in “Results of Operations” below.
We
believe that NOI is helpful to investors and analysts as a measure of operating
performance because it is an indicator of the return on property investment, and
provides a method of comparing property performance over time. We use NOI as a
key management tool when evaluating performance and growth of particular
properties and/or groups of properties. The principal limitation of NOI is that
it excludes depreciation, amortization, interest expense, and non-property
specific expenses such as general and administrative expenses, all of which are
significant costs, and therefore, NOI is a measure of the operating performance
of our properties rather than of the Company overall. We believe that
these costs included in net income (loss) often have no effect on the market
value of our property and therefore limit its use as a performance measure. In
addition, such expenses are often incurred at a parent company level and
therefore are not necessarily linked to the performance of a real estate
asset.
NOI
should not be considered a substitute for the reported results prepared in
accordance with GAAP. NOI should not be considered as an alternative to net
income (loss) as an indicator of our financial performance, or to cash flows as
a measure of liquidity; nor is it indicative of funds available for our cash
needs, including our ability to make cash distributions. NOI, as
determined and presented by us, may not be comparable to related or similarly
titled measures reported by other companies.
We also
provide information regarding Funds From Operations (“FFO”). A
definition of FFO and a reconciliation of FFO to net loss are included in the
presentation of FFO in “Results of Operations” following the “Comparison of the
Years Ended December 31, 2009 and 2008”.
RESULTS
OF OPERATIONS
We report
operating results under two segments: Real Property Operations and Home Sales
and Rentals. The Real Property Operations segment owns, operates, and
develops manufactured housing communities concentrated in the midwestern,
southern, and southeastern United States and is in the business of acquiring,
operating, and expanding manufactured housing communities. The Home
Sales and Rentals segment offers manufactured home sales and leasing services to
tenants and prospective tenants of our communities. We evaluate
segment operating performance based on NOI.
The
accounting policies of the segments are the same as those applied in the
Consolidated Financial Statements, except for the use of NOI. We may allocate
certain common costs, primarily corporate functions, between the segments
differently than we would for stand alone financial information prepared in
accordance with GAAP. These allocated costs include expenses for shared services
such as information technology, finance, communications, legal, and human
resources. We do not allocate interest expense and certain other corporate costs
not directly associated with the segments’ NOI.
COMPARISON
OF THE YEARS ENDED DECEMBER 31, 2009 AND 2008
REAL
PROPERTY OPERATIONS - SAME SITE
A key
management tool we use when evaluating performance and growth of our properties
is a comparison of Same Site communities. Same Site communities consist of
properties owned and operated for the same period in both years for the years
ended December 31, 2009 and 2008. Our Same Site portfolio is equal to
our total portfolio for the years ended December 31, 2009 and
2008. The Same Site data may change from time-to-time depending on
acquisitions, dispositions, management discretion, significant transactions, or
unique situations.
In order
to evaluate the growth of the Same Site communities, management has classified
certain items differently than our GAAP statements. The
reclassification difference between our GAAP statements and our Same Site
portfolio is the reclassification of water and sewer revenues from income from
real property to utilities. A significant portion of our utility
charges are re-billed to our residents. We reclassify these
amounts to reflect the utility expenses associated with our Same Site portfolio,
net of recovery.
The
following tables reflect certain financial and other information for our Same
Site communities as of and for the years ended December 31, 2009 and
2008:
|
|
Years
Ended December 31,
|
|
Financial
Information (in thousands)
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
%
Change
|
|
Income
from Real Property, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal,
taxes, & insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31,
|
|
Other
Information
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
sites
|
|
|
47,572
|
|
|
|
47,613
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy
% (1)
|
|
|
83.4
|
%
|
|
|
83.1
|
%
|
|
|
0.3
|
%
|
Weighted
average monthly rent per site (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Sites
available for development
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Occupied sites and occupancy %
include manufactured housing and permanent recreational vehicle sites, and
exclude seasonal recreational vehicle
sites.
|
(2)
|
Average
rent relates only to manufactured housing sites, and excludes permanent
and seasonal recreational vehicle
sites.
|
Real
Property NOI increased by $0.9 million from $130.2 million to $131.1 million, or
0.7 percent. The growth in NOI is primarily due to increased revenues. Income
from real property revenues consist of manufactured home and recreational
vehicle site rent, and miscellaneous other property revenues. Income
from real property revenues increased $2.8 million, from $185.6 million to
$188.4 million, or 1.5 percent. The growth in income from real
property was due to a combination of factors. Revenue from our
manufactured home and recreational vehicle portfolio increased by $3.2 million
due to average rental rate increases of 2.8 percent and due to the increased
number of occupied home sites. This growth in revenue was partially offset
by rent concessions offered to new residents and current residents converting
from home renters to home owners. Additionally, we experienced
decreased miscellaneous other property revenues of $0.4 million primarily due to
reduced revenue realized on cable television revenue sharing agreements that
expired during 2008.
Property
operating expenses increased $1.9 million, from $55.4 million to $57.3 million,
or 3.4 percent. The growth in property operating expenses was due to
several factors. Payroll and benefits increased by $0.5 million due to
increased health insurance costs and increased wages from annual merit raises.
Utility costs, primarily related to water, electricity charges, and rubbish
removal, increased $0.6 million due to increased rates on these
services. Real estate taxes increased by $0.5 million primarily due
to tax appeal refunds that reduced real estate taxes in Michigan and Texas
during 2008. Property and casualty insurance increased by $0.2
million due to increased premiums on insurance policies. Other
property operating expenses increased by $0.1 million due to increased
administrative costs for postage, advertising, etc.
HOME
SALES AND RENTALS
We
acquire pre-owned and repossessed manufactured homes located within our
communities from lenders and dealers at substantial discounts. We
lease or sell these value priced homes to current and prospective
residents. We also purchase new homes to lease and sell to current
and prospective residents. The programs we have established for our
customers to lease or buy new and pre-owned homes have helped to stabilize
portfolio occupancy.
The
Rental Program has proven to be an effective response to the adverse factors we
faced during the industry downturn and now draws nearly 15,000 applications per
year to rent homes in our properties. The program has replaced the independent
dealer network, a majority of which were forced to go out of business during the
early part of the decade, which formerly directed potential residents to our
properties.
The
following table reflects certain financial and other information for our Rental
Program as of and for the years ended December 31, 2009 and 2008 (in thousands,
except for certain items marked with *):
|
|
Years
Ended December 31,
|
|
Financial
Information
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
rent from Rental Program (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repairs
and refurbishment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
Program operating and maintenance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of occupied rentals, end of period*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in occupied rental homes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of sold rental homes*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average monthly rental rate*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The
renter’s monthly payment includes the site rent and an amount attributable
to the leasing of the home. The site rent is reflected in the Real
Property Operations segment. For purposes of management analysis, the site
rent is included in the Rental Program revenue to evaluate the growth and
performance of the Rental Program.
|
Rental
Program NOI increased $1.5 million from $29.4 million to $30.9 million, or 5.0
percent due to increased revenues of $2.1 million, offset by increased expenses
of $0.6 million. Revenues increased $2.1 million primarily due to the increased
number of residents participating in the Rental Program as indicated in the
table above.
The
growth in operating and maintenance expenses of $0.6 million was due to several
factors. Commissions increased by $0.3 million due to an increase in
the number of new and renewed leases on which commissions and related payroll
taxes were paid. Expenses associated with repairs and refurbishment
increased by $0.1 million. Repairs costs associated with occupied
home rentals increased by $0.2 million due to the increased number of occupied
homes in the Rental Program. Refurbishment costs decreased by $0.1
million due a decline in the average cost associated with preparing a previously
leased home for a new occupant. Taxes and insurance expenses
increased by $0.3 million as these costs generally increase as the number of
homes in the Rental Program increase. Marketing and other costs decreased by
$0.1 million due to reductions in bad debt expense offset by increased
advertising expenses.
The
following table reflects certain financial and statistical information for our
Home Sales Program for the years ended December 31, 2009 and 2008 (in thousands,
except for statistical information):
|
|
Years
Ended December 31,
|
|
Financial
Information
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-owned
home cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
Sales NOI / Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin % – new homes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit – pre-owned homes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin % – pre-owned homes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
Sales NOI increased by $2.0 million, from $7.2 million to $9.2 million, or 28.5
percent primarily due to improved profit margins and an increase in the number
of total homes sold. Gross profit from pre-owned home sales increased by $2.2
million, offset by decreased gross profit from new home sales of $0.2
million.
The gross
profit margin on new home sales increased 4.5 percent from 11.1 percent to 15.6
percent. Although the gross profit margin has increased, the overall
gross profit on new home sales declined by $0.2 million. The decline
in new home sales profit was due to a 41.8 percent decline in sales
volume.
The gross
profit margin on pre-owned home sales increased 3.2 percent from 27.3 percent to
30.5 percent. Pre-owned home sales include the sale of homes that
have been utilized in our Rental Program. The cost basis of a rental home is
depreciated, therefore, the gross profit margin on the sale of these homes
increases the longer the home has been in the Rental Program. An increase in the
volume of rental home sales is the primary reason for the overall increase in
pre-owned home sales, and therefore, is the principal contributor to the
increase in gross profit on pre-owned home sales.
OTHER
INCOME STATEMENT ITEMS
Other revenues include other
income (loss), interest income, and ancillary revenues, net. Other
revenues decreased by $2.2 million, from $6.8 million to $4.6 million, or 32.4
percent. This decrease was due to reduced income realized from a gain
on sale of land of $3.2 million, increased loss on the disposition of fixed
assets of $1.3 million, and decreased commission and ancillary revenue of $0.1
million, offset by increased interest income of $2.1 million and a reduction in
fees paid on the transfer of our installment receivables servicing contract to a
new service provider in the prior year of $0.3 million. The increase
in interest income was primarily due to the additional installment notes
receivable recognized in association with the transfer of financial assets that
are recorded as collateralized receivables in the Consolidated Balance
Sheets. The interest income on these collateralized receivables is
offset by the same amount of interest expense recognized on the secured debt
recorded in association with this transaction. See Note 4 – Secured Borrowing
and Collateralized Receivables for additional information.
Real Property general and
administrative costs increased by $1.3 million, from $16.4 million to
$17.7 million, or 7.9 percent due to increased salary and other compensation
costs of $0.9 million, increased tax expense of $0.9 million, and increased
insurance of $0.2 million, partially offset by a decrease in legal of $0.4
million and other expenses of $0.3 million. The compensation cost
increase includes increased amortization of deferred compensation of $0.6
million related to the vesting of restricted stock in May 2009. The
increased tax expense includes a provision for $0.7 million related to a public
notice from the Michigan Department of Treasury dated February 5, 2010 that is
contradictory to guidance issued in 1999 with regard to the filing methodology
for federally disregarded single member limited liability companies under the
former Michigan Single Business Tax. The provision includes an
estimated tax liability for several single member limited liability companies
for the years 1997-2007, whose taxable income was included in our consolidated
Michigan Single Business Tax returns for those years. The ultimate
payment of this liability is dependent on the outcome of expected litigation
and/or legislation in the State of Michigan concerning this controversial
notice.
Home Sales and Rentals general and
administrative costs increased by $0.7 million, from $6.7 million to $7.4
million, or 10.4 percent due to increased salary costs of $0.5 million and
increased advertising costs of $0.2 million.
Georgia flood damage charges
were incurred due to a flood that caused substantial damage to our property,
Countryside Village of Atlanta, located in Lawrenceville, Georgia. We
have comprehensive insurance coverage for both property damage and business
interruption, subject to deductibles and certain limitations. We
believe the cost of the damage sustained from the flooding will be in excess of
our insurance deductible. We have recorded a charge of $0.8 million
associated with the flooding. This charge represents our deductible,
net of expected insurance recoveries for the replacement of assets that exceed
the net book value of assets damaged in the flood.
Depreciation and amortization
costs increased by $0.6 million, from $64.4 million to $65.0 million, or 0.9
percent due to increased depreciation on investment property for use in our
Rental Program of $1.5 million partially offset by decreased amortization of
promotions and other depreciation of $0.9 million.
Interest expense on debt,
including interest on mandatorily redeemable debt, decreased by $1.4 million,
from $64.2 million to $62.8 million, or 2.2 percent due to a reduction in
expense of $5.7 million primarily due to lower interest rates charged on
variable rate debt, partially offset by increased expense associated with the
increase in our FNMA facility fee of $1.4 million and our secured borrowing
arrangements of $2.9 million. The interest expense on our secured
borrowing is offset completely by the interest income recognized on our
collateralized receivables. See Note 4 – Secured Borrowing and
Collateralized Receivables for additional information.
Equity loss from affiliates
decreased by $14.3 million, from a loss of $16.5 million to loss of $2.2
million, or 86.7 percent due to fewer losses we incurred from our equity
investments. We recorded equity losses from the LLC of $0.5 million which
included other than temporary impairment charges of $0.3 million in
2009. We recorded equity losses from Origen of $1.7 million in
2009. Our equity losses from Origen in 2008 included charges for
impairment, loan loss reserves, and loss on sale of a loan
portfolio. We recorded losses of $6.9 million associated with our
equity allocation of these reported losses in 2008. Additionally, we
recorded other than temporary impairment charges associated with our investment
in Origen of $9.6 million in 2008.
Provision for state income
taxes increased by $0.1 million, from $0.3 million to $0.4 million, or
33.3 percent due to the utilization of investment tax credits which reduced tax
expense in 2008.
COMPARISON
OF THE YEARS ENDED DECEMBER 31, 2008 AND 2007
REAL
PROPERTY OPERATIONS - SAME SITE
A key
management tool we use when evaluating performance and growth of our properties
is a comparison of Same Site communities. Same Site communities consist of
properties owned and operated for the same period in both years for the years
ended December 31, 2008 and 2007. Our Same Site portfolio is equal to
our total portfolio for the years ended December 31, 2008 and
2007. The Same Site data may change from time-to-time depending on
acquisitions, dispositions, management discretion, significant transactions, or
unique situations.
In order
to evaluate the growth of the Same Site communities, management has classified
certain items differently than our GAAP statements. The
reclassification difference between our GAAP statements and our Same Site
portfolio is the reclassification of water and sewer revenues from income from
real property to utilities. A significant portion of our utility
charges are re-billed to our residents. We reclassify these
amounts to reflect the utility expenses associated with our Same Site portfolio,
net of recovery.
The
following tables reflect certain financial and other information for our Same
Site communities as of and for the years ended December 31, 2008 and
2007:
|
|
Years
Ended December 31,
|
|
Financial
Information (in thousands)
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
%
Change
|
|
Income
from Real Property, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal,
taxes, & insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31,
|
|
Other
Information
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
Number
of properties
|
|
|
136
|
|
|
|
136
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average monthly rent per site
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Sites
available for development
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Occupied
sites and occupancy % include manufactured housing and permanent
recreational vehicle sites, and exclude seasonal recreational vehicle
sites.
|
(2)
|
Average
rent relates only to manufactured housing sites, and excludes permanent
and seasonal recreational vehicle
sites.
|
Real
Property NOI increased by $3.9 million from $126.3 million to $130.2 million, or
3.1 percent. The growth in NOI is primarily due to increased revenues.
Income from real property revenues consist of manufactured home and
recreational vehicle site rent, and miscellaneous other property
revenues. Income from real property revenues increased $4.3 million,
from $181.3 million to $185.6 million, or 2.4 percent. Revenue from our
manufactured home and recreational vehicle portfolio increased by $3.6 million
due to average rental rate increases of 2.9 percent. This growth in
revenue was partially offset by rent concessions offered to new residents and
current residents converting from home renters to home
owners. Additionally, we experienced increased miscellaneous other
property revenues of $0.7 million primarily due increased fees charged to
residents for rubbish collection, returned and late checks, and other
administrative services.
The
growth in real property operating expenses of approximately $0.5 million was due
to several factors. Payroll and benefit costs increased by $1.0
million due to our annual merit wage increase and associated payroll taxes, and
increased health insurance costs. Utility costs related to water and rubbish
removal charges increased $0.2 million. Supply and repair costs related to
community maintenance increased by $0.2 million. Other expenses
related to administrative costs such as postage, advertising, etc. increased by
$0.2 million. The increased operating expenses were partially offset by
reductions in legal fees, insurance charges, and real estate
taxes. Legal fees related to delinquency and other property matters
decreased by $0.4 million. Property and casualty insurance decreased by $0.3
million due to a decrease in reserves for current claims and favorable
settlement of prior claims. Real estate taxes decreased by $0.4 million due to
an adjustment to accrued real estate taxes due to refunds of tax appeals,
principally in the states of Michigan and Texas.
We
acquire pre-owned and repossessed manufactured homes located within our
communities from lenders and dealers at substantial discounts. We
lease or sell these value priced homes to current and prospective
residents. We also purchase new homes to lease and sell to current
and prospective residents. The programs we have established for our
customers to lease or buy new and pre-owned homes have helped to stabilize
portfolio occupancy.
The
following table reflects certain financial and other information for our Rental
Program as of and for the years ended December 31, 2008 and 2007 (in thousands,
except for certain items marked with *):
|
|
Years
Ended December 31,
|
|
Financial
Information
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
rent from Rental Program (1)
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
Repairs
and refurbishment
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
|
|
|
|
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|
Rental
Program operating and maintenance
|
|
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|
|
|
|
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|
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|
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|
Number
of occupied rentals, end of period*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in occupied rental homes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of sold rental homes*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average monthly rental rate*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The
renter’s monthly payment includes the site rent and an amount attributable
to the leasing of the home. The site rent is reflected in the Real
Property Operations segment. For purposes of management analysis, the site
rent is included in the Rental Program revenue to evaluate the growth and
performance of the Rental Program.
|
Net
operating income from the rental program increased $2.7 million from $26.7
million to $29.4 million, or 10.0 percent as a result of a $4.5 million increase
in revenue partially offset by a $1.8 million increase in expenses. Revenues
increased due to the increase in the number of leased homes in our Rental
Program and due to the increase in average rental rates (as indicated in the
table above).
Certain
expenses increase as the number of homes in the rental program
increase. These expenses include personal property tax, use tax,
repair costs, and refurbishment costs. Although total refurbishment
costs increased by $0.7 million, the average refurbishment cost per move out
(costs incurred to prepare a previously leased home for a new occupant) declined
0.7 percent from $1,605 in 2007 to $1,593 in 2008. Commissions decreased by $0.5
million due to a realignment of the commission plan that prorates the commission
if the full lease term was not completed. Marketing and other costs increased
primarily due to an increase in advertising and promotion costs of $0.5 million
and an increase in bad debt expense of $0.4 million.
The
following table reflects certain financial and statistical information for our
Home Sales Program for the years ended December 31, 2008 and 2007 (in thousands,
except for statistical information):
|
|
Years
Ended December 31,
|
|
Financial
Information
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
Pre-owned
home cost of sales
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
Home
Sales NOI / Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin % – new homes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit – pre-owned homes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin % – pre-owned homes
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
Home
Sales NOI increased by $2.5 million, from $4.7 million to $7.2 million, or 52.2
percent primarily due to increased sales volume. Gross profit from pre-owned
home sales increased by $2.6 million, offset by decreased gross profit from new
home sales of $0.2 million.
The gross
profit margin on pre-owned home sales increased 6.0 percent from 21.3 percent to
27.3 percent. Pre-owned home sales include the sale of homes that have been
utilized in our Rental Program. The cost basis of a rental home is depreciated,
therefore, the gross profit margin on the sale of these homes increases the
longer the home has been in the Rental Program. An increase in the volume of
rental home sales is the primary reason for the overall increase in pre-owned
home sales, and therefore, is the principal contributor to the increase in gross
profit on pre-owned home sales.
While the
number of new home sales increased by 60.5 percent, gross profit decreased by
14.7 percent. The selling price of new homes in the Florida market was reduced
to facilitate sales during this period of declining demand as potential buyers,
worried about dwindling retirement and investment funds, were hesitant to
purchase. The increase in new home sale volume was due, primarily, to an
increase in sales of Signature Homes. Signature Homes were a new
product line in 2008 and offered a contemporary design that compared favorably
to the “feel” of a stick built residential home. The increase in gross profit
from Signature Home sales was more than offset by the decline in gross profit
from the sale of new homes in Florida.
OTHER
INCOME STATEMENT ITEMS
Other revenues include other
income (loss), interest income, and ancillary revenues, net. Other
revenues increased by $4.0 million, from $2.8 million to $6.8 million, or 142.9
percent. This increase was due to a gain on sale of undeveloped land
of $3.3 million, increased interest income of $1.0 million, offset partially by
a fee paid to Origen of $0.3 million in connection with the transfer of the
manufactured home loan servicing contract to a new service
provider. The increase in interest income was primarily due to the
additional installment notes receivable recognized in association with the
transfer of financial assets that are recorded as collateralized receivables in
the Consolidated Balance Sheets. The interest income on these
collateralized receivables is offset by the same amount of interest expense
recognized on the secured debt recorded in association with this transaction.
See Note 4 – Secured Borrowing and Collateralized Receivables for additional
information.
Real Property general and
administrative costs increased by $1.8 million, from $14.6 million to
$16.4 million, or 12.3 percent due to increased salary, benefit, and other
compensation costs of $2.5 million (including severance costs of $0.9 million
associated with the retirement of our former President), partially offset by
decreased legal fees and other costs of $0.2 million and decreases in the
Michigan single business tax of $0.5 million. The Michigan single
business tax was replaced by the Michigan business tax and is now recorded as an
income tax rather than a general and administrative expense.
Home Sales and Rentals general and administrative costs increased by
$0.6 million, from $6.1 million to $6.7 million, or 9.8 percent due to increased
commissions paid for home sales of $0.2 million and increased advertising costs
of $0.4 million.
Depreciation and amortization
costs increased by $2.5 million, from $61.9 million to $64.4 million, or 4.0
percent primarily due to the additional homes added to our investment property
for use in our Rental Program.
Interest expense on debt,
including interest on mandatorily redeemable debt, decreased by $1.3 million,
from $65.5 million to $64.2 million, or 2.0 percent due to a reduction in
expense of $2.6 million primarily due to lower interest rates charged on
variable rate debt, partially offset by increased expense of $1.3 million
associated with our secured borrowing arrangements. The interest
expense on our secured borrowing is offset completely by the interest income
recognized on our collateralized receivables. See Note 4 – Secured
Borrowing and Collateralized Receivables in our Notes to Consolidated Financial
Statements included herein.
Equity losses from affiliates
increased by $8.5 million, from $8.0 million to $16.5 million, or 106.3 percent
due to increased other than temporary charges to the carrying value of the
Origen investment of $7.7 million, and increased equity allocation of the
estimated losses from affiliates of $0.8 million.
Provision for state income
taxes decreased by $0.5 million, from $0.8 million to $0.3 million, or
62.5 percent due to a change in the effective tax rate used to calculate the
deferred tax liability related to the Michigan Business Tax and the utilization
of investment tax credits.
The
following table is a summary of our consolidated financial results which were
discussed in more detail in the preceding paragraphs (in
thousands):
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses/Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to arrive at net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
loss from affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for state income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
amounts attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to Sun Communities, Inc. common
stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
FUNDS
FROM OPERATIONS
We
provide information regarding FFO as a supplemental measure of operating
performance. FFO is defined by the National Association of Real
Estate Investment Trusts (“NAREIT”) as net income (computed in accordance GAAP),
excluding gains (or losses) from sales of depreciable operating property, plus
real estate-related depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Due to the variety among owners
of identical assets in similar condition (based on historical cost accounting
and useful life estimates), we believe excluding gains and losses related to
sales of previously depreciated operating real estate assets, and excluding real
estate asset depreciation and amortization, provides a better indicator of our
operating performance. FFO is a useful supplemental measure of our
operating performance because it reflects the impact to operations from trends
in occupancy rates, rental rates, and operating costs, providing perspective not
readily apparent from net income. Management, the investment
community, and banking institutions routinely use FFO, together with other
measures, to measure operating performance in our industry. Further, management
uses FFO for planning and forecasting future periods.
Because
FFO excludes significant economic components of net income including
depreciation and amortization, FFO should be used as an adjunct to net income
(loss) and not as an alternative to net income. The principal limitation of FFO
is that it does not represent cash flow from operations as defined by GAAP 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. FFO only provides investors with an additional performance
measure. Other REITs may use different methods for calculating FFO and,
accordingly, our FFO may not be comparable to other REITs.
The
following table reconciles net loss to FFO and calculates FFO data for both
basic and diluted purposes for the years ended December 31, 2009, 2008, and 2007
(in thousands, except for per share/OP unit amounts):
|
|
|
|
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
(benefit) for state income taxes (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposition of assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
from operations (FFO)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average Common Shares/OP Units outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO
per weighted average Common Share/OP Unit - Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO
per weighted average Common Share/OP Unit - Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
FUNDS
FROM OPERATIONS
The table
below adjusts FFO to exclude certain items as detailed below (in thousands,
except for per share/OP unit amounts):
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
affiliate adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michigan
Single Business tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
Origen
LLC impairment charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
(benefit) for state income taxes (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposition of assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
funds from operations (FFO)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
FFO per weighted average Common Share/OP Unit -
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The
tax provision for the year ended December 31, 2007 represents potential
taxes payable on the sale of company assets related to the enactment of
the Michigan Business Tax. The tax benefit for the years ended
December 31, 2008 and 2009 represent the reversal of this tax provision.
These taxes do not impact Funds from Operations and would be payable from
prospective proceeds of such sales.
|
(2)
|
We
had an interest rate swap, which matured in July 2007, which was not
eligible for hedge accounting. Accordingly, the valuation adjustment (the
theoretical non-cash profit or loss if the swap contract were to be
terminated at the balance sheet date) was recorded in interest expense. As
it was held till maturity the net cumulative valuation adjustment
approximated zero. We had no intention of terminating the swap prior to
maturity and therefore excluded the valuation adjustment from FFO so as
not to distort this comparative
measure.
|
LIQUIDITY
AND CAPITAL RESOURCES
Our
principal liquidity demands have historically been, and are expected to continue
to be, distributions to our stockholders and the unitholders of the Operating
Partnership, capital improvements of properties, the purchase of new and
pre-owned homes, property acquisitions, development and expansion of properties,
and debt repayment.
We expect
to meet our short-term liquidity requirements through working capital provided
by operating activities and through borrowings on our lines of credit. We
consider these resources to be adequate to meet our operating requirements,
including recurring capital improvements, routinely amortizing debt and other
normally recurring expenditures of a capital nature, payment of dividends to our
stockholders to maintain qualification as a REIT in accordance with the Code,
and payment of distributions to our Operating Partnership’s
unitholders.
From time
to time, we evaluate acquisition opportunities that meet our criteria for
acquisition. Should such investment opportunities arise in 2010, we will finance
the acquisitions through secured financing, debt and/or equity venture capital,
the assumption of existing debt on the properties or the issuance of certain
equity securities.
During
the year ended December 31, 2009, we have invested $5.3 million related to the
acquisition of homes intended for the Rental Program net of proceeds from third
party financing from homes sales. Expenditures for 2010 will be
dependent upon the condition of the markets for repossessions and new home
sales, as well as rental homes. We have a $10.0 million floor plan facility. Our
ability to purchase homes for sale or rent may be limited by cash received from
third party financing of our home sales, available floor plan financing and
working capital available on our unsecured line of credit.
Cash and
cash equivalents decreased by $1.7 million from $6.2 million at December 31,
2008, to $4.5 million as of December 31, 2009. Net cash provided by operating
activities from continuing operations increased by $8.7 million from $51.6
million for the year ended December 31, 2008 to $60.3 million for the year ended
December 31, 2009.
Our net
cash flows provided by operating activities from continuing operations may be
adversely impacted by, among other things: (a) the market and economic
conditions in our current markets generally, and specifically in metropolitan
areas of our current markets; (b) lower occupancy and rental rates of our
properties; (c) increased operating costs, such as wage and benefit costs,
insurance premiums, real estate taxes and utilities, that cannot be passed on to
our tenants; (d) decreased sales of manufactured homes and (e) current
volatility in economic conditions and the financial markets. See
“Risk Factors” in Item 1A.
We have
an unsecured revolving line of credit facility with a maximum borrowing capacity
of $115.0 million, subject to certain borrowing base calculations. The
outstanding balance on the line of credit at December 31, 2009 and 2008 was
$89.1 million and $85.8 million, respectively. In addition, $4.0 million and
$3.3 million of availability were used to back standby letters of credit as of
December 31, 2009 and 2008, respectively. Borrowings under the line of credit
bear an interest rate of LIBOR plus 165 basis points, or Prime plus 40 basis
points. We have the option to borrow at either rate. The effective
weighted average interest rate on the outstanding borrowings was 2.0 percent as
of December 31, 2009. The borrowings under the line of credit mature October 1,
2011, assuming an election of a one-year extension that is available at our
discretion. As of December 31, 2009, $21.9 million was available to be drawn
under the facility based on the calculation of the borrowing
base. During 2009, the highest balance on the line of credit was
$105.0 million. Although the unsecured revolving line of credit is a committed
facility, the financial failure of one or more of the participating financial
institutions may reduce the amount of available credit for use by
us.
LIQUIDITY AND CAPITAL RESOURCES,
continued:
The line
of credit facility contains various leverage, fixed charge coverage, net worth
maintenance and other customary covenants all of which were complied with as of
December 31, 2009. The most limiting covenants contained in the line of credit
are the distribution coverage and fixed charge coverage ratios. The distribution
coverage covenant requires that distributions be no more than 90 percent of
funds from operations as defined in the terms of the line of credit
agreement. The fixed charge coverage ratio covenant requires a
minimum ratio of 1.45:1. As of December 31, 2009, the distribution
coverage was 82.3 percent and the fixed charge coverage ratio was
1.69:1.
While
many of our fundamentals and those of the manufactured housing industry have
been improving over recent years, our share price has suffered due to the
derailed investor confidence in these challenging economic conditions. The
current economic downturn and the lack of liquidity in the lending environment
have generally resulted in a reduction of the availability of financing and
higher borrowing costs. Although base interest rates have generally decreased
relative to their levels prior to the disruptions in the financial markets, the
tightening of credit markets has affected the credit risk spreads charged over
base interest rates on, and the availability of, mortgage loan financing. For
us, this is the most relevant consequence of this financial turmoil. We believe
this risk is somewhat mitigated because we have adequate working capital
provided by operating activities as noted above and we have only limited debt
maturities until July 2011. Specifically, our debt maturities (excluding normal
amortization payments and assuming the election of certain extension provisions
which are at our discretion) for 2010 through 2014 are as follows:
2010
|
$1.3
million and any balance outstanding on the floor plan
facility
|
2011
|
$103.7
million and any balance outstanding on the unsecured line of
credit
|
2012
|
$35.8
million
|
2013
|
$30.2
million
|
2014
|
$520.9
million
|
We
anticipate meeting our long-term liquidity requirements, such as scheduled debt
maturities, large property acquisitions, and Operating Partnership unit
redemptions through the collateralization of our properties. We currently have
30 unencumbered properties with an estimated market value of $200.2 million,
most of which support the borrowing base for our $115.0 million unsecured line
of credit. As of December 31, 2009, the borrowing base was in excess
of $115.0 million by $14.2 million, which would allow us to remove properties
from the borrowing base at our discretion for collateralization. From
time to time, we may also issue shares of our capital stock or preferred stock,
issue equity units in our Operating Partnership, utilize debt and/or equity
venture capital, or sell selected assets. Our ability to finance our long-term
liquidity requirements in such a manner will be affected by numerous economic
factors affecting the manufactured housing community industry at the time,
including the availability and cost of mortgage debt, our financial condition,
the operating history of the properties, the state of the debt and equity
markets, and the general national, regional, and local economic conditions. If
it were to become necessary for us to approach the credit markets, the current
volatility in the credit markets could make borrowing more difficult to secure
and more expensive. See “Risk Factors” in Item 1A. If we
are unable to obtain additional debt or equity financing on acceptable terms,
our business, results of operations and financial condition would be adversely
impacted.
LIQUIDITY
AND CAPITAL RESOURCES, continued:
Our
primary long-term liquidity needs are principal payments on outstanding
indebtedness. As of December 31, 2009, our outstanding contractual obligations,
including interest expense, were as follows:
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Payments
Due By Period
|
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|
|
(In
thousands)
|
|
Contractual
Cash Obligations
|
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Total
Due
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1
year
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|
|
2-3
years
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4-5
years
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After
5 years
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|
Collateralized
term loan - FNMA
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|
Collateralized
term loan - B of A
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Redeemable
preferred OP units
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Total
contractual obligations
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(1)
Our contractual cash obligation related to interest expense is calculated
based on the current debt levels, rates and maturities as of December 31, 2009,
and actual payments required in future periods may be different than the amounts
included above.
As of
December 31, 2009, our debt to total market capitalization approximated 75.2
percent (assuming conversion of all Common Operating Partnership Units to shares
of common stock). The debt has a weighted average maturity of approximately 4.8
years and a weighted average interest rate of 4.9 percent.
Capital
expenditures for the years ended December 31, 2009 and 2008 included recurring
capital expenditures of $7.2 million and $7.7 million, respectively. We are
committed to the continued upkeep of our Properties and therefore do not expect
a significant decline in our recurring capital expenditures during
2010.
Net cash
used for investing activities was $39.5 million for the year ended December 31,
2009, compared to $40.6 million for the year ended December 31, 2008. The
difference is due to decreased investment in property of $4.4 million, decreased
investment in affiliates of $0.5 million, and increased principal repayment on
an officer’s note and other notes receivable of $2.6 million, offset by reduced
proceeds received from the disposition of land and other assets of $6.4
million.
Net cash
used for financing activities was $21.9 million for the year ended December 31,
2009, compared to $9.8 million for the year ended December 31, 2008. The
difference is due to increased repayments on notes payable and other debt of
$8.3 million, reduced proceeds of $4.7 million received from the issuance of
debt, reduced net borrowings on the lines of credit of $0.6 million, increased
costs associated with transactions related to our debt of $0.2 million, and
increased distributions to our stockholders and OP unitholders of $0.3 million,
partially offset by increased net proceeds received from the issuance of
additional shares of $2.0 million.
ITEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our
principal market risk exposure is interest rate risk. We mitigate this risk by
maintaining prudent amounts of leverage, minimizing capital costs and interest
expense while continuously evaluating all available debt and equity resources
and following established risk management policies and procedures, which include
the periodic use of derivatives. Our primary strategy in entering into
derivative contracts is to minimize the variability interest rates changes could
have an effect on our future cash flows. We generally employ derivative
instruments that effectively convert a portion of our variable rate debt to
fixed rate debt. We do not enter into derivative instruments for speculative
purposes.
We have
four derivative contracts consisting of three interest rate swap agreements with
a total notional amount of $70.0 million, and an interest rate cap agreement
with a notional amount of $152.4 million as of December 31, 2009. The first swap
agreement fixes $25.0 million of variable rate borrowings at 6.70 percent
through July 2012. The second swap agreement, entered into in January
2009, fixes $20.0 million of variable rate borrowings at 4.15 percent through
January 2014. The third swap agreement, entered into in February 2009, fixes
$25.0 million of variable rate borrowing at 3.62 percent through February 2011
and is based upon 30-day LIBOR. In April 2009, we entered into a new interest
cap agreement with a cap rate of 11.0 percent, a notional amount of $152.4
million, and a termination date of May 1, 2012. Each of these
derivative contracts is based upon 90-day LIBOR unless otherwise
noted.
Our
remaining variable rate debt totals $243.5 million and $241.4 million as of
December 31, 2009 and 2008, respectively, which bear interest at Prime, various
LIBOR or Fannie Mae Discounted Mortgage Backed Securities (“DMBS”) rates. If
Prime, LIBOR, or DMBS increased or decreased by 1.0 percent during the years
ended December 31, 2009 and 2008, we believe our interest expense would have
increased or decreased by approximately $2.2 million based on the $222.9 million
and $221.7 million average balances outstanding under our variable rate debt
facilities for the years ended December 31, 2009 and 2008,
respectively. A portion of our variable debt is floating on DMBS
rates. If the credit markets tighten, and there are fewer or no
buyers of this security, the interest rate may be negatively impacted resulting
in higher interest expense.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
Financial
statements and supplementary data are filed herewith under Item 15.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
ITEM 9A. CONTROLS AND
PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Our
management is responsible for establishing and maintaining disclosure controls
and procedures as defined in the rules promulgated under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). Under the supervision and with the
participation of our management, including our Chief Executive Officer, Gary A.
Shiffman, and Chief Financial Officer, Karen J. Dearing, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as of December 31, 2009. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of December 31, 2009, to ensure that
information we are required to disclose in filings with the Securities and
Exchange Commission under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Commission’s rules and
forms, and to ensure that information required to be disclosed by us in the
reports that we file under the Exchange Act is accumulated and communicated to
our management, including its principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding required
disclosure.
Design
and Evaluation of Internal Control Over Financial Reporting
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, we have included a report of
management’s assessment of the design and effectiveness of our internal controls
as part of this Annual Report on Form 10-K for the fiscal year ended December
31, 2009. Our independent registered public accounting firm also attested to,
and reported on, the effectiveness of internal control over financial reporting.
Management’s report and the independent registered public accounting firm’s
attestation report are included in our 2009 financial statements under the
captions entitled “Management’s Report on Internal Control Over Financial
Reporting” and “Report of Independent Registered Public Accounting
Firm”.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in our internal control over financial reporting during the
quarterly period ended December 31, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER
INFORMATION
None.
PART
III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE
Board
of Directors and Committees
Pursuant
to the terms of our charter, the board of directors (the “Board”) is divided
into three classes. The class up for election at the annual meeting of
shareholders to be held in 2010 will hold office for a term expiring at the
annual meeting of shareholders to be held in 2013. A second class will hold
office for a term expiring at the annual meeting of shareholders to be held in
2011 and a third class will hold office for a term expiring at the annual
meeting of shareholders to be held in 2012. Each director will hold office for
the term to which such director is elected and until such director’s successor
is duly elected and qualified. At each of our annual meeting of the
shareholders, the successors to the class of directors whose terms expire at
such meeting will be elected to hold office for a term expiring at the annual
meeting of shareholders held in the third year following the year of their
election.
The Board
meets quarterly, or more often as necessary. The Board met four times during
2009 and took various actions pursuant to resolutions adopted by unanimous
written consent. All directors attended at least 75% of the meetings of the
Board and each committee on which they served. All directors attended
the annual meeting of shareholders held on July 29, 2009.
Several
important functions of the Board may be performed by committees that are
comprised of members of the Board. Our Bylaws authorize the formation of these
committees and grant the Board the authority to prescribe the functions of each
committee and the standards for membership of each committee. In addition, the
Board appoints the members of each committee. The Board has four standing
committees: an Audit Committee, a Compensation Committee, a Nominating and
Corporate Governance Committee, and an Executive Committee. You may find copies
of the charters of the Audit Committee, the Compensation Committee and the
Nominating and Corporate Governance Committee under the “Investor
Relations-Officers and Directors” section of our website at www.suncommunities.com.
You may also find a copy of our corporate governance guidelines and its code of
business ethics under the “Investor Relations-Officers and Directors” section of
our website at www.suncommunities.com.
All of the committee charters, our corporate governance guidelines and our code
of business ethics are available in print to any shareholder who requests
them.
The Audit
Committee operates pursuant to a third amended and restated charter that was
approved by the Board in December 2007. It is available under the “Investor
Relations-Officers and Directors” section of our website at www.suncommunities.com.
The Audit Committee, among other functions, (i) has the sole authority to
appoint, retain, terminate and determine the compensation of our independent
accountants, (ii) reviews with our independent accountants the scope and results
of the audit engagement, (iii) approves professional services provided by our
independent accountants, (iv) reviews the independence of our independent
accountants, and (v) directs and controls our internal audit functions. The
current members of the Audit Committee are Messrs. Robert H. Naftaly,
Clunet R. Lewis (Chairman) and Ms. Stephanie W. Bergeron, all of whom are
“independent” as that term is defined in the rules of the SEC and applicable
rules of the New York Stock Exchange (“NYSE”). The Audit Committee held
four formal
meetings and several informal meetings during the fiscal year ended December 31,
2009. The Board has determined that each member of the Audit Committee is an
“audit committee financial expert,” as defined by SEC rules. See “Report of the Audit
Committee.”
The
Compensation Committee operates pursuant to a charter that was approved by the
Board in March 2004. A copy of the Compensation Committee Charter is available
under the “Investor Relations-Officers and Directors” section of our website at
www.suncommunities.com.
The Compensation Committee, among other functions, (i) reviews and approves
corporate goals and objectives relevant to the compensation of the Chief
Executive Officer and such other executive officers as may be designated by the
Chief Executive Officer, evaluates the performance of such officers in light of
such goals and objectives, and determines and approves the compensation of such
officers based on these evaluations, (ii) approves the compensation of our other
executive officers, (iii) recommends to the Board for approval the compensation
of the non-employee directors and (iv) oversees our incentive-compensation plans
and equity-based plans. The current members of the Compensation Committee are
Messrs. Robert H. Naftaly (Chairman), Clunet R. Lewis and Paul D. Lapides,
all of whom are independent directors under the NYSE rules. During the fiscal
year ended December 31, 2009, the Compensation Committee held seven formal
meetings and took various actions pursuant to resolutions adopted by unanimous
written consent. See
“Report of the Compensation Committee on Executive Compensation.”
The
Nominating and Corporate Governance Committee (the “NCG Committee”) operates
pursuant to a charter that was approved by the Board in March 2004. A copy of
the NCG Committee Charter is available under the “Investor Relations-Officers
and Directors” section of our website at www.suncommunities.com.
The NCG Committee, among other functions, is responsible for (i) identifying
individuals qualified to become Board members, consistent with criteria approved
by the Board, (ii) recommending that the Board select the committee-recommended
nominees for election at each annual meeting of shareholders, (iii) developing
and recommending to the Board a set of corporate governance guidelines
applicable to us, and (iv) periodically reviewing such guidelines and
recommending any changes, and overseeing the evaluation of the Board. The
current members of the NCG Committee are Messrs. Ted J. Simon (Chairman),
Clunet R. Lewis and Ronald L. Piasecki, all of whom are independent under the
NYSE rules. The NCG Committee held one (1) formal meeting during the fiscal year
ended December 31, 2009. The NCG Committee considers diversity and skills
in identifying nominees for service on our Board. Regarding
diversity, the NCG Committee considers the entirety of the board and a wide
range of economic, social and ethnic backgrounds and does not nominate
representational directors from any specific group.
The
Executive Committee was established to generally manage our day-to-day business
and affairs between regular Board meetings. In no event may the Executive
Committee, without the prior approval of the Board acting as a whole: (i)
recommend to the shareholders an amendment to our Charter; (ii) amend our
Bylaws; (iii) adopt an agreement of merger or consolidation; (iv) recommend to
the shareholders the sale, lease or exchange of all or substantially all of our
property and assets; (v) recommend to the shareholders our dissolution or a
revocation of a dissolution; (vi) fill vacancies on the Board; (vii) fix
compensation of the directors for serving on the Board or on a committee of the
Board; (viii) declare dividends or authorize the issuance of our stock; (ix)
approve or take any action with respect to any related party transaction
involving us; or (x) take any other action which is forbidden by our
Bylaws. All actions taken by the Executive Committee must be promptly reported
to the Board as a whole and are subject to ratification, revision and alteration
by the Board, except that no rights of third persons created in reliance on
authorized acts of the Executive Committee can be affected by any such revision
or alteration. The current members of the Executive Committee are
Messrs. Gary A. Shiffman and Ted J. Simon. The Executive Committee did not
hold any formal meetings during the fiscal year ended December 31, 2009 but took
various actions pursuant to resolutions adopted by unanimous written
consent.
The Board
oversees and implements its risk management function several different
ways. Specifically, the Audit Committee discusses our risk
assessment and risk management policies with the Chief Financial Officer and
other accounting staff, our internal auditor and our independent accountants on
a quarterly basis in conjunction with its review of our quarterly and annual
financial statements. In addition, the Board discusses the general
risks facing us, the risk factors disclosed in our annual and period reports and
our risk management policies with our executive management team from time to
time throughout the year. In the event that a specific risk is
identified, the Board or the Audit Committee directs management to assess,
evaluate and provide remedial recommendations to the Board, or the Audit
Committee, with respect to such risk which may include suggested public
disclosure.
Independence
of Non-Employee Directors
The NYSE
rules require that a majority of the Board consist of members who are
independent. There are different measures of director independence—independence
under New York Stock Exchange rules, under Section 16 of the Exchange Act
and under Section 162(m) of the Code. The Board has reviewed information
about each of our non-employee directors and determined that Paul D. Lapides,
Clunet R. Lewis, Robert H. Naftaly, Ronald L. Piasecki, Ted J. Simon and
Stephanie W. Bergeron are independent directors. The independent directors meet
on a regular basis in executive sessions without management participation. In
2009, the executive sessions occurred after some of the regularly scheduled
meetings of the entire Board and may occur at such other times as the
independent directors deem appropriate or necessary. The Board
appoints a lead director on an annual basis to serve for a term of one
year. Clunet R. Lewis is currently serving as lead
director. The lead director calls and presides at the executive
sessions of our independent directors, acts as a liaison between our management
team and the Board and is responsible for identifying, analyzing and making
recommendations to the Board with respect to certain strategic and extraordinary
matters.
Compensation
Committee Interlocks and Insider Participation
None of
the members of the Compensation Committee has been or will be one of our
officers or employees. We do not have any interlocking relationships
between our executive officers and the Compensation Committee and the executive
officers and compensation committees of any other entities, nor has any such
interlocking relationship existed in the past.
Consideration
of Director Nominees
Board
Membership Criteria
The Board
of Directors has established criteria for Board membership. These criteria
include the following specific, minimum qualifications that the NCG Committee
believes must be met by an NCG Committee-recommended nominee for a position on
the Board:
·
|
The
candidate must have experience at a strategic or policymaking level in a
business, government, non-profit or academic organization of high
standing;
|
·
|
The
candidate must be highly accomplished in his or her field, with superior
credentials and recognition;
|
·
|
The
candidate must be well regarded in the community and must have a long-term
reputation for high ethical and moral
standards;
|
·
|
The
candidate must have sufficient time and availability to devote to our
affairs, particularly in light of the number of boards on which the
nominee may serve; and
|
·
|
The
candidate’s principal business or occupation must not be such as to place
the candidate in competition with us or conflict with the discharge of a
director’s responsibilities to us or to our
shareholders.
|
In
addition to the minimum qualifications for each nominee set forth above, the NCG
Committee will recommend director candidates to the full Board for nomination,
or present director candidates to the full Board for consideration, to help
ensure that:
·
|
A
majority of the Board of Directors shall be “independent” as defined by
the NYSE rules;
|
·
|
Each
of its Audit, Compensation and NCG Committees shall be comprised entirely
of independent directors; and
|
·
|
At
least one member of the Audit Committee shall have such experience,
education and qualifications necessary to qualify as an “audit committee
financial expert” as defined by the rules of the
SEC.
|
Consideration
of Shareholder Nominated Directors
The NCG
Committee’s current policy is to review and consider any director candidates who
have been recommended by shareholders in compliance with the procedures
established from time to time by the NCG Committee. All shareholder
recommendations for director candidates must be submitted in writing to our
Secretary at Sun Communities, Inc., 27777 Franklin Road, Suite 200, Southfield,
MI 48034, who will forward all recommendations to the NCG Committee. All
shareholder recommendations for director candidates for election at the 2011
annual meeting of shareholders must be submitted to our Secretary not earlier
than the 120th day
and not later than the 90th day
prior to the first anniversary of the 2010 annual meeting provided, however, that
if the 2011 annual meeting is more than 30 days earlier or later than the first
anniversary of the 2010 annual meeting, notice by the shareholder must be
delivered not earlier than the 120th day
and not later than the 90th day
prior to the date of the 2011 annual meeting or, if the first public
announcement of the date of the 2011 annual meeting is less than 100 days prior
to the date of the 2011 annual meeting, the tenth day following the day on which
public announcement of the date of the 2011 annual meeting is first made by us.
All shareholder recommendations for director candidates must include the
following information:
·
|
The
shareholder’s name, address, number of shares owned, length of period held
and proof of ownership;
|
·
|
The
name, age, business and residential address, educational background,
current principal occupation or employment, and principal occupation or
employment for the preceding five full fiscal years of the proposed
director candidate;
|
·
|
A
description of the qualifications and background of the proposed director
candidate which addresses the minimum qualifications and other criteria
for Board membership as approved by the Board from time to
time;
|
·
|
A
description of all arrangements or understandings between the shareholder
and the proposed director
candidate;
|
·
|
The
consent of the proposed director candidate (1) to be named in the proxy
statement relating to our annual meeting of stockholders and (2) to serve
as a director if elected at such annual meeting;
and
|
·
|
Any
other information regarding the proposed director candidate that is
required to be included in a proxy statement filed pursuant to the rules
of the SEC.
|
Identifying
and Evaluating Nominees
The NCG
Committee may solicit recommendations for director nominees from any or all of
the following sources: non-management directors, executive officers, third-party
search firms or any other source it deems appropriate. The NCG Committee will
review and evaluate the qualifications of any proposed director candidate that
it is considering or has been recommended to it by a shareholder in compliance
with the NCG Committee’s procedures for that purpose, and conduct inquiries it
deems appropriate into the background of these proposed director candidates.
When nominating a sitting director for re-election, the NCG Committee will
consider the director’s performance on the Board and the director’s
qualifications in respect to the criteria set forth above. Other than
circumstances in which we are legally required by contract or otherwise to
provide third parties with the ability to nominate directors, the NCG Committee
will evaluate all proposed director candidates based on the same criteria and in
substantially the same manner, with no regard to the source of the initial
recommendation of the proposed director candidate.
Board
of Directors
The
following list identifies each incumbent director and describes each person’s
principal occupation for the past five years. Each of the directors has served
continuously from the date of his or her election to the present
time.
Name
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Age
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Office
|
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Chairman,
Chief Executive Officer, President and Director
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Gary A. Shiffman
is our Chairman, Chief Executive Officer, and President, and has been an
executive officer since our inception. He has been actively involved in the
management, acquisition, construction and development of manufactured housing
communities and has developed an extensive network of industry relationships
over the past twenty years. He has overseen the acquisition,
rezoning, development and marketing of numerous manufactured home expansion
projects, as well as other types of income producing real estate. Additionally,
Mr. Shiffman has significant direct holdings in various real estate asset
classes, which include office, multi-family, industrial, residential and
retail. Mr. Shiffman is an executive officer and a director of Sun
Home Services, Inc. (“Sun Home Services”) and all of our other corporate
subsidiaries. Mr. Shiffman is also a director of Origen Financial, Inc. (OTCBB:
ORGN.BB). Mr. Shiffman received the Manufactured Home Community
Operator of the Year Award in 1997 and in 2002, by the Manufactured Housing
Institute.
Stephanie W.
Bergeron has been a director since May 2007. Ms. Bergeron, a certified
public accountant, also serves as the President and Chief Executive Officer of
Walsh College. Additionally, Ms. Bergeron serves as President and Chief
Executive Officer of Bluepoint Partners, LLC, a firm providing financial
consulting services. From December 1998 to December 2003, Ms. Bergeron served as
Vice President and Treasurer and then Senior Vice President-Corporate Financial
Operations of The Goodyear Tire & Rubber Company
(“Goodyear”). Prior to joining Goodyear, Ms. Bergeron was a Vice
President and Assistant Treasurer of DaimlerChrysler Corporation. She has also
served on Audit Committees of several publicly traded companies (including as
chairman) and a number of not for profit organizations. During her
business career, Ms. Bergeron directed staff responsible for accounting,
treasury, investor relations and tax matters. Crain’s Detroit
Business named Bergeron one of its “Most Influential Women” in 1997 and in
2007.
Paul D. Lapides
has been a director since December 1993. Mr. Lapides is Director of the
Corporate Governance Center in the Michael J. Coles College of Business at
Kennesaw State University, where he is an associate professor of management and
entrepreneurship. Mr. Lapides is a director of EasyLink Services International
Corporation (NASDAQ: ESIC) and a member of the Advisory Board of the National
Association of Corporate Directors and served on the NACD’s Blue Ribbon
Commission on Audit Committees (1999). Mr. Lapides has extensive knowledge and
experience in the areas of real estate and corporate governance. Mr.
Lapides, a certified public accountant, has been involved in real-estate related
activities including the management of a $3.0 billion national portfolio of
income-producing real estate consisting of 42,000 multi-family units and 16
million square feet of commercial space. As a published author or
co-author of more than 100 articles and twelve books, Mr. Lapides is considered
a well-respected authority in management and corporate governance related
issues.
Clunet R. Lewis
has been a director since December 1993. From 1995 until 2000, Mr. Lewis
served in various positions with Eltrax Systems, Inc., a NASDAQ National Market
System company, including Secretary, General Counsel, member of the Board of
Directors and Chief Financial Officer. In these roles, Mr. Lewis was primarily
responsible for the company’s legal affairs, its relationship with its auditors,
and the interactions between the company and the SEC. From 1989 until
1994, Mr. Lewis served as Secretary and General Counsel of Military
Communications Center, Inc., a privately held company that provided retail
telecommunications services to members of the United States Armed
Services. From 1990 through 1991, Mr. Lewis was Managing Director of
MCC Communications, Inc., a privately held company that provided international
telecommunications services to members of the United States Armed Services
serving in the Persian Gulf area during the Gulf War. Prior to 1993,
Mr. Lewis was a shareholder of the law firm of Jaffe, Raitt, Heuer, & Weiss,
Professional Corporation (“JRH&W”). While actively engaged in the
practice of law, Mr. Lewis focused on mergers and acquisitions, debt financings,
issuances of equity and debt securities and corporate governance and control
issues.
Robert H. Naftaly
has been a director since October 2006. Mr. Naftaly is retired
as President and Chief Executive Officer of PPOM, an independent operating
subsidiary of Blue Cross Blue Shield of Michigan (“BCBSM”) and as Executive Vice
President and Chief Operating Officer of BCBSM. Previously, Mr. Naftaly served
as Vice President and General Auditor of Detroit Edison Company and was the
Director of the Department of Management and Budget for the State of
Michigan. He was a managing partner and founder of Geller, Naftaly,
Herbach & Shapiro, a certified public accounting firm. In addition, Mr.
Naftaly has served as a director of Meadowbrook Insurance Group, Inc. (NYSE:MIG)
since 2002 where he is currently the Chairman of the Compensation Committee and
a member of the Audit Committee and Finance Committee. Mr. Naftaly is
a director of Walsh College, a premier non-profit institution that offers
business and technology degrees and programs, and the Chairman of the Audit
Committee. Mr. Naftaly, a certified public accountant, draws upon a
wide experience of board membership and leadership experiences. Mr.
Naftaly was appointed by Governor Jennifer Granholm, as Chairperson, State Tax
Commission of the State of Michigan in 2002. Mr. Naftaly is a member
of the American Institute of Certified Public Accountants and the Michigan
Association of Certified Public Accountants. In 2002, he received the
Distinguished Achievement Award from the Michigan Association of Certified
Public Accountants.
Ronald L.
Piasecki has been a director since May 1996, upon completion of our
acquisition of twenty-five manufactured housing communities (the “Aspen
Properties”) owned by affiliates of Aspen Enterprises, Ltd.
(“Aspen”). Mr. Piasecki was a director of Aspen Properties, which he
co-founded in 1974. From 1974 until its sale to us in 1996, Mr.
Piasecki was the managing partner in charge of property acquisition, financing
and disposition, legal and accounting relationships and oversight, resident
relations, lobbying and syndication and sale of registered private equity
limited partnership and participating mortgage interests. Prior to our
acquisition, Aspen was one of the largest privately-held developers and owners
of manufactured housing communities in the U.S. In addition, Mr.
Piasecki is a director of Advanced Equities Financial Corporation, a financial
services firm engaged in retail and institutional securities brokerage, venture
capital investment banking and financial advisory services. Mr.
Piasecki has been involved in real estate development and management since 1968
when he began working in the tax department of the then accounting firm of
Lybrand, Ross Brothers and Montgomery in Detroit. Mr. Piasecki then
practiced law, specializing in real estate development, syndication and
management, until 1980 when he became a full time partner in
Aspen. Mr. Piasecki is currently engaged in the development and
management of residential real estate properties in western
Michigan.
Ted J. Simon
has been a director since December 1993. Since February 1999, Mr. Simon
has been affiliated with Grand Sakwa Management LLC, a real estate development
company located in Farmington Hills, Michigan. From 1981 until January 1999, Mr.
Simon was the Vice President-Real Estate (Midwest Group) of The Great Atlantic
& Pacific Tea Company, Inc. and Mr. Simon was a Vice President-Real Estate
and a director of Borman’s Inc., a wholly owned subsidiary of The Great Atlantic
& Pacific Tea Company, Inc. Mr. Simon is also a director of Clarkston State
Bank, a wholly-owned subsidiary of Clarkston Financial Corporation (OTC BB:
CKSB.OB). Mr. Simon has extensive executive-level experience in the
real estate industry in general, including the management of large real estate
and investment portfolios. Mr. Simon has been involved in business
activities related to residential and commercial real estate for the past 58
years. Early in his career, Mr. Simon was involved with brokerage and
management activities within the Detroit Metropolitan area. Later,
Mr. Simon served as a senior real estate officer of various public supermarket
companies with stores located across the United States, and their affiliated
development subsidiaries.
Arthur A. Weiss
has been a director since October 1996. Since 1976, Mr. Weiss has
practiced law with the law firm of JRH&W, which represents us in various
matters. Mr. Weiss is currently Chairman of the Board of Directors
and a shareholder of JRH&W. Mr. Weiss practices law in the area
of business planning, taxation, estate planning and real estate
law. Mr. Weiss is a director of several closely-held companies in the
real estate industry, steel industry, technology industry and banking industry.
Mr. Weiss is also a director and officer of a number of closely held public and
private nonprofit corporations, which include the Jewish Federation of
Metropolitan Detroit and the Detroit Symphony Orchestra, where he is on the
executive committee, and serves as a vice-president and board member.
Mr. Weiss received a MBA in finance and a post graduate LLM degree from New York
University in taxation. In addition to being an author and frequent
lecturer in the Detroit area, Mr. Weiss previously was an Adjunct Professor of
Law at Wayne State University. Mr. Weiss was recognized in 2008 as
one of the nation’s Top 100 Attorneys by Worth magazine.
To the
best of our knowledge, as of the date of this Form 10-K, there are no material
proceedings to which any director or nominee is currently a party, or has a
material interest, adverse to the Company. Except as described below, to the
best of our knowledge, during the past ten years: (i) there have
been no events under any bankruptcy act, no criminal proceedings and no
judgments or injunctions that are material to the evaluation of the ability or
integrity of any director or nominee, (ii) no director or nominee has been the
subject of a or a party to any judicial or administrative proceedings relating
to an alleged violation of (a) mail or wire fraud; (b) fraud in connection with
any business entity; (c) violations of federal or state securities, commodities,
banking or insurance laws and regulations, and (iii) no director or nominee has
been the subject of a or a party to any sanction or order of any self-regulatory
organization, any registered entity (as defined in Section 1(a)(29) of the
Commodity Exchange Act), or any equivalent exchange, association, entity or
organization that has disciplinary authority over its members or persons
associated with a member.
As
announced on February 27, 2006, the U.S. Securities and Exchange Commission (the
“SEC”) completed its inquiry regarding the accounting for our SunChamp
investment during 2000, 2001 and 2002, and the entry of an agreed-upon
Administrative Order (the “Order”). The Order required us to cease
and desist from violations of certain non intent-based provisions of the federal
securities laws, without admitting or denying any such violations. On
February 27, 2006, the SEC filed a civil action against Mr. Shiffman, in his
capacity as our Chief Executive Officer, Jeffrey P. Jorissen, our then (and now
former as of February 2008) Chief Financial Officer and a former Controller in
the United States District Court for the Eastern District of Michigan alleging
various claims generally consistent with the SEC’s findings set forth in the
Order. On July 21, 2008, the U.S. District Court for the Eastern
District of Michigan approved a settlement whereby the SEC dismissed its civil
lawsuit against Mr. Shiffman and our former Controller. The SEC
concurrently reached a settlement with Mr. Jorissen.
Executive
Officers
The
persons listed below are our executive officers who served during the last
completed fiscal year. Each is appointed by, and serves at the pleasure of, the
Board.
Name
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Age
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Office
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Chairman,
Chief Executive Officer, and President
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Executive
Vice President, Treasurer, Chief Financial Officer and
Secretary
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Executive
Vice President and Chief Operating Officer
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Background
information for Gary A. Shiffman is provided above. Background information for
the other three current executive officers is set forth below.
Karen J.
Dearing joined us in October 1998 as the Director of Finance where she
worked extensively with accounting and finance matters related to our ground up
developments and expansions. Ms. Dearing became our Corporate Controller in
2002, a Senior Vice President in 2006, and Executive Vice President and Chief
Financial Officer in February 2008. She was responsible for the overall
management of our accounting and finance departments and all internal and
external financial reporting. Prior to working for us, Ms. Dearing had
eight years of experience as the Financial Controller of a privately-owned
automotive supplier specializing in critical automotive fasteners and five years
experience as a certified public accountant with Deloitte &
Touche.
John B.
McLaren brings 14 years of manufactured housing industry experience, more
than five of which were served in various roles with us. Prior to his
appointment as Executive Vice President and Chief Operating Officer in February
2008, Mr. McLaren served, since August 2005, as Senior Vice President of
Sun Home Services with overall responsibility for homes sales and leasing. Prior
to that, Mr. McLaren was a Regional Vice President for Apartment Investment
& Management Company (“AIMCO”), a Real Estate Investment Trust engaged in
leasing apartments. Prior to AIMCO, Mr. McLaren spent approximately three
years as Vice President of Leasing & Service for Sun Home Services with
responsibility for developing and leading our rental home program.
Jonathan M.
Colman joined us in 1994 as Vice President-Acquisitions and became a
Senior Vice President in 1995 and an Executive Vice President in March 2003. A
certified public accountant, Mr. Colman has over twenty years of experience
in the manufactured housing community industry. He has been involved in the
acquisition, financing and management of over 75 manufactured housing
communities for two of the 10 largest manufactured housing community owners,
including Uniprop, Inc. during its syndication of over $90.0 million in public
limited partnerships in the late 1980s. Mr. Colman is also a Vice President
of all of our corporate subsidiaries.
To the
best of our knowledge, as of the date of this Form 10-K, there are no material
proceedings to which any executive officer is currently a party, or has a
material interest, adverse to us. To the best of our knowledge, except with
respect to Mr. Shiffman (as described above), during the past ten years: (i) there have
been no events under any bankruptcy act, no criminal proceedings and no
judgments or injunctions that are material to the evaluation of the ability or
integrity of any executive officer, (ii) no executive officer has been the
subject of a or a party to any judicial or administrative proceedings relating
to an alleged violation of (a) mail or wire fraud; (b) fraud in connection with
any business entity; (c) violations of federal or state securities, commodities,
banking or insurance laws and regulations, and (iii) no any executive officer
has been the subject of a or a party to any sanction or order of any
self-regulatory organization, any registered entity (as defined in Section
1(a)(29) of the Commodity Exchange Act), or any equivalent exchange,
association, entity or organization that has disciplinary authority over its
members or persons associated with a member.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act, requires our directors, executive officers and
beneficial owners of more than 10% of our capital stock to file reports of
ownership and changes of ownership with the SEC and the New York Stock Exchange.
Based solely on our review of the copies of such reports received by us, and
written representations from certain reporting persons, we believe, that, during
the year ended December 31, 2009, our directors, executive officers and
beneficial owners of more than 10% of our Common Stock have complied with all
filing requirements applicable to them, except that Ms. Dearing failed to timely
file one report disclosing her disposition of 755 shares of our common stock
that were retained by us to satisfy Ms. Dearing’s withholding obligations
and Mr. Colman failed
to timely file one report disclosing the conversion of 7,500 common OP Units
into 7,500 shares of our common stock.
.
ITEM 11. EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Compensation
Committee Composition and Charter
The
Compensation Committee assists the Board in fulfilling its responsibilities for
determining the compensation offered to our executive officers. The Compensation
Committee, among other functions:
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consults
with executive management in developing a compensation
philosophy;
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evaluates
and approves compensation for the our Chief Executive Officer and other
executive officers; and
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oversees
and administers our cash and equity incentive
plans.
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The
Compensation Committee has the authority to retain and terminate independent,
third-party compensation consultants and to obtain independent advice and
assistance from internal and external legal, accounting and other
advisors. The Compensation Committee has not utilized the services of
a compensation consulting in crafting its compensation policies. Each
member of the Compensation Committee is independent under NYSE rules. A copy of
the Compensation Committee Charter is available under the “Investor
Relations-Officers and Directors” section of our website at www.suncommunities.com.
Compensation
Philosophy and Objectives
The goals
and objectives of our executive compensation program are to attract and retain a
skilled executive team to manage, lead and direct our personnel and capital to
obtain the best possible economic results.
The
executive compensation program supports our commitment to providing superior
shareholder value. This program is designed to:
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attract,
retain and reward executives who have the motivation, experience and
skills necessary to lead us effectively and encourage them to make career
commitments to us;
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base
executive compensation levels on our overall financial and operational
performance and the individual contribution of an executive officer to our
success;
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create
a link between the performance of our stock and executive compensation;
and
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position
executive compensation levels to be competitive with other similarly
situated public companies including the real estate industry in general
and manufactured housing REITs in
particular.
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Annual
salary and bonuses are intended to be competitive in the marketplace to attract
and retain executives. Stock options and restricted stock awards are intended to
provide longer-term motivation which has the effect of linking stock price
performance to executive compensation. Restricted stock is also intended to
provide post-retirement financial security in lieu of other forms of more costly
supplemental retirement programs. We have not implemented any policies related
to stock ownership guidelines for its executive management or for members of the
Board.
Role
of Executive Officers in Compensation Decisions
The
Compensation Committee makes all decisions regarding the compensation of
executive officers, including cash-based and equity-based incentive compensation
programs. The Compensation Committee reviews the performance, and determines the
bonus compensation, of the Chief Executive Officer. The Compensation Committee
and the Chief Executive Officer annually review the performance of the other
executive officers. The conclusions reached and recommendations based on the
reviews of the other executive officers, including with respect to bonuses and
annual award amounts, are presented by the Chief Executive Officer to the
Compensation Committee, which can exercise its discretion in modifying any
recommended bonuses or awards.
Compensation
Components and Processes
In order
to implement our executive compensation philosophy, the Compensation Committee
exercises its independent discretion in reviewing and approving the executive
compensation program as a whole, as well as specific compensation levels for
each executive officer. Final aggregate compensation determinations for each
fiscal year are generally made after the end of the fiscal year, after financial
statements for such year become available. At that time, the Compensation
Committee determines bonuses, if any, for the past year’s performance, sets base
salaries for those executive officers that are not bound by employment
agreements for the following fiscal year and makes awards of equity-based
compensation, if any. In addition, the Compensation Committee bases its
decisions on the most recent publicly available compensation data for senior
executive officers of comparable REITs, as well as various compensation studies
and surveys, to ensure that compensation packages are in line with our peer
group and the real estate industry in general. While comparative market data is
a valuable tool to assist the Compensation Committee in setting reasonable and
fair compensation for our executive officers, the stated philosophy of our
executive compensation program is to recognize individual contributions to our
performance and to create a link between our financial performance and executive
compensation.
The key
components of executive officer compensation are salary, bonuses, restricted
stock awards and stock option grants. Salary is generally based on factors such
as an individual officer’s level of responsibility, prior years’ compensation,
comparison to compensation of other officers, and compensation provided at
competitive companies and companies of similar size. Cash bonuses, restricted
stock awards and stock option awards are intended to reward exceptional
performance by the individual executive officer and us. Benchmarks for
determining bonus levels include individual performance, our performance against
budget and growth in FFO and NOI, in each case as measured against targets
established by the Compensation Committee. A definition of FFO and NOI is
included in the “Results of Operations” in Item 7. The Compensation
Committee, in its sole discretion, may make adjustments to the NAREIT definition
of FFO in determining FFO performance targets and achievement.
Stock
options grants that were outstanding as of December 31, 2009 were awarded in
2001. Stock option grants are valued on the date of grant. Stock option grants
vest ratably over three years from the date of grant and expire on the tenth
anniversary of the date of grant. As stock options can be fully exercised after
three years, they represent a medium-term incentive, the value of which is
directly aligned with the achievement of enhanced value for shareholders. Stock
options are issued at the market price of the stock on the date of grant except
that the options issued in 2001 were granted at 85% of the market price. This
differential has been amortized as expense. All of the unexercised options
issued to executives in prior years are currently “out of the money” due to the
current market value of our stock. In addition, options to acquire 25,000 shares
of common stock awarded to the named executive officers in 1999 expired
unexercised in December 2009.
Restricted
stock awards that were outstanding as of December 31, 2009 were awarded in 1998,
2001, 2002, 2004, 2008 and 2009. Restricted stock awards generally begin to vest
after three to four years from the date of grant and then vest over the
following six to nine years, although the restricted stock awards issued in 2009
vest in three equal installments on the fourth, fifth and sixth anniversary of
the date of grant. Our executive officers (as well as our employees that receive
restricted stock awards) receive dividends on the restricted stock awards that
have been granted to date, including restricted stock awards that have not
vested. We believe that restricted stock awards represent a long-term incentive
to key executives to remain committed to us and our objectives. Restricted stock
awards encourage the development of a longer term view and strategy for the
growth and success of our business along with providing motivation for a long
term commitment to us by our executives.
Employment
Agreements
Gary
A. Shiffman
In 2005,
we entered into an employment agreement with Gary A. Shiffman pursuant to which
Mr. Shiffman serves as our Chairman, Chief Executive Officer, and
President. Mr. Shiffman’s employment agreement is for an initial term
ending December 31, 2011 and is automatically renewable for successive one year
terms thereafter unless either party timely terminates the agreement. Pursuant
to this employment agreement, Mr. Shiffman is paid an annual base salary of
$545,000, which will be increased by an annual cost of living adjustment
beginning with calendar year 2006. In addition to his base salary and in
accordance with the terms of his employment agreement, Mr. Shiffman is
entitled to annual incentive compensation of up to 75% of his then current base
salary if he satisfies certain individual and Company performance criteria
established from time to time by the Compensation Committee. Mr. Shiffman
also is entitled to annual incentive compensation of up to 25% of his then
current base salary in the sole discretion of the Compensation Committee. The
non-competition clauses of Mr. Shiffman’s employment agreement preclude him
from engaging, directly or indirectly: (a) in the real estate business or any
ancillary business during the period he is employed by us; and (b) in the
manufactured housing community business or any ancillary business for a period
of eighteen months following the period he is employed by us. However,
Mr. Shiffman’s employment agreement does allow him to make passive
investments relating to real estate in general or the housing industry in
particular (other than in manufactured housing communities) during the period he
is employed by us.
A copy of Mr.Shiffman’s employment agreement is
attached as an exhibit to our periodic filings under the Exchange
Act.
Karen J. Dearing
On
February 5, 2008 (the “Effective Date”), we entered into an employment
agreement with Karen J. Dearing pursuant to which Ms. Dearing serves as our
Executive Vice President, Treasurer, Chief Financial Officer and Secretary.
Ms. Dearing’s employment agreement is for an initial term commencing on the
Effective Date and ending on December 31, 2010. The employment agreement is
automatically renewable for successive one year terms thereafter unless either
party timely terminates the agreement. Pursuant to the employment agreement,
Ms. Dearing is paid an annual base salary of $245,000 in the first year,
$265,000 in the second year and $290,000 thereafter, subject to adjustments in
accordance with the annual cost of living. In addition to her base salary and in
accordance with the terms of her employment agreement, Ms. Dearing is
eligible for annual incentive compensation of up to 50% of her base salary if
certain annual individual and/or Company performance criteria, as established by
the Compensation Committee in its sole discretion, are met and up to 50% of her
base salary at the sole discretion of the Compensation Committee. The
non-competition clauses of Ms. Dearing’s employment agreement preclude her from
engaging, directly or indirectly, in the real estate and manufactured housing
business or any ancillary business during the period she is employed by us and
for a period of up to twenty four months following the period she is employed by
us; provided, however, that if Ms. Dearing is terminated without “cause” the
period of non-competition shall be reduced to twelve months following the period
she is employed by us. Notwithstanding, Ms. Dearing’s employment
agreement does allow her to make passive investments in publicly-traded entities
engaged in our business during the period she is employed by us.
A copy of Ms.Dearing’s employment agreement is
attached as an exhibit to our periodic filings under the Exchange
Act.
John B.
McLaren
On the
Effective Date, we entered into an employment agreement with John
B. McLaren pursuant to which Mr. McLaren serves as our Executive Vice
President and Chief Operating Officer. Mr. McLaren’s employment agreement
is for an initial term commencing on the Effective Date and ending on
December 31, 2010. The employment agreement is automatically renewable for
successive one year terms thereafter unless either party timely terminates the
agreement. Pursuant to the employment agreement, Mr. McLaren is paid an
annual base salary of $265,000, which will be increased by an annual cost of
living adjustment beginning with calendar year 2009. In addition to his base
salary and in accordance with the terms of his employment agreement,
Mr. McLaren is eligible for annual incentive compensation of up to 50% of
his base salary if certain annual individual and/or Company performance
criteria, as established by the Compensation Committee in its sole discretion,
are met and up to 50% of his base salary at the sole discretion of the
Compensation Committee. The non-competition clauses of Mr. McLaren’s
employment agreement preclude him from engaging, directly or indirectly, in the
real estate and manufactured housing business or any ancillary business during
the period he is employed by us and for a period of up to twenty four months
following the period he is employed by us; provided, however, that if Mr.
McLaren is terminated without “cause” the period of non-competition shall be
reduced to twelve months following the period he is employed by
us. Notwithstanding, Mr. McLaren’s employment agreement does allow
him to make passive investments in publicly-traded entities engaged in our
business during the period he is employed by us.
A copy of Mr.McLaren’s employment agreement is
attached as an exhibit to our periodic filings under the Exchange
Act.
2009
Compensation
The base
salaries for the named executive officers for the year ended December 31, 2009,
were paid in accordance with existing employment agreements or arrangements with
us. In addition to their base salaries, the named executive officers
earned, in the aggregate, bonuses of $706,500 for the year ended December 31,
2009. Although bonuses were earned for the year ended December 31,
2009, such bonuses were not paid until March of 2010.
Under the
terms of his employment agreement with us, Mr. Shiffman is entitled to receive a
bonus of up to 75% of his base salary, in the sole discretion of the
Compensation Committee, if certain annual individual and Company performance
criteria, as established by the Compensation Committee, are met and up to 25% of
his base salary at the sole discretion of the Compensation
Committee.
For 2009,
Ms. Dearing is entitled to receive a bonus of up to 75% of her base salary,
subject to the discretion of the Compensation Committee, if certain annual
individual and Company performance criteria, as established by the Compensation
Committee, are met and up to 25% of her base salary at the sole discretion of
the Compensation Committee. For all other years, Ms. Dearing is
entitled, under the terms of her employment agreement, to receive a bonus of up
to 50% of her base salary, subject to the discretion of the Compensation
Committee, if certain annual individual and/or Company performance criteria, as
established by the Compensation Committee, are met and up to 50% of her base
salary at the sole discretion of the Compensation Committee.
Under the
terms of his employment agreement with us, Mr. McLaren is entitled to receive a
bonus of up to 50% of his base salary, subject to the discretion of the
Compensation Committee, if certain annual individual and/or Company performance
criteria, as established by the Compensation Committee, are met and up to 50% of
his base salary at the sole discretion of the Compensation
Committee.
In the
case of Mr. Colman, who does not have an employment agreement with us, an annual
bonus may be awarded up to 50% of his base salary if certain annual individual
and Company performance criteria are met, as established by the Chief Executive
Officer and approved by the Compensation Committee, and up to 50% of his base
salary at the sole discretion of the Compensation Committee.
After
review of the individual performance of each named executive officer in relation
to the agreed upon individual and Company performance objectives, the
achievement of the three to five percent growth goal in relation to Adjusted
FFO(1),
the performance of the Company in relation to budgeted revenue producing site
and net operating income targets and our overall performance during the year and
in relation to the manufactured housing industry in general, the Compensation
Committee determined that certain individual and/or Company performance
objectives were met and that the efforts of the named executive officers were
substantial in relation to the achievement of our results. Based on such
analysis, the Compensation Committee awarded the following bonuses:
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Percentage
of Base Salary Awarded for Achievement of Individual and/or Corporate
Performance Objectives
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Discretionary
Percentage of Base Salary Awarded
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Bonus
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(1)
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Adjusted
FFO was determined by excluding the effect of certain equity losses and
impairment charges related to our investments in equity affiliates, and
certain other non-recurring or unusual charges as determined in the sole
discretion of the Compensation
Committee.
|
In July
2009, equity incentive awards of 60,000 shares were granted to Mr. Shiffman and
10,000 shares each were granted to Ms. Dearing and Mr. McLaren under
our Equity Incentive Plan, which was approved by shareholders on July 29,
2009. One third of the shares granted to each of the recipients vests on
each of July 29, 2013, 2014 and 2015.
Tax
and Accounting Implications
Deductibility
of Executive Compensation.
Section 162(m)
of the Code limits the deductibility on our tax return of compensation over
$1.0 million to any of our named executive officers. However, compensation
that is paid pursuant to a plan that is performance-related, non-discretionary
and has been approved by our stockholders is not subject to section 162(m).
We have such a plan and may utilize it to mitigate the potential impact of
section 162(m). We did not pay any compensation during 2009 that would be
subject to section 162(m). We believe that, because we qualify as a REIT
under the Code and therefore are not subject to federal income taxes on its
income to the extent distributed, the payment of compensation that does not
satisfy the requirements of section 162(m) will not generally affect our
net income. However, to the extent that compensation does not qualify for
deduction under section 162(m) or under short term incentive plans approved
by shareholders to, among other things, mitigate the effects of
section 162(m), a larger portion of shareholder distributions may be
subject to federal income taxation as dividend income rather than return of
capital. We do not believe that section 162(m) will materially affect the
taxability of shareholder distributions, although no assurance can be given in
this regard due to the variety of factors that affect the tax position of each
shareholder. For these reasons, the Compensation Committee’s compensation policy
and practices are not directly governed by section 162(m).
409A
Considerations.
We have
also taken into consideration Code Section 409A in the design and
implementation of our compensation programs. If an executive is entitled to
nonqualified deferred compensation benefits that are subject to
Section 409A, and such benefits do not comply with Section 409A, then
the benefits are taxable in the first year they are not subject to a substantial
risk of forfeiture. In such case, the executive is subject to regular federal
income tax, interest and an additional federal income tax of 20% of the benefit
includible in income.
Director Compensation
Tables
Directors
who are also employees receive no additional compensation for their services as
directors. During 2009, we paid directors that are not our employees the
following annual fees:
Although
Arthur A. Weiss earned director’s fees of $50,000 for services during the fiscal
year ended December 31, 2009, he declined such fees (See “Certain Relationships
and Related Transactions, and Director Independence-Legal
Counsel”).
The
following tables provide compensation information for each member of the Board
for the year ended on December 31, 2009.
Name
|
|
Fees
Earned or Paid in Cash
|
|
|
Option
Awards (1)
|
|
|
Total
|
|
|
|
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|
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|
|
|
|
|
|
|
(1)
|
This
column represents the aggregate grant date fair value computed in
accordance with Financial Accounting Standards Board Accounting Standards
Codification Topic 718, Compensation - Stock Compensation (“FASB ASC Topic
718”). For additional information on the valuation assumptions with
respect to these grants, refer to Note 8 of
our financial statements for the year ended December 31,
2009 included in this Annual Report on Form
10-K.
|
Name
|
|
July
2009
Option
Award
1,500
shares each(1)
|
|
Aggregate
number of options outstanding at December 31, 2009
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
This
column represents the aggregate grant date fair value computed in
accordance with FASB ASC Topic 718. For additional information on the
valuation assumptions with respect to these grants, refer to Note 8 of our
financial statements for the year ended December 31, 2009 included in
this Annual Report on Form 10-K.
|
Summary
Compensation Table
The
following table includes information concerning compensation for our named
executive officers for the fiscal year ended December 31, 2009.
Name
and Principal Position
|
Year
|
|
Salary (1)
|
|
|
Bonus (2)
|
|
|
Stock Awards
(3)
|
|
|
All Other Compensation
(4)
|
|
|
Total
|
|
Gary
A. Shiffman, Chairman,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Executive Officer, and
|
|
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|
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|
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|
|
|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
Karen
J. Dearing, Executive Vice
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President,
Treasurer, Chief
|
|
|
|
|
|
|
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|
|
|
|
|
|
Financial
Officer and Secretary
|
|
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|
|
|
|
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
B. McLaren, Executive Vice
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President
and Chief Operating
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan
M. Colman, Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The
base salary amounts for 2009 include payments for 27 bi-weekly pay
periods. The base salary amounts for 2008 and 2007 include payments for 26
bi-weekly pay periods.
|
(2)
|
See
“2009 Compensation” on page 54 for additional information regarding
bonuses awarded in 2009. Although the bonuses were earned for
2009, 2008, and 2007, such bonuses were not paid until March 2010, 2009
and 2008, respectively.
|
(3)
|
This
column represents the aggregate grant date fair value computed in
accordance with FASB ASC Topic 718. For additional information on the
valuation assumptions with respect to these grants, refer to Note 8 of our
financial statements for the year ended December 31, 2009 included in
this Annual Report on Form 10-K.
|
(4)
|
Includes
matching contributions to our 401(k) Plan of $4,158, $4,853, $2,062 and $4,900 for
each of Messrs. Shiffman, McLaren, Colman and Ms. Dearing
respectively; for the fiscal year ended December 31, 2009. Includes
matching contributions to our 401(k) Plan of $2,300 for each of
Messrs. Shiffman and McLaren, and Ms. Dearing; and $1,947 for
Mr. Colman for the fiscal year ended December 31, 2008. Includes
matching contributions our 401(k) Plan of $2,250 for Mr. Shiffman and
$1,669 for Mr. Colman for the fiscal year ended December 31, 2007.
Also includes premiums for life insurance and accidental death and
disability insurance in the amount of $252 for each of
Messrs. Shiffman, McLaren, Colman and Ms. Dearing for the fiscal
year ended December 31, 2009; $294 for each of Messrs. Shiffman,
McLaren and Colman and Ms. Dearing for the fiscal year ended December
31, 2008; and $276 for each of Messrs. Shiffman and Colman for the
fiscal year ended December 31, 2007. Includes perquisites for
sporting events valued in the amounts of $6,849, $280, and $870 for each
of Messrs. Shiffman, McLaren, and Ms. Dearing
respectively.
|
(5)
|
Includes
$36,667 paid to Mr. Shiffman by Origen Financial, Inc. for service on
its board of directors.
|
(6)
|
Includes
$81,000 paid to Mr. Shiffman by Origen Financial, Inc. for service on
its board of directors.
|
(7)
|
Includes
$74,050 paid to Mr. Shiffman by Origen Financial, Inc. for service on
its board of directors. The amount includes $38,750 in cash and restricted
stock awards with a grant date fair value of $35,300 computed in
accordance with FASB ASC Topic 718.
|
Grants
of Plan Based Awards
We
granted each of the named officers restricted shares of our common
stock. One third of the shares vests on each of July 29, 2013, July
29, 2014 and July 29, 2015.
Name
|
Grant
Date
|
|
All
Other Stock Awards: Number of Shares of Stocks or Units
(#)
|
|
|
Grant
Date Fair Value of Stock and Option Awards (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Pursuant
to SEC rules, this column represents the total fair market value of
restricted stock awards, in accordance with FASB ASC Topic
718
|
Outstanding
Equity Awards at Fiscal Year-End
The
following table provides certain information with respect to the value of all
unexercised options and restricted share awards previously granted our named
executive officers:
Outstanding Equity Awards at Fiscal
Year-End as of December31, 2009
|
|
Option
Awards (1)
|
|
Share
Awards (2)
|
|
Name
|
|
Number
of Securities Underlying Unexercised Options (Exercisable)
|
|
Number
of Securities Underlying Unexercised Options
(Unexercisable)
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
|
|
Option
Exercise Price
|
|
Option
Expiration Date
|
|
Number
of Shares or Units of Stock that Have Not Vested
|
|
|
Market
Value of Shares or Units of Stock that Have Not Vested (3)
|
|
|
Equity
Incentive Plan Awards: Number of Shares, Units, or Other Rights that have
not Vested (#)
|
|
|
Equity
Incentive Plan Awards: Number of Shares, Units, or Other Rights that have
not Vested ($)
|
|
|
|
|
|
|
|
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|
|
(1)
|
The
options expiring on April 12, 2011 were granted at 85% of the closing
price of our Common Stock on NYSE on the date of
grant.
|
(2)
|
All
share awards begin to vest after either the third or fourth
anniversary of the date of grant.
|
(3)
|
Value
based $19.75, the closing price of our Common Stock on NYSE on December
31, 2009.
|
(4)
|
Shares
will vest on January 31, 2010.
|
(5)
|
Shares
will vest on March 30, 2011.
|
(6)
|
11,083
of the shares will vest on each of July 15th, 2010 and July 15, 2011 and
the remaining 3,502 shares will vest on July 15,
2014.
|
(7)
|
4,000
of the shares vest on May 10, 2010 and the remaining will vest in two
equal installments on May 10, 2011 and May 10,
2014.
|
(8)
|
1,400
of the shares vest on May 10, 2010 and the remaining will vest in two
equal installments on May 10, 2011 and May 10,
2014.
|
(9)
|
2,000
of the shares vest on May 10, 2010 and the remaining will vest in two
equal installments on May 10, 2011 and May 10,
2014.
|
(10)
|
Shares
of phantom stock that vest in three equal installments beginning on May
12, 2010 and ending on May 12, 2012. On each vesting date,
Ms. Dearing receives a cash payment equal to the total number of
shares vested multiplied by the ten day average trading price of our
common stock on NYSE.
|
(11)
|
Thirty-five
percent of the shares vest on February 5, 2012 and February 5, 2013,
twenty percent of the shares vest on February 5, 2014 and the remaining
ten percent will vest in two equal installments on February 5, 2015 and
February 5, 2018.
|
(12)
|
One
third of the shares vests on each of July 29, 2013, July 30, 2014 and July
31, 2015.
|
Option
Exercises and Stock Vested During Last Fiscal Year
The
following table sets forth certain information concerning shares held by our
named executive officers that vested during the fiscal year ended on
December 31, 2009:
|
|
Option
Awards
|
|
|
Stock
Awards
|
|
Name
|
|
Number
of Shares Acquired on Exercise
|
|
|
Value
Realized on Exercise
|
|
|
Number
of Shares Acquired on Vesting
|
|
|
Value
Realized on Vesting
|
|
|
|
|
|
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|
|
|
(1)
|
Value
based on the average of the high and low of the share price on the vesting
date, or the next business day if the vesting date was on a
weekend.
|
(2)
|
Represents
an award of phantom stock where a cash bonus is paid on the vesting date
in lieu of shares. The cash bonus value is based on a 10 day
average of our closing stock price prior to the vesting
date.
|
Change
in Control and Severance Payments
Messrs. Shiffman
and McLaren and Ms. Dearing have contractual arrangements with us providing
for severance and change in control payments. If any such executive is
terminated without “cause,” he or she is entitled to any accrued but unpaid
salary, incentive compensation and benefits through the date of termination and
a continuation of salary for up to eighteen months after termination in the case
of Mr. Shiffman and up to twelve months in the case of Ms. Dearing and
Mr. McLaren, subject to the execution of a general release and continued
compliance with his or her restrictive covenant. If Messrs. Shiffman’s or
McLaren’s or Ms. Dearing’s employment is terminated due to death or
disability, he or she or his or her heirs, is entitled to any accrued but unpaid
salary, incentive compensation and benefits through the date of termination or
death and a continuation of salary for up to twenty four months, in the case of
Mr. Shiffman and Ms. Dearing and twelve months in the case of
Mr. McLaren. Upon a change of control and if Messrs. Shiffman or
McLaren or Ms. Dearing are terminated within two years of the date of such
change of control or less than two years remain under the term of their
employment agreements, then each of them would receive 2.99 times their annual
salary and a continuation of health and insurance benefits for one year. Under
any of the foregoing events of termination or change of control, all stock
options and other stock based compensation awarded to the executive shall become
fully vested and immediately exercisable.
The
following tables describe the potential payments upon termination without cause,
a termination due to death or disability or after a change of control (and
associated termination of the executives) for the following named executive
officers:
Termination
Without Cause
Name
|
|
Cash
Payment (1)
|
|
|
Acceleration
of Vesting of Stock Awards (2)
|
|
|
Benefits
|
|
|
Total
|
|
|
|
|
|
|
|
|
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|
|
|
Termination
Due to Death or Disability
Name
|
|
Cash
Payment (1)
|
|
|
Acceleration
of Vesting of Stock Awards (2)
|
|
|
Benefits
|
|
|
Total
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Change
of Control
Name
|
|
Cash
Payment (1)
|
|
|
Acceleration
of Vesting of Stock Awards (2)
|
|
|
Benefits
(3)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Assumes
a termination on December 31, 2009 and payments based on base salary
(without taking into account any accrued incentive based compensation) as
of December 31, 2009 for each executive for the periods specified
above.
|
(2)
|
Calculated
based on a termination as of December 31, 2009 and the fair market value
of our common stock on NYSE as of December 31,
2009.
|
(3)
|
Reflects
continuation of health benefits, life insurance and accidental death and
disability insurance for the periods specified
above.
|
Compensation
Committee Report
The
Compensation Committee has reviewed and discussed the Compensation Discussion
and Analysis required by Item 402(b) of Regulation S-K with management
and, based on such review and discussions, the Committee recommended to the
Board that the Compensation Discussion and Analysis be included in this Annual
Report.
Respectfully
submitted,
Members
of the Compensation Committee:
Robert H.
Naftaly
Clunet R.
Lewis
Paul D.
Lapides
Report
of the Audit Committee
The Board
maintains an Audit Committee comprised of three of our directors. The directors
who serve on the Audit Committee are all “independent” for purposes of the New
York Stock Exchange listing standards. The Audit Committee held four formal meetings and
several informal meetings during the 2009 fiscal year.
In
accordance with its written charter, the Audit Committee assists the Board with
fulfilling its oversight responsibility regarding quality and integrity of our
accounting, auditing and financial reporting practices. In discharging its
oversight responsibilities regarding the audit process, the Audit
Committee:
·
|
reviewed
and discussed the audited financial statements with management and Grant
Thornton, LLP, our independent auditors, for the fiscal year ended
December 31, 2009;
|
·
|
discussed
with the independent auditors the matters required to be discussed by
Statement on Auditing Standards No. 61 (Codification of Statements on
Auditing Standards); and
|
·
|
reviewed
the written disclosures and the letter from the independent auditors
required by the Independence Standards Board’s Standard No. 1
(Independence Discussions with Audit Committees), and discussed with the
independent auditors any relationships that may impact their objectivity
and independence.
|
Based
upon the review and discussions referred to above, the Audit Committee
recommended to the Board that the audited financial statements included herein
our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 be
filed with the SEC.
The Audit
Committee has considered and determined that the level of fees of Grant Thornton
LLP for provision of services other than the audit services is compatible with
maintaining the auditor’s independence.
Respectfully
Submitted,
Members
of the Audit Committee:
Clunet R.
Lewis
Robert H.
Naftaly
Stephanie
W. Bergeron
ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth, based upon information available to us, as of March 1, 2010, the
shareholdings of: (a) each person known to us to be the beneficial owner of more
than five percent (5%) of our Common Stock; (b) each of our directors; (c) each
named executive officer listed in the Summary Compensation Table; and (d) all of
our named executive officers and directors as a group:
Name
and Address of Beneficial Owner
|
|
Amount
and Nature of
Beneficial
Ownership
|
|
Percent
of
Outstanding
Shares(1)
|
|
27777 Franklin Road
Suite 200
Southfield, Michigan 48034
|
|
|
|
|
|
27777 Franklin Road
Suite 200
Southfield, Michigan 48034
|
|
|
|
|
|
27777 Franklin Road
Suite 200
Southfield, Michigan 48034
|
|
|
|
|
|
27777
Franklin Road
Suite
200
Southfield,
Michigan 48034
|
|
|
|
|
|
27777
Franklin Road
Suite
200
Southfield,
Michigan 48034
|
|
|
|
|
|
27777
Franklin Road
Suite
200
Southfield,
Michigan 48034
|
|
|
|
|
|
27777
Franklin Road
Suite
200
Southfield,
Michigan 48034
|
|
|
|
|
|
27777
Franklin Road
Suite
200
Southfield,
Michigan 48034
|
|
|
|
|
|
27777 Franklin Road
Suite 2500
Southfield, Michigan 48034
|
|
|
|
|
|
27777
Franklin Road
Suite
200
Southfield,
Michigan 48034
|
|
|
|
|
|
Name
and Address of Beneficial Owner
|
|
Amount
and Nature of
Beneficial
Ownership
|
|
Percent
of
Outstanding
Shares(1)
|
|
27777
Franklin Road
Suite
200
Southfield,
Michigan 48034
|
|
|
|
|
|
The
Vanguard Group, Inc. (10)
100
Vanguard Blvd.
Malvern,
PA 19355
|
|
|
|
|
|
Wells
Fargo & Company (11)
420
Montgomery Street
San
Francisco, CA 94163
|
|
|
|
|
|
Anchor
Capital Advisors LLC (12)
One Post Office Square
Boston, MA 02109
|
|
|
|
|
|
40 East 52nd Street
New York, NY 10022
|
|
|
|
|
|
All
executive officers and directors as a group (11 persons)(14)
|
|
|
|
|
|
* Less
than one percent (1%) of the outstanding shares.
(1)
|
In
accordance with SEC regulations, the percentage calculations are based on
18,830,191 shares of Common Stock issued and outstanding as of March 1,
2010 plus shares of Common Stock which may be acquired pursuant to options
exercisable, common limited partnership interests (“Common OP Units”) and
preferred limited partnership interests (“Preferred OP Units”) of Sun
Communities Operating Limited Partnership that are convertible into Common
Stock, within sixty days of March 1, 2010, by each individual or group
listed.
|
(2)
|
Includes:
(a) 434,428 Common OP Units convertible into shares of Common Stock; (b)
25,000 shares of Common Stock which may be acquired pursuant to options
exercisable within sixty days of March 1, 2010; and (c) 890,933
shares of Common Stock and 453,841 Common OP Units owned by certain
limited liability companies of which Mr. Shiffman is a member and a
manager.
|
(3)
|
Includes
9,000 shares of Common Stock which may be acquired pursuant to options
exercisable within sixty days of March 1,
2010.
|
(4)
|
Includes
9,000 shares of Common Stock which may be acquired pursuant to options
exercisable within sixty days of March 1,
2010.
|
(5)
|
Includes
20,000 Common OP Units convertible into shares of Common Stock. Also
includes 6,500 shares of Common Stock which may be acquired pursuant to
options exercisable within sixty days of March 1,
2010.
|
(6)
|
Includes:
(a) 17,437 Common OP Units convertible into shares of Common Stock and
139,735 Preferred OP Units convertible into Common OP Units (which are
convertible into shares of Common Stock); (b) 6,750 shares of Common Stock
which may be acquired pursuant to options exercisable within sixty days of
March 1, 2010.
|
(7)
|
Includes
16,938 Common OP Units convertible into shares of Common Stock and 9,000
shares of Common Stock which may be acquired pursuant to options
exercisable within sixty days of March 1, 2010. Also, includes: (a)
453,841 shares of Common Stock and 141,794 Common OP Units owned by
certain limited liability companies of which Mr. Weiss is a manager,
and (b) 6,796 shares of Common Stock held by the 1997 Shiffman Charitable
Remainder Unitrust for which Mr. Weiss is a Co-Trustee.
Mr. Weiss does not have a pecuniary interest in any of the 1997
Shiffman Charitable Remainder Unitrust or the limited liability companies
described above and, accordingly, Mr. Weiss disclaims beneficial
ownership of the 453,841 shares of Common Stock and the 141,794 Common OP
Units held by the limited liability companies described above and the
6,796 shares of Common Stock held by the 1997 Shiffman Charitable
Remainder Unitrust.
|
(8)
|
Includes
1,500 Shares of Common Stock which may be acquired pursuant to options
exercisable within sixty days of March 1,
2010.
|
(9)
|
Includes
1,500 Shares of Common Stock which may be acquired pursuant to options
exercisable within sixty days of March 1,
2010.
|
(10)
|
According
to the Schedule 13G filed with the SEC as of December 31, 2009, The
Vanguard Group, Inc., in its capacity as investment advisor, beneficially
owns 1,929,299 shares of Common
Stock.
|
(11)
|
According
to the Schedule 13G filed with the SEC for calendar year 2009, Wells Fargo
& Company, in its capacity as a parent holding company or control
person in accordance with 240.13d-1(b)(1)(ii)(G), beneficially owns
1,037,596 shares of Common Stock of the
Company.
|
(12)
|
According
to the Schedule 13G filed with the SEC as of June 30, 2009, Anchor Capital
Advisors LLC, in its capacity as investment advisor, beneficially owns
953,617 shares of Common Stock.
|
(13)
|
According
to the Schedule 13G filed with the SEC for calendar year 2009, BlackRock,
Inc., in its capacity as a parent holding company or control person in
accordance with 240.13d-1(b)(1)(ii)(G), beneficially owns 1,377,046 shares
of Common Stock of the Company.
|
(14)
|
Includes
(a) 1,084,438 Common OP Units convertible into shares of Common Stock and
139,735 Preferred OP Units convertible into Common OP Units (which are
convertible into Common Stock); and (b) 68,250 shares of Common Stock
which may be acquired pursuant to options exercisable within sixty days of
March 1, 2010.
|
ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Relationship
with Equity Affiliates
We have
entered into the following transactions with Origen Financial Services, LLC (the
“LLC”):
·
|
Investment in
LLC. We entered into an agreement with four unrelated
companies (“Members”) and contributed cash of approximately $0.5 million
towards the formation of a limited liability company. The LLC
purchased the origination platform of Origen. The purpose of the venture
is to originate manufactured housing installment contracts for its
Members. We account for our investment in the LLC using the
equity method of accounting. As of December 31, 2009, we had an
ownership interest in the LLC of 25 percent, and the carrying value of our
investment was zero.
|
·
|
Loan Origination, Sale and
Purchase Agreement. The LLC had agreed to fund loans that meet our
underwriting guidelines and then transfer those loans to us pursuant to a
Loan Origination, Sale and Purchase Agreement. We paid the LLC a weighted
average fee of approximately $620 per loan pursuant to a Loan Origination,
Sale and Purchase Agreement which totaled approximately $0.1 million
during the year ended December 31, 2009. We purchased, at par,
$6.9 million of these loans during the year ended December 31,
2009.
|
We have
entered into the following transactions with Origen:
·
|
Capital Investment in
Origen: In the 2003 recapitalization of Origen, we purchased
5,000,000 shares of Origen common stock for $50.0 million and Shiffman
Origen LLC (which is owned by the Milton M. Shiffman Spouse’s Marital
Trust, Gary A. Shiffman (our Chairman and Chief Executive Officer), and
members of Mr. Shiffman’s family) purchased 1,025,000 shares of
Origen common stock for approximately $10.3
million. As of December 31, 2009 we had an
ownership interest in Origen of approximately 19 percent, and the carrying
value of our investment was $1.6
million.
|
·
|
Board Membership. Gary
A. Shiffman, our Chairman and Chief Executive Officer is a board member of
Origen.
|
Lease
of Principal Executive Offices
Gary A.
Shiffman, together with certain family members, indirectly owns a 21 percent
equity interest in American Center LLC, the entity from which we lease office
space for our principal executive offices. Arthur A. Weiss owns a 0.75 percent
indirect interest in American Center LLC. This lease was for an initial term of
five years, beginning May 1, 2003, with the right to extend the lease for an
additional five year term. In December 2007, we exercised our option to extend
the lease for our executive offices. The extension was for a period of five
years commencing on May 1, 2008. In August 2008, we modified the lease agreement
to add approximately 5,300 additional square feet for a total of approximately
36,700 rentable square feet, and to extend the term of the lease until August
31, 2015, with an option to renew for an additional five years. The annual base
rent under the current lease is $18.81 per square foot (gross) and will remain
this amount through August 31, 2015. Mr. Shiffman and Mr. Weiss may
have a conflict of interest with respect to their obligations as one of our
officers and/or directors and their ownership interest in American Center
LLC.
Loans
to Chief Executive Officer
In 1995,
we issued Gary A. Shiffman, our Chief Executive Officer and President, 272,206
shares of common stock and 127,794 OP units for $8,650,000 (the “Purchase
Price”). The Purchase Price is evidenced by three separate 10-year promissory
notes that bear interest at a rate equal to six months’ LIBOR plus 175 basis
points, with a maximum interest rate of 9% per annum and a minimum interest rate
of 6% per annum (the “Promissory Notes”). Two of the Promissory Notes with an
initial aggregate principal amount of approximately $7.6 million were secured by
the shares common stock (the “Secured Shares”) and OP units (the
“Secured Units”) held by Mr. Shiffman and the last Promissory Note with an
initial principal amount of approximately $1.0 million is unsecured but fully
recourse to Mr. Shiffman. Mr. Shiffman’s personal liability on the
secured Promissory Notes is limited to all accrued interest on such notes plus
50% of the deficiency, if any, after application of the proceeds from the sale
of the Secured Shares and/or the Secured Units to the then outstanding principal
balance of the Promissory Notes. The Promissory Notes provide for quarterly
interest only payments and provide that all cash distributions and dividends
paid to Mr. Shiffman on the Secured Shares and the Secured Units (the
“Distributions”) will first be applied toward the accrued and unpaid interest
under the Promissory Notes and 60% of the remainder of the Distributions, if
any, will be applied toward the outstanding principal balance of the Promissory
Notes.
In April
1997, we loaned Mr. Shiffman an additional $2,600,391 on terms
substantially identical to the terms of the other loan to Mr. Shiffman, as
described above, and such loan was secured by 80,000 shares of our common stock
held by Mr. Shiffman (the promissory notes evidencing this loan, together
with the Promissory Notes, are hereinafter referred to as the “Shiffman
Notes”).
On July
15, 2002, the due date of the Shiffman Notes was extended such that one-third of
the then outstanding principal balance became due on each of December 31, 2008,
and December 31, 2009 and the balance of the Shiffman Notes becomes due on
December 31, 2010.
The
largest aggregate indebtedness outstanding under the Shiffman Notes since
January 1, 2009 was approximately $8.3 million. As of March 1, 2010, the amount
outstanding under the Shiffman Notes was approximately $3.2 million was secured
by 100,704 common shares and 36,539 OP units.
Legal
Counsel
During
2009, JRH&W acted as our general counsel and represented us in various
matters. Arthur A. Weiss, one of our directors, is the Chairman of the Board of
Directors and a shareholder of such firm. We incurred legal fees and expenses of
approximately $1.1 million in 2009 in connection with services rendered by
JRH&W.
Tax
Consequences Upon Sale of Properties
Gary A.
Shiffman holds limited partnership interests in the Operating Partnership which
were received in connection with the contribution of 24 properties (four of
which have been sold) from partnerships previously affiliated with him (the “Sun
Partnerships”). Prior to any redemption of these limited partnership interests
for our common stock, Mr. Shiffman will have tax consequences different
from those of us and our public stockholders on the sale of any of the Sun
Partnerships. Therefore, we have different objectives than Mr. Shiffman
regarding the appropriate pricing and timing of any sale of those
properties.
Policies
and Procedures for Approval of Related Party Transactions
None of
our executive officers or directors (or any family member or affiliate of such
executive officer or director) may enter into any transaction or arrangement
with us that reasonably could be expected to give rise to a conflict of interest
without the prior approval of the Nominating and Corporate Governance Committee.
Any such transaction or arrangement must be promptly reported to the Nominating
and Corporate Governance Committee or the full Board. Any such disclosure
provided by an executive officer or director is reviewed by the Nominating and
Corporate Governance Committee and approved or disapproved. In determining
whether to approve such a transaction or arrangement, the Nominating and
Corporate Governance Committee takes into account, among other factors, whether
the transaction was on terms no less favorable to us than terms generally
available to third parties and the extent of the executive officer’s or
director’s involvement in such transaction or arrangement.
The
current policy was adopted and approved in 2004. All related party transactions
disclosed above were approved by either the Nominating and Corporate Governance
Committee or the full Board.
ITEM 14. PRINCIPAL ACCOUNTANT
FEES AND SERVICES
Fees
Aggregate
fees for professional services rendered by Grant Thornton, LLP, our independent
auditors, for the fiscal years ended December 31, 2009 and 2008 were as
follows:
Category
|
|
FYE
12/31/09
|
|
|
FYE
12/31/08
|
|
Audit
Fees: For professional services rendered for the audit of the Company’s
financial statements, the audit of internal controls relating to Section
404 of the Sarbanes-Oxley Act, the reviews of the quarterly financial
statements and consents
|
|
|
|
|
|
|
|
|
Audit-Related
Fees: For professional services rendered for accounting assistance with
new accounting standards and potential transactions and other SEC related
matters
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PART
IV
ITEM 15. EXHIBITS AND FINANCIAL
STATEMENT SCHEDULES
The
following documents are filed herewith as part of this Form 10-K:
1. Financial
Statements.
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 Schedules” filed herewith.
2. Financial
Schedules
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 Schedules” filed herewith.
3. Exhibits.
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.
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.
|
SUN
COMMUNITIES, INC.
(Registrant)
|
Date:
March 11, 2010
|
By
|
/s/
|
Gary
A. Shiffman
|
|
|
|
Gary
A. Shiffman
Chief
Executive Officer
|
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.
|
Name
|
|
Capacity
|
|
Date
|
/s/
|
Gary
A. Shiffman
|
|
Chief
Executive Officer, President and Chairman of the Board of
Directors
|
|
March
11, 2010
|
|
Gary
A. Shiffman
|
|
|
/s/
|
Karen
J. Dearing
|
|
Executive
Vice President, Chief Financial Officer, Treasurer, Secretary and
Principal Accounting Officer
|
|
March
11, 2010
|
|
Karen
J. Dearing
|
|
|
/s/
|
Paul
D. Lapides
|
|
Director
|
|
March
11, 2010
|
|
Paul
D. Lapides
|
|
|
/s/
|
Ted
J. Simon
|
|
Director
|
|
March
11, 2010
|
|
Ted
J. Simon
|
|
|
/s/
|
Clunet
R. Lewis
|
|
Director
|
|
March
11, 2010
|
|
Clunet
R. Lewis
|
|
|
/s/
|
Ronald
L. Piasecki
|
|
Director
|
|
March
11, 2010
|
|
Ronald
L. Piasecki
|
|
|
/s/
|
Arthur
A. Weiss
|
|
Director
|
|
March
11, 2010
|
|
Arthur
A. Weiss
|
|
|
/s/
|
Robert
H. Naftaly
|
|
Director
|
|
March
11, 2010
|
|
Robert
H. Naftaly
|
|
|
/s/
|
Stephanie
W. Bergeron
|
|
Director
|
|
March
11, 2010
|
|
Stephanie
W. Bergeron
|
|
|
EXHIBIT
INDEX
Exhibit
Number
|
|
Description
|
|
Method
of Filing
|
|
|
Sales
Agreement dated August 27, 2009, executed by and between Sun Communities,
Inc. and Brinson Patrick Securities Corporation
|
|
|
|
|
Form
of Sun Communities, Inc.’s Common Stock Certificate
|
|
|
|
|
Amended
and Restated Articles of Incorporation of Sun Communities,
Inc
|
|
|
|
|
First
Amended and Restated Bylaws
|
|
|
|
|
Articles
Supplementary, dated October 16, 2006
|
|
|
|
|
Articles
Supplementary of Board of Directors of Sun Communities, Inc. Designating a
Series of Preferred Stock and Fixing Distribution and other Rights in such
Series
|
|
|
|
|
Articles
Supplementary of Board of Directors of Sun Communities, Inc. Designating a
Series of Preferred Stock
|
|
|
|
|
Rights
Agreement, dated as of June 2, 2008, between Sun Communities, Inc. and
Computershare Trust Company, N.A. as Rights Agent
|
|
|
|
|
Sun
Communities, Inc. Equity Incentive Plan
|
|
|
|
|
|
|
|
|
|
Form
of Subordinated Indenture
|
|
|
|
|
Second
Amended and Restated Agreement of Limited Partnership of Sun Communities
Operating Limited Partnership
|
|
|
|
|
Stock
Pledge Agreement between Gary A. Shiffman and the Operating Partnership
with respect to 80,000 shares of Common Stock
|
|
|
|
|
Employment
Agreement between Sun Communities, Inc. and Gary A. Shiffman, dated as of
January 1, 2005#
|
|
|
|
|
Employment
Agreement between Sun Communities, Inc. and Jeffrey P. Jorissen, dated as
of January 1, 2005#
|
|
|
|
|
Employment
Agreement by and between Brian W. Fannon and Sun Communities, Inc., dated
as of January 1, 2005#
|
|
|
|
|
First
Amendment to Employment Agreement by and between Brian W. Fannon and Sun
Communities, Inc. dated December 30, 2007 #
|
|
|
|
|
Second
Amendment to Employment Agreement by and between Brian W. Fannon and Sun
Communities, Inc. dated March 17, 2008#
|
|
|
|
|
Retirement
from Employment and Release, dated July 10, 2008 by and among Sun
Communities, Inc. and Brian W. Fannon#
|
|
|
|
|
Employment
Agreement by and between John B. McLaren and Sun Communities, Inc. dated
February 5, 2008#
|
|
|
|
|
Employment
Agreement by and between Karen J. Dearing and Sun Communities, Inc. dated
February 5, 2008#
|
|
|
|
|
|
|
|
|
|
Sun
Communities, Inc. 1998 Stock Purchase Plan#
|
|
|
|
|
Second
Amended and Restated 1993 Stock Option Plan
|
|
|
|
|
One
Hundred Third Amendment to Second Amended and Restated Limited Partnership
Agreement of the Operating Partnership
|
|
|
|
|
One
Hundred Eleventh Amendment to Second Amended and Restated Limited
Partnership Agreement of the Operating Partnership
|
|
|
|
|
One
Hundred Thirty-Sixth Amendment to Second Amended and Restated Limited
Partnership Agreement of the Operating Partnership
|
|
|
|
|
One
Hundred Forty-Fifth Amendment to Second Amended and Restated Limited
Partnership Agreement of the Operating Partnership
|
|
|
|
|
One
Hundred Seventy-Second Amendment to Second Amended and Restated Limited
Partnership Agreement of the Operating Partnership
|
|
|
|
|
Restricted
Stock Award Agreement between Sun Communities, Inc. and Gary A. Shiffman,
dated May 10, 2004#
|
|
|
|
|
First
Amendment to Restricted Stock Award Agreement between Sun Communities,
Inc., and Gary A. Shiffman#
|
|
|
|
|
Second
Amendment to Restricted Stock Award Agreement between Sun Communities,
Inc. and Gary A. Shiffman#
|
|
|
|
|
Third
Amendment to Restricted Stock Award Agreement between Sun Communities,
Inc. and Gary A. Shiffman#
|
|
|
|
|
Amended
and Restated 1993 Non-Employee Director Stock Option
Plan
|
|
|
|
|
Restricted
Stock Award Agreement between Sun Communities, Inc. and Jeffrey P.
Jorissen, dated May 10, 2004#
|
|
|
|
|
First
Amendment to Restricted Stock Award Agreement between Sun Communities,
Inc. and Jeffrey P. Jorissen#
|
|
|
|
|
Second
Amendment to Restricted Stock Award Agreement between Sun Communities,
Inc. and Jeffrey P. Jorissen #
|
|
|
|
|
Third
Amendment to Restricted Stock Award Agreement between Sun Communities,
Inc. and Jeffrey P. Jorissen#
|
|
|
|
|
Restricted
Stock Award Agreement between Sun Communities, Inc. and John B.
McLaren, dated February 5, 2008#
|
|
|
|
|
Restricted
Stock Award Agreement between Sun Communities, Inc. and Karen
J. Dearing, dated February 5, 2008#
|
|
|
|
|
Form
of Loan Agreement dated June 9, 2004 by and among Sun Candlewick LLC, Sun
Silver Star LLC and Aspen-Holland Estates, LLC, as Borrowers, and Bank of
America, N.A., as Lender
|
|
|
|
|
Schedule
identifying substantially identical agreements to Exhibit
10.33
|
|
|
Exhibit
Number
|
|
Description
|
|
Method
of Filing
|
|
|
Form
of Loan Agreement dated June 9, 2004 by and between Sun Pool 8 LLC, as
Borrower, and Bank of America, N.A., as Lender
|
|
|
|
|
Schedule
identifying substantially identical agreements to Exhibit
10.35
|
|
|
|
|
Form
of Stock Option Agreement between Sun Communities, Inc. and certain
directors, officers and other individuals#
|
|
|
|
|
Form
of Loan Agreement dated June 9, 2004 by and between Sun Continental
Estates LLC as Borrower, and Bank of America, N.A., as
Lender
|
|
|
|
|
Schedule
identifying substantially identical agreements to Exhibit
10.37
|
|
|
|
|
Form
of Loan Agreement dated June 9, 2004 by and between Sun Indian Creek LLC,
as Borrower, and Bank of America, N.A., as Lender
|
|
|
|
|
Schedule
identifying substantially identical agreements to Exhibit
10.39
|
|
|
|
|
Amended
And Restated Master Credit Facility Agreement dated April 28, 2004 by and
among Sun Secured Financing LLC, Aspen Ft. Collins Limited Partnership,
Sun Secured Financing Houston Limited Partnership, Sun Communities
Finance, LLC, Sun Holly Forest LLC, Sun Saddle Oak LLC, as Borrowers, and
Arcs Commercial Mortgage Co., L.P., as Lender
|
|
|
|
|
Appendix
I (definitions) to Amended And Restated Master Credit Facility Agreement
dated April 28, 2004 by and among Sun Secured Financing LLC, Aspen Ft.
Collins Limited Partnership, Sun Secured Financing Houston Limited
Partnership, Sun Communities Finance, LLC, Sun Holly Forest LLC, Sun
Saddle Oak LLC, as Borrowers, and Arcs Commercial Mortgage Co., L.P., as
Lender
|
|
|
|
|
Fixed
Facility Note dated April 5, 2004 made by Sun Secured Financing LLC, Aspen
– Ft. Collins Limited Partnership and Sun Secured Financing Houston
Limited Partnership, in favor of Arcs Commercial Mortgage Co., L.P., in
the original principal amount of $77,362,500
|
|
|
|
|
Fixed
Facility Note dated April 28, 2004 made by Sun Secured Financing LLC, Sun
Secured Financing Houston Limited Partnership, Aspen – Ft. Collins Limited
Partnership, Sun Communities Finance LLC, Sun Holly Forest LLC and Sun
Saddle Oak LLC, in favor of Arcs Commercial Mortgage Co., L.P., in the
original principal amount of $100,000,000
|
|
|
|
|
Variable
Facility Note dated April 28, 2004 made by Sun Secured Financing LLC, Sun
Secured Financing Houston Limited Partnership, Aspen – Ft. Collins Limited
Partnership, Sun Communities Finance LLC, Sun Holly Forest LLC and Sun
Saddle Oak LLC, in favor of Arcs Commercial Mortgage Co., L.P., in the
original principal amount of $60,275,000
|
|
|
|
|
Fourth
Amended and Restated Variable Facility Note dated April 28, 2004 made by
Sun Secured Financing LLC, Sun Secured Financing Houston Limited
Partnership, Aspen – Ft. Collins Limited Partnership, Sun Communities
Finance LLC, Sun Holly Forest LLC and Sun Saddle Oak LLC, in favor of Arcs
Commercial Mortgage Co., L.P., in the original principal amount of
$152,362,500
|
|
|
|
|
Form
of Non-Employee Director Stock Option Agreement between Sun Communities,
Inc. and certain directors#
|
|
|
|
|
Credit
Agreement, dated September 30, 2004, among the Company, the Operating
Partnership, Standard Federal Bank National Association, LaSalle Bank
National Association and other lenders
|
|
|
|
|
Second
Amended and Restated Promissory Note (Secured), dated as of July 15, 2002,
made by Gary A. Shiffman in favor of the Operating
Partnership
|
|
|
|
|
First
Amended and Restated Promissory Note (Unsecured), dated as of July 15,
2002, made by Gary A. Shiffman in favor of the Operating
Partnership
|
|
|
|
|
First
Amended and Restated Promissory Note (Secured), dated as of July 15, 2002,
made by Gary A. Shiffman in favor of the Operating
Partnership
|
|
|
|
|
Second
Amended and Restated Promissory Note (Unsecured), dated as of July 15,
2002, made by Gary A. Shiffman in favor of the Operating
Partnership
|
|
|
|
|
Second
Amended and Restated Promissory Note (Secured), dated as of July 15, 2002,
made by Gary A. Shiffman in favor of the Operating
Partnership
|
|
|
|
|
Lease,
dated November 1, 2002, by and between the Operating Partnership as Tenant
and American Center LLC as Landlord
|
|
|
|
|
Promissory
Note dated July 10, 2006 made by Sun Villa MHC LLC in favor of ARCS
Commercial Mortgage Co., L.P., in the original principal amount of
$18,300,000
|
|
|
|
|
Promissory
Note dated July 10, 2006 made by Sun Countryside Atlanta LLC in favor of
ARCS Commercial Mortgage Co., L.P., in the original principal amount of
$12,950,000
|
|
|
|
|
Deed
of Trust, Assignment of Rents, Security Agreement and Fixture Filing,
dated July 10, 2006, made by Sun Villa MHC LLC in favor of ARCS Commercial
Mortgage Co., L.P.
|
|
|
|
|
2004
Non-Employee Director Stock Option Plan#
|
|
|
|
|
Deed
to Secure Debt and Security Agreement dated July 10, 2006 made by Sun
Countryside Atlanta LLC in favor of ARCS Commercial Mortgage Co.,
L.P.
|
|
|
|
|
Promissory
Note dated August 1, 2006 made by Sun Countryside Lake Lanier LLC in favor
of ARCS Commercial Mortgage Co., L.P., in the original principal amount of
$16,850,000
|
|
|
Exhibit
Number
|
|
Description
|
|
Method
of Filing
|
|
|
Deed
to Secured Debt and Security Agreement dated August 1, 2006 made by Sun
Countryside Lake Lanier LLC in favor of ARCS Commercial Mortgage Co.,
L.P.
|
|
|
|
|
Future
Advance, Renewal and Consolidation Promissory Note dated November 15, 2006
made by Miami Lakes Venture Associates in favor of Lehman Brothers Bank,
FSB in the original principal amount of $54,000,000
|
|
|
|
|
Notice
of Future Advance, Mortgage Modification, Extension and Spreader Agreement
and Security Agreement dated November 15, 2006 made by Miami Lakes Venture
Associates in favor of Lehman Brothers Bank, FSB
|
|
|
|
|
Promissory
Note dated January 4, 2007 made by High Point Associates, L.P., in favor
of Lehman Brothers Bank, FSB in the original principal amount of
$17,500,000
|
|
|
|
|
Mortgage
and Security Agreement dated January 4, 2007 made by High Point
Associates, L.P., in favor of Lehman Brothers Bank,
FSB
|
|
|
|
|
Promissory
Note dated January 5, 2007 made by Sea Breeze Limited Partnership in favor
of Lehman Brothers Bank, FSB in the original principal amount of
$20,000,000
|
|
|
|
|
Mortgage
and Security Agreement dated January 5, 2007 made by Sea Breeze Limited
Partnership in favor of Lehman Brothers Bank, FSB
|
|
|
|
|
Form
of Restricted Stock Award Agreement#
|
|
|
|
|
First
Amendment to Amended and Restated Master Credit Facility Agreement dated
May 31, 2007 by and among (i) Sun Secured Financing LLC, Aspen-Ft. Collins
Limited Partnership, Sun Secured Financing Houston Limited Partnership,
Sun Communities Finance, LLC, Sun Holly Forest LLC and Sun Saddle Oak LLC,
and (ii) ARCS Commercial Mortgage Co., L.P.
|
|
|
|
|
Fourth
Amendment to Credit Agreement dated June 1, 2007 by and among Sun
Communities Operating Limited Partnership, Sun Communities, Inc., LaSalle
Bank Midwest National Association, the Huntington National Bank, KeyBank
National Association, National City Bank of the Midwest and Sovereign
Bank
|
|
|
|
|
Loan
Agreement, dated as of June 20, 2008, by and among Apple Orchard, L.L.C.;
Sun Lakeview LLC; and Sun Tampa East, LLC, and LASALLE BANK MIDWEST
NATIONAL ASSOCIATION
|
|
|
|
|
Open-End
Mortgage, dated as of June 20, 2008, executed by Apple Orchard, L.L.C., to
and for the benefit of LASALLE BANK MIDWEST NATIONAL
ASSOCIATION
|
|
|
|
|
Commercial
Mortgage, dated as of June 20, 2008, executed by Sun Lakeview LLC to and
for the benefit of LASALLE BANK MIDWEST NATIONAL
ASSOCIATION
|
|
|
|
|
Commercial
Mortgage, dated as of June 20, 2008, executed by Sun Tampa East, LLC to
and for the benefit of LASALLE BANK MIDWEST NATIONAL
ASSOCIATION
|
|
|
|
|
Promissory
Note, dated June 20, 2008, in the principal amount of Twenty Seven Million
and 00/100 Dollars ($27,000,000.00), by Apple Orchard, L.L.C.; Sun
Lakeview LLC; and Sun Tampa East, LLC, in favor of LASALLE BANK MIDWEST
NATIONAL ASSOCIATION
|
|
|
|
|
Continuing
Unconditional Guaranty, dated as of June 20, 2008, executed by Sun
Communities Operating Limited Partnership to and for the benefit of
LASALLE BANK MIDWEST NATIONAL ASSOCIATION
|
|
|
|
|
Form
and Example of: Environmental Indemnity Agreement, dated as of June 20,
2008, executed by Apple Orchard, L.L.C. and Sun Communities Operating
Limited Partnership to and for the benefit of LASALLE BANK MIDWEST
NATIONAL ASSOCIATION
|
|
|
|
|
Form
and Example of: Assignment of Leases and Rents, dated as of June 20, 2008,
executed by Apple Orchard, L.L.C. to and for the benefit of LASALLE BANK
MIDWEST NATIONAL ASSOCIATION
|
|
|
|
|
Stock
Pledge Agreement between Gary A. Shiffman and the Operating Partnership
for 94,570 shares of Common Stock
|
|
|
|
|
Agreement
for Purchase and Sale, dated as of July 1, 2008, by and between Sun
Communities, Inc., Sun Communities Operating Limited Partnership, and 21st
Mortgage Corporation
|
|
|
|
|
Inventory
Security Agreement and Power of Attorney dated as of March 6, 2009,
executed by and between Sun Home Services, Inc. and 21st MORTGAGE
CORPORATION
|
|
|
|
|
Terms
Schedule dated as of March 6, 2009, executed by and between Sun Home
Services, Inc. and 21st MORTGAGE CORPORATION
|
|
|
|
|
Guaranty,
dated as of March 6, 2009, executed by Sun Communities, Inc. to and for
the benefit of 21st MORTGAGE CORPORATION
|
|
|
|
|
Letter
Agreement dated April 20, 2009, by and among Sun Secured Financing LLC,
Aspen – Ft. Collins Limited Partnership, Sun Secured Financing Houston
Limited Partnership, Sun Communities finance, LLC, Sun Holly Forest LLC,
Sun Saddle Oak LLC and PNC ARCS LLC.
|
|
|
Exhibit
Number
|
|
Description
|
|
Method
of Filing
|
|
|
Second
Amendment to Amended and Restated Master Credit Facility dated April 28,
2009 by and among Sun Secured Financing LLC, Aspen – Ft. Collins Limited
Partnership, Sun Secured Financing Houston Limited Partnership, Sun
Communities finance, LLC, Sun Holly Forest LLC, Sun Saddle Oak LLC and PNC
ARCS LLC.
|
|
|
|
|
Interest
Rate Cap Security, Pledge and Assignment Agreement dated April 28, 2009 by
and among Sun Secured Financing LLC, Aspen – Ft. Collins Limited
Partnership, Sun Secured Financing Houston Limited Partnership, Sun
Communities finance, LLC, Sun Holly Forest LLC, Sun Saddle Oak LLC and PNC
ARCS LLC.
|
|
|
|
|
Promissory
Note dated June 29, 2009, by and among Knollwood Estates Operating
Company, LLC, Sun River Ridge Limited Partnership, Sun Countryside
Gwinnett, LLC, and Bank of America, N.A.
|
|
|
|
|
Guaranty
Agreement dated June 29, 2009, by and among Sun Communities Operating
Limited Partnership on behalf of Knollwood Estates Operating Company,
LLC, Sun River Ridge Limited Partnership, Sun Countryside Gwinnett,
LLC, in favor of Bank of America, N.A.
|
|
|
|
|
Term
Loan Agreement dated June 29, 2009, by and among Knollwood Estates
Operating Company, LLC, Sun River Ridge Limited Partnership, Sun
Countryside Gwinnett, LLC, and Bank of America, N.A.
|
|
|
|
|
Stock
Pledge Agreement between Gary A. Shiffman and the Operating Partnership
for 305,430 shares of Common Stock
|
|
|
|
|
List
of Subsidiaries of Sun Communities, Inc.
|
|
|
|
|
Consent
of Grant Thornton LLP
|
|
|
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
|
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
|
|
|
(1)
|
Incorporated
by reference to Sun Communities, Inc.’s Registration Statement No.
33-69340
|
(2)
|
Incorporated
by reference to Sun Communities, Inc.’s Registration Statement No.
33-80972
|
(3)
|
Incorporated
by reference to Sun Communities, Inc.’s Quarterly Report on Form 10-K for
the quarter ended September 30,
1995
|
(4)
|
Incorporated
by reference to Sun Communities, Inc.’s Annual Report on Form 10-K for the
year ended December 31, 1996
|
(5)
|
Incorporated
by reference to Sun Communities, Inc.’s Annual Report on Form 10-K for the
year ended December 31, 1997
|
(6)
|
Incorporated
by reference to Sun Communities, Inc.’s Annual Report on Form 10-K for the
year ended December 31, 1998
|
(7)
|
Incorporated
by reference to Sun Communities, Inc.’s Proxy Statement, dated April 20,
1999
|
(8)
|
Incorporated
by reference to Sun Communities, Inc.’s Current Report on Form 8-K dated
October 14, 1999
|
(9)
|
Incorporated
by reference to Sun Communities, Inc.’s Annual Report on Form 10-K for the
year ended December 31, 2001
|
(10)
|
Incorporated
by reference to Sun Communities, Inc.’s Quarterly Report on Form 10-Q for
the quarter ended September 30,
2002
|
(11)
|
Incorporated
by reference to Sun Communities, Inc.’s Annual Report on Form 10-K for the
year ended December 31, 2002, as
amended
|
(12)
|
Incorporated
by reference to Sun Communities, Inc.’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2004
|
(13)
|
Incorporated
by reference to Sun Communities, Inc.’s Quarterly Report on Form 10-Q for
the quarter ended September 30,
2004
|
(14)
|
Incorporated
by reference to Sun Communities, Inc.’s Current Report on Form 8-K dated
February 23, 2005
|
(15)
|
Incorporated
by reference to Sun Communities, Inc.’s Annual Report on Form 10-K for the
year ended December 31, 2004
|
(16)
|
Incorporated
by reference to Sun Communities, Inc.’s Current Report on Form 8-K dated
October 19, 2006
|
(17)
|
Incorporated
by reference to Sun Communities, Inc.’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2006
|
(18)
|
Incorporated
by reference to Sun Communities, Inc.’s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2007
|
(19)
|
Incorporated
by reference to Sun Communities, Inc.’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2007
|
(20)
|
Incorporated
by reference to Sun Communities, Inc.’s Proxy Statement dated April 20,
2004
|
(21)
|
Incorporated
by reference to Sun Communities, Inc.’s Current Report on Form 8-K dated
January 4, 2008
|
(22)
|
Incorporated
by reference to Sun Communities, Inc.’s Current Report on Form 8-K dated
February 7, 2008
|
(23)
|
Incorporated
by reference to Sun Communities, Inc.’s Current Report on Form 8-K dated
March 19, 2008
|
(24)
|
Incorporated
by reference to Sun Communities, Inc.’s Current Report on Form 8-A dated
June 3, 2008
|
(25)
|
Incorporated
by reference to Sun Communities, Inc.’s Current Report on Form 8-K dated
June 26, 2008
|
(26)
|
Incorporated
by reference to Sun Communities, Inc.’s Current Report on Form 8-K dated
July 7, 2008
|
(27)
|
Incorporated
by reference to Sun Communities, Inc.’s Current Report on Form 8-K dated
July 15, 2008
|
(28)
|
Incorporated
by reference to Sun Communities, Inc.’s Current Report on Form 8-K dated
March 12, 2009
|
(29)
|
Incorporated
by reference to Sun Communities, Inc.’s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2009
|
(30)
|
Incorporated
by reference to Sun Communities, Inc.’s Current Report on Form 8-K dated
April 30, 2009
|
(31)
|
Incorporated
by reference to Sun Communities, Inc.’s Current Report on Form 8-K dated
July 22, 2009
|
(32)
|
Incorporated
by reference to Sun Communities, Inc.’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2009
|
(33)
|
Incorporated
by reference to Sun Communities, Inc.’s Current Report on Form 8-K dated
August 27, 2009
|
(34)
|
Incorporated
by reference to Sun Communities, Inc.’s Registration Statement No.
333-158623
|
#
|
Management
contract or compensatory plan or
arrangement.
|
SUN
COMMUNITIES, INC.
INDEX
TO THE CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL
STATEMENT SCHEDULE
|
Page
|
|
|
|
|
Financial
Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management’s Report on Internal
Control Over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rule 13a-15(f) and 15d-15(f) promulgated under
the Securities Exchange Act of 1934, as amended. Our internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures
that:
·
|
pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of our
assets;
|
·
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles;
|
·
|
provide
reasonable assurance that receipts and expenditures are being made only in
accordance with authorization of our management and directors;
and
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a material adverse effect on the financial
statements.
|
All
internal control systems, no matter how well designed, have inherent limitations
and can provide only reasonable, not absolute, assurance that the objectives of
the control system are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within the Company have
been detected. Even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and
presentation.
Management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2009. In making this assessment, management used the criteria
for effective internal control over financial reporting set forth in “Internal
Control – Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, management
determined that, as of December 31, 2009, our internal control over financial
reporting was effective.
Grant
Thornton LLP, an independent registered public accounting firm, has issued an
attestation report on our internal control over financial reporting as of
December 31, 2009, and their report is included herein.
Report of Independent Registered Public
Accounting Firm
Board of
Directors and Stockholders
Sun
Communities, Inc.
We have
audited Sun Communities, Inc. (a Maryland Corporation) and subsidiaries’
internal control over financial reporting as of December 31, 2009, based on
criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Sun Communities, Inc. and subsidiaries’ management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion
on Sun Communities, Inc. and subsidiaries’ internal control over financial
reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Sun Communities, Inc. and subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2009, based on criteria established in Internal Control—Integrated Framework
issued by COSO.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Sun
Communities, Inc. and subsidiaries as of December 31, 2009 and 2008, and the
related consolidated statements of operations, comprehensive income,
stockholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2009 and our report dated March 11, 2010 expressed an
unqualified opinion on those financial statements.
/s/ GRANT THORNTON
LLP
GRANT
THORNTON LLP
Southfield,
Michigan
March 11,
2010
Report of Independent Registered Public
Accounting Firm
Board of
Directors and Stockholders
Sun
Communities, Inc.
We have
audited the accompanying consolidated balance sheets of Sun Communities, Inc. (a
Maryland Corporation) and subsidiaries as of December 31, 2009 and 2008, and the
related statements of operations, comprehensive income, stockholders’ equity,
and cash flows for each of the three years in the period ended December 31,
2009. Our audits of the basic financial statements included the
financial statement schedule listed in the accompanying index. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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 financial position of Sun Communities, Inc. and
subsidiaries as of December 31, 2009 and 2008 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2009 in conformity with accounting principles generally accepted in
the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
As
discussed in Note 17 to the consolidated financial statements, the Company
adopted new accounting guidance on January 1, 2009 related to the accounting for
its non-controlling interests.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Sun Communities Inc. and subsidiaries’ internal
control over financial reporting as of December 31, 2009, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) and our report dated
March 11, 2010 expressed an unqualified opinion.
/s/ GRANT
THORNTON LLP
GRANT
THORNTON LLP
Southfield,
Michigan
March 11,
2010
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except per share amounts)
|
|
As
of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
|
|
Inventory
of manufactured homes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
and other receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value, 10,000 shares authorized, none
issued
|
|
|
|
|
|
|
|
|
Common
stock, $0.01 par value, 90,000 shares
authorized (December 31, 2009 and 2008, 20,635 and 20,313
shares issued respectively)
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive loss
|
|
|
|
|
|
|
|
|
Distributions
in excess of accumulated earnings
|
|
|
|
|
|
|
|
|
Treasury
stock, at cost (December 31, 2009 and 2008, 1,802
shares)
|
|
|
|
|
|
|
|
|
Total
Sun Communities, Inc. stockholders' deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the Consolidated Financial
Statements
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except per share amounts)
|
|
Years
ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
Income
from real property
|
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|
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|
|
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|
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|
|
|
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|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
operating and maintenance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
home operating and maintenance
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative - real property
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative - home sales and rentals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on mandatorily redeemable debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes and equity loss from affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for state income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
loss from affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
amounts attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to Sun Communities, Inc. common
stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
attributable to Sun Communities, Inc. common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations, net of state income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of state income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
attributable to Sun Communities, Inc. common
stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the Consolidated Financial
Statements
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) AND COMPREHENSIVE LOSS
(In
thousands, except per share amounts)
|
|
Common
Stock
|
|
|
Additional
Paid-in Capital
|
|
|
Officer's
Notes
|
|
|
Accumulated
Other Comprehensive Loss
|
|
|
Distributions
in Excess of Accumulated Earnings
|
|
|
Treasury
Stock
|
|
|
Total
Sun Communities Stockholders' Deficit
|
|
|
Non-controlling
Interest
|
|
|
Total
Stock-holders' Deficit
|
|
Balance
as of December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption
of common stock and OP units, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation - amortization and forfeitures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
and conversion of noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment
of officer's notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
distributions declared of $2.52 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption
of common stock, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation - amortization and forfeitures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment
of officer's notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
distributions declared of $2.52 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation - amortization and forfeitures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain on interest rate swaps and cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment
of officer's notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
distributions declared of $2.52 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
amounts attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss attributable to Sun Communities, Inc. common
stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the Consolidated Financial
Statements
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
|
|
Years
ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Loss from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile loss from continuing operations to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
Loss
(gain) from land dispositions
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposal of other assets and depreciated homes,
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
(gain) on valuation of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
loss from affiliates, net of distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in notes receivables from financed sales of inventory homes, net of
repayments
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in inventory, other assets and other receivables,
net
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in accounts payable and other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities of continuing
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used for operating activities of discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
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|
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|
|
Proceeds
related to dispositions of land
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
related to disposition of other assets and depreciated homes,
net
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
of notes receivable and officer's notes, net
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH USED FOR INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
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|
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|
|
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|
|
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|
|
|
|
|
|
|
|
Issuance
(redemption) of common stock and OP units, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from option exercise
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
on lines of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
on lines of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
to retire preferred operating partnership units
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of notes payable and other debt
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
on notes payable and other debt
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
for deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
to stockholders and OP unit holders
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH USED FOR FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest on mandatorily redeemable debt
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for state income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction
in secured borrowing balance
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the Consolidated Financial
Statements
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
|
Summary
of Significant Accounting Policies
|
Business
We own,
operate, and develop manufactured housing communities concentrated in the
midwestern, southern, and southeastern United States. As of December 31, 2009,
we owned and operated a portfolio of 136 properties located in 18 states (the
“Properties”, or “Property”), including 124 manufactured housing communities, 4
recreational vehicle communities, and 8 properties containing both manufactured
housing and recreational vehicle sites. As of December 31, 2009, the Properties
contained an aggregate of 47,572 developed sites comprised of 42,294 developed
manufactured home sites, 3,176 permanent recreational vehicle sites, 2,102
seasonal recreational vehicle sites, and approximately 6,000 additional
manufactured home sites suitable for development.
Principles
of Consolidation
The
accompanying financial statements include our accounts and all majority-owned
and controlled subsidiaries. All inter-company transactions have been
eliminated in consolidation. Any subsidiaries, in which we have an
ownership percentage greater than 50 percent, but less than 100 percent,
represent subsidiaries with a noncontrolling interest. The
noncontrolling interests in our subsidiaries are allocated their proportionate
share of the subsidiaries’ financial results. This allocation is
recorded as the noncontrolling interest in our Consolidated Financial
Statements.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States (“GAAP”) requires management to make
estimates and assumptions related to the reported amounts included in our
Consolidated Financial Statements and accompanying footnote
disclosures. Actual results could differ from those
estimates.
Reclassifications
Certain
reclassifications have been made to prior periods’ financial statements in order
to conform to current period presentation.
Subsequent
Events
We have
evaluated our financial statements for subsequent events.
Investment
Property
Investment
property is recorded at cost, less accumulated depreciation. We
review the carrying value of long-lived assets to be held and used for
impairment whenever events or changes in circumstances indicate a possible
impairment. Circumstances that may prompt a test of recoverability may include a
significant decrease in the anticipated market price, adverse change to the
extent for manner in which an asset may be used or in its physical condition or
other such events that may significantly change the value of the long-lived
asset. An impairment loss is recognized when a long-lived asset’s
carrying value is not recoverable and exceeds estimated fair value. We estimate
the fair value of our long lived assets based on future cash flows and any
potential disposition proceeds for a given asset. Forecasting cash flows
requires assumptions about such variables as the estimated holding period,
rental rates, occupancy and operating expenses during the holding period, as
well as disposition proceeds. Future events could occur which would
cause us to conclude that impairment indicators exist and an impairment loss is
warranted. See Note 3 for additional information.
We
periodically receive offers from interested parties to purchase certain of our
properties. These offers may be the result of an active program initiated by us
to sell the property, or from an unsolicited offer to purchase the property. The
typical sale process involves a significant negotiation and due diligence period
between us and the potential purchaser. As the intent of this process is to
determine if there are items that would cause the purchaser to be unwilling to
purchase or we would be unwilling to sell, it is not unusual for such potential
offers of sale/purchase to be withdrawn as such issues arise. We classify assets
as “held for sale” when it is probable, in our opinion, that a sale transaction
will be completed within one year. This typically occurs when all significant
contingencies surrounding the closing have been resolved, which often
corresponds with the closing date.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
|
Summary
of Significant Accounting Policies,
continued
|
We
allocate the purchase price of properties to net tangible and identified
intangible assets acquired based on their fair values. In making estimates of
fair values for purposes of allocating purchase price, we utilize a number of
sources, including analysis of recently acquired and existing comparable
properties in our portfolio, other market data and independent appraisals if
obtained in connection with the acquisition or financing of the respective
property. We also consider information obtained about each property as a result
of its pre-acquisition due diligence, marketing and leasing activities in
estimating the fair value of the tangible and intangible assets (including
in-place leases) acquired.
Depreciation
and amortization
Depreciation
and amortization are computed on a straight-line basis over the estimated useful
lives of the assets. Useful lives are 30 years for land improvements and
buildings, 10 years for rental homes, 7 to 15 years for furniture, fixtures and
equipment, and 7 years for intangible assets.
Cash and Cash
Equivalents
We
consider all highly liquid investments with a maturity of three months or less
from the date of purchase to be cash and cash equivalents. The maximum amount of
credit risk arising from cash deposits in excess of federally insured amounts
was approximately $1.1 million and $2.0 million as of December 31, 2009 and
2008, respectively.
Notes
and Accounts Receivable
We
evaluate the recoverability of our receivables whenever events occur or there
are changes in circumstances such that management believes it is probable that
it will be unable to collect all amounts due according to the contractual terms
of the loan and lease agreements. Receivables related to community rents are
reserved when we believe that collection is less than probable, which is
generally after a resident balance reaches 60 to 90 days past due.
The
ability to collect our notes receivable is measured based on current and
historical information and events. We consider numerous factors including:
length of delinquency, estimated costs to lease or sell, and repossession
history. We reserve for estimated unrecoverable costs associated with
our notes receivables. We estimate our unrecoverable costs to
be the repurchase price plus repair and remarketing costs that exceed the
estimated selling price of the home being repossessed. A historical
average of this excess cost is calculated based on prior repossessions and
applied to our estimated annual future repossessions to create the allowance for
our notes receivable. See Note 5 for additional
information.
Share-Based
Compensation
Share-based
compensation cost for restricted stock awards is measured based on the closing
share price of our common stock on the date of grant. Share-based compensation
cost for stock options is estimated at the grant date based on each option’s
fair-value as calculated by the Binomial (lattice) option-pricing model. The
Binomial (lattice) option-pricing model incorporates various assumptions
including expected volatility, expected life, dividend yield, and interest
rates. Share based compensation cost for phantom share awards is re-measured
based on the closing share price of our common stock at the end of each
reporting period. See Note 8 for additional information.
Deferred
Tax Assets
We are
subject to certain state taxes that are considered to be income taxes and have
certain subsidiaries that are taxed as regular corporations. Deferred tax assets
or liabilities are recognized for temporary differences between the tax basis of
assets and liabilities and their carrying amounts in the financial statements
and net operating loss carry forwards. Deferred tax assets and liabilities are
measured using currently enacted tax rates. A valuation allowance is established
if, based on the available evidence, it is considered more likely than not that
some portion or all of the deferred tax assets will not be
realized. See Note 12 for additional information.
Inventory
Inventory
of manufactured homes is stated at lower of specific cost or market based on the
specific identification method.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
|
Summary
of Significant Accounting Policies,
continued
|
Advertising
Costs
Advertising
costs are expensed as incurred.
Investments
in Affiliates
Investments
in affiliates in which we do not have a controlling direct or indirect voting
interest, but can exercise significant influence over the entity with respect to
its operations and major decisions, are accounted for using the equity method of
accounting. The carrying value of our investment is adjusted for our
proportionate share of the affiliate’s net income or loss and reduced by
distributions received. We review the carrying value of our
investment in affiliates for other than temporary impairment whenever events or
changes in circumstances indicate a possible impairment. Financial
condition, operational performance, and other economic trends are some of the
factors we consider when we evaluate the existence of impairment
indicators. See Note 6 for additional information.
Revenue
Recognition
Rental
income attributable to site and home leases is recorded on a straight-line basis
when earned from tenants. Leases entered into by tenants generally range from
month-to-month to two years and are renewable by mutual agreement from us and
the resident, or in some cases, as provided by state statute. Revenue from the
sale of manufactured homes is recognized upon transfer of title at the closing
of the sales transaction. Interest income on notes receivable is
recorded on a level yield basis over the life of the notes. We report
certain taxes collected from the resident and remitted to taxing authorities in
revenue. These taxes include certain Florida property and fire
taxes.
Other
Capitalized Costs
We
capitalize certain costs incurred in connection with the development,
redevelopment, capital enhancement and leasing of our properties. Management is
required to use professional judgment in determining whether such costs meet the
criteria for immediate expense or capitalization. The amounts are dependent on
the volume and timing of such activities and the costs associated with such
activities. Maintenance, repairs and minor improvements to properties are
expensed when incurred. Renovations and improvements to properties are
capitalized and depreciated over their estimated useful lives and construction
costs related to the development of new community or expansion sites are
capitalized until the property is substantially complete. Costs incurred to
renovate repossessed homes for our Rental Program are capitalized and costs
incurred to refurbish the homes at turnover and repair the homes while occupied
are expensed. Certain expenditures to dealers and residents related to obtaining
lessees in our communities are capitalized and amortized over a seven year
period based on the anticipated term of occupancy of a resident. Costs
associated with implementing our computer systems are capitalized and amortized
over the estimated useful lives of the related software and
hardware. Costs incurred to obtain new financing are capitalized and
amortized over the terms of the related loan agreement using the straight-line
method (which approximates the effective interest method).
Fair
Value of Financial Instruments
Our
financial instruments consist primarily of cash and cash equivalents, accounts
and notes receivable, accounts payable, derivative instruments, and debt. We
utilize fair value measurements to record fair value adjustments to certain
assets and liabilities and to determine fair value disclosures. See
Note 16 for additional information regarding the estimates and assumptions used
to estimate the fair value of each class of financial instrument.
Derivative
Instruments and Hedging Activities
We do not
enter into derivative instruments for speculative purposes. We adjust
our balance sheet on a quarterly basis to reflect the current fair market value
of our derivatives. Changes in the fair value of derivatives are recorded in
earnings or comprehensive income, as appropriate. The ineffective portion of the
hedge is immediately recognized in earnings to the extent that the change in
value of a derivative does not perfectly offset the change in value of the
instrument being hedged. The effective portion of the hedge is
recorded in accumulated other comprehensive income. We use standard
market conventions to determine the fair values of derivative instruments,
including the quoted market prices or quotes from brokers or dealers for the
same or similar instruments. All methods of assessing fair value result in a
general approximation of value and such value may never actually be
realized. See Note 15 for additional information. Cash
flows from derivative instruments are classified in the same category as the
cash flows of the underlying hedged items, which are in the operating activities
section of the Consolidated Statements of Cash Flows.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Discontinued
Operations
|
We had
investments in certain land improvements and equipment that provided cable
television services to certain communities within the Real Property Operations
segment. During the fourth quarter of 2008, we determined that the
cable television assets could not provide the necessary return on investment to
justify the capital investment required to keep up with the technological
advances in the offered product. In December 2008, we announced our intention to
exit the cable television service business and recorded a $4.1 million
impairment charge on the long-lived assets associated with this
business.
We
completed the sale of the cable television services business the third quarter
of 2009. Cash proceeds from this sale were $0.3 million, resulting in
a net gain on sale of $0.1 million. The results of the cable television service
business have been presented as a discontinued operation in the Consolidated
Financial Statements for all periods presented.
The
following tables set forth certain summarized financial information of the
discontinued operation (in thousands):
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations attributable to Sun Communities, Inc. common
stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table sets forth certain information regarding investment property (in
thousands):
|
|
As
of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Land
improvements and buildings
|
|
|
|
|
|
|
|
|
Rental
homes and improvements
|
|
|
|
|
|
|
|
|
Furniture,
fixtures, and equipment
|
|
|
|
|
|
|
|
|
Land
held for future development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Accumulated depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
improvements and buildings consist primarily of infrastructure, roads,
landscaping, clubhouses, maintenance buildings and amenities.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
3.
|
Investment
Property, continued
|
In
September 2009, a flood caused substantial damage to our property, Countryside
Village of Atlanta, located in Lawrenceville, Georgia. We have
comprehensive insurance coverage for both property damage and business
interruption, subject to deductibles and certain limitations. We
believe the cost of the damage sustained from the flooding will be in excess of
our insurance deductible. We recorded a charge of $0.8 million
associated with the flooding in the third quarter of 2009. This
charge represents our deductible, net of expected insurance recoveries for the
replacement of assets that exceed the net book value of assets damaged in the
flood.
During
2008, we sold approximately 82 acres of undeveloped land that resulted in a $3.3
million gain. We also recorded impairment charges of $13.2 million associated
with certain long-lived assets as a result of an impairment analysis performed
during the fourth quarter of 2008. A portion of this non-cash charge relates to
the cable television service business presented in discontinued operations and
accordingly, $4.1 million is included in loss from discontinued
operations. See Note 2 for additional information.
4.
|
Transfers
of Financial Assets
|
We have
completed various transactions involving our installment notes and we have
received a total of $31.3 million of cash proceeds in exchange for relinquishing
our right, title and interest in the installment notes during 2009. We have no
further obligations or rights with respect to the control, management,
administration, servicing, or collection of the installment notes.
However,
we are subject to certain recourse provisions requiring us to purchase the
underlying homes collateralizing such notes, in the event of a note default and
subsequent repossession of the home. The recourse provisions are
considered to be a form of continuing involvement, and we have recorded these
transactions as a transfer of financial assets.
In the
event of note default, and subsequent repossession of a manufactured home, the
terms of the agreement require us to repurchase the manufactured home. Default
is defined as the failure to repay the installment note according to contractual
terms. The repurchase price is calculated as a percentage of the outstanding
principal balance of the installment note, plus any outstanding late fees,
accrued interest, legal fees, and escrow advances associated with the
installment note. The percentage used to determine the repurchase
price of the outstanding principal balance on the installment note is based on
the number of payments made on the note. In general, the repurchase price is
determined as follows:
Number
of Payments
|
|
Recourse
%
|
|
|
|
|
|
|
Greater
than 15 but less than 64
|
|
|
|
|
|
|
|
|
|
The
transferred assets have been classified as collateralized receivables in Notes
and Other Receivables (see Note 5) and the cash proceeds received from these
transactions have been classified as a secured borrowing in Debt (see Note 7)
within the Consolidated Balance Sheets. The balance of the
collateralized receivables was $52.2 million (net of allowance of $0.2 million)
and $26.1 million (net of allowance of $0.1 million) as of December 31, 2009 and
2008, respectively. The outstanding balance on the secured borrowing
was $52.4 million and $26.2 million as of December 31, 2009 and 2008,
respectively.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
4.
|
Transfers
of Financial Assets, continued
|
The
balances of the collateralized receivables and secured borrowings
fluctuate. The balances increase as additional installment notes are
transferred and exchanged for cash proceeds. The balances are reduced
as the related installment notes are collected from the customers, or as the
underlying collateral is repurchased. The change in the aggregate
gross principal balance of the collateralized receivables is as follows (in
thousands):
Beginning
balance as of December 31, 2008
|
|
|
|
|
Financed
sales of manufactured homes and transfers of financial
assets
|
|
|
|
|
Principal
payments and payoffs from our customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance as of December 31, 2009
|
|
|
|
|
The
collateralized receivables earn interest income and the secured borrowings
accrue borrowing costs at the same interest rates. The amount of
interest income and expense recognized was $4.2 million and $1.3 million for the
years ended December 31, 2009 and 2008, respectively.
5.
|
Notes
and Other Receivables
|
The
following table sets forth certain information regarding notes and other
receivables (in thousands):
|
|
As
of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Installment
notes receivable on manufactured homes, net
|
|
|
|
|
|
|
|
|
Collateralized
receivables, net (see Note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes and other receivables, net
|
|
|
|
|
|
|
|
|
Installment
Notes Receivable on Manufactured Homes
The
installment notes of $12.6 million (net of allowance of $0.1 million) and $21.2
million (net of allowance of $0.1 million) as of December 31, 2009 and 2008,
respectively, are collateralized by manufactured homes. The notes represent
financing provided by us to purchasers of manufactured homes generally located
in our communities and require monthly principal and interest
payments. The notes have a net weighted average interest rate and
maturity of 7.4 percent and 12.4 years as of December 31, 2009, and 7.6 percent
and 13.8 years as of December 31, 2008.
Collateralized
Receivables
Certain
transactions involving our installment notes were recorded as a transfer of
financial assets (see Note 4) and classified as collateralized
receivables. The receivables have a balance of $52.2 million (net of
allowance of $0.2 million) and $26.1 million (net of allowance of $0.1 million)
as of December 31, 2009 and 2008, respectively. The receivables have
a net weighted average interest rate and maturity of 10.9 percent and 13.8 years
as of December 31, 2009, and 10.1 percent and 14.0 years as of December 31,
2008.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
5.
|
Notes and Other Receivables,
continued
|
Allowance
for Losses for Collateralized and Installment Notes Receivable
We are
generally able to recover our investment in uncollectible notes receivable by
repurchasing the homes that collateralized these notes receivables, and then
selling or leasing these homes to potential residents in our communities.
Although our experience supports a high recovery rate for repossessed homes, we
believe there is some degree of uncertainty about recoverability of our
investment in these repossessed homes. We have established a loan
loss reserve to record our estimated unrecoverable costs associated with these
repossessed homes. We estimate our unrecoverable costs to be the
repurchase price plus repair and remarketing costs that exceed the estimated
selling price of the home being repossessed. A historical average of
this excess cost is calculated based on prior repossessions and applied to our
estimated annual future repossessions to create the allowance for installment
notes and collateralized receivables. The allowance for losses for
collateralized and installment notes receivable was $0.3 million and 0.2 million
as of December 31, 2009 and 2008, respectively.
Other
Receivables
Other
receivables were comprised of amounts due from residents of $1.5 million (net of
allowance of $0.2 million), home sale proceeds of $3.4 million, an employee loan
of $0.5 million, insurance receivables of $0.9 million, and rebates and other
receivables of $2.9 million as of December 31, 2009. Other
receivables were comprised of amounts due from residents of $1.6 million (net of
allowance of $0.3 million), home sale proceeds of $3.7 million, an employee loan
of $0.5 million, insurance receivables of $0.3 million, and rebates and other
receivables of $4.0 million as of December 31, 2008.
Officer’s
Notes
Officer’s
notes, presented as a portion of the stockholders’ deficit in the balance sheet,
are 10 year, LIBOR + 1.75% notes, with a minimum and maximum interest rate of 6%
and 9%, respectively. The following table sets forth certain
information regarding officer’s notes as of December 31, 2009 and 2008 (in
thousands except for common stock and OP units):
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
Secured
by
|
|
|
|
|
|
Secured
by
|
|
Promissory
Notes
|
|
Outstanding
Principal Balance
|
|
|
Common
Stock
|
|
|
Common
OP Units
|
|
|
Outstanding
Principal Balance
|
|
|
Common
Stock
|
|
|
Common
OP Units
|
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The
officer’s personal liability on the secured promissory notes is limited to all
accrued interest on such notes plus fifty percent of the deficiency, if any,
after application of the proceeds from the sale of the secured shares and/or the
secured units to the then outstanding principal balance of the promissory
notes. The value of secured common stock and secured OP Units total
approximately $4.2 million based on the closing price of our shares on the New
York Stock Exchange of $19.75 as of December 31, 2009. The unsecured notes are
fully recourse to the officer.
Total
interest income related to the officer’s notes was $0.3 million, $0.5 million,
and $0.6 million for the years ended December 31, 2009, 2008 and 2007,
respectively. The reduction in the aggregate principal balance of
these notes was $3.3 million and $0.4 million for the years ended December 31,
2009 and 2008, respectively. The terms of the officer’s notes require that the
two remaining installment payments are due on December 31, 2009 and 2010. The
officer’s notes allow for a 10 day grace period and the payment due on December
31, 2009, in the amount of $1.7 million, was paid in full on January 8,
2010.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
6.
|
Investment
in Affiliates
|
Origen
Financial, LLC. (“LLC”)
In August
2008, we entered into an agreement with four unrelated companies (“Members”) to
form a new limited liability company. We contributed cash of
approximately $0.5 million toward the formation of the LLC. The LLC
purchased the origination platform of Origen Financial, Inc. (“Origen”). The
purpose of the venture is to originate manufactured housing installment
contracts for its Members thereby eliminating the need for us to become licensed
to originate loans in each of the 18 states in which we do
business.
As of
December 31, 2009, we had an ownership interest in the LLC of 25
percent. We have recorded equity losses from the LLC of $0.5 million
for the year ended December 31, 2009. This equity loss included other
than temporary impairment charges of $0.3 million. We concluded that
our investment in the LLC was not recoverable due to operating losses, liquidity
concerns, and declining revenue trends. The carrying value of our
investment is zero as of December 31, 2009. Our equity allocation of the LLC’s
financial results was insignificant for the year ended December 31,
2008.
Origen
In
October 2003, we purchased 5,000,000 shares of common stock of Origen. As of
December 31, 2009 we had an ownership interest in Origen of approximately 19
percent, and the carrying value of our investment was $1.6
million. Our investment in Origen had a market value of approximately
$7.3 million based on a quoted market closing price of $1.45 per share from the
“Pink Sheet Electronic OTC Trading System” as of December 31, 2009.
We
recorded equity losses from Origen of $1.7 million, $16.5 million, and $8.0
million for the years ended December 31, 2009, 2008, and 2007,
respectively. These equity losses included other than temporary
impairment charges of $9.6 million and $1.9 million for the years ended December
31, 2008 and 2007, respectively.
Summarized
financial information for Origen is presented before elimination of
inter-company transactions (amounts in thousands):
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
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2007
|
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Loss
from continuing operations
|
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As
of December 31,
|
|
ASSETS
|
|
2009
|
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|
2008
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Warehouse
and securitization financing
|
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|
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
7.
|
Debt
and Lines of Credit
|
The
following table sets forth certain information regarding debt (in
thousands):
|
|
Principal
Outstanding
|
|
|
Weighted
Average Years to Maturity
|
|
|
Weighted
Average Interest Rates
|
|
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
Collateralized
term loans - CMBS
|
|
|
|
|
|
|
|
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|
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|
Collateralized
term loans - FNMA
|
|
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|
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Secured
borrowing (see Note 4)
|
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|
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Collateralized
Term Loans
The
collateralized term loans totaling $844.8 million as of December 31, 2009, are
secured by 87 properties comprising of 31,226 sites representing approximately
$538.3 million of net book value.
We
exercised our option to extend the due date of approximately $152.4 million of
secured, variable rate borrowings to May 1, 2014. In connection with this
extension, the lender increased the facility fee associated with this borrowing.
See Note 19 for additional information.
Preferred
OP Units
Our
Operating Partnership had $13.7 million of Series B-3 Preferred OP Units that
were redeemable at various dates from December 1, 2009 through January 1,
2011. In October 2008, our Operating Partnership completed a three
year extension on the redemption dates for $11.9 million of these units; the
remaining $1.8 million of these units mature in accordance with the original
agreement.
During
2009, we redeemed $0.5 million of the $1.8 million of the Series B-3 Preferred
OP Units in accordance with the original agreement. In January 2010,
we redeemed an additional $0.9 million of the $1.8 million of the Series B-3
Preferred OP Units in accordance with the original agreement.
Secured
Borrowing
Since the
third quarter of 2008, we have completed various transactions involving our
installment notes. These transactions were recorded as a transfer of
financial assets, and the cash proceeds related to these transactions were
recorded as a secured borrowing. See Note 4 for additional
information regarding our collateralized receivables and secured borrowing
transactions.
Mortgage
Notes
The
mortgage notes totaling $213.3 million as of December 31, 2009, are
collateralized by 19 communities comprising of 6,381 sites representing
approximately $182.4 million of net book value.
During
June 2009, we completed a financing of $18.5 million with Bank of America. The
loan has a three year term. The loan is secured by three properties. The
interest rate is 400 basis points over LIBOR, with a minimum rate of 5.0 percent
(effective rate 5.0 percent as of December 31, 2009). Proceeds of $11.2 million
were used to repay mortgage notes that matured in June 2009. The remaining
proceeds were used to pay down our unsecured line of credit.
7.
|
Debt
and Lines of Credit, continued
|
In June
2008, we completed a financing of $27.0 million with Bank of America. The loan
has a three year term, with a two year extension at our option. The terms of the
loan required interest only payments for the first year, with the remainder of
the term being amortized based on a 30 year table. The interest rate is 205
basis points over LIBOR, or Prime plus 25 basis points (3.5 percent was the
effective rate as of December 31, 2009). The proceeds from the financing were
used to repay an existing mortgage note of $4.3 million with the remainder used
to pay down our line of credit.
Lines
of Credit
We have
an unsecured revolving line of credit facility with a maximum borrowing capacity
of $115.0 million, subject to certain borrowing base calculations. The
outstanding balance on the line of credit was $89.1 million and $85.8 million as
of December 31, 2009 and 2008, respectively. In addition, $4.0 million and $3.3
million of availability was used to back standby letters of credit as of
December 31, 2009 and 2008, respectively. Borrowings under the line of credit
bear an interest rate of LIBOR plus 165 basis points, or Prime plus 40 basis
points at our option. Prime means for any month, the prevailing
“prime rate” as quoted in the Wall Street Journal on last day of such calendar
month. The weighted average interest rate on the outstanding
borrowings was 2.0 percent as of December 31, 2009. The borrowings
under the line of credit mature October 1, 2011, assuming the election of a one
year extension that is available at our discretion. As of December 31, 2009 and
2008, $21.9 million and $25.9 million, respectively, were available to be drawn
under the facility based on the calculation of the borrowing base at each
date.
In March
2009, we entered into a $10.0 million manufactured home floor plan facility. The
floor plan facility initially had a committed term of one year. In February
2010, the floor plan facility was renewed indefinitely until our lender provides
us 12 month notice of their intent to terminate the agreement. The interest rate
is 100 basis points over the greater of Prime or 6.0 percent (effective rate 7.0
percent at December 31, 2009). The outstanding balance as of December
31, 2009 was $5.4 million.
Our
previous $40.0 million floor plan facility matured on March 1,
2009. As of December 31, 2008, the outstanding balance on the floor
plan was $4.6 million.
As of
December 31, 2009, the total of maturities and amortization of debt and lines of
credit during the next five years, are as follows (in thousands):
|
|
Maturities
and Amortization By Year
|
|
|
|
Total
Due
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
After
5 years
|
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|
The most
restrictive of our debt agreements place limitations on secured and unsecured
borrowings and contain minimum fixed charge coverage, leverage, distribution and
net worth requirements. As of December 31, 2009, we were in compliance with all
covenants.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
8.
|
Share-Based
Compensation
|
We have
three share-based compensation plans approved by stockholders as of December 31,
2009. The plans consist of Sun Communities, Inc. Equity Incentive
Plan (“2009 Equity Plan”) and two Non-Employee Director Option Plan (“Director
Plans”). The 2009 Equity Plan was approved by our stockholders at the Annual
Meeting of Stockholders held on July 29, 2009. The 2009 Equity
Plan replaced the Sun Communities, Inc. Stock Option Plan adopted in 1993,
amended and restated in 1996 and 2000 (“1993 Plan”) and terminates automatically
July 29, 2019.
Upon the
approval of the 2009 Equity Plan by our stockholders, the Board of Directors
terminated the 1993 Plan with respect to new awards. Outstanding
awards previously granted under the 1993 Plan will not be affected by the
termination of the 1993 Plan, and the terms of the 1993 Plan shall continue to
govern such previously granted awards.
The
maximum number of shares of common stock that may be issued under the 2009
Equity Plan is 950,000 shares, with 870,000 shares remaining for future
issuance. The maximum number of shares of common stock that may be
issued under the Director Plans is 200,000 shares, with 96,000 shares remaining
for future issuance.
The types
of awards that may be granted under the 2009 Equity Plan include stock options,
stock appreciation rights, restricted stock, and other stock based
awards. The 1993 Plan provided for the same types of equity awards as
the 2009 Plan. We believe granting equity awards will provide certain key
employees additional incentives to promote our financial success, and promote
employee retention by providing an opportunity to acquire or increase the
employees’ direct proprietary interest in our operations and
future. The types of awards that may be granted under the Director
Plans are options to non-employee directors.
We have
recognized compensation costs associated with shared based awards of $2.6
million, $2.0 million, and $1.1 million for the years ended December 31, 2009,
2008, and 2007 respectively.
Restricted
Stock and Performance-Based Restricted Stock
The
majority of our share-based compensation is awarded as restricted stock grants
to key employees. We measure the fair value associated with these
awards using the closing price of our common stock as of the grant date to
calculate compensation cost. Employee awards typically vest over
several years and are subject to continued employment by the employee. Award
recipients receive dividend payments on unvested shares of restricted
stock. We may also award performance-based restricted stock which
is subject to satisfaction of certain conditions related to our
financial performance. If achievement of the performance targets is
not probable, any compensation cost related to these awards that has been
recognized is reversed.
The
following table summarizes our restricted stock activity for the year ended
December 31, 2009:
|
|
Number
of
Shares
|
|
|
Weighted
Average
Grant
Date
Fair
Value
|
|
Unvested
restricted shares at January 1, 2009
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
restricted shares at December 31, 2009
|
|
|
|
|
|
|
|
|
Total
compensation cost recognized for restricted stock was $2.5 million, $1.9
million, and $1.8 million for the years ended December 31, 2009, 2008, and 2007,
respectively. The total fair value of shares vested was $2.9 million,
$3.9 million, and $2.1 million for the years ended December 31, 2009, 2008 and
2007, respectively. The remaining net compensation cost related to
our unvested restricted shares outstanding as of December 31, 2009 was
approximately $3.3 million. That expense is expected to be recognized
$1.6 million in 2010, $0.7 million in 2011, $0.2 million in 2012 and $0.8
million thereafter.
We did
not have any performance-based restricted stock awards outstanding as of
December 31, 2009 and 2008. In the year ended December 31,
2007, we determined that the performance targets associated with the performance
based restricted stock awards were not probable of being achieved, and reversed
the associated compensation cost of $0.6 million and subsequently cancelled the
awards.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
8.
|
Share-Based Compensation,
continued
|
Options
We have
granted stock options to certain employees and non-employee
directors. Option awards are generally granted with an exercise price
equal to the market price of our common stock as of the grant
date. Stock options generally vest over a three year period from the
date of grant and have a maximum term of 10 years. We have granted 10,500
options to our non-employee directors during each of the years ended December
31, 2009, 2008, and 2007. We have not granted options to our
employees during the years ended December 31, 2009, 2008, and 2007. We issue new
shares at the time of share option exercise (or share unit
conversion).
The
weighted average fair value of the options issued is estimated on the date of
the grant using the Binomial (lattice) option pricing model, with the following
weighted average assumptions used for the grants in the periods
indicated:
|
|
July
2009
Award
|
|
|
July
2008
Award
|
|
|
May
2007
Award
|
|
Estimated
fair value per share of options granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of options granted
|
|
|
|
|
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|
Annualized
dividend yield
|
|
|
|
|
|
|
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|
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|
|
Common
stock price volatility
|
|
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|
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|
|
|
Expected
option terms (in years)
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes our option activity during the year ended December
31, 2009:
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise
Price
(per
common share)
|
|
|
Weighted
Average
Contractual
Term
(in
years)
|
|
|
Aggregate
Intrinsic
Value
(in
000's)
|
|
Options
outstanding at January 1, 2009
|
|
|
|
|
|
|
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|
|
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|
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|
Options
outstanding at December 31, 2009
|
|
|
|
|
|
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|
Options
vested and expected to vest
|
|
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|
Options
vested and exercisable at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
options outstanding as of December 31, 2009 consist of 85,461 employee options
and 66,500 non-employee director options. The compensation expense
associated with non vested stock option awards was not significant for the years
ended December 31, 2009, 2008, and 2007. Aggregate intrinsic value
represents the value of our closing share price as of December 31, 2009 in
excess of the weighted-average exercise price multiplied by the number of
options outstanding or exercisable. The aggregate intrinsic value excludes the
effect of stock options that have a zero or negative intrinsic value. There have
not been any stock option exercises in the years ended December 31, 2009, and
2008. The aggregate intrinsic value of stock options exercised in the year ended
December 31, 2007 was insignificant.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
8.
|
Share-Based
Compensation, continued
|
Phantom
Awards and Performance Based Phantom Awards
We have
granted phantom awards to certain key employees. Employee awards
typically vest over several years and are subject to continued employment by the
employee. A cash bonus is paid when the awards vest which is based on a 10 day
average of our closing stock price prior to the vesting date. The
awards also pay cash bonuses per unvested share equal to the amount of dividend
paid per share of common stock. We had also granted performance-based
phantom awards which were subject to satisfaction of certain conditions related
to our financial performance which were later cancelled as the achievement of
the performance targets was not probable.
The value
of the awards is re-measured at each reporting date. As our stock
price rises, the phantom awards increase in value, along with the associated
compensation expense. Accordingly, as our stock price declines, the
phantom awards decrease in value, along with the associated compensation
expense. Our stock price has been subject to market volatility, and
the stock price has declined since the awards were initially
granted. This has resulted in a reduced compensation expense related
to the phantom awards.
For the
year ended December 31 2009, we recorded compensation expense of approximately
$0.1 million related to phantom awards. For the years ended December
31, 2008 and 2007, we recognized an immaterial amount of compensation expense
related to these phantom awards. The following table summarizes the
phantom award activity for the year ended December 31, 2009:
|
|
Number
of
Shares
|
|
|
Aggregate
Fair
Value
(in
000's)
|
|
Unvested
phantom awards at January 1, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
phantom awards at December 31, 2009
|
|
|
|
|
|
|
|
|
As of
December 31, 2009, we had 8,476 unvested phantom awards with an aggregate fair
value of approximately $0.2 million based on our closing share price of $19.75
as of December 31, 2009. The awards vest (cash bonus is paid) in
varying amounts until 2014. The remaining unrecognized expense related to these
phantom awards is $0.1 million based on the closing share price as of December
31, 2009.
We did
not have any performance-based phantom awards outstanding as of December 31,
2009 and 2008. In the year ended December 31, 2007, we determined
that the performance targets associated with the performance-based phantom
awards were not probable of being achieved, and reversed the associated
compensation cost of $0.1 million and subsequently cancelled the
awards.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
November 2004, our Board of Directors authorized us to repurchase up to
1,000,000 shares of our common stock. We have 400,000 common shares
remaining in the repurchase program. No common stock was repurchased
under this program during 2009, 2008, and 2007. There is no
expiration date specified for the buyback program.
In March
2009, our Operating Partnership issued 110,444 Common OP Units to Water Oak,
Ltd. Common OP Unit holders can convert their Common OP units into an
equivalent number of shares of common stock at any time. During 2009,
holders of Common OP Units converted 158,027 units to common stock.
Our shelf
registration for up to $300.0 million of common stock, preferred stock and debt
securities expired December 31, 2008. In April 2009, we filed a new
shelf registration statement on Form S-3 with the SEC to replace the previous
shelf registration for a proposed offering of up to $300.0 million of our common
stock, preferred stock and debt securities. The SEC declared the new shelf
registration effective in May 2009.
We
entered into a sales agreement to issue and sell up to 1,600,000 shares of
common stock from time to time pursuant to our effective shelf registration
statement on Form S-3. Sales under the agreement commenced during the
third quarter of 2009 and we have issued 100,000 shares of common stock through
this program as of December 31, 2009. The shares of common stock were sold at
the prevailing market price of our common stock at the time of each sale with a
weighted average sale price of $19.98. We received net proceeds of
approximately $1.9 million during the year ended December 31, 2009 from the
sales of these shares of common stock. The proceeds were used to pay
down our unsecured line of credit. We may continue to sell shares of common
stock under this program from time to time based on market conditions, although
we are not under an obligation to sell any shares. We did not sell
shares of common stock, or receive any proceeds related to the sale of common
stock during 2008.
On
January 25, 2010, aggregate dividends, distributions and dividend equivalents of
$13.2 million were made to common stockholders, common OP unitholders, and
restricted stockholders of record on January 15, 2010.
The
components of other income (loss) are summarized as follows (in
thousands):
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on sale of land
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on disposition of assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Our
consolidated operations can be segmented into Real Property Operations and Home
Sales and Rentals. Transactions between our segments are eliminated
in consolidation.
A
presentation of segment financial information is summarized as follows (amounts
in thousands):
|
|
Year
Ended December 31, 2009
|
|
|
|
Real
Property Operations
|
|
|
Home
Sales and Home Rentals
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses/Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating income/Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to arrive at net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
loss from affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for state income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
amounts attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to Sun Communities, Inc. common
stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
11.
|
Segment
Reporting, continued
|
|
|
Year
Ended December 31, 2008
|
|
|
|
Real
Property Operations
|
|
|
Home
Sales and Home Rentals
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses/Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating income/Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to arrive at net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
loss from affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for state income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
amounts attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to Sun Communities, Inc. common
stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2007
|
|
|
|
Real
Property Operations
|
|
|
Home
Sales and Home Rentals
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses/Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating income/Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to arrive at net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
loss from affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for state income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
amounts attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to Sun Communities, Inc. common
stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
11.
|
Segment
Reporting, continued
|
|
|
As
of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Real
Property Operations
|
|
|
Home
Sales and Home Rentals
|
|
|
Consolidated
|
|
|
Real
Property Operations
|
|
|
Home
Sales and Home Rentals
|
|
|
Consolidated
|
|
Identifiable
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
of manufactured homes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
and other receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have
elected to be taxed as a real estate investment trust (“REIT”) as defined under
Section 856(c) of the Internal Revenue Code of 1986 (“Code”), as amended. In
order for us to qualify as a REIT, at least ninety-five percent (95%) of our
gross income in any year must be derived from qualifying sources. In addition, a
REIT must distribute at least ninety percent (90%) of its REIT ordinary taxable
income to its stockholders.
Qualification
as a REIT involves the satisfaction of numerous requirements (some on an annual
and quarterly basis) established under highly technical and complex Code
provisions for which there are only limited judicial or administrative
interpretations, and involves the determination of various factual matters and
circumstances not entirely within our control. In addition, frequent changes
occur in the area of REIT taxation which requires us to continually monitor our
tax status. We analyzed the various REIT tests and confirmed that we continued
to qualify as a REIT for the year ended December 31, 2009.
As a
REIT, we generally will not be subject to U.S. federal income taxes at the
corporate level on the ordinary taxable income we distribute to our stockholders
as dividends. If we fail to qualify as a REIT in any taxable year, our taxable
income will be subject to U.S. federal income tax at regular corporate rates
(including any applicable alternative minimum tax). Even if we qualify as a
REIT, we may be subject to certain state and local income taxes and to U.S.
federal income and excise taxes on our undistributed income.
For
income tax purposes, distributions paid to common stockholders consist of
ordinary income, capital gains, and return of capital. For the years ended
December 31, 2009, 2008, and 2007, distributions paid per share were taxable as
follows (unaudited):
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
Amount
|
|
|
Percentage
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHS, our
taxable REIT subsidiary, is subject to U.S. federal income taxes. Our deferred
tax assets and liabilities reflect the impact of temporary differences between
the amounts of assets and liabilities for financial reporting purposes and the
bases of such assets and liabilities as measured by tax laws. Deferred tax
assets are reduced, if necessary, by a valuation allowance to the amount where
realization is more likely than not assured after considering all available
evidence. The deferred income tax assets included in the Consolidated
Balance Sheets are comprised of the following tax effects of temporary
differences (in thousands):
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
12.
|
Income
Taxes, continued
|
|
|
As
of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of intangibles
|
|
|
|
|
|
|
|
|
Gross
deferred tax assets
|
|
|
|
|
|
|
|
|
Less:
Valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHS has
net operating loss carry forwards of approximately $34.9 million at December 31,
2009. The loss carryforwards will begin to expire in 2021 through 2027 if not
offset by future taxable income. Management believes its net deferred tax asset
will be realized but realization is continuously subject to an assessment as to
recoverability in the future. No federal tax expense was recognized in the years
ended December 31, 2009, 2008, and 2007.
We had no
unrecognized tax benefits as defined by ASC Topic 740, Income Taxes, as of
December 31, 2009 and 2008. We expect no significant increases or decreases in
unrecognized tax benefits due to changes in tax positions within one year of
December 31, 2009.
We
classify certain state taxes as income taxes for financial reporting purposes in
accordance with ASC Topic 740, Income Taxes. We record the Michigan
Business Tax and Texas Margin Tax as income taxes in our financial
statements. We recorded a provision for state income taxes of
approximately $0.4 million, $0.3 million, and $0.8 million in the years ended
December 31, 2009, 2008, and 2007, respectively.
A
deferred tax liability is included in our Consolidated Balance Sheets of $0.4
million and $0.5 million, as of December 31, 2009 and 2008, respectively, in
relation to the Michigan Business Tax. No deferred tax liability is
recorded in relation to the Texas Margin Tax as of December 31, 2009 and
2008.
We and
our subsidiaries are subject to income taxes in the U.S. and various state
jurisdictions. Tax regulations within each jurisdiction are subject to the
interpretation of the related tax laws and regulations and require significant
judgment to apply. With few exceptions, we are no longer subject to U.S.
Federal, State and Local, examinations by tax authorities before
2005.
Our
policy is to report income tax penalties and income tax related interest expense
as a component of income tax expense. No interest or penalty
associated with any unrecognized income tax benefit or provision was accrued,
nor was any income tax related interest or penalty recognized during the year
ended December 31, 2009.
We have
outstanding stock options and unvested restricted shares, and our Operating
Partnership has Common OP Units, and convertible Preferred OP Units, which if
converted or exercised, may impact dilution. On January 1, 2009, we
adopted FSP EITF 03-6-1, which is included within ASC Topic 260, Earnings Per
Share, which addressed whether instruments granted in share-based payment
transactions were participating securities prior to vesting and, therefore,
needed to be included in earnings allocation in computing basic earnings per
share under the two-class method. Our unvested restricted shares qualified as
participating securities as defined by ASC Topic 260. We adjusted our
calculation of basic and diluted earnings per share (“EPS”) to conform to the
updated guidance provided in ASC Topic 260, which also required retrospective
application for all periods presented. The updated guidance within ASC Topic 260
did not affect per share amounts for years ended December 31, 2009, 2008, and
2007, because we reported net losses in these periods.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
13.
|
Loss
Per Share, continued
|
Computations
of basic and diluted loss per share from continuing operations were as follows
(in thousands, expect per share data):
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
Net
loss from continuing operations attributable to Sun Communities, Inc.
common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share from continuing operations available to Sun
Communities, Inc. common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
We
excluded securities from the computation of diluted EPS because the inclusion of
these securities would have been anti-dilutive for the periods
presented. The following table presents the number of outstanding
potentially dilutive securities that were excluded from the computation of
diluted EPS as of December 31, 2009, 2008, and 2007 (amounts in
thousands):
|
|
For
the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
Preferred OP Units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
figures above represent the total number of potentially dilutive securities, and
do not reflect the incremental impact to the number of diluted weighted average
shares outstanding that would be computed if the impact to us had been dilutive
to the calculation of earnings (loss) per share available to common
stockholders.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
14.
|
Quarterly
Financial Information (Unaudited)
|
The
following is a condensed summary of our unaudited quarterly results for years
ended December 31, 2009 and 2008. Loss per share for the year
may not equal the sum of the fiscal quarters’ loss per share due to changes in
basic and diluted shares outstanding.
|
|
Quarters
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
|
(In
thousands, except per share amounts)
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes and equity income (loss) from
affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
income (loss) from affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
attributable to Sun Communities, Inc. common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations, net of state income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from discontinued operations, net of state income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) attributable to Sun Communities, Inc. common
stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes and equity loss from
affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
loss from affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
attributable to Sun Communities, Inc. common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations, net of state income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of state income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
attributable to Sun Communities, Inc. common
stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.
|
Derivative
Instruments and Hedging Activities
|
Our
objective in using interest rate derivatives is to manage exposure to interest
rate movements thereby minimizing the effect of interest rates
changes and the effect it could have on future cash flows. Interest rate swaps
and caps are used to accomplish this objective. We require hedging derivative
instruments to be highly effective in reducing the risk exposure that they are
designated to hedge. We formally designate any instrument that meets these
hedging criteria as a hedge at the inception of the derivative
contract.
As of
December 31, 2009, we had four derivative contracts consisting of three interest
rate swap agreements with a total notional amount of $70.0 million and an
interest rate cap agreement with a notional amount of $152.4 million. We
generally employ derivative instruments that effectively convert a portion of
our variable rate debt to fixed rate debt and to cap the maximum interest rate
on certain variable rate borrowings. We do not enter into derivative instruments
for speculative purposes.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
15.
|
Derivative
Instruments and Hedging Activities,
continued
|
The
following table provides the terms of our interest rate derivative contracts
that were in effect as of December 31, 2009:
Type
|
|
Purpose
|
|
Effective
Date
|
|
Maturity
Date
|
|
Notional
(in
millions)
|
|
Based
on
|
|
Variable
Rate
|
|
Fixed
Rate
|
|
Spread
|
|
Effective
Fixed Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
financial derivative instruments are designated and qualify as cash flow hedges
and the effective portion of the gain or loss on such hedges are reported as a
component of accumulated other comprehensive loss in our Consolidated Balance
Sheets. To the extent that the hedging relationship is not effective, the
ineffective portion is recorded in interest expense. Hedges that received
designated hedge accounting treatment are evaluated for effectiveness at the
time that they are designated as well as through the hedging
period.
In
accordance with ASC Topic 815, Derivatives and Hedging, we have recorded the
fair value of our derivative instruments designated as cash flow hedges on the
balance sheet. See Note 16 for information on the determination of fair value
for the derivative instruments. The following table summarizes the
fair value of derivative instruments included in our Consolidated Balance Sheets
as of December 31, 2009 and 2008 (in thousands):
|
Asset
Derivatives
|
|
Liability
Derivatives
|
|
|
Balance
Sheet Location
|
|
Fair
Value
As
of December 31,
|
|
Balance
Sheet Location
|
|
Fair
Value
As
of December 31,
|
|
Derivatives
designated as hedging instruments
|
|
|
2009
|
|
|
2008
|
|
|
|
2009
|
|
|
2008
|
|
Interest
rate swaps and cap agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These
valuation adjustments will only be realized under certain situations. For
example, if we terminate the swaps prior to maturity or if the derivatives fail
to qualify for hedge accounting, then we would need to amortize amounts
currently included in other comprehensive loss into interest expense over the
terms of the derivative contracts. We do not intend to terminate the
swaps prior to maturity and, therefore, the net of valuation adjustments through
the various maturity dates will approximate zero, unless the derivatives fail to
qualify for hedge accounting.
Our
hedges were highly effective and had minimal effect on income. The
following table summarizes the impact of derivative instruments for the twelve
months ended December 31, 2009, 2008, and 2007 as recorded in the Consolidated
Statements of Operations (in thousands):
Derivatives
in cash flow hedging
|
|
Amount
of Gain or (Loss) Recognized in OCI
(Effective
Portion)
|
|
Location of Gain or
(Loss) Reclassified from Accumulated OCI into Income (Effective
Portion)
|
|
Amount of Gain or
(Loss) Reclassified
from
Accumulated
OCI
into Income
(Effective
Portion)
|
|
Location of Gain or
(Loss) Recognized in Income on Derivative
(Ineffective Portion and Amount
Excluded
from
Effectiveness
Testing)
|
|
Amount of Gain or
(Loss) Recognized in Income on Derivative
(Ineffective Portion and Amount
Excluded
from
Effectiveness
Testing)
|
|
|
|
Years
Ended
December
31,
|
|
|
|
Years
Ended
December
31,
|
|
|
|
Years
Ended
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Interest
rate swaps and cap agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain
of our derivative instruments contain provisions that require us to provide
ongoing collateralization on derivative instruments in a liability
position. As of December 31, 2009 and 2008, we had collateral
deposits recorded in other assets of $3.2 million and $4.4 million,
respectively.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
16.
|
Fair
Value of Financial Instruments
|
Our
financial instruments consist primarily of cash and cash equivalents, accounts
and notes receivable, accounts payable, derivative instruments, and debt. We
utilize fair value measurements to record fair value adjustments to certain
assets and liabilities and to determine fair value disclosures. The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments for which it is practicable to estimate that
value:
Derivative
Instruments
The
derivative instruments held by us are interest rate swaps and cap agreements for
which quoted market prices are indirectly available. For those derivatives, we
use model-derived valuations in which all observable inputs and significant
value drivers are observable in active markets provided by brokers or dealers to
determine the fair values of derivative instruments on a recurring
basis.
Installment
Notes on Manufactured Homes
The net
carrying value of the installment notes on manufactured homes reasonably
estimates the fair value of the underlying collateral (manufactured home) which
would be placed into service for use in our Rental Program or held for
sale.
Long
Term Debt and Lines of Credit
The fair
value of long term debt (excluding the secured borrowing) is based on the
estimates of management and on rates currently quoted and rates currently
prevailing for comparable loans and instruments of comparable
maturities.
Collateralized
Receivables and Secured Borrowing
The fair
value of these financial instruments offset each other as our collateralized
receivables represent a transfer of financial assets and the cash proceeds
received from these transactions have been classified as a secured borrowing in
the Consolidated Balance Sheets
Other
Financial Instruments
The
carrying values of cash and cash equivalents, accounts receivable, and accounts
payable approximate their fair market values due to the short-term nature
of these instruments.
The table
below sets forth our financial assets and liabilities that required disclosure
of their fair values on a recurring basis as of December 31,
2009. The table presents the carrying values and fair values of our
financial instruments as of December 31, 2009 and 2008 that were measured using
the valuation techniques described above. The table does not include financial
instruments with maturities less than one year because the carrying values
associated with these instruments approximate fair value.
|
|
As
of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
Financial
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment
notes on manufactured homes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
term debt (excluding secured borrowing)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
16.
|
Fair
Value of Financial Instruments,
continued
|
ASC Topic
820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy
that requires the use of observable market data, when available, and prioritizes
the inputs to valuation techniques used to measure fair value in the following
categories:
Level
1—Quoted unadjusted prices for identical instruments in active
markets.
Level
2—Quoted prices for similar instruments in active markets, quoted prices for
identical or similar instruments in markets that are not active and
model-derived valuations in which all observable inputs and significant value
drivers are observable in active markets.
Level
3—Model derived valuations in which one or more significant inputs or
significant value drivers are unobservable, including assumptions developed by
us.
The table
below sets forth, by level, our financial assets and liabilities that were
required to be carried at fair value in the Consolidated Balance Sheets as of
December 31, 2009.
|
|
Total
Fair Value
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.
|
Noncontrolling
Interests in Consolidated Financial
Statements
|
In
December 2007 the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB 51”, which is included
within ASC Topic 810, Consolidation. The updated guidance in ASC
Topic 810 nullified the consolidation guidance in ASC Topic 974. The
updated guidance within ASC Topic 810 was effective on a prospective basis for
fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008, except for the presentation and disclosure
requirements, which apply retrospectively. We applied the updated provisions of
ASC Topic 810 beginning January 1, 2009. ASC Topic 810 required that losses
be allocated to the noncontrolling interest even when such allocation results in
a deficit balance, reducing the losses attributed to the controlling
interest.
Certain
partners in our consolidated subsidiaries receive dividend distributions on a
1:1 ratio to the dividend distributions provided to common shareholders. During
the twelve months ended December 31, 2008, these partners’ net equity position
declined below zero due to accumulated distributions in excess of allocated
accumulated earnings (losses). Prior to the adoption of the updated
guidance within ASC Topic 810, we would have been required to record the deficit
balance to the Consolidated Statements of Operations as a charge to
noncontrolling interest dividend distributions.
Additionally,
the noncontrolling interests in our consolidated partnerships receive an
allocation of their proportionate share of these consolidated subsidiaries’ net
losses, even when the allocation results in a deficit balance, reducing the
losses attributed to the controlling interest. The dividend distributions
and the noncontrolling interests’ proportionate share of net losses were
recorded as a deficit balance to the equity position of the noncontrolling
interest in our Consolidated Balance Sheets as of December 31,
2009.
The
provisions of ASC Topic 810 require that if an entity’s results are different
due to the adoption of the new guidance that the entity must disclose selected
pro forma financial information as if the deficit balance was recorded as a
charge to our Consolidated Statements of Operations.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
17.
|
Noncontrolling
Interests in Consolidated Financial Statements,
continued
|
Our
proforma results for the twelve months ended December 31, 2009 are as follows
(in thousands):
Loss
from continuing operations
|
|
|
|
|
Loss
from discontinued operations
|
|
|
|
|
|
|
|
|
|
Noncontrolling
interests dividend distributions
|
|
|
|
|
Net
loss attributable to Sun Communities, Inc. common
stockholders
|
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted average common shares
outstanding
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
|
|
|
18.
|
Recent
Accounting Pronouncements
|
Accounting
Standards Adopted in 2009
In
February 2008, the FASB issued Staff Position No. FAS 157-2 which provided for a
one-year deferral of the effective date of SFAS No. 157, “Fair Value
Measurements” which is included within ASC Topic 820, Fair Value Measurements
and Disclosures, for non-financial assets and liabilities that are recognized or
disclosed at fair value in the financial statements on a non-recurring
basis. The adoption of ASC Topic 820 as it pertains to non-financial
assets and liabilities did not have an impact on our results of operations or
financial position as we have not elected the fair value option for any of our
non-financial assets or liabilities.
In
December 2007, the FASB issued Statement No. 141R (revised 2007), “Business
Combinations”, which is included within ASC Topic 805, Business Combinations.
The updated guidance within ASC Topic 805 significantly changed the accounting
for business combinations. Under ASC Topic 805, an acquiring entity is required
to recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions. ASC Topic 805 changed
the accounting treatment for certain specific acquisition related items and also
included a substantial number of new disclosure requirements. ASC Topic 805 was
effective for business combinations for which the acquisition date is on or
after the first annual reporting period beginning on or after December 15,
2008. We will apply ASC Topic 805 prospectively to business
combinations for which the acquisition date is on or after January 1,
2009.
In
December 2007 the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB 51”, which is included
within ASC Topic 810, Consolidation. The updated guidance within ASC Topic 810
established new standards that govern the accounting for and reporting of
noncontrolling interests in partially owned consolidated subsidiaries and the
loss of control of subsidiaries. Also, the updates to ASC Topic 810 required
that: (1) noncontrolling interest, previously referred to as minority interest,
be reported as part of equity in the Consolidated Financial Statements; (2)
losses be allocated to the noncontrolling interest even when such allocation
might result in a deficit balance, reducing the losses attributed to the
controlling interest; (3) changes in ownership interests be treated as equity
transactions if control is maintained; (4) upon a loss of control, any gain or
loss on the interest sold be recognized in earnings; and (5) the noncontrolling
interest’s share be recorded at the fair value of net assets acquired, plus its
share of goodwill. The updates to ASC Topic 810 were effective on a prospective
basis for fiscal years, and interim periods within those fiscal years, beginning
on or after December 15, 2008, except for the presentation and disclosure
requirements, which apply retrospectively. The adoption of the updated guidance
within ASC Topic 810 impacted the presentation of noncontrolling interest in our
Consolidated Financial Statements and related notes. See Note 17 for
additional information regarding the impact of adopting the updated guidance
within ASC Topic 810 on our results of operations and financial
position.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”, which is included within ASC Topic 815,
Derivatives and Hedging. The updated guidance within ASC Topic 815 provided for
enhanced disclosures about how and why an entity uses derivatives and how and
where those derivatives and related hedged items are reported in the entity’s
financial statements. The statement was effective for fiscal years and interim
periods beginning after November 15, 2008. Because the updated guidance
within ASC Topic 815 impacted the disclosure requirements, and not the
accounting treatment for derivative instruments and related hedged items, the
adoption of the updated guidance did not impact our results of operations or
financial condition. See Note 15 for disclosures regarding our
derivative instruments and hedging activities.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
18.
|
Recent
Accounting Pronouncements,
continued
|
In April
2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of
Intangible Assets”, which is included within ASC Topic 350, Intangibles –
Goodwill and Other. The updated guidance within ASC Topic 350 amended
the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset.
The updated guidance in ASC Topic 350 is intended to improve the consistency
between the useful life of an intangible asset and the period of expected cash
flows used to measure the fair value of the asset. The updated guidance is
effective for financial statements issued for fiscal years and interim periods
beginning after December 15, 2008, and is applied prospectively to intangible
assets acquired after the effective date. We will apply the updated guidance
within ASC Topic 350 prospectively to material intangible assets for which the
acquisition date is on or after January 1, 2009. Disclosure
requirements are applied prospectively to all material intangible assets
recognized as of, and subsequent to, the effective date.
In May
2008 the FASB ratified FSP No. APB 14-1, “Accounting for Convertible Debt
Instruments that May be Settled in Cash Upon Conversion (Including Partial Cash
Settlement)”, which is included in ASC Topic 470, Debt, which required issuers
of convertible debt securities within its scope to separate these securities
into a debt component and an equity component, resulting in the debt component
being recorded at fair value without consideration given to the conversion
feature. Issuance costs were also allocated between the debt and equity
components. The updated guidance within ASC Topic 470 required that convertible
debt within its scope reflect a company’s nonconvertible debt borrowing rate
when interest expense is recognized. The updated guidance within ASC Topic 470
was effective for fiscal years and interim periods beginning after
December 15, 2008, and applies retrospectively to all prior
periods. The adoption of the updated guidance within ASC Topic
470 did not have an impact on our results of operations or financial condition
because the conversion feature associated with our convertible debt instrument
does not provide for any cash settlement.
In June
2008, the FASB issued FSP No. Emerging Issues Task Force (“EITF”) 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions are
Participating Securities”, which is included within ASC Topic 260, EPS. The
updated guidance within ASC Topic 260 clarified that unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and are to be
included in the computation of EPS under the two-class method. The updated
guidance within ASC Topic 260 was effective for fiscal years beginning after
December 15, 2008 and required that all presented prior-period EPS data be
adjusted retrospectively. The adoption of the updated guidance within ASC Topic
260 did not have a significant impact on our results of operations or financial
condition, but resulted in a change to the calculation of basic and diluted
EPS. See Note 13 for additional information regarding the impact of
adopting the updated guidance within ASC Topic 260 on the calculation of
EPS.
In
November 2008, the Emerging Issues Task Force issued EITF No. 08-6, “Equity
Method Investment Accounting Considerations”, which is included in ASC Topic
323, Investments – Equity Method and Joint Ventures. The updated guidance within
ASC Topic 323 addressed how the initial carrying value of an equity method
investment should be determined, how an impairment assessment of an underlying
indefinite-lived intangible asset of an equity method investment should be
performed, how an equity method investee’s issuance of shares should be
accounted for, and how to account for a change in an investment from the equity
method to the cost method. The updated guidance within ASC Topic 323 was
effective for fiscal years and interim periods beginning after December 15,
2008 and is applied prospectively. Earlier application was prohibited. The
adoption of the updated guidance within ASC Topic 323 did not have any impact on
our results of operations or financial condition.
In
December 2008, the FASB issued FSP FAS No. 140-4 and FIN No. 46R-8, “Disclosures
about Transfers of Financial Assets and Interests in Variable Interest Entities:
An Amendment to FASB Statement No. 140, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities”, which is included in
ASC Topic 860, Transfers and Servicing. The updated guidance in ASC Topic 860
required public entities to provide additional disclosures about transfers of
financial assets. It also required public enterprises to provide additional
disclosures about their involvement with variable interest entities (“VIEs”).
Additionally, it required certain disclosures to be provided by a public
enterprise that is a sponsor that has a variable interest in a VIE and an
enterprise that holds a significant variable interest in a qualified
special-purpose entity (“QSPE”) but was not the transferor of financial assets
to the QSPE. The disclosures were intended to provide greater transparency to
financial statement users about a transferor’s continuing involvement with
transferred financial assets and enterprise’s involvement with VIEs. The updated
guidance within ASC Topic 860 was effective for the first reporting period
ending after December 15, 2008. Because the updated guidance within ASC Topic
860 impacted the disclosure (and not the accounting treatment) for transferred
financial assets and consolidation of VIES, the adoption of this updated
guidance did not have an impact on our results of operations or financial
condition. See Note 4 for disclosures regarding our transfer of
financial assets and related secured borrowing obligation.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
18.
|
Recent
Accounting Pronouncements,
continued
|
In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about
Fair Value of Financial Instruments”, which is included in ASC Topic 825,
Financial Instruments. The updated guidance in ASC Topic 825 related
to fair value disclosures for any financial instruments that were not currently
reflected on the balance sheet at fair value. Prior to the issuance of the
updated guidance, fair values for these assets and liabilities were only
disclosed once a year. The updated guidance within ASC Topic 825 required these
disclosures on a quarterly basis, providing qualitative and quantitative
information about fair value estimates for all those financial instruments not
measured on the balance sheet at fair value. The updated guidance within ASC
Topic 825 was effective for interim periods ending after June 15, 2009 and
applies prospectively. Because the updated guidance impacted the disclosure
requirements, and not the accounting treatment for the fair value of financial
instruments, the adoption of updated guidance within ASC Topic 825 did not
impact our results of operations or financial condition. See Note 16
for disclosures regarding the fair value of financial instruments.
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events”, which is included in
ASC Topic 855, Subsequent Events. ASC Topic 855 established principles and
requirements for evaluating and reporting subsequent events and distinguishes
which subsequent events should be recognized in the financial statements versus
which subsequent events should be disclosed in the financial statements. ASC
Topic 855 also required disclosure of the date through which subsequent events
are evaluated by management. ASC Topic 855 was effective for interim
periods ending after June 15, 2009 and applies
prospectively. Because ASC Topic 855 impacted the disclosure
requirements, and not the accounting treatment for subsequent events, the
adoption of ASC Topic 855 did not impact our results of operations or financial
condition.
In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification
TM and
the Hierarchy of Generally Accepted Accounting Principles – a replacement of
FASB Statement No. 162”, which is included within ASC Topic 105, Generally
Accepted Accounting Principles. ASC Topic 105 modified the hierarchy to include
only two levels of GAAP: authoritative and non-authoritative. All of the content
included in the FASB Accounting Standards Codification TM will
be considered authoritative. ASC Topic 105 is not intended to amend GAAP but
codifies previous accounting literature. ASC Topic 105 is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. ASC Topic 105 became effective for our third
quarter 2009 Consolidated Financial Statements and we have changed the
referencing of authoritative accounting literature to conform to the
Codification.
Accounting
Standards to be Adopted
In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets, an amendment of FASB Statement No. 140”, which is included in ASC Topic
860, Transfers and Servicing. The updated guidance in ASC Topic 860
removes the concept of a QSPE and eliminates the exception for QSPEs from
consolidation guidance. In addition, it also established specific
conditions for reporting a transfer of a portion of a financial asset as a
sale. If the transfer does not meet established sale conditions, sale
accounting can be achieved only if the transferor transfers an entire financial
asset or a group of entire financial assets and surrenders control over the
entire transferred asset(s). The updated guidance in ASC Topic 860 is
effective for fiscal years beginning after November 15, 2009. We do
not believe the adoption of the updated guidance within ASC Topic 860 will have
any impact on our results of operations or financial condition.
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)”, which is included in ASC Topic 810, Consolidation. The updated
guidance in ASC Topic 810 requires an enterprise to perform an analysis to
determine whether the enterprise’s variable interest or interests give it a
controlling financial interest in a VIE. This analysis identifies the primary
beneficiary of a VIE as the enterprise that has both of the following
characteristics, among others: (a) the power to direct the activities of a VIE
that most significantly impact the entity’s economic performance and (b) the
obligation to absorb losses of the entity, or the right to receive benefits from
the entity, that could potentially be significant to the VIE. Under the updated
guidance in ASC Topic 810, ongoing reassessments of whether an enterprise is the
primary beneficiary of a VIE are required. The updated guidance in ASC Topic 810
is effective as of the beginning of an entity’s first annual reporting period
that begins after November 15, 2009. We do not believe the
adoption of the updated guidance within ASC Topic 810 will have any impact on
our results of operations or financial condition as we do not currently have any
interests in a VIE.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
19.
|
Commitments
and Contingencies
|
On or
about November 19, 2009, we, Sun Secured Financing LLC, Aspen-Ft. Collins
Limited Partnership, Sun Secured Financing Houston Limited Partnership, Sun
Communities Finance, LLC, Sun Holly Forest LLC and Sun Saddle Oak LLC
(collectively, the “Plaintiffs”) filed suit against ARCS Commercial Mortgage
Co., L.P., PNC ARCS, LLC, and the Federal National Mortgage Association
(collectively, the “Defendants”) in the United States District Court for the
District of Columbia as Case No. 1:09-cv-02162. The essence of the
dispute is whether the terms of a commercial credit facility permitted
Defendants to increase the Variable Facility Fee applicable to the outstanding
variable rate loans in conjunction with an extension of the credit facility
(and, if so, whether the Defendants properly exercised that
right). As of April 29, 2009, the Plaintiffs have been paying the
increased Variable Facility Fee. The Plaintiffs seek a judgment for
the amount paid above the original Variable Facility Fee from April 29, 2009 to
the date of judgment and an order that the Variable Facility Fee shall be
returned to the original rate of 58 basis points on a going forward basis
through the end of the extension period. The Defendants have filed a
motion to dismiss the lawsuit, which motion has been fully briefed by the
parties. Oral argument has not yet been scheduled.
On April
9, 2003, T.J. Holdings, LLC (“TJ Holdings”), a member of Sun/Forest, LLC
(“Sun/Forest”) (which, in turn, owns an equity interest in SunChamp), filed a
complaint against us, SunChamp, certain other of our affiliates, including two
of our directors, in the Superior Court of Guilford County, North Carolina. The
complaint alleges that the defendants wrongfully deprived the plaintiff of
economic opportunities that they took for themselves in contravention of duties
allegedly owed to the plaintiff and purports to claim damages of $13.0 million
plus an unspecified amount for punitive damages. We believe the complaint and
the claims threatened therein have no merit and will defend it vigorously. These
proceedings were stayed by the Superior Court of Guilford County, North Carolina
in 2004 pending final determination by the Circuit Court of Oakland County,
Michigan as to whether the dispute should be submitted to arbitration and the
conclusion of all appeals therefrom. On March 13, 2007, the Michigan Court of
Appeals issued an order compelling arbitration of all claims brought in the
North Carolina case. TJ Holdings has filed an application for review in the
Michigan Supreme Court which has been denied and, accordingly, the North
Carolina case is permanently stayed. TJ Holdings had filed an arbitration demand
in Southfield, Michigan based on the same claims. We intend to vigorously defend
against the allegations.
We are
involved in various other legal proceedings arising in the ordinary course of
business. All such proceedings, taken together, are not expected to have a
material adverse impact on our results of operations or financial
condition.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
20.
|
Related
Party Transactions
|
We have
entered into the following transactions with the LLC:
Investment in
LLC. We entered into an agreement with four unrelated
companies (“Members”) and we contributed cash of approximately $0.5 million
towards the formation of a limited liability company. The LLC
purchased the loan origination platform of Origen. The purpose of the venture is
to originate manufactured housing installment contracts for its
Members. We account for our investment in the LLC using the equity
method of accounting. As of December 31, 2009, we had an ownership
interest in the LLC of 25 percent, and the carrying value of our investment was
zero.
Loan Origination, Sale and Purchase
Agreement. The LLC agreed to fund loans that meet our underwriting
guidelines and then transfer those loans to us pursuant to a Loan Origination,
Sale and Purchase Agreement. We paid the LLC a weighted average fee of
approximately $620 per loan pursuant to a Loan Origination, Sale and Purchase
Agreement which totaled approximately $0.1 million during the year ended
December 31, 2009. We paid the LLC a fee of $550 per loan pursuant to
a Loan Origination, Sale and Purchase Agreement which totaled approximately $0.1
million during the year ended December 31, 2008. We purchased, at
par, $6.9 million and $7.4 million of these loans during the years ended
December 31, 2009 and 2008, respectively.
We have
entered into the following transactions with Origen:
Investment in Origen. In
2003, we purchased 5,000,000 shares of Origen common stock for $50.0 million and
Shiffman Origen LLC (which is owned by the Milton M. Shiffman Spouse’s Marital
Trust, Gary A. Shiffman (our Chairman and Chief Executive Officer), and members
of Mr. Shiffman’s family) purchased 1,025,000 shares of Origen common stock for
$10.3 million. Gary A. Shiffman is a member of the board of directors of Origen
and Arthur A. Weiss, our director, is a trustee of the Milton M. Shiffman
Spouse’s Marital Trust. As of December 31, 2009 we had an ownership
interest in Origen of approximately 19 percent, and the carrying value of our
investment was $1.6 million.
Board Membership. Gary A.
Shiffman, our Chairman and Chief Executive Officer, is a board member of
Origen.
Loan Servicing Agreement.
Origen Servicing, Inc., a wholly-owned subsidiary of Origen, serviced
approximately $30.6 million in manufactured home loans for us as of December 31,
2007. We paid Origen Servicing, Inc. an annual servicing fee of 100 to 150 basis
points of the outstanding principal balance of the loans pursuant to a Loan
Servicing Agreement which totaled approximately $0.4 million during
2007. With the sale of Origen’s servicing platform assets to Green
Tree Servicing LLC during 2008, we engaged a different entity to continue the
servicing of the manufactured home loans. In order to transfer the
manufactured home loan servicing contract to a different service provider, we
paid Origen a fee of $0.3 million in 2008. Origen did not service any
of our loans during 2009 and accordingly, no fees were paid to Origen during
2009 for the servicing of loans.
Loan Origination, Sale and Purchase
Agreement. Origen had agreed to fund loans that met our underwriting
guidelines and then transfer those loans to us pursuant to a Loan Origination,
Sale and Purchase Agreement. We paid Origen a fee of $550 per loan pursuant to a
Loan Origination, Sale and Purchase Agreement which totaled approximately $0.2
million during 2008 and 2007. During 2008 and 2007, we purchased, at par, $12.4
million and $13.3 million of these loans, respectively. Origen did
not fund any loans for us during 2009, and we did not pay Origen any origination
fees or purchase any homes from Origen during 2009.
Purchase of Repossessed Manufactured
Homes. We purchased certain repossessed manufactured houses owned by
Origen located in our manufactured housing communities. We purchased
approximately $0.6 million and $1.2 million of repossessed homes from Origen
during 2008 and 2007, respectively. This program allowed us to retain houses for
resale and rent in our communities. We did not purchase any
repossessed manufactured homes from Origen during 2009.
Sale of Installment Loans on
Manufactured Homes: As noted above, Origen serviced manufactured home
loans for us under a Loan Servicing Agreement. Certain loans may, from time to
time, have been sold to Origen. For loans that were made below published rates,
we paid Origen the interest differential between market rates and the rate paid
by the borrower for any such loans sold to Origen. During 2004, we sold a
portfolio of below published rates loans totaling $1.6 million to Origen. No
sales of such loans were made in the last five years. We paid an interest
differential of approximately $0.1 million during 2007. The interest
differential paid to Origen during 2008 and 2009 was not
significant.
SUN
COMMUNITIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
20.
|
Related
Party Transactions, continued
|
In
addition to the transactions with Origen described above, Gary A. Shiffman
and his affiliates and/or Arthur A. Weiss have entered into the following
transactions with the Company:
Legal
Counsel. During 2009, Jaffe, Raitt, Heuer, & Weiss,
Professional Corporation (“JRH&W”) acted as our general counsel and
represented us in various matters. Arthur A. Weiss, a director of the Company,
is the Chairman of the Board of Directors and a shareholder of such firm. We
incurred legal fees and expenses of approximately $1.1 million in the year ended
December 31, 2009 and approximately $1.0 million in the years ended December 31,
2008 and 2007.
Lease of Executive
Offices. Gary A. Shiffman, together with certain family
members, indirectly owns a 21 percent equity interest in American Center LLC,
the entity from which we lease office space for our principal executive offices.
Arthur A. Weiss owns a 0.75 percent indirect interest in American Center LLC.
This lease was for an initial term of five years, beginning May 1, 2003, with
the right to extend the lease for an additional five year term. In December
2007, we exercised our option to extend our lease for our executive offices. The
extension was for a period of five years commencing on May 1, 2008. In August
2008, we modified our lease agreement to lease approximately 5,300
additional square feet, for a total of approximately 36,700 rentable square
feet, and extended the term of the lease until August 31, 2015, with an option
to renew for an additional five years. The annual base rent under the current
lease is $18.81 per square foot (gross) and will remain this amount through
August 31, 2015. Our annual rent expense associated with the lease of
our executive offices was approximately $0.7 million for the year ended December
31, 2009, and was approximately $0.6 million for the years ended December 31,
2008 and 2007. Our future annual rent expense will remain approximately $0.7
million through 2015. Gary A. Shiffman may have a conflict of
interest with respect to his obligations as an officer and/or director of the
Company and his ownership interest in American Center LLC.
Tax Consequences Upon Sale of
Properties. Gary A. Shiffman holds limited partnership interests in the
Operating Partnership which were received in connection with the contribution of
24 properties (four of which have been sold) from partnerships previously
affiliated with him (the “Sun Partnerships”). Prior to any redemption of these
limited partnership interests for our common stock, Gary A.. Shiffman will have
tax consequences different from those of us and our public stockholders on the
sale of any of the Sun Partnerships. Therefore, we and Gary A. Shiffman may have
different objectives regarding the appropriate pricing and timing of any sale of
those properties.
SUN
COMMUNITIES, INC.
REAL
ESTATE AND ACCUMULATED DEPRECIATION, SCHEDULE III
DECEMBER
31, 2009
(amounts
in thousands)
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Initial
Cost to Company
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Costs
Capitalized
Subsequent
to Acquisition
(Improvements)
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Gross
Amount Carried
at
December 31, 2009
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Property
Name
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Location
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Encumbrance
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Land
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Depreciable
Assets
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Land
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Depreciable
Assets
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Land
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Depreciable
Assets
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Total
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Accumulated
Depreciation
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Date
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Acquired
(A) or
Constructed
(C)
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SUN
COMMUNITIES, INC.
REAL
ESTATE AND ACCUMULATED DEPRECIATION, SCHEDULE III
DECEMBER
31, 2009
(amounts
in thousands)
|
|
|
|
|
|
|
Initial
Cost to Company
|
|
|
Costs
Capitalized
Subsequent
to Acquisition
(Improvements)
|
|
|
Gross
Amount Carried
at
December 31, 2009
|
|
|
|
|
|
|
|
|
Property
Name
|
|
Location
|
|
Encumbrance
|
|
|
Land
|
|
|
Depreciable
Assets
|
|
|
Land
|
|
|
Depreciable
Assets
|
|
|
Land
|
|
|
Depreciable
Assets
|
|
|
Total
|
|
|
Accumulated
Depreciation
|
|
|
Date
|
|
Acquired
(A) or
Constructed
(C)
|
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|
SUN
COMMUNITIES, INC.
REAL
ESTATE AND ACCUMULATED DEPRECIATION, SCHEDULE III
DECEMBER
31, 2009
(amounts
in thousands)
|
|
|
|
|
|
|
Initial
Cost to Company
|
|
|
Costs
Capitalized
Subsequent
to Acquisition
(Improvements)
|
|
|
Gross
Amount Carried
at
December 31, 2009
|
|
|
|
|
|
|
|
|
Property
Name
|
|
Location
|
|
Encumbrance
|
|
|
Land
|
|
|
Depreciable
Assets
|
|
|
Land
|
|
|
Depreciable
Assets
|
|
|
Land
|
|
|
Depreciable
Assets
|
|
|
Total
|
|
|
Accumulated
Depreciation
|
|
|
Date
|
|
Acquired
(A) or
Constructed
(C)
|
|
|
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SUN
COMMUNITIES, INC.
REAL
ESTATE AND ACCUMULATED DEPRECIATION, SCHEDULE III
DECEMBER
31, 2009
(amounts
in thousands)
|
|
|
|
|
|
|
Initial
Cost to Company
|
|
|
Costs
Capitalized
Subsequent
to Acquisition
(Improvements)
|
|
|
Gross
Amount Carried
at
December 31, 2009
|
|
|
|
|
|
|
|
|
Property
Name
|
|
Location
|
|
Encumbrance
|
|
|
Land
|
|
|
Depreciable
Assets
|
|
|
Land
|
|
|
Depreciable
Assets
|
|
|
Land
|
|
|
Depreciable
Assets
|
|
|
Total
|
|
|
Accumulated
Depreciation
|
|
|
Date
|
|
Acquired
(A) or
Constructed
(C)
|
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|
|
|
|
|
SUN
COMMUNITIES, INC.
REAL
ESTATE AND ACCUMULATED DEPRECIATION, SCHEDULE III
DECEMBER
31, 2009
(amounts
in thousands)
|
|
|
|
|
|
|
Initial
Cost to Company
|
|
|
Costs
Capitalized
Subsequent
to Acquisition
(Improvements)
|
|
|
Gross
Amount Carried
at
December 31, 2009
|
|
|
|
|
|
|
|
|
Property
Name
|
|
Location
|
|
Encumbrance
|
|
|
Land
|
|
|
Depreciable
Assets
|
|
|
Land
|
|
|
Depreciable
Assets
|
|
|
Land
|
|
|
Depreciable
Assets
|
|
|
Total
|
|
|
Accumulated
Depreciation
|
|
|
Date
|
|
Acquired
(A) or
Constructed
(C)
|
|
|
|
|
|
|
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A These
communities collateralize $373.5 million of secured debt.
B These
communities collateralize $26.7 million of secured debt.
C These
communities collateralize $471.3 million of secured debt.
D These
communities collateralize $18.4 million of secured debt.
(1)
The initial cost for this property is included in the initial cost reported for
Continental Estates.
SUN
COMMUNITIES, INC.
REAL
ESTATE AND ACCUMULATED DEPRECIATION, SCHEDULE III
DECEMBER
31, 2009
(amounts
in thousands)
SUN
COMMUNITIES, INC.
REAL
ESTATE AND ACCUMULATED DEPRECIATION, CONTINUED
The
change in investment property for the years ended December 31, 2009, 2008, and
2007 is as follows:
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Years
Ended December 31,
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2009
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2008
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2007
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Community
and land acquisitions, including immediate
improvements
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Community
expansion and development
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The
change in accumulated depreciation for the years ended December 31, 2009, 2008,
and 2007 is as follows:
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Years
Ended December 31,
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2009
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2008
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2007
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Depreciation
for the period
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