1
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington,WASHINGTON, D.C. 20549
                             ---------------------

                                   FORM 10-K

[X]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934



                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001



                                       OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the Fiscal Year Ended December 31, 2000

                                       or




   [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
Commission File Number:
COMMISSION FILE NUMBER: 1-11718 MANUFACTURED HOME COMMUNITIES, INC. (Exact name of registrant as specified in its charter) MARYLAND 36-3857664 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) incorporation or organization)
TWO NORTH RIVERSIDE PLAZA SUITE 60606 800, CHICAGO, ILLINOIS 60606(Zip Code) (Address of principal executive offices) (Zip Code)
(312) 279-1400 (Registrant's telephone number, including area code) Securities registered pursuant to Section(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) of the Act:OF THE ACT: Common Stock, $.01 Par Value The New York Stock Exchange (Title of Class) (Name of exchange on which registered)
Securities registered pursuant to SectionSECURITIES REGISTERED PURSUANT TO SECTION 12(g) of the Act: NoneOF THE ACT: NONE 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]Yes [X] 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 the 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. [ ] The aggregate market value of voting stock held by nonaffiliates was approximately $537.3$640.1 million as of March 1, 2001February 11, 2002 based upon the closing price of $28.00$32.55 on such date using beneficial ownership of stock rules adopted pursuant to Section 13 of the Securities Exchange Act of 1934 to exclude voting stock owned by Directors and Officers, some of whom may not be held to be affiliates upon judicial determination. At March 1, 2000, 21,177,70915, 2002, 21,740,248 shares of the Registrant's Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Part III incorporates by reference the Registrant's Proxy Statement relating to the Annual Meeting of Stockholders to be held May 8, 2001.2002. 2 MANUFACTURED HOME COMMUNITIES, INC. TABLE OF CONTENTS
PART I. PagePAGE ---- PART I Item 1. Business ...............................................................................Business................................................................................. 3 Item 2. Properties ............................................................................. 7Properties............................................................................... 8 Item 3. Legal Proceedings ...................................................................... 12Proceedings........................................................................ 13 Item 4. Submission of Matters to a Vote of Security Holders .................................... 15Holders...................................... 16 PART II.II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters .............. 16Matters................ 17 Item 6. Selected Financial Data and Operating Information ...................................... 17Information........................................ 18 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .. 19Operations.... 20 Item 7A. Quantitative and Qualitative Disclosure About Market Risk .............................. 27Risk................................ 30 Item 8. Financial Statements and Supplementary Data ............................................ 27Data.............................................. 30 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ... 27Disclosure..... 30 PART III.III Item 10. Directors and Executive Officers of the Registrant ..................................... 27Registrant....................................... 30 Item 11. Executive Compensation ................................................................. 27Compensation................................................................... 30 Item 12. Security Ownership of Certain Beneficial Owners and Management ......................... 27Management........................... 30 Item 13. Certain Relationships and Related Transactions ......................................... 27Transactions........................................... 30 PART IV.IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ........................ 288-K.......................... 31
2 3 PART I ITEM 1. BUSINESS THE COMPANY GENERAL Manufactured Home Communities, Inc. (together with its consolidated subsidiaries, the "Company") is a fully integrated company which owns and operates manufactured home communities ("Communities"). Communities are residential developments designed and improved for the placement of detached, single-family manufactured homes which are produced off-site and installed and set on residential sites ("Site Set") within the Community. The owner of each home leases the site on which it is located. Modern Communities are similar to typical residential subdivisions, containing centralized entrances, paved streets, curbs and gutters and parkways. In addition, these Communities often provide a clubhouse for social activities and recreation and other amenities, which may include swimming pools, shuffleboard courts, tennis courts, laundry facilities and cable television service. UtilitiesIn some cases, utilities are provided or arranged for by the owner of the Community.Community, otherwise, the resident contracts the utility directly. Some Communities provide water and sewer service through publicmunicipal or privateregulated utilities, while others provide these services to residents from on-site facilities. Each Community is generally designed to attract, and is marketed to one of two types of residents - 1)-- (1) retirees and empty nesters or 2)(2) families and first-time homeowners. The Company believes both types of Communities are attractive investments and focuses on owning Communities in or near large metropolitan markets and retirement destinations. The Company was formed to continue the property operations, business objectives and acquisition strategies of an entity that hashad owned and operated Communities since 1969. As of December 31, 2000,2001, the Company owned or had an ownership interest in a portfolio of 154148 Communities and recreational vehicle ("RV") resorts (the "Properties") located throughout the United States containing 51,45250,761 residential sites. The Properties are located in 2623 states (with the number of Properties in each state shown parenthetically) --- Florida (47)(49), California (25), Arizona (17), Michigan (11), Colorado (10), Delaware (7), Nevada (5), Indiana (4)(3), Oregon (3), Kansas (3), Missouri (3), Illinois (2), Iowa (2), New York (2), Utah (2), Pennsylvania (1), Maryland (1), Minnesota (1), Montana (1), New Mexico (1), Ohio (1), Oklahoma (1), Texas (1), Virginia (1), West Virginia (1), and Washington (1). As of December 31, 2000,2001, the Company also owned a commercial building located in California. The Company has approximately 800 full-time employees dedicated to carrying out the Company's operating philosophy and strategies of value enhancement and service to residents. The Company typically utilizes a one or two-person management team (who reside at the Properties) for the on-site management of each of the Properties. Typically, clerical and maintenance workers are employed to assist these individuals in the management and care of the Properties. Direct supervision of on-site management is the responsibility of the Company's regional vice presidents and regional and district managers. These individuals have significant experience in addressing the needs of residents and in finding or creating innovative approaches to maximize value and increase cash flow from property operations. Complementing this field management staff are approximately 5560 corporate employees who assist on-site management in all property functions. FORMATION OF THE COMPANY The Company, formed in March 1993, is a Maryland corporation which has elected to be taxed as a real estate investment trust ("REIT"). The Company generally will not be subject to Federal income tax to the extent it distributes its REIT taxable income to its stockholders. REITs are subject to a number of organizational and operational requirements. If the Company fails to qualify as a REIT, its income is taxable at regular corporate rates. Even if the Company qualifies for taxation as a REIT, the Company is subject to certain state and local taxes on its income and property and Federal income and excise taxes on its undistributed income. The operations of the Company are conducted through certain entities which are owned or controlled by the Company. MHC Operating Limited Partnership (the "Operating Partnership") is the entity through which the Company conducts substantially all of its operations. Sub-partnershipsSubsidiaries of the Operating Partnership werehave been created to: (i) facilitate mortgage financing (the "Financing Partnerships"); (ii) facilitate the Company's ability to provide financing to the owners of Communities ("Lending Partnership"); (iii) own the management operations of the Company ("Management Partnerships"); and (iv)(iii) own the assets and operations of certain utility companies which service the Properties ("MHC Systems"). The financial results of the Operating Partnership and sub-partnershipssubsidiaries (together, the "Subsidiaries") are consolidated in the Company's consolidated financial statements. The operations of the Company are managed on a property-by-property basis therefor the results of our financing, lending and property management and utility operations are not reviewed separately by management to make decisions regarding allocation of resources or to assess performance. 3 4 In addition, since certain activities, if performed by the Company, may not behave been qualifying REIT activities under the Internal Revenue Code of 1986, as amended (the "Code"), the Company has invested in the non-voting preferred stock of various corporations which engage in such activities. Realty Systems, Inc. ("RSI") is a preferred stock subsidiary of the Company that, doing business as Carefree Sales, is engaged in the business of purchasing, selling, leasing and financing manufactured homes that are located or will be located in Properties owned and managed by the Company. Carefree Sales also provides brokerage services to residents at such Properties. Typically, residents move from a Community but do not relocate their homes. Carefree Sales may provide brokerage services, in competition with other local brokers, by seeking buyers for the homes. Carefree Sales also leases homes to prospective residents with the expectation that the tenant eventually will purchase the home. LP Management Corp. leases from the Operating Partnership certain real property within or adjacent to certain of the Properties consisting of golf courses, pro shops, restaurants and recreational vehicleRV areas. The Company believes that the activities of RSI and LP Management Corp. (collectively, "Affiliates") benefit the Company by maintaining and enhancing occupancy at the Properties. The Company accounts for its investment in and advances to Affiliates using the equity method of accounting. BUSINESS OBJECTIVES AND OPERATING STRATEGIES The Company seeks to maximize both current income and long-term growth in income. The Company focuses on Communities that have strong cash flow and expects to hold such Properties for long-term investment and capital appreciation. In determining cash flow potential, the Company evaluates the Community's ability to attract and retain high quality residents who take pride in their Community and in their home. These business objectives and their implementation are determined by the Company's Board of Directors and may be changed at any time. The Company's investment and operating approach includes: - Providing consistently high levels of services and amenities in attractive surroundings to foster a strong sense of community and pride of home ownership; - Efficiently managing the Properties to increase operating margins by controlling expenses, increasing occupancy and maintaining competitive market rents; - Increasing income and property values by continuing the strategic expansion and, where appropriate, renovation of the Properties; - Utilizing management information systems to evaluate potential acquisitions, identify and track competing properties and monitor tenantresident satisfaction; and - Selectively acquiring Communities that have potential for long-term cash flow growth and to create property concentrations in and around major metropolitan areas and retirement destinations to capitalize on operating synergies and incremental efficiencies. The Company is committed to enhancing its reputation as the most respected brand name in the manufactured home community business.industry. Its strategy is to own and operate the highest quality Communities in major metropolitan areas and retirement destinations across the United States. The focus is on creating an attractive residential environment for homeowners by providing a well-maintained, comfortable Community with a variety of organized recreational and social activities and superior amenities. In addition, the Company regularly surveys rental rates of competing properties and conducts satisfaction surveys of residents to determine the factors residents consider most important in choosing a manufactured home community. FUTURE ACQUISITIONS The Company acquired or gained a controlling interest in eighty-eight Properties during 1997 through 1999, more than doubling its portfolio. The Company believes that opportunities for property acquisitions are still available and in general consolidation within the industry will continue (see --- The Industry - The Manufactured Home Community Industry --- Industry Consolidation). TheHowever, the Company believes that transactions occurring during 1999 and 2000 in the private marketplace are at valuations significantly in excess of the Company's current public market valuation. As a result, during 1999 and 2000 the Company accelerated its stock repurchase program. The Company's boardBoard of directorsDirectors continues to review the conditions under which the Company will repurchase its stock. These conditions include, but are not limited to, market price, balance sheet flexibility, other opportunities and capital requirements. (For more information on the Company's stock repurchase program see Note 4 to the accompanying financial 4 statements.) Increasing acceptability of and demand for manufacturedSite Set homes and continued constraints on development of new manufactured home communities continuesCommunities continue to add to their attractiveness as an investment. The Company believes it has a competitive advantage in the acquisition of new Communities due to its experienced management, significant presence in major real estate markets and substantial capital resources. The Company is actively seeking to acquire additional Communities and currently is engaged in various stages of negotiations relating to the possible acquisition of a number of Communities. 4 5 The Company anticipates that newly acquired properties will be located in the United States. The Company utilizes market information systems to identify and evaluate acquisition opportunities, including a market database to review the primary economic indicators of the various locations in which the Company expects to expand its operations. Acquisitions will be financed from the most appropriate sources of capital, which may include undistributed funds from operations, issuance of additional equity securities, sales of investments, collateralized and uncollateralized borrowings and issuance of debt securities. In addition, the Company may cause the Operating Partnership to issue units of limited partnership interest ("OP Units") to finance acquisitions. The Company believes that an ownership structure which includes the Operating Partnership will permit the Company to acquire additional Communities in transactions that may defer all or a portion of the sellers' tax consequences. When evaluating potential acquisitions, the Company will consider such factors as: (i) the replacement cost of the property; (ii) the geographic area and type of property; (iii) the location, construction quality, condition and design of the property; (iv) the current and projected cash flow of the property and the ability to increase cash flow; (v) the potential for capital appreciation of the property; (vi) the terms of tenant leases, including the potential for rent increases; (vii) the potential for economic growth and the tax and regulatory environment of the community in which the property is located; (viii) the potential for expansion of the physical layout of the property and/orand the number of sites; (ix) the occupancy and demand by residents for properties of a similar type in the vicinity and the residents profile; (x) the prospects for liquidity through sale, financing or refinancing of the property; and (xi) competition from existing Communities and the potential for the construction of new communitiesCommunities in the area. The Company expects to purchase Communities with physical and market characteristics similar to the Properties in its current portfolio. PROPERTY EXPANSIONS Several of the Company's Properties have available land for expanding the number of sites available to be leased to residents. Development of these sites ("Expansion Sites") is predicated by local market conditions and permitted by zoning and other applicable laws. When justified, development of Expansion Sites allows the Company to leverage existing facilities and amenities to increase the income generated from the Properties. Where appropriate, facilities and amenities may be upgraded or added to certain Properties in order to make those Properties more attractive in their markets. The Company's acquisition philosophy has included the desire to own Properties with potential Expansion Site development, and the Company has been successful in acquiring a number of such Properties. Several examples of these Properties include the 1994 acquisition of Bulow Village with potential development of approximately 750725 Expansion Sites, the 1997 acquisition of Golf Vista Estates with potential development of approximately 180128 Expansion Sites and the acquisition in 1999 of Coquina Crossing with potential development of approximately 480393 Expansion Sites.Sites, and the acquisition in 2001 of Grand Island and The Lakes at Countrywood with combined potential Expansion Sites of 224 sites. Of the Company's 154148 Properties, nineten may be expanded consistent with existing zoning regulations. In 2001,2002, the Company expects to develop an additional 353141 Expansion Sites within fivethree of these Properties. As of December 31, 2000,2001, the Company had approximately 1,202817 Expansion Sites available for occupancy in 2224 of the Properties. The Company filled 317205 Expansion Sites in 20002001 and expects to fill an additional 250200 to 300250 Expansion Sites in 2000.2002. LEASES The typical lease entered into between the tenantresident and the Company for the rental of a site requires a security deposit and is for a month-to-month or year-to-year term, renewable upon the consent of both parties or, in some instances, as provided by statute. These leases are cancelable, depending on stateapplicable law, for non-payment of rent, violation of community rules and regulations or other specified defaults. Non-cancelable long-term leases, with remaining terms ranging up to ten years, are in effect at certain sites within eight22 of the Properties. These leases are subject to rental rate increases based on the Consumer Price Index ("CPI"), in some instances taking into consideration certain floors and ceilings and allowing for pass-throughs of certain items such as real estate taxes, utility expenses and capital expenditures. Generally, market rate adjustments are made on an annual basis. 5 REGULATIONS AND INSURANCE General. Communities are subject to various laws, ordinances and regulations, including regulations relating to recreational facilities such as swimming pools, clubhouses and other common areas. The Company believes that each Property has the necessary permits and approvals to operate. 5 6 Rent Control Legislation. State and local rent control laws, principally in California and Florida, limit the Company's ability to increase rents and to recover increases in operating expenses and the costs of capital improvements at certain Properties. Enactment of such laws has been considered from time to time in other jurisdictions. The Company presently expects to continue to maintain manufactured home communities,Communities, and may purchase additional properties, in markets that are either subject to rent control or in which rent-limiting legislation exists or may be enacted. For example, Florida has enacted a law that generally provides that rental increases must be reasonable. Also, certain jurisdictions in California in which the Company owns Properties limit rent increases to changes in the CPI or some percentage thereof. Insurance. Management believes that the Properties are covered by adequate fire, flood, property, earthquake and business interruption insurance (where appropriate) provided by reputable companies and with commercially reasonable deductibles and limits. Due to the lack of available commercially reasonable coverage, the company is self-insured for terrorist incidents. The Company believes its insurance coverage is adequate based on the Company's assessment of the risks to be insured, the probability of loss and the relative cost of available coverage. The Company has obtained title insurance insuring fee title to the Properties in an aggregate amount which the Company believes to be adequate. INDUSTRY THE MANUFACTURED HOME COMMUNITY INDUSTRY The Company believes that modern manufactured home communities,Communities, such as the Properties, provide an opportunity for increased cash flows and appreciation in value. These may be achieved through increases in occupancy rates and rents, as well as expense controls, expansion of existing Properties and opportunistic acquisitions, for the following industry specific reasons: - Barriers to Entry: The Company believes that the supply of new Communities will be constrained due to barriers to entry into the industry. The most significant barrier has been the difficulty in securing zoning from local authorities. This has been the result of (i) the public's historically poor perception of the industry, and (ii) the fact that Communities generate less tax revenue because the homes are treated as personal property (a benefit to the home owner) rather than real property. Another factor that creates substantial barriers to entry is the length of time between investment in the Community's development and the attainment of stabilized occupancy and the generation of revenues. The initial development of the infrastructure may take up to two or three years. Once the Community is ready for occupancy, it may be difficult to attract residents to an empty Community. Substantial occupancy levels may take several years to achieve. - Industry Consolidation: According to an industry analyst's manufactured home community industry report, there are approximately 50,000 Communities in the United States, and approximately 6.5% or 3,250 of the Communities have more than 200 sites and would be considered "investment-grade" Properties.properties. The five public REITs that own Communities own approximately 532 or about 16% of the "investment-grade" Communities. In addition, based on a report prepared by one analyst, the top 150 owners of Communities own approximately 69% of the "investment-grade" assets. The Company believes that this relatively high degree of fragmentation in the industry provides the Company, as a national organization with experienced management and substantial financial resources, the opportunity to purchase additional Communities. - Stable Tenant Base: The Company believes that Communities tend to achieve and maintain a stable rate of occupancy due to the following factors: (i) residents own their own homes, (ii) Communities tend to foster a sense of community as a result of amenities such as club houses,clubhouses, recreational and social activities and (iii) since moving a manufacturedSite Set home from one Community to another involves substantial cost and effort, residents often sell their home in-place (similar to site-built residential housing) with no interruption of rental payments. MANUFACTURED6 SITE SET HOUSING Based on the current growth in the number of individuals living in manufacturedSite Set homes, the Company believes that manufacturedSite Set homes are increasingly viewed by the public as an attractive and economical form of housing. According to the industry's trade association, nearly one in four new single family homes sold in the United States today is factory-built. 6 7Site set. The Company believes that the growing popularity of manufacturedSite Set housing is primarily the result of the following factors: - Importance of Home Ownership. According to the Fannie Mae ("FNMA") 19992000 National Housing Survey renters' desire to own a home is stronger now than at any time in the 1990's. Security and permanence are thoughtcontinues to be non-financial reasonsa top priority. According to ownthe report, "A home is more than merely shelter. Owning a home. The commitment to home ownership is tempered by an awarenessprovides a sense of the high cost offinancial security...Americans view owning a home. The affordability of manufactured housing allows many individualshome as the second most important action a person can take to achieve this goal without jeopardizing their financial security.security, behind stating an IRA [401(k)] or other type of retirement account. - Affordability. For a significant number of persons, manufacturedSite Set housing represents the only means of achieving home ownership. In addition, the total cost of housing in a manufactured home communityCommunity (home cost, site rent and related occupancy costs) is competitive with and often lower than the total cost of alternative housing, such as apartments and condominiums, and generally substantially lower than stick built"stick-built" residential alternatives. - Lifestyle Choice. As the average age of the United States population has increased, manufacturedSite Set housing has become an increasingly popular housing alternative for retirement and "empty-nest" living. According to FNMA, the surviving baby-boom generation --- the 80 million people born between 1945 and 1964 --- will constitute 18% of the U.S. population within the next 30 years and more than 32 million will reach age 55 within the next ten years. Among those people who are nearing retirement (age 40 to 54), approximately 33% plan on moving upon retirement. The Company believes that manufacturedSite Set housing is especially attractive to such individuals when located within a Community that offers an appealing amenity package, close proximity to local services, social activities, low maintenance and a secure environment. - Construction Quality. Since 1976, all manufacturedSite Set housing has been required to meet stringent Federal standards, resulting in significant increases in the quality of the industry's product. The Department of Housing and Urban Development's standards for manufacturedSite Set housing construction quality are the only Federally regulated standards governing housing quality of any type in the United States. ManufacturedSite Set homes produced since 1976 have received a "red and silver" government seal certifying that they were built in compliance with the Federal code. The code regulates manufacturedSite Set home design and construction, strength and durability, fire resistance and energy efficiency, and the installation and performance of heating, plumbing, air conditioning, thermal and electrical systems. In newer homes, top grade lumber and dry wall materials are common. Also, manufacturers are required to follow the same fire codes as builders of site-built structures. - Comparability to Site-Built Homes. The manufacturedSite Set housing industry has experienced a recent trend towards multi-section homes. Many modern manufacturedSite Set homes are longer (up to 80 feet compared to 50 feet in the 1960s)1960's) and wider than earlier models. Many homes have vaulted ceilings, fireplaces and as many as four bedrooms, and closely resemble single family ranch style site-built homes. 7 ITEM 2. PROPERTIES The Company believes that the Properties provide attractive amenities and common facilities that create a comfortable and attractive Community for the residents, with most offering a clubhouse, a swimming pool, laundry facilities and cable television service. Many also offer additional amenities such as sauna/whirlpool spas, golf courses, tennis, shuffleboard and basketball courts and exercise rooms. Since residentresidents own their homes, it is their responsibility to maintain their homes and the surrounding area. It is management's role to insureensure that residents comply with Community policies and to provide maintenance of the common areas, facilities and amenities. The Company holds periodic meetings of its property management personnel for training and implementation of the Company's strategies. The Properties historically have had, and the Company believes they will continue to have, low turnover and high occupancy rates. The distribution of the Properties throughout the United States reflects the Company's belief that geographic diversification helps insulate the portfolio from regional economic influences. The Company intends to target new acquisitions in or near markets where the Properties are located and will also consider acquisitions of properties outside such markets. The Company's five largest markets of Properties owned are Florida (47(49 Properties), California (25 Properties), Arizona (17 Properties), Michigan (11 Properties) and Colorado (10 Properties). These markets accounted for 35%36%, 17%, 9%, 4%3%, and 9%10%, respectively, of the Company's total revenues for the year ended December 31, 2000.2001. The Company also has Properties located in the following markets: Northeast, Northwest, Midwest, and Nevada/Utah/New Mexico. The Company's largest Property, Bay Indies, located in Venice, Florida, accounted for 3% of the Company's total revenues for the year ended December 31, 2000. 72001. 8 8 The following tables set forth certain information relating to the Properties owned by the Company as of December 31, 2000,2001, categorized by the Company's major markets. "Core Portfolio" represents an analysis of Properties owned throughout both years of comparison. The table excludes the following RV resort Properties (3,197(2,687 sites) at which rents and occupancy vary based on seasonality: Sherwood Forest RV (Kissimmee, Florida); Southern Palms (Eustis, Florida); and Fun & Sun (San Benito, Texas). The table excludes five Properties (1,521 sites) in which the Company has a non-controlling joint venture interest and accounts for using the equity method of accounting.
NUMBER MONTHLY MONTHLY OF SITES OCCUPANCY OCCUPANCY BASE RENT BASE RENT LOCATION AS OF AS OF AS OF AS OF AS OF PROPERTY CITY, STATE 12/31/0001 12/31/01 12/31/00 12/31/9901 12/31/00 12/31/99 -------- ---------------------------------- -------- -------- -------- -------- -------- FLORIDA NORTHERN, CENTRAL & EASTERN:--------- --------- --------- --------- ArrowheadFLORIDA NORTHERN, CENTRAL & EASTERN FLORIDA: Maralago Cay Lantana FL 602 96.3% 95.7% 95.5%$417 $405 $388 Brittany Estates Tallahassee FL 299 84.6% 93.6% 97.7% $248 $233$285 $270 Bulow Village FlaglerPlantation FLagler Beach FL 276 99.4%(b) 97.8% (c) 89.9% (c)(b) $258 $244 $238 Carriage Cove Daytona Beach FL 418 97.4% 98.3% 96.9%$399 $370 $335 Colonies of Margate Margate FL 819 96.3% 96.1% $418 $410 Coquina Crossing St Augustine FL (a) 273361 91.1%(b) 86.8% (c) 75.2% (c) $281 $276 Country Side(b) $317 $305 Coral Cay Margate FL 819 93.4% 96.3% $428 $411 Countryside North Vero Beach FL 646 95.7%(b) 95.5% (c) 93.5% (c)(b) $315 $298 $283 Fernwood Deland FL 92 94.6% 95.7% 95.7% $244 $227$260 $250 Grand Island Grand Island FL(a) 309 76.4% $282 Heritage Village Vero Beach FL 436 97.0% 97.2% 97.7%$346 $308 $291 Holiday Village, FL Vero Beach FL 128 78.1% 79.7% 82.0%$286 $281 $268 Indian Oaks Rockledge FL 211 96.2%(b) 94.8% (c) 90.5% (c) $240 $236(b) $243 $234 Lakewood Village Melbourne FL 348349 95.1% 95.7% 94.8%$359 $345 $331Mid-Florida Lakes Leesburg FL 1,226 91.1%(b) 93.2%(b) $325 $313 Oak Bend Ocala FL 262 87.4%(b) 84.4%(b) $250 $239 Pickwick Port Orange FL 432 97.2% 94.9% $310 $296 Sherwood Forest Kissimmee FL 769 96.6%(b) 94.7%(b) $334 $319 Spanish Oaks Ocala FL 459 93.9% 93.7% $301 $281 The Landings Port Orange FL 433 88.9%(b) 89.4% (c) 89.1% (c)(b) $308 $293 $287 Mid-Florida Lakes Leesburg FL 1,226 93.2% (c) 95.4% (c) $313 $305 Oak Bend Ocala FL 262 84.4% (c) 82.1% (c) $239 $226 Pickwick Port Orange FL 432 94.9% 95.1% $296 $287 Sherwood Forest Kissimmee FL 769 94.7% (c) 89.1% (c) $319 $286 Spanish Oaks Ocala FL 459 93.7% 95.9% $297 $282 The Meadows, FL Palm Beach Gardens FL (a) 380 82.6%(b) 81.1% (c) 78.7% (c) $332 $318(b) $331 $314 TAMPA/NAPLES: Bay Indies Venice FL 1,309 98.9% 99.9% 99.8%$323 $314 $304 Bay Lake Estates Nokomis FL 228 96.1% 98.2% 99.6%$370 $354 $348 Boulevard Estates Clearwater FL 297 89.2% 89.6% 89.6% $279 $282$349 $333 Buccaneer N. Ft. Myers FL 971 99.1% 99.3% 99.4%$331 $317 $304 Chalet Village Tampa FL 60 90.0% 88.5% $306 $302 Country Meadows Plant City FL 736 98.8% 98.5% $277 $26790.0% $327 $309 Country Place New Port Richey FL 515 97.9%(b) 90.9% (c) 82.5% (c)(b) $237 $230 $222 Down Yonder Largo FL 361 99.4% 98.9% 98.6% $351 $343$375 $356 East Bay Oaks Largo FL 328 97.3% 97.0% 99.1%$367 $351 $341 Eldorado Village Largo FL 227 96.0% 96.9% 96.0%$370 $356 $343 Friendly Village of Kapok Clearwater FL 236 84.3% 84.7% 85.6% $293 $282 Kapok$349 $341 Hillcrest Clearwater FL 279 84.2% 80.3% 83.2% $326 $320$345 $322 Holiday Ranch Largo FL 150 92.7% 94.0% 94.0%$341 $333 $315 Lake Fairways N. Ft. Myers FL 896 99.1% 99.4% 99.7% $352 $339$364 $348 Lake Haven Dunedin FL 379 92.9% 97.6% 95.8% $394 $363$382 $376 Lakes at Countrywood Plant City FL(a) 421 96.5% $246 Meadows at Countrywood Plant City FL 736 98.9% 98.8% $285 $277 Oaks at Countrywood Plant City FL 168 67.9%(b) 64.9%(b) $248 $231 Pine Lakes N. Ft. Myers FL 584 99.1% 99.8% 100.0%$439 $421 $410 Satellite Clearwater FL 87 90.8% 93.3% $253 $243 Sunset Oaks Plant City FL 168 64.9% (c) 56.3% (c) $231 $21790.8% $302 $292 The Heritage N. Ft. Myers FL 455 83.5%(b) 79.6% (c) 76.7% (c)(b) $306 $290 $282 Windmill Manor Bradenton FL 292 95.9% 96.2% 95.9% $363 $351$357 $340(d) Windmill Village --- Ft. Myers N. Ft. Myers FL 491 98.0% 98.6% 98.6%$310 $297 $291 Myers Windmill Village North Sarasota FL 471 98.5% 99.8% 99.8%$332 $320 $310 Windmill Village South Sarasota FL 306 99.3% 100.0% 100.0%$332 $321 $310------- ----- ------ ------ ------ ------ ---------- ---- TOTAL FLORIDA MARKET 18,33519,154 94.3% 94.7% 93.9% $321 $311$333 $323 ------- ----- ------ ------ ------ ------ ---------- ---- FLORIDA MARKET --- CORE PORTFOLIO 17,68218,424 94.6% 95.1% 94.5% $333 $312$336 $323 ------- ----- ------ ------ ------ ------ ---------- ----
89 9
NUMBER MONTHLY MONTHLY OF SITES OCCUPANCY OCCUPANCY BASE RENT BASE RENT LOCATION AS OF AS OF AS OF AS OF AS OF PROPERTY CITY, STATE 12/31/0001 12/31/01 12/31/00 12/31/9901 12/31/00 12/31/99 -------- ---------------------------------- -------- -------- -------- -------- -------- CALIFORNIA NORTHERN CALIFORNIA:--------- --------- --------- --------- CALIFORNIA NORTHERN CALIFORNIA: California Hawaiian San Jose CA 419 98.1% (c) 99.3% (c)(b) 98.1%(b) $636 $600 $580 Colony Park Ceres CA 186 86.0% 76.9% 71.5%$353 $345 $325 Concord Cascade Pacheco CA 283 98.9% 99.6%98.9% $544 $521 $507 Contempo Marin San Rafael CA 396 98.7% 98.7% $644 $631 $613 Coralwood Modesto CA 194 97.4% 92.8% 92.3%$413 $403 $393 Four Seasons Fresno CA 242 73.6% 71.5% 68.6%$254 $244 $242 Laguna Lake San Luis Obispo CA 290 99.7% 100.0%99.7% $344 $328 $292 Monte del Lago Castroville CA 314 97.8%(b) 99.4% (c) 99.7% (c)(b) $513 $485 $456 Quail Meadows Riverbank CA 146 100.0% 98.6% 92.5%$363 $340 $330 Royal Oaks Visalia CA 149 81.9% 83.2% 80.5% $253 $247$273 $258 DeAnza Santa Cruz Santa Cruz CA 198 99.5% 100.0% 100.0%$526 $514 $491 Sea Oaks Los Osos CA 138125 100.0% 100.0% $349 $344 $335 Sunshadow San Jose CA 121 100.0% 100.0% $605 $583 $561 Westwinds (4 Properties) San Jose CA 723 98.9% 99.9% 99.3%$656 $615 $570 properties) SOUTHERN CALIFORNIA: Date Palm Country Club Cathedral City CA 538 95.9% 93.9% 91.4%$640 $631 $594 Lamplighter Spring Valley CA 270 98.1% 99.6% 99.6%$565 $535 $508 Meadowbrook Santee CA 332 99.1% 99.4% 99.1% $604 $560$603 $590 Rancho Mesa El Cajon CA 158 99.4% 94.9%99.4% $535 $510 $502 Rancho Valley El Cajon CA 140 98.6% 99.3% 98.6% $517 $494$550 $518 Royal Holiday Hemet CA (a) 179 64.2% 72.6% 75.0% $257 $252$277 $259 Santiago Estates Sylmar CA 299 96.0% 94.6% 92.7%$617 $591 $564------- ----- ------ ------ ------ ------ ---------- ---- TOTAL CALIFORNIA MARKET 5,715 94.9% 94.3% $509 $4915,702 95.4% 95.2% $538 $516 ------- ----- ------ ------ ------ ------ ---------- ---- CALIFORNIA MARKET --- CORE PORTFOLIO 5,536 95.7% 94.9% $517 $4795,702 95.4% 95.2% $538 $516 ------- ----- ------ ------ ------ ------ ------
---- ---- ARIZONA Apollo Village Phoenix AZ 237 91.6%(b) 92.8% (c) 92.4% (c)(b) $371 $356 $337 Brentwood Manor Mesa AZ 274 93.8% 94.9% 96.4%$456 $431 $417 Carefree Manor Phoenix AZ 127128 97.7% 99.2% 98.4%$322 $303 $277 Casa del Sol #1 Peoria AZ 246 86.6% 94.7% 94.3%$422 $407 $394 Casa del Sol #2 Glendale AZ 239 94.1% 97.9% 97.9%$455 $438 $423 Casa del Sol #3 Glendale AZ 238 94.1% 96.2% 97.1%$439 $420 $403 Central Park Phoenix AZ 293 95.2% 96.9% 95.9%$386 $373 $355 Desert Skies Phoenix AZ 164 97.6% 97.0% 97.0% $299 $278$317 $293 Fairview Manor Tucson AZ 235 91.1% 92.8% 95.3%$326 $311 $291 Hacienda de Valencia Mesa AZ 365 85.2% 94.2% 93.4%$377 $361 $344 Palm Shadows Glendale AZ 294 90.8% 94.9% 94.9%$355 $336 $326 Sedona Shadows Sedona AZ 200198 91.4% 88.0% 88.0%$327 $306 $293 Sunrise Heights Phoenix AZ 199 90.5% 95.5% 98.0%$358 $347 $327 The Mark Mesa AZ 410 91.7% 95.9% 97.3%$383 $361 $338 The Meadows Tempe AZ 391 92.3% 98.0% 96.7%$439 $416 $399 Whispering Palms Phoenix AZ 116 94.8% 99.1% 100.0% $263 $247$282 $267 ------- ----- ------ ------ ------ ------ ---------- ---- TOTAL ARIZONA MARKET 4,0284,027 91.9% 95.4% 95.7%$385 $367 $350------- ----- ------ ------ ------ ------ ---------- ---- ARIZONA MARKET --- CORE PORTFOLIO 4,0284,027 91.9% 95.4% 95.7%$385 $367 $350------- ----- ------ ------ ------ ------ ---------- ----
910 10
NUMBER MONTHLY MONTHLY OF SITES OCCUPANCY OCCUPANCY BASE RENT BASE RENT LOCATION AS OF AS OF AS OF AS OF AS OF PROPERTY CITY, STATE 12/31/0001 12/31/01 12/31/00 12/31/9901 12/31/00 12/31/99 -------- ---------------------------------- -------- -------- -------- -------- -------- MICHIGAN--------- --------- --------- --------- MICHIGAN Americana Estate Kalamazoo MI 162 88.9% 93.2% 97.5% $262 $254$306 $294 Appletree Walker MI 239 94.1% 96.7% 96.2% $290 $276$334 $318 Brighton Village Brighton MI 197 98.0% 99.0% 97.0% $330 $326$384 $369 College Heights Auburn Hills MI 162 98.8% 98.1% 92.6% $317 $332$392 $372 Creekside Wyoming MI 165 94.5% 97.6% 98.8%$374 $356 $344 Groveland Manor Holly MI 186 89.2% 91.4% 93.0% $320 $317$358 $346 Hillcrest Acres Kalamazoo MI 150 94.0% 96.0% 98.0% $289 $283$319 $307 Metro Romulus MI 227 99.6% 98.7% 96.0% $328 $300$364 $384 Riverview Estates Bay City MI 197 78.2% 76.8% $230 $23378.2% $259 $249 South Lyon Woods South Lyon MI 211 98.6% 98.1% 98.1% $417 $401 Willow Run$455 $439 Timberland Ypsilianti MI 185 91.9% 91.4% 89.2% $272 $281$343 $332 ------- ----- ---- ---------- ---- ---- TOTAL MICHIGAN MARKET 2,081 93.4% 94.4% 93.9% $315 $306$359 $344 ------- ----- ---- ---------- ---- ---- MICHIGAN MARKET --- CORE PORTFOLIO 2,081 93.4% 94.4% 93.9% $315 $306$359 $344 ------- ----- ------ ---- ---- ---- ----
COLORADO Bear Creek Sheridan CO 124 97.6% 100.0% 100.0%$409 $385 $366 Cimarron Broomfield CO 327 98.2% 99.1% 98.8%$417 $391 $368 Golden Terrace Golden CO 264265 98.6% 99.2% 98.5%$464 $431 $414 Golden Terrace South Golden CO 80 96.3% 100.0% 96.3%$441 $407 $381 Golden Terrace West Golden CO 316 98.1% 100.0% 96.2%$454 $424 $408 Hillcrest Village Aurora CO 602 95.5% 96.3% 96.0%$445 $422 $400 Holiday Hills Denver CO 734737 95.4% 97.1% 95.0%$437 $412 $390 Holiday Village Co. Springs CO 240 96.7% 96.3% 98.8%$427 $403 $384 Pueblo Grande Pueblo CO 252 96.8% 94.4%96.8% $281 $265 $253 Woodland Hills Denver CO 434 97.9% 98.6% 97.9%$418 $390 $375------- ----- ---- ---------- ---- ---- TOTAL COLORADO MARKET 3,3733,377 96.8% 97.9% 96.7%$424 $399 $380------- ----- ---- ---------- ---- ---- COLORADO MARKET --- CORE PORTFOLIO 3,3733,377 96.8% 97.9% 96.7%$424 $399 $380------- ----- ------ ---- ---- ---- ----
NORTHEAST Aspen Meadows Rehoboth DE 199200 99.5% 100.0% 98.0%$262 $250 $228 Camelot AcresMeadows Rehoboth DE 319 99.9% 100.0% 99.4% $380 $363$265 $252 Mariners Cove Millsboro DE 375 89.3%(b) 88.5% (c) 85.6% (c)(b) $381 $356 $336 McNicol Rehoboth DE 93 98.9% 97.8% 100.0%$258 $248 $240 Sweetbriar Rehoboth DE 142 98.6% 100.0% 99.3% $208 $189$199 $187 Waterford Estates Bear DE 731 97.4%(b) 96.9% (c) 93.8% (c)(b) $398 $379 $360 Whispering Pines Lewes DE 392393 95.2% 96.9% 93.6%$269 $258 $245 Pheasant Ridge Mt. Airy MD 101 97.0% 99.0% 99.0%$453 $424 $407 Brook Gardens Lackawanna NY 424 96.5% 97.2% 97.7%$435 $423 $400 Greenwood Village Manorville NY 474486 99.4%(b) 97.3% (c) 92.0% (c)(b) $389 $366 $361 Green Acres Breinigsville PA 595 96.1% 97.3% 98.8%$420 $408 $386 Meadows of Chantilly Chantilly VA 500 96.6% 92.0% 83.0%$512 $493 $483 Independence Hill Morgantown WV 203 88.2% 90.1% 87.2%$214 $204 $194------- ----- ---- ---------- ---- ---- TOTAL NORTHEAST MARKET 4,5484,562 96.3% 96.0% 93.5% $365 $ 339$372 $355 ------- ----- ---- ---------- ---- ---- NORTHEAST MARKET --- CORE PORTFOLIO 4,5484,562 96.3% 96.0% 93.5% $365 $339$372 $355 ------- ----- ---- ---------- ---- ----
1011 11
NUMBER MONTHLY MONTHLY OF SITES OCCUPANCY OCCUPANCY BASE RENT BASE RENT LOCATION AS OF AS OF AS OF AS OF AS OF PROPERTY CITY, STATE 12/31/0001 12/31/01 12/31/00 12/31/9901 12/31/00 12/31/99 -------- ---------------------------------- -------- -------- -------- -------- -------- MIDWEST--------- --------- --------- --------- MIDWEST Five Seasons Cedar Rapids IA 390 79.0%(b) 79.7% (c) 81.5% (c) $240(b) $253 $240 Holiday Village, IA SiouxSoux City IA 519 80.5% 87.7% 92.1%$248 $241 $228 Golf Vista Estates Monee IL 319371 88.4%(b) 90.6% (c) 77.1% (c)(b) $387 $344 $319 Willow Lake Estates Elgin IL 617 96.8% 97.4% 96.3%$624 $583 $546 Burns Harbor Estates Chesterton IN 227 83.7% 89.0% 93.4%$305 $287 $282 Candlelight Village Columbus IN 585 99.5% 99.1% $207 $195 Oak Tree Village Portage IN 379 90.0% 93.1% 94.5%$302 $283 $267 Windsong Indianapolis IN 268 84.0% 91.4% 97.0% $267 $257 Bonner Springs Bonner Springs KS 211 91.9% 93.4% $216 $202 Carriage Park Kansas City KS 143 76.9% (d) 74.1% (d) $208 $196 Quivira Hills Kansas City KS 142 86.6% 82.4% $245 $226$292 $277 Camelot Acres Burnsville MN 302 99.8% 99.3% 99.7% $241 $239 Briarwood Brookline MO 166 90.4% 92.2% $195 $175 Dellwood Estates Warrensburg MO 136 81.6% 86.0% $168 $156 North Star Kansas City MO 219 96.3% 95.9% $261 $244$417 $390 Royal Village Toledo OH 233 90.1% 89.3% 92.3% $268 $258 Rockwood Tulsa OK 264 98.5% 98.5% $230 $218$319 $300 ------- ----- ---- ---------- ---- ---- TOTAL MIDWEST MARKET 5,1203,306 88.3% 91.9% 92.2% $287 $282$377 $350 ------- ----- ---- ---------- ---- ---- MIDWEST MARKET --- CORE PORTFOLIO 5,1203,306 88.3% 91.9% 92.2% $287 $282$377 $350 ------- ----- ------ ---- ---- ---- ----
NEVADA, UTAH, NEW MEXICO Del Rey Albuquerque NM 407 84.5% 90.9% 83.8% $316 $350$328 $328 Bonanza Las Vegas NV 353 75.9% 81.6% 91.8% $440 $441$465 $465 Boulder Cascade Las Vegas NV 299298 86.9% 89.3% 93.3% $457 $443$417 $394 Cabana Las Vegas NV 263 97.3% 98.9% 99.6%$432 $415 $392 Flamingo West Las Vegas NV 258 84.1%(b) 80.2% (c) 100.0% (c)(b) $430 $406 $403 Villa Borega Las Vegas NV 293 91.1% 95.9% 98.3% $451 $443$421 $402(d) All Seasons Salt Lake City UT 121 98.3% 97.5% 97.5%$328 $315 $292 Westwood Village Farr West UT 314 96.5%(b) 95.2% (c) 98.7% (c) $230 $218(b) $237 $232 ------- ----- ---- ---------- ---- ---- TOTAL NEVADA, UTAH, NEW MEXICO MARKET 2,3082,307 88.1% 90.6% 94.0% $384 $376$380 $369 ------- ----- ---- ---------- ---- ---- NEVADA, UTAH, NEW MEXICO MARKET --- CORE PORTFOLIO 2,3082,307 88.1% 90.6% 94.0% $384 $376$380 $369 ------- ----- ------ ---- ---- ---- ----
NORTHWEST Casa Village Billings MT 491 92.3% 98.0% 97.0%$282 $272 $262 Falcon Wood Village Eugene OR 183 98.9% 98.4% 99.5%$363 $345 $329 Quail Hollow Fairview OR 138137 97.8% 98.6% 99.3% $409 $408$442 $426 Shadowbrook Clackamas OR 156 98.7% 99.4% 100.0%$444 $429 $417 Kloshe Illahee Federal Way WA 258 99.6% 99.2% 99.6%$478 $454 $433------- ----- ---- ---------- ---- ---- TOTAL NORTHWEST MARKET 1,2261,225 96.3% 98.5% 98.4% $356 $345$376 $359 ------- ----- ---- ---------- ---- ---- NORTHWEST MARKET --- CORE PORTFOLIO 1,2261,225 96.3% 98.5% 98.4% $356 $345$376 $359 ------- ----- ---- ---------- ---- ---- GRAND TOTAL ALL MARKETS 46,73445,741 93.6% 94.7% 94.2% $356 $343$388 $367 ======= ===== ====== ==== ==== ==== ==== GRAND TOTAL ALL MARKETS --- CORE PORTFOLIO 45,90245,011 93.9%(c) 94.9% (e) 94.2% (e) $357 $344(c) $384 $367 ======= ===== ====== ==== ==== ==== ====
- --------------- (a) Represents a Property that is not part of the Core Portfolio. (c)(b) The process of filling Expansion Sites at these Properties is ongoing. A decrease in occupancy may reflect development of additional Expansion Sites. (d) Carriage Park suffered damage to approximately 85 homes in 1993 due to flooding; the process of re-leasing these sites is ongoing. (e)(c) Changes in total portfolio occupancy include the impact of acquisitions and expansion programs and are therefore not comparable. (d) During 2001, at certain Properties the amounts charged to residents for utilities were separated ("Unbundled") from their rent charges and recorded as utility income. For comparison purposes an adjustment was made to base rental income for 2000. This adjustment is reflected on this table in the monthly base rent per site amounts for 2000. See Management's Discussion and Analysis of Financial Condition and Results of Operations. 1112 12 ITEM 3. LEGAL PROCEEDINGS DEANZA SANTA CRUZ MOBILE ESTATES The residents of DeAnza Santa Cruz Mobile Estates, a property located in Santa Cruz, California (the "City") previously brought several actions opposing certain fees and charges in connection with water service at the Property. The trial of the ongoing utility charge dispute with the residents of this Property concluded on January 22, 1999. This summary provides the history and reasoning underlying the Company's defense of the residents' claims and explains the Company's decision to continue to defend its position, which the Company believes is fair and accurate. DeAnza Santa Cruz Mobile Estates is a 198 site community198-site Community overlooking the Pacific Ocean. It is subject to the City's rent control ordinance which limits annual rent increases to 75% of CPI. The Company purchased this Property in August 1994 from certain unaffiliated DeAnza entities ("DeAnza"). Prior to the Company's purchase in 1994, DeAnza made the decision to submeter and separately bill tenants at the Property for both water and sewer in 1993 in the face of the City's rapidly rising utility costs. Under California Civil Code Section 798.41, DeAnza was required to reduce rent by an amount equal to the average cost of usage over the preceding 12 months. This was done. With respect to water charges, because DeAnza did not lookingwant to submit to jurisdiction ofbe regulated by the California Public Utility Commission ("CPUC"), DeAnza relied on California Public Utilities Code Section 2705.5 ("CPUC Section 2705.5") to determine what rates would be charged for water on an ongoing basis without becoming a public utility. DeAnza and the Company interpreted the statute as providing that in a submetered mobile home park, the property owner is not subject to regulation and control of the CPUC so long as the users are charged what they would be charged by the utility company if users received their water directly from the utility company. In Santa Cruz, customers receiving their water directly from the city'sCity's water utility were charged a certain lifeline rate for the first 400 ccfs of water and a greater rate for usage over 400 ccfs of water, a readiness to serve charge of $7.80 per month and tax on the total. In reliance on CPUC Section 2705.5, DeAnza implemented its billings on this schedule notwithstanding that it did not receive the discount for the first 400 ccfs of water because it was a commercial and not a residential customer. A dispute with the residents ensued over the readiness to serve charge and tax thereon. The residents argued that California Civil Code Section 798.41 required that the Property owner could only pass through its actual costs of water (and that the excess charges over the amount of the rent rollback were an improper rent increase) and that CPUC Section 2705.5 was not applicable. DeAnza unbundled the utility charges from rent consistent with California Civil Code Section 798.41 and it has generally been undisputed that the rent rollback was accurately calculated. In August 1994, when the Company acquired the Property, the Company reviewed the respective legal positions of the Santa Cruz Homeowners Association ("HOA") and DeAnza and concurred with DeAnza. TheirDeAnza's reliance on CPUC Section 2705.5 made both legal and practical sense in that residents paid only what they would pay if they lived in a residential neighborhood within the City and permitted DeAnza to recoup part of the expenses of operating a submetered system through the readiness to serve charge. Over a period of 18 months from 1993 into May of 1995, a series of complaints were filed by the HOA and Herbert Rossman, a resident, against DeAnza, and later, the Company. DeAnza and the Company demurred to each of these complaints on the grounds that the CPUC had exclusive jurisdiction over the setting of water rates and that residents under rent control had to first exhaust their administrative remedies before proceeding in a civil action. At one point, the case was dismissed (with leave to amend) on the basis that jurisdiction was with the CPUC and, at another point, Mr. Rossman was dismissed from the case because he had not exhausted his administrative remedies. On June 29, 1995, a hearing was held before a Santa CruzCity rent control officer on billing and submetering issues related to both water and sewer. The Company and DeAnza prevailed on all issues related to sewer and the rent rollback related to water, but the hearing officer determined that the Company could only pass through its actual cost of water, i.e., a prorated readiness to serve charge and tax thereon. The hearing officer did not deal with the subsidy being given to residents through the quantity charge and ordered a rebate in a fixed amount per resident. The Company and DeAnza requested reconsideration on this issue, among others, which reconsideration was denied by the hearing officer. 13 The Company then took a writ of mandate (an appeal from an administrative order) to the Superior Court and, pending this appeal, the residents, the Company and the City agreed to stay the effect of the hearing officer's decision until the Court rendered judgment. In July 1996, the Superior Court affirmed the hearing officer's decision without addressing concerns about the failure to take the subsidy on the quantity charge into account. 12 13 The Company requested that the City and the HOA agree to a further stay pending appeal to the court of appeal, but they refused and the appeal court denied the Company's request for a stay in late November 1996. Therefore, on January 1, 1997, the Company reduced its water charges at this Property to reflect a pass-through of only the readiness to serve charge and tax at the master meter (approximately $0.73) and to eliminate the subsidy on the water charges. On their March 1, 1997 rent billings, residents were credited for amounts previously "overcharged" for readiness to serve charge and tax. The amount of the rebate given by the Company and DeAnza was $36,400. In calculating the rebate, the Company and DeAnza took into account the previous subsidy on water usage although this issue had not yet been decided by the court of appeal. The Company and DeAnza felt legally safe in so doing based on language in the hearing officer's decision that actual costs could be passed through. On March 12, 1997, the Company also filed an application with the CPUC to dedicate the water system at this Property to public use and have the CPUC set cost-based rates for water usage. The Company believed it was obligated to take this action because of its consistent reliance on CPUC Section 2705.5 as a safe harbor from CPUC jurisdiction. That is, when the Company could no longer charge for water as the local serving utility would charge, it was no longer exempt from the CPUC's jurisdiction and control under CPUC Section 2705.5. On March 20, 1997,1998, the court of appeal issued the writ of mandate requested by the Company on the grounds that the hearing officer had improperly calculated the amount of the rebate (meaning the Company had correctly calculated the rent credits), but also ruling that the hearing officer was correct when he found that the readiness to serve charge and tax thereon as charged by DeAnza and the Company were an inappropriate rent increase. The decision primarily reflected the court of appeal's view that CPUC Section 2705.5 operated as a ceiling and that California Civil Code Section 798.41 allowed for a charge based on actual costs, including costs of administration, operation and maintenance of the system, but that the Company had not to provide evidence of such costs. The court of appeal further agreed with the Company that the City's hearing officer did not have the authority under California Civil Code Section 798.41 to establish rates that could be charged in the future. Following this decision, the CPUC granted the Company its certificate of convenience and necessity on December 17, 1998 and approved cost-based rates and charges for water that exceed what residents were paying under the Company's reliance on CPUC Section 2705.5. Concurrently, the CPUC also issued an Order Instituting Investigation ("OII") confirming its exclusive jurisdiction over the issue of water rates in a submetered system and commencing an investigation into the confusion and turmoil over billings in submetered properties. Specifically, the OII states: "The Commission has exclusive and primary jurisdiction over the establishment of rates for water and sewer services provided by private entities." Specifically, the CPUC ruling regarding the Company's application stated: "The ultimate question of what fees and charges may or may not be assessed, beyond external supplier pass-through charges, for in-park facilities when a mobile home park does not adhere to the provisions of CPUC Section 2705.5, must be decided by the Commission." After the court of appeal decision, the HOA brought all of its members back into the underlying civil action for the purpose of determining damages, including punitive damages, against the Company. The trial was continued from July 1998 to January 1999 to give the CPUC time to act on the Company's application. Notwithstanding the action taken by the CPUC in issuing the OII in December 1998, the trial court denied the Company's motion to dismiss on jurisdictional grounds and trial commenced before a jury on January 11, 1999. Not only did the trial court not consider the Company's motion to dismiss, the trial court refused to allow evidence of the OII or the Company's CPUC approval to go before the jury. Notwithstanding the Company's strenuous objections, the judge also allowed evidence of the Company's and DeAnza's litigation tactics to be used as evidence of bad faith and oppressive actions (including evidence of the application to the CPUC requesting a $22.00 readiness to serve charge). The Company's motion for a mistrial based upon these evidentiary rulings was denied. On January 22, 1999, the jury returned a verdict awarding $6.0 million of punitive damages against the Company and DeAnza. The Company had previously agreed to indemnify DeAnza on the matter. 14 On April 19, 1999, the trial court denied all of the Company's and DeAnza's post-trial motions for judgement notwithstanding the verdict, new trial and remittur. The trial court also awarded $700,000 of attorneys' fees to plaintiffs. The Company hasappealed the jury verdict and attorneys' fees award (which also accrues interest at the statutory rate of 10.0% per annum). The Company bonded the judgment pending appeal in accordance with California procedural rules, which require a bond equal to 150% of the amount of the judgment. Post-judgment interest will accrue at the statutory rate of 10.0% per annum. On April 19, 1999,December 21, 2001 the trial court denied allCalifornia Court of Appeal for the Company's and DeAnza's post-trial motions for judgement notwithstandingSixth District reversed the verdict, new trial and remittitur. The trial court also awarded $700,000$6.0 million punitive damage award, the related award of attorneys' fees, and, as a result, all post-judgement interest thereon, on the basis that punitive damages are not available as a remedy for a statutory violation of the MRL. The decision of the appellate court left the HOA with the right to plaintiffs. The Company has appealedseek a new trial in which it must prove its entitlement to either the jury verdictstatutory penalty and attorneys' fees award (which also accrues interest atavailable under the MRL or punitive damages based on causes of action for fraud, misrepresentation or other tort. The HOA has filed in Superior Court, seeking statutory rate of 10.0% per annum)penalties and the appeal has been fully briefed by both parties.attorneys' fees, which may be heard in late March, 2002. The Company is awaiting notice of scheduling of oral argument on the appeal. 13 14intends to vigorously defend itself against these claims. In two related appeals, the Company had argued that the trial court's ability to enter an award of attorneys' fees in favor of the HOA and to take certain other actions was preempted by the exercise of exclusive jurisdiction by the CPUC over the issue of how to set rates for water in a submetered mobile home park. During 2000, the California court of appeal rejected the Company's preemption argument with respect to these prior rulings in favor of plaintiffs, one of which had awarded plaintiffs approximately $100,000 of attorneys' fees. The California Supreme Court declined to accept the case for review and the Company paid the judgment, including post-judgment interest thereon, and settled the matter for approximately $200,000 late in 2000. The jury verdict appeal also raisesIn a similar jurisdictional argument as well as several other arguments for reversal or reduction of the punitive damage award or for a new trial. An important distinction between the appellate ruling in 2000 and the preemption issue as it is presented on appeal in the jury verdict case is that the preemption argument rejected was "retroactive" while the preemption issue remaining on appeal is prospective. One of the other arguments raised by the Company in the jury verdict appeal is that punitive damages are not available in a case brought under Section 798.41 of the California Mobilehome Residency Law ("MRL") since the MRL contains its own penalty provisions. Although no assurances can be given, the Company believes the appeal will be successful. Subsequently,separate matter, in December 2000 the HOA and certain individual residents of the Property filed a complaint in the Superior Court of California, County of Santa Cruz (No. CV 139825) against the Company, certain affiliates of the Company and certain employees of the Company. The new lawsuit seeks damages, including punitive damages, for intentional infliction of emotional distress, unfair business practices, and unlawful retaliation purportedly arising from allegedly retaliatory rent increases which were noticed by the Company to certain residents in September 2000. The Company believes that the residents who received rent increase notices with respect to rent increases above those permitted by the local rent control ordinance were not covered by the ordinance either because they did not comply with the provisions of the ordinance or because they are exempted by state law. On December 29, 2000, the Superior Court of California, County of Santa Cruz enjoined such rent increases. The Company intends to vigorously defend the matter, which may go to trial in the summer of 2001.2002. ELLENBURG COMMUNITIES The Company and certain other parties entered into a settlement agreement ("the Settlement"), which was approved by the courtLos Angeles County Superior Court in April 2000. The settlementSettlement resolved substantially all of the litigation and appeals involving the Ellenburg Properties, and transactions arising out of the settlement closed on May 22, 2000 (see Note 5). Only the appeals of the two entities remain, neither of which is expected to materially affect the Company. In connection with the Ellenburg Acquisition, on September 8, 1999, Ellenburg Fund 20 ("Fund 20") filed a cross complaint in the Ellenburg dissolution proceeding against the Company and certain of its affiliates alleging causes of action for fraud and other claims in connection with the Ellenburg acquisition. The Company subsequently successfully had the cross complaint against the Company and its affiliates dismissed with prejudice by the California Superior Court. However, Fund 20 has appealed. This appeal was one not resolved by the Settlement. The Company believes Fund 20's allegations are without merit and will vigorously defend itself. In October 2001, Fund 20 sued the Company and certain of its affiliates again, this time in Almeda County, California making substantially the same allegations. The Company obtained an injunction preventing the case from proceeding until the Fund 20 appeal is decided and other related proceedings in Arizona (from which the Company has already been dismissed with prejudice) are concluded. 15 CANDLELIGHT PROPERTIES, L.L.C In 1996, 1997 and 1998, the Lending Partnership made loans to Candlelight Properties, L.L.C. ("Borrower") in the aggregate principal amount of $8,050,000 (collectively, the "Loan". The Loan iswas secured by a mortgage on Candlelight Village ("Candlelight"), a Property in Columbus, Indiana, and iswas guaranteed by Ronald E. Farren, ("Farren"), the 99% owner of Borrower. The Company accountsaccounted for the Loan as an investment in real estate and, accordingly, Candlelight's results of operations are consolidatedrental revenues and operating costs were included with the Company's rental revenues and operating costs for financial reporting purposes. Concurrently with the funding of the Loan, Borrower granted the Operating Partnership the option to acquire Candlelight upon the maturity of the Loan. The Operating Partnership notified Borrower that it was exercising its option to acquire Candlelight in March 1999, and the Loan subsequently matured on May 3, 1999. However, Borrower failed to repay the Loan and refused to convey Candlelight to the Operating Partnership. Borrower filed suit in the Circuit Court of Bartholomew County, Indiana ("Court") on May 5, 1999, seeking declaratory judgment on the validity of the exercise of the option. The Lending Partnership filed suit in the Court the next day, seeking to foreclose its mortgage, and the suits were consolidated (collectively, the "State Court Litigation") by the Court. The Court issued an Order on December 1, 1999, finding, among other things, thatOn September 20, 2001, the Operating Partnership had validly exercised the option. Both parties filed motionsentered into a settlement agreement providing for a cash payment of $10.8 million to correct errors in the Order, and on May 15, 2000, the Court issued judgments against Borrower and Farren and in favor of the Operating Partnership in the option case and the Lending Partnership inand dismissal with prejudice of all litigation among the foreclosure case. Borrowerparties and Farren appealed both judgments, andtheir affiliates, among other terms. The closing under the Court has stayedSettlement Agreement occurred on October 5, 2001. The Company accounted for the judgments pending such appeals.Settlement as a disposition of the property. WESTWINDS The Operating Partnership is the ground lessee ("Lessee") of certain property in San Jose, California under ground leases ("Leases") from the Nicholson Family Trust ("Lessor"). On February 13, 2001, Lessor filed a petition for arbitration of disputes over whether certain items constitute "gross revenue" under the Leases in which petition Lessor seeks damages and the Lending Partnership intend to continue vigorously pursuing this matter and believe that, while no assurance can be given, such efforts will be successful. 14 15 On May 3, 2000, Hanover Group, Inc. ("Hanover") and Farren filed suit against the Company and certain executive and senior officerstermination of the CompanyLeases. Lessee responded on March 12, 2001 disputing Lessor's contentions. Lessor claims that "gross revenue" for the purpose of calculating percentage rent owing to Lessor under the ground leases includes certain amounts Lessee has recouped from tenants of the Property (who are protected by rent control) related to ground rent already paid to Lessor. Lessee has successfully been able to pass-through to tenants at the property increases in ground rent under the Leases. Lessee contends that this pass-through results in reimbursement of lease expense, not "gross revenue." Lessor also contends that the "net income" of RSI. from the Property should be included in the United States District Courtgross revenue calculation. Lessee disputes this for Southern District of Indiana, Indianapolis Division. The complaint alleges violations of securities lawsmany reasons, including, but not limited to, the fact that RSI is not a lessee under the Leases, the sales activity is not conducted by Lessee, and fraud arisingRSI is a separate company from the loan transaction being litigated in the State Court Litigation and seeks damages, including treble damages. The Company believes that the complaint is related to rulings made by the Court and is without merit. The Company has filed aLessee. Lessor's motion for summary judgment on the pleadings (which has been fully briefed),pass-through issue was denied by an arbitration panel on November 2, 2001. Lessor and will continue to vigorously defend itself and the officers of the Company. On May 24, 2000, Hanover and Farren filed suit against the Operating Partnership in the Superior Court of Marion County, Indiana. The complaint seeks declaratory relief and specific performance with respect to the Operating Partnership's alleged obligation to reconvey to Hanover the Operating Partnership's 1% ownership interest in Borrower. The Company believes that the complaint is related to rulings made by the Court and is without merit. The partiesLessee have agreed to a staymediate the dispute prior to arbitration. The Company does not believe that the amounts in this proceeding pendingquestion are material even if resolved against the outcomeLessee and, based upon advice of counsel, does not believe that the appealsLessor will be successful in terminating the State Court Litigation.Leases. OTHER The Company is involved in various other legal proceedings arising in the ordinary course of business. Management believes that all proceedings herein described or referred to, taken together, are not expected to have a material adverse impact on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 1516 16 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The following table sets forth for the period indicated, the high and low sales prices for the Company's common stock as reported by theThe New York Stock Exchange under the trading symbol MHC.
Distributions Return of Capital Close High Low MadeDISTRIBUTIONS RETURN OF CAPITAL CLOSE HIGH LOW MADE GAAP Basis (a) ----- ---- --- ---- --------------BASIS(A) -------- -------- -------- ------------- ----------------- 2001 1st Quarter $27.0000 $28.7500 $25.8800 $ .4450 $ .00 2nd Quarter 28.1000 28.2000 26.4800 .4450 .16 3rd Quarter 30.4200 30.4200 28.0500 .4450 .16 4th Quarter 31.2100 31.6400 30.0000 .4450 .11 2000 1st Quarter $23.1250 $25.7500 $22.2500 $.4150 $.14$ .4150 $ .14 2nd Quarter 23.9375 25.7500 23.0625 .4150 .00 3rd Quarter 25.0000 25.2500 23.5000 .4150 .17 4th Quarter 29.0000 29.1250 24.3125 .4150 .12 1999 1st Quarter $24.0000 $25.5000 $21.8125 $.3875 $.08 2nd Quarter 26.0000 27.0000 22.3750 .3875 .12 3rd Quarter 23.3750 26.0625 23.0000 .3875 .12 4th Quarter 24.3125 24.5000 22.5625 .3875 .15
(a) Represents distributions per share in excess of net income per share-basic on a GAAP basis and is not the same as return of capital on a tax basis. The number of beneficial holders of the Company's common stock at December 31, 20002001 was approximately 5,500. 164,400. 17 17MANUFACTURED HOME COMMUNITIES, INC. CONSOLIDATED HISTORICAL FINANCIAL INFORMATION (AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AND PROPERTY DATA) ITEM 6. SELECTED FINANCIAL AND OPERATING INFORMATION The following table sets forth selected financial and operating information on a historical basis for the Company. The following information should be read in conjunction with all of the financial statements and notes thereto included elsewhere in this Form 10-K. The historical operating data for the years ended December 31, 2001, 2000, 1999, 1998 1997 and 19961997 have been derived from the historical Financial Statements of the Company audited by Ernst & Young LLP, independent auditors. MANUFACTURED HOME COMMUNITIES, INC. CONSOLIDATED HISTORICAL FINANCIAL INFORMATION (Amounts in thousands, except for per share and property data)
OPERATING DATA: (1) YEARS ENDED DECEMBER 31, ------------------------------------------------------------------------------------------ 2001 2000 1999 1998 1997 1996 ---- ---- ---- ---- -------------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) OPERATING DATA: REVENUES Base rental income...................................income........................................... $195,644 $189,481 $181,672 $165,340 $108,984 $93,109 RV base rental income................................income........................................ 5,748 7,414 9,526 7,153 --- ----- Utility and other income.............................income..................................... 22,014 20,366 20,096 18,219 11,785 8,821 Equity in income of affiliates.......................affiliates............................... 1,811 2,408 2,065 1,070 800 853 Interest income......................................income.............................................. 639 1,009 1,669 3,048 1,941 2,420 -------- -------- -------- -------- --------------- Total revenues....................................revenues............................................. 225,856 220,678 215,028 194,830 123,510 105,203 -------- -------- -------- -------- --------------- EXPENSES Property operating and maintenance...................maintenance........................... 62,008 59,199 58,038 53,064 32,343 28,399 Real estate taxes....................................taxes............................................ 17,420 16,888 16,460 14,470 8,352 7,947 Property management..................................management.......................................... 8,984 8,690 8,337 7,108 5,079 4,338 General and administrative...........................administrative................................... 6,687 6,423 6,092 5,411 4,559 4,062 Interest and related amortization....................amortization............................ 51,305 53,280 53,775 49,693 21,753 17,782 Depreciation on corporate assets.....................assets............................. 1,243 1,139 1,005 995 590 488 Depreciation on real estate assets and other costs...costs........... 34,833 34,411 34,486 28,426 17,365 15,244 -------- -------- -------- -------- --------------- Total expenses....................................expenses............................................. 182,480 180,030 178,193 159,167 90,041 78,260 -------- -------- -------- -------- --------------- Income from operations...............................operations....................................... 43,376 40,648 36,835 35,663 33,469 26,943 Gain on sale of property and other...................other........................... 8,168 12,053 --- --- --- ----- -- -- -------- -------- -------- -------- --------------- Income before allocation to minority interests and extraordinary loss on early extinguishment of debtdebt..... 51,544 52,701 36,835 35,663 33,469 26,943 (Income) allocated to Common OP Units................Units........................ (8,209) (8,463) (6,219) (6,733) (4,373) (2,671) (Income) allocated to Perpetual Preferred OP Units...Units........... (11,252) (11,252) (2,844) --- --- ----- -- -------- -------- -------- -------- --------------- Income before extraordinary loss on early extinguishment of debt............................debt..................................... 32,083 32,986 27,772 28,930 29,096 24,272 Extraordinary loss on early extinguishment of debt (net of $264 and $105 allocated to minority interests)....................................................................... -- (1,041) --- ----- -- (451) --- -------- -------- -------- -------- --------------- NET INCOME........................................ $31,945 $27,772 $28,930 $28,645 $24,272 ======= ======= ======= ======= =======INCOME................................................. $ 32,083 $ 31,945 $ 27,772 $ 28,930 $ 28,645 ======== ======== ======== ======== ======== Net income per Common Share before extraordinary item - basic ............................................. $1.54 $1.10 $1.13 $1.18 $0.98 ======= ======= ======= ======= =======-- basic.............................................. $ 1.53 $ 1.54 $ 1.10 $ 1.13 $ 1.18 ======== ======== ======== ======== ======== Net income per Common Share before extraordinary item --- diluted............................................ $1.51 $1.09 $1.12 $1.16 $0.98 ======= ======= ======= ======= =======$ 1.49 $ 1.51 $ 1.09 $ 1.12 $ 1.16 ======== ======== ======== ======== ======== Net income per Common Share - basic.................. $1.49 $1.10 $1.13 $1.16 $0.98 ======= ======= ======= ======= =======-- basic......................... $ 1.53 $ 1.49 $ 1.10 $ 1.13 $ 1.16 ======== ======== ======== ======== ======== Net income per Common Share - diluted................ $1.46 $1.09 $1.12 $1.15 $0.98 ======= ======= ======= ======= =======-- diluted....................... $ 1.49 $ 1.46 $ 1.09 $ 1.12 $ 1.15 ======== ======== ======== ======== ======== Dividend declared per Common Share................... $1.66 $1.55 $1.45 $1.32 $1.22 ======= ======= ======= ======= =======Share........................... $ 1.78 $ 1.66 $ 1.55 $ 1.45 $ 1.32 ======== ======== ======== ======== ======== Weighted average Common Shares outstanding - basic...-- basic.......... 21,036 21,469 25,224 25,626 24,689 24,693 Weighted average Common OP Units outstanding.........outstanding................. 5,466 5,592 5,704 5,955 3,749 2,715 Weighted average Common Shares outstanding - diluted.-- diluted........ 27,010 27,408 31,252 31,962 28,762 27,546
1718 18 MANUFACTURED HOME COMMUNITIES, INC. CONSOLIDATED HISTORICAL FINANCIAL INFORMATION (continued) (Amounts in thousands, except for per share and property data)(CONTINUED) (AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AND PROPERTY DATA)
BALANCE SHEET DATA: (1) AS OF DECEMBER 31, ---------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 1996 ---- ---- ---- ---- --------------- ----------- ----------- ----------- ---------- BALANCE SHEET DATA: Real estate, before accumulated depreciation (2).....depreciation(2)... $1,238,138 $1,218,176 $1,264,343 $1,237,431 $936,318 $597,650$ 936,318 Total assets.........................................assets...................................... 1,099,963 1,104,304 1,160,338 1,176,841 864,365 567,874 Total mortgages and loans............................ 764,938loans......................... 708,857 719,684 725,264 750,849 495,172 254,982 Minority interests...................................interests................................ 171,147 171,271 179,397 70,468 67,453 28,640 Stockholders' equity.................................equity.............................. 175,150 168,095 211,401 310,441 280,575 257,952 OTHER DATA: Funds from operations (3)............................ $63,807 $68,477 $64,089 $50,834 $42,187operations(3).......................... $ 66,957 $ 63,807 $ 68,477 $ 64,089 $ 50,834 Net cash flow: Operating activities.............................. $68,001 $72,580 $71,977 $54,581 $49,660activities........................... $ 80,708 $ 68,001 $ 72,580 $ 71,977 $ 54,581 Investing activities.............................. $23,102 $(37,868) $(262,762)activities........................... $ (23,067) $ 23,102 $ (37,868) $ (262,762) $(239,445) $(60,954) Financing activities.............................. $(94,932) $(41,693) $203,533 $185,449 $10,858activities........................... $ (59,134) $ (94,932) $ (41,693) $ 203,533 $ 185,449 Total Properties (at end of period)(4).......................... 148 154 157 154 121 69 Total sites (at end of period)........................................... 50,761 51,452 54,007 53,39154,002 53,009 44,108 27,356 Total sites (weighted average)(5).................................... 46,243 46,964 46,914 43,932 29,323 26,621
- --------------- (1) See the Consolidated Financial Statements of the Company included elsewhere herein. (2) The Company believes that the book value of the Properties, which reflects the historical costs of such real estate assets less accumulated depreciation, is less than the current market value of the Properties. (3) The Company generally considers Funds From Operations ("FFO") to be an appropriate measure of the performance of an equity Real Estate Investment Trust ("REIT"). FFO was redefined by the National Association of Real Estate Investment Trusts ("NAREIT") in October 1999, effective January 1, 2000, as net income (computed in accordance with generally accepted accounting principles ["GAAP"]), before allocation to minority interests, excluding gains (or losses) from sales of property, plus real estate depreciation and after adjustments for unconsolidated partnerships and joint ventures. For purposes of presenting FFO, the revised definition of FFO has been given retroactive treatment. The Company believes that FFO is helpful to investors as a measure of the performance of an equity REIT because, along with cash flows from operating activities, financing activities and investing activities, it provides investors an understanding of the ability of the Company to incur and service debt and to make capital expenditures. The Company computes FFO in accordance with the NAREIT definition which may differ from the methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be comparable to such other REITs computations. FFO in and of itself does not represent cash generated from operating activities in accordance with GAAP and therefore should not be considered an alternative to net income as an indication of the Company's performance or to net cash flows from operating activities as determined by GAAP as a measure of liquidity and is not necessarily indicative of cash available to fund cash needs. (4) During the year ended December 31, 1996, four Properties were acquired; net operating income attributable to such Properties was approximately $1.8 million, which included approximately $371,000 of depreciation and amortization expense. During the year ended December 31, 1997, 39 Properties were acquired; net operating income attributable to such Properties during 1997 was approximately $3.8 million, which included approximately $1.7 million of depreciation and amortization expense. During the year ended December 31, 1998, 41 Properties were acquired; net operating income attributable to such Properties during 1998 was approximately $7.6 million, which included approximately $3.9 million of depreciation and amortization expense. During the year ended December 31, 1999, two Properties were acquired; net operating income attributable to such Properties during 1999 was approximately $87,000, which included approximately $104,000 of depreciation expense. During the year ended December 31, 2000, three Properties and a water and wastewater treatment company were sold; net operating income attributable to such Properties during 2000 was approximately $1.6 million, which included approximately $623,000 of depreciation expense. During the year ended December 31, 2001, two Properties were purchased; net operating income attributable to such Properties during 2001 was approximately $1.3 million, which included approximately $396,000 of depreciation expense. Also during the year ended December 31, 2001, eight Properties were sold; net operating income attributable to such Properties during 2001 was $1.0 million, which included approximately $235,000 of depreciation expense. (5) Excludes recreational vehicle sites and sites held through unconsolidated joint ventures. 1819 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with "Selected Financial Data" and the historical Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-K. The following discussion may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which reflect management's current views with respect to future events and financial performance. Such forward-looking statements are subject to certain risks and uncertainties, including, but not limited to, the effects of future events on the Company's financial performance; the adverse impact of external factors such as inflation and consumer confidence; and the risks associated with real estate ownership. RESULTS OF OPERATIONS PROPERTY ACQUISITIONS, JOINT VENTURES AND DISPOSITIONS The following chart lists the Properties acquired or sold since January 1, 1998.1999. The Company defines its core manufactured home communityCommunity portfolio ("Core Portfolio") as manufactured home Properties owned throughout both periods of comparison. Excluded from the Core Portfolio are any Properties acquired or sold during the period and also any recreational vehicle ("RV") Properties which, together, are referred to as the "Non-Core" Properties.
PROPERTY TRANSACTION DATE SITES -------- ---------------- ----------- TOTAL SITES AS OF JANUARY 1, 1998 ............................................... 32,5691999......................... 53,009 ACQUISITIONS: The Ellenburg Communities (37 Properties) .............Throughout 1998 14,498 Quail Meadows .........................................January 8, 1998 146 Sherwood Forest RV Resort .............................April 30, 1998 512 Casa Del Sol Resort III ...............................May 14, 1998 238 The College Heights Communities (18 Properties) .......June 4, 1998 3,573 Sunset Oaks ...........................................August 13, 1998 167 The Meadows ...........................................AprilMeadows............................................. April 1, 1999 380 Coquina Crossing ......................................JulyCrossing........................................ July 23, 1999 270 Grand Island (f.k.a. Golden Lakes)...................... January 3, 2001 421 Lakes at Countrywood (f.k.a. Chain O' Lakes)............ January 3, 2001 309 Bulow Resort RV......................................... July 1, 2001 352 INVESTMENT IN UNCONSOLIDATED JOINT VENTURES: Lakeshore Communities and Affiliates (3(2 properties) ...1998 and.................... 1999 633 Plantation ............................................March 18, 1998 385 Trails West............................................March 18, 1998 503343 EXPANSION SITE DEVELOPMENT: Sites added in 1998.................................... 1201999..................................... -- Sites added in 1999.................................... ---2000..................................... 108 Sites added in 2000.................................... 1082001..................................... 143 DISPOSITIONS: Garden West Office Plaza ..............................OctoberPlaza................................ October 26, 1999 ----- FFEC-Six (water and wastewater service company)........February......... February 29, 2000 ----- Mesa Regal RV Resort...................................MayResort.................................... May 22, 2000 (2,005) Naples Estates.........................................MayEstates.......................................... May 22, 2000 (484) Mon Dak................................................MayDak................................................. May 22, 2000 (161)(219) Dellwood Estates........................................ February 13, 2001 (136) Briarwood............................................... February 13, 2001 (166) Bonner Springs.......................................... February 13, 2001 (211) Carriage Park........................................... February 13, 2001 (143) North Star.............................................. February 13, 2001 (219) Quivira Hills........................................... February 13, 2001 (142) Rockwood................................................ February 13, 2001 (264) Candlelight............................................. October 5, 2001 (585) ------ TOTAL SITES AS OF DECEMBER 31, 2000................................................... 51,4522001.......................................... 50,761 ======
1920 20TRENDS Occupancy in the Company's Properties as well as the ability to increase rental rates directly affects revenues. In 2001, occupancy in the Company's Core Portfolio has remained relatively stable. Also during 2001, average monthly base rental rates for the Core Portfolio increased approximately 4.5%. The Company believes these trends will continue through 2002. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which require the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures. The Company believes that the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. The Company periodically evaluates its long-lived assets, including its investments in real estate for impairment indicators. The judgments regarding the existence of impairment indicators, are based on factors such as operational performance, market conditions and legal factors. Future events could occur which would cause us to conclude that impairment indicators exist and an impairment loss is warranted. The valuation of financial instruments under SFAS No. 107 and SFAS No. 133 requires the Company to make estimates and judgments that affect the fair value of the instruments. The Company, where possible, bases the fair values of its financial instruments, including its derivative instrument, on listed market prices and third party quotes. Where these are not available, the Company bases its estimates on other factors relevant to the financial instrument. 21 COMPARISON OF YEAR ENDED DECEMBER 31, 2001 TO YEAR ENDED DECEMBER 31, 2000 Since December 31, 1999, the gross investment in real estate increased from $1,264 million to $1,238 million as of December 31, 2001, due primarily to the aforementioned acquisitions and dispositions of Properties during the period. The total number of sites owned or controlled decreased from 54,002 as of December 31, 1999 to 50,761 as of December 31, 2001. The following table summarizes certain financial and statistical data for the Core Portfolio and the Total Portfolio for the years ended December 31, 2001 and 2000.
CORE PORTFOLIO TOTAL PORTFOLIO ----------------------------------------- ----------------------------------------- INCREASE/ % INCREASE/ % (dollars in thousands) 2001 2000 (DECREASE) CHANGE 2001 2000 (DECREASE) CHANGE -------- -------- ---------- ------ -------- -------- ---------- ------ (DOLLARS IN THOUSANDS) Base rental income(1)............ $192,160 $183,615 $8,545 4.7% $195,644 $189,064 $ 6,580 3.5% Utility and other income......... 20,222 18,664 1,558 8.3% 27,762 28,197 (435) (1.5%) Equity in income of affiliates... -- -- -- -- 1,811 2,408 (597) (24.8%) Interest income.................. -- -- -- -- 639 1,009 (370) (36.7%) -------- -------- ------ ------ -------- -------- ------- ------ Total revenues................. 212,382 202,279 10,103 5.0% 225,856 220,678 5,178 2.3% Property operating and maintenance.................... 57,787 54,150 3,637 6.7% 62,008 59,199 2,809 4.7% Real estate taxes................ 16,773 16,321 452 2.8% 17,420 16,888 532 3.2% Property management.............. 8,594 8,121 473 5.8% 8,984 8,690 294 3.4% General and administrative....... -- -- -- -- 6,687 6,423 264 4.1% -------- -------- ------ ------ -------- -------- ------- ------ Total operating expenses....... 83,154 78,592 4,562 5.8% 95,099 91,200 3,899 4.3% -------- -------- ------ ------ -------- -------- ------- ------ Income from operations before interest, depreciation and amortization expenses.......... 129,228 123,687 5,541 4.5% 130,757 129,478 1,279 1.0% Interest and related amortization................... -- -- -- -- 51,305 53,280 (1,975) (3.7%) Depreciation on corporate assets......................... -- -- -- -- 1,243 1,139 104 9.1% Property depreciation and other.......................... 32,243 30,792 1,451 4.7% 34,833 34,411 422 1.2% -------- -------- ------ ------ -------- -------- ------- ------ Income from operations(2)...... $ 96,985 $ 92,895 $4,090 4.4% $ 43,376 $ 40,648 $ 2,728 6.7% ======== ======== ====== ====== ======== ======== ======= ====== Site and Occupancy Information(3): Average total sites.............. 44,966 44,828 138 0.3% 46,243 46,964 (721) (1.5%) Average occupied sites........... 42,384 42,320 61 0.2% 43,576 44,325 (749) (1.7%) Occupancy %...................... 94.3% 94.4% (0.1%) (0.1%) 94.2% 94.4% (0.2%) (0.2%) Monthly base rent per site....... $ 377.82 $ 361.47 $16.35 4.5% $ 374.15 $ 355.45 $ 18.70 5.3% Total sites as of December 31,... 45,011 44,868 143 0.3% 45,743 46,734 (991) (2.1%) Total occupied sites as of December 31,................... 42,243 42,529 (286) (0.7%) 42,887 44,270 (1,383) (3.1%)
- --------------- (1) During 2001, at certain Properties the amounts charged to residents for utilities were separated ("Unbundled") from their base rent charges and recorded as utility income. For comparison purposes, a reclassification was made to base rental income for 2000 on this table. This reclassification is also reflected in the monthly base rent per site amounts for 2000. (2) Income from operations for the Core Portfolio does not include an allocation of income from affiliates, interest income, corporate general and administrative expense, interest expense and related amortization or depreciation on corporate assets. (3) Site and occupancy information does not include the Properties owned through unconsolidated joint ventures or the RV Properties. 22 Revenues The 4.7% increase in base rental income for the Core Portfolio reflects a 4.5% increase in monthly base rent per site coupled with a 0.2% increase in average occupied sites. The increase in utility and other income for the Core Portfolio is due primarily to increases in pass through items such as utilities and real estate taxes -- which resulted from higher expenses for these items. For the Total Portfolio, changes in base rental income and utility and other income generally reflect those of the Core Portfolio and the effect of acquisition and disposition of the Non-Core Properties. Equity in income of affiliates decreased 24.8%, reflecting lower sales volumes. Combined home sales revenue decreased approximately $4.0 million, of which $3.3 million is attributable to a decline in new home inventory sales volume. Sales volumes for new home inventory, used home inventory and brokered home sales were 485, 250 and 1,114, respectively, for the year ended December 31, 2001, and 535, 290 and 1,271, respectively, for the year ended December 31, 2000. The decrease in interest income is primarily due to the repayment of certain notes receivable, fewer short-term investments and lower interest rates. Short-term investments had average balances for the years ended December 31, 2001 and 2000 of approximately $1.9 million and $1.5 million, respectively, which earned interest income at an effective rate of 3.8% and 6.0% per annum, respectively. Operating Expenses The increase in property operating and maintenance expense for the Core Portfolio is due primarily to increases in utility expenses passed through and included in utility income. Expenses for the Core Portfolio also reflect increases in payroll and property insurance expenses. Core Portfolio real estate taxes increased 2.8% generally due to higher assessed values on certain Properties. The increase in Total Portfolio property operating and maintenance expense and real estate taxes is also impacted by acquisition and disposition of Non-Core Properties. Property management expense allocated to the Core Portfolio, which reflects costs of managing the Properties and is estimated based on a percentage of Property revenues, increased 5.8%. General and administrative expenses ("G&A") increased 4.1% due to increased public company costs and related expenses and promotional costs. G&A for 2001 includes a charge for additional amortization of deferred compensation offset by a reversal of legal expenses previously accrued related to the Ellenburg settlement. Interest and related amortization decreased due to lower interest rates during the period. The weighted average outstanding debt balances for the years ended December 31, 2001 and 2000 were $713.2 million and $707.5 million, respectively. The effective interest rate was 7.0% and 7.4% per annum for the years ended December 31, 2001 and 2000, respectively. Depreciation on corporate assets increased due to fixed asset additions related to information and communication systems. Depreciation on real estate assets and other costs increased due primarily to the acquisition and disposition of Non-Core Properties. 23 COMPARISON OF YEAR ENDED DECEMBER 31, 2000 TO YEAR ENDED DECEMBER 31, 1999 Since December 31, 1998, the gross investment in real estate decreased from $1,237 million to $1,218 million as of December 31, 2000, due primarily to the aforementioned acquisitions and dispositions of Properties during the period. The total number of sites owned or controlled decreased from 53,39153,009 as of December 31, 1998 to 51,452 as of December 31, 2000. The following table summarizes certain financial and statistical data for the Core Portfolio and the Total Portfolio for the years ended December 31, 2000 and 1999.
CORE PORTFOLIO TOTAL PORTFOLIO ----------------------------------------- ----------------------------------------- INCREASE/ % INCREASE/ % (dollars in thousands) 2000 1999 (DECREASE) CHANGE 2000 1999 (DECREASE) CHANGE - ---------------------- ---- ------------ -------- ---------- ------ ---- ------------ -------- ---------- ------ (DOLLARS IN THOUSANDS) Base rental income............... $186,148 $178,095 $8,053 4.5% $189,481 $181,672 $7,809$ 7,809 4.3% Utility and other income......... 17,986 17,436 550 3.2% 27,780 29,622 (1,842) (6.2%) Equity in income of affiliates... --- --- ----- -- -- -- 2,408 2,065 343 16.6% Interest income.................. --- --- ----- -- -- -- 1,009 1,669 (660) (39.5%) -------- -------- ------ ----------- -------- -------- ------------- ------ Total revenues..............revenues................. 204,134 195,531 8,603 4.4% 220,678 215,028 5,650 2.6% Property operating and maintenance.................maintenance.................... 54,358 52,096 2,262 4.3% 59,199 58,038 1,161 2.0% Real estate taxes................ 16,186 15,811 375 2.4% 16,888 16,460 428 2.6% Property management.............. 8,194 7,725 469 6.1% 8,690 8,337 353 4.2% General and administrative....... --- --- ----- -- -- -- 6,423 6,092 331 5.4% -------- -------- ------ ----------- -------- -------- ------------- ------ Total operating expenses....expenses....... 78,738 75,632 3,106 4.1% 91,200 88,927 2,273 2.6% -------- -------- ------ ----------- -------- -------- ------------- ------ Income from operations before interest, depreciation and amortization expenses.......expenses.......... 125,396 119,899 5,497 4.6% 129,478 126,101 3,377 2.7% Interest and related amortization --- --- ---amortization................... -- -- -- -- 53,280 53,775 (495) (0.9%) Depreciation on corporate assets. --- --- ---assets......................... -- -- -- -- 1,139 1,005 134 13.3% Property depreciation and other..other.......................... 31,366 30,912 454 1.5% 34,411 34,486 (75) (0.2%) -------- -------- ------ ----------- -------- -------- ------------- ------ Income from operations(1)......... $ 94,030 $ 88,987 5,043$5,043 5.7% $ 40,648 $ 36,835 $ 3,813 10.4% ======== ======== ====== =========== ======== ======== ============= ====== Site and Occupancy Information(2): Average total sites.............. 45,894 45,810 84 0.2% 46,964 46,914 50 0.1% Average occupied sites........... 43,410 43,138 272 0.6% 44,325 44,110 215 0.5% Occupancy %...................... 94.6% 94.2% 0.4% 0.4% 94.4% 94.0% 0.4% 0.4% Monthly base rent per site....... $357.35 $344.04$ 357.35 $ 344.04 $13.31 3.9% $356.24 $343.22 $13.02$ 356.24 $ 343.22 $ 13.02 3.8% Total sites as of December 31,............. 45,902 45,808 94 0.2% 46,734 47,284 (550) (1.2%) Total occupied sites as of December 31,............................. 43,595 43,289 306 0.7% 44,270 44,555 (285) (0.6%)
- --------------- (1) Income from operations for the Core Portfolio does not include an allocation of income from affiliates, interest income, corporate general and administrative expense, interest expense and related amortization or depreciation on corporate assets. (2) Site and occupancy information does not include the five Properties owned through joint ventures or the three RV properties. 2024 21 Revenues The 4.5% increase in base rental income for the Core Portfolio reflects a 3.9% increase in monthly base rent per site coupled with a 0.6% increase in average occupied sites. The 4.3% increase in base rental income for the Total Portfolio reflects a 3.8% increase in monthly base rent per site coupled with a 0.5% increase in average occupied sites and also reflects the acquisition and disposition of Non-Core Properties. The increase in utility and other income for the Core Portfolio is due primarily to increases in pass through items such as utilities and real estate taxes --- which resulted from higher expenses for these items. The decrease in Total Portfolio utility and other income is due primarily to the sale of Mesa Regal RV resort and other changes in the Non-Core Properties. Also included in other income is a gain on the sale of the FFEC-Six water and wastewater treatment company of $719,000, partially offset by an impairment loss on the DeAnza Santa Cruz water and wastewater service company of $701,000. The decrease in interest income is primarily due to the repayment of certain notes receivable and fewer short-term investments. Short-term investments had average balances for the years ended December 31, 2000 and 1999 of approximately $1.5 million and $2.8 million, respectively, which earned interest income at an effective rate of 6.0% and 6.3% per annum, respectively. Operating Expenses The increase in property operating and maintenance expense for the Core Portfolio is due primarily to increases in utility expenses generally passed through and included in utility income. Expenses for the Core Portfolio also reflect increases in repairs and maintenance expense, payroll and property general and administrative expenses partially offset by decreased insurance and other expenses. Core Portfolio real estate taxes increased 2.4% generally due to higher property assessments on certain Properties. The increase in Total Portfolio property operating and maintenance expense and real estate taxes is also impacted by acquisition and disposition of Non-Core Properties. Property management expense for the Core Portfolio, which reflects costs of managing the propertiesProperties and is estimated based on a percentage of Property revenues, increased 6.1%. General and administrative expenses increased primarily due to increased payroll resulting from salary increases and increased public company related expenses. Interest and related amortization decreased due to lower weighted average outstanding debt balances during the period. The weighted average outstanding debt balances for the years ended December 31, 2000 and 1999 were $707.5 million and $738.1 million, respectively. The effective interest rate was 7.4% and 7.2% per annum for the years ended December 31, 2000 and 1999, respectively. Depreciation on corporate assets increased due to fixed asset additions related to information and communication systems. Depreciation on real estate assets and other costs decreased due primarily to the acquisition and disposition of Non-Core Properties. 2125 22 COMPARISON OF YEAR ENDED DECEMBER 31, 1999 TO YEAR ENDED DECEMBER 31, 1998 Since December 31, 1997, the gross investment in real estate increased from $936 million to $1,264 million as of December 31, 1999 due primarily to the aforementioned acquisitions and dispositions of Properties during the period. The total number of sites owned or controlled has increased from 44,108 as of December 31, 1997 to 54,007 as of December 31, 1999. The following table summarizes certain financial and statistical data for the Core Portfolio and the Total Portfolio for the years ended December 31, 1999 and 1998.
CORE PORTFOLIO TOTAL PORTFOLIO -------------- --------------- INCREASE/ % INCREASE/ % (dollars in thousands) 1999 1998 (DECREASE) CHANGE 1999 1998 (DECREASE) CHANGE - ---------------------- ---- ---- ---------- ------ ---- ---- ---------- ------ Base rental income............... $131,064 $126,246 $4,818 3.8% $181,672 $165,340 $16,332 9.9% Utility and other income......... 14,885 14,420 465 3.2% 29,622 25,372 4,250 16.8% Equity in income of affiliates... --- --- --- --- 2,065 1,070 995 93.0% Interest income.................. --- --- --- --- 1,669 3,048 (1,379) (45.2%) -------- -------- ------ ---- -------- -------- ------- ---- Total revenues.............. 145,949 140,666 5,283 3.8% 215,028 194,830 20,198 10.4% Property operating and maintenance................. 38,281 37,852 429 1.1% 58,038 53,064 4,974 9.4% Real estate taxes................ 11,201 10,533 668 6.3% 16,460 14,470 1,990 13.8% Property management.............. 5,764 5,252 512 9.7% 8,337 7,108 1,229 17.3% General and administrative....... --- --- --- --- 6,092 5,411 681 12.6% -------- -------- ------ ---- -------- -------- ------- ---- Total operating expenses.... 55,246 53,637 1,609 3.0% 88,927 80,053 8,874 11.1% -------- -------- ------ ---- -------- -------- ------- ---- Income from operations before interest, depreciation and amortization expenses....... 90,703 87,029 3,674 4.2% 126,101 114,777 11,324 9.9% Interest and related amortization --- --- --- --- 53,775 49,693 4,082 8.2% Depreciation on corporate assets --- --- --- --- 1,005 995 10 1.0% Property depreciation and other 20,667 19,917 750 3.8% 34,486 28,426 6,060 21.3% -------- -------- ------ ---- -------- -------- ------- --- Income from operations (1).. 70,036 67,112 2,924 4.4% 36,835 35,663 1,172 3.3% ======== ======== ====== ==== ======== ======== ======= === Site and Occupancy Information (2): Average total sites............ 32,393 32,358 35 0.1% 46,914 43,932 2,982 6.8% Average occupied sites......... 30,708 30,652 56 0.2% 44,110 41,420 2,690 6.5% Occupancy %.................... 94.8% 94.7% 0.1% 0.1% 94.0% 94.3% (0.3%) (0.3%) Monthly base rent per site..... $356.06 $343.23 $12.83 3.7% $343.22 $332.65 $10.57 3.2% Total sites as of December 31,.......... 32,395 32,384 11 0.0% 47,284 46,446 838 1.8% Total occupied sites as of December 31,.......... 30,789 30,673 116 0.4% 44,555 43,707 848 1.9%
(1) Income from operations for the Core Portfolio does not include an allocation of income from affiliates, interest income, corporate general and administrative expense, interest expense and related amortization or depreciation on corporate assets. (2) Site and occupancy information does not include the five Properties owned through joint ventures or the four RV properties. 22 23 Revenues The 3.8% increase in base rental income for the Core Portfolio reflects a 3.7% increase in monthly base rent per site coupled with a 0.2% increase in average occupied sites. The 9.9% increase in base rental income for the Total Portfolio reflects a 3.2% increase in monthly base rent per site coupled with a 6.5% increase in average occupied sites and also reflects acquisition and disposition of Non-Core Properties. The increase in utility and other income for the Core Portfolio is due primarily to increases in pass through items such as utilities and real estate taxes - which resulted from higher expenses for these items. The increase in Total Portfolio utility and other income is due primarily to RV income related to the purchase of three RV resorts during 1998 and other changes in the Non-Core Properties. The decrease in interest income is primarily due to the conversion of some notes receivable to fee simple interests in The Meadows and certain Ellenburg Communities. Short-term investments had average balances for the years ended December 31, 1999 and 1998 of approximately $2.8 million and $6.9 million, respectively, which earned interest income at an effective rate of 6.3% and 5.4% per annum, respectively. Operating Expenses The increase in property operating and maintenance expense for the Core Portfolio reflects increases in repairs and maintenance expense, payroll expense and increases in utility expenses passed through and included in utility income. These increases are partially offset by decreased property general and administrative, insurance and other expenses. Core Portfolio real estate taxes increased 6.3% generally due to higher property assessments on certain Properties. The increase in Total Portfolio property operating and maintenance expense and real estate taxes is also impacted by the acquisition and disposition of Non-Core Properties. Property management expense for the Core Portfolio, which reflects costs of managing the properties and is estimated based on a percentage of Property revenues, increased 9.7%. The increase was primarily due to the addition of senior management personnel in the areas of operations, human resources and accounting and the incremental expenses related to management of Properties acquired in 1998 and 1999. General and administrative expenses increased primarily due to increased payroll resulting from salary increases and increased public company related expenses. Interest and related amortization increased due to higher weighted average outstanding debt balances during the period. The weighted average outstanding debt balances for the years ended December 31, 1999 and 1998 were $738.1 million and $696.0 million, respectively. The effective interest rate was 7.2% per annum for both years ended December 31, 1999 and 1998. Depreciation on corporate assets increased due to fixed asset additions related to information and communication systems. Depreciation on real estate assets and other costs increased due to fixed asset additions of Properties acquired in 1999 and 1998. 23 24 LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY As of December 31, 2000,2001, the Company had $2.8$1.4 million in cash and cash equivalents and $90.1$133.8 million available on its line of credit. The Company expects to meet its short-term liquidity requirements, including its distributions, generally through its working capital, net cash provided by operating activities and availability under the existing line of credit. The Company expects to meet certain long-term liquidity requirements such as scheduled debt maturities, property acquisitions and capital improvements by long-term collateralized and uncollateralized borrowings including borrowings under its existing line of credit and the issuance of debt securities or additional equity securities in the Company, in addition to working capital. In order to qualify as a REIT for federal income tax purposes, the Company must distribute 95% or more of its taxable income (excluding capital gains). The following distributions have been declared and / and/or paid to common stockholders and minority interests since January 1, 1998.1999.
DISTRIBUTION FOR THE QUARTER SHAREHOLDER RECORD AMOUNT PER SHARE QUARTER ENDING RECORD DATE PAYMENT DATE ----------------- ------------------ ------------------ ---------------- ------ ---- ------------ $0.3625 March 31, 1998 March 27, 1998 April 10, 1998 $0.3625 June 30, 1998 June 26, 1998 July 10, 1998 $0.3625 September 30, 1998 September 25, 1998 October 9, 1998 $0.3625 December 31, 1998 December 16, 1998 December 30, 1998 - ------------------------------------------------------------------------------------------------------- $0.3875 March 31, 1999 March 26, 1999 April 9, 1999 $0.3875 June 30, 1999 June 25, 1999 July 9, 1999 $0.3875 September 30, 1999 September 24, 1999 October 8, 1999 $0.3875 December 31, 1999 December 31, 1999 January 14, 2000 - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ $0.4150 March 31, 2000 March 31, 2000 April 14, 2000 $0.4150 June 30, 2000 June 30, 2000 July 14, 2000 $0.4150 September 30, 2000 September 29, 2000 October 13, 2000 $0.4150 December 31, 2000 December 29, 2000 January 12, 2001 - ----------------------------------------------------------------------------------------------- $0.4450 March 31, 2001 March 30, 2001 April 13, 2001 $0.4450 June 30, 2001 June 29, 2001 July 13, 2001 $0.4450 September 30, 2001 September 28, 2001 October 12, 2001 $0.4450 December 31, 2001 December 28, 2001 January 11, 2002
The Operating Partnership paid distributions of 9.0% per annum on the $125 million of Series D Cumulative Redeemable Perpetual Preferred Units ("Preferred Units"). Distributions on the Preferred Units were paid quarterly on the last calendar day of each quarter beginning December 31, 1999. The Company expects to continue to make regular quarterly distributions and has set its 20012002 distribution to common stockholders at $1.78$1.90 per share per annum. MORTGAGES AND CREDIT FACILITIES On October 29, 2001, the Company entered into an interest rate swap agreement, fixing the London Interbank Offered Rate ("LIBOR") on $100 million of the Company's floating rate debt at approximately 3.7% per annum for the period October 2001 through August 2004. The terms of the swap require monthly settlements on the same dates interest payments are due on the debt. In accordance with SFAS No. 133 as herein defined, the interest rate swap will be reflected at market value. The Company believes the swap is a perfectly effective cash flow hedge, under SFAS No. 133 and there will be no effect on net income as a result of the mark-to-market adjustments. During the year ended December 31, 2001, the Company borrowed $46.0 million on its line of credit and paid down $89.7 million on the line of credit. The line of credit bears interest at a per annum rate of LIBOR plus 1.125%. In July of 2001, the Company paid off three maturing mortgages in the amount of $12.1 million. The payoffs were funded with borrowings on the line of credit. 26 On August 3, 2001, the Company entered into a $50.0 million mortgage note (the "Stagecoach Mortgage") collateralized by 7 Properties beneficially owned by MHC Stagecoach, L.L.C. The Stagecoach Mortgage bears interest at a rate of 6.98% per annum, amortizes beginning September 1, 2001 over 10 years and matures August 31, 2011. Proceeds from the financing were used to reduce borrowings on the line of credit by $37.9 million. On February 24, 2000, the Company entered into mortgage agreements collateralizing two Properties for a total of $14.6 million. The mortgage notes mature on March 1, 2010, amortize beginning March 1, 2000 over 30 years and bear interest at a rate of approximately 8.3% per annum. On April 3, 2000, the Company extended to April 3, 2002 the maturity of its $100 million unsecured term loan (the "Term Loan") with a group of banks with interest only payable monthly at a per annum rate of LIBOR plus 1.0%. On February 8, 2002, the Company entered into a term loan credit agreement with the same group of banks, which extended the Term Loan to August 9, 2005. On June 30, 2000, the Company obtained $110 million in debt financing consisting of two mortgage notes --- one for $94.3 million and one for $15.7 million --- secured by seven Properties. The proceeds of the financing were used to repay $60 million of mortgage debt secured by the seven Properties, to repay amounts outstanding under the Company's line of credit and for working capital purposes. The Company recorded a $1.0 million extraordinary loss (net of $264,000 allocated to Minority Interests) in connection with the early repayment of the $60 million of mortgage debt. On April 3, 2000, the Company extended to April 3, 2002 the maturity of its $100 million unsecured term loan (the "Term Loan") with a group of banks with interest only payable monthly at a rate of the London Interbank Offered Rate ("LIBOR") plus 1.0%. On August 9, 2000, the Company amended its unsecured line of credit with a bank (the "Credit Agreement") bearing interest at a per annum rate of LIBOR plus 1.125%. Among other things, the amendment lowered the total facility under the Credit Agreement to $150 million and extended the maturity to August 9, 2003. The Company pays a quarterly fee on the average unused amount of such credit equal to 0.15% of such amount. 24 25As of December 31, 2001, $133.8 million was available under the Credit Agreement. Certain of the Company's mortgage and credit agreements contain covenants and restrictions including restrictions as to the ratio of secured or unsecured debt versus encumbered or unencumbered assets, the ratio of fixed charges-to-earnings before interest, taxes, depreciation and amortization ("EBITDA"), limitations on certain holdings and other restrictions. ACQUISITIONS, DISPOSITIONS AND INVESTMENTS On September 4, 1997, the Company entered into a portfolio purchase agreement (as amended by a supplemental agreement on December 17, 1997) to acquire 37 manufactured home communities (the "Ellenburg Communities") from partnerships having Ellenburg Capital Corporation ("ECC") as the general partner, for a purchase price in excess of $300 million. During 1997 and 1998, the Company closed on the acquisition of 31 of the Ellenburg Communities for an aggregate purchase price of approximately $278 million and gained control of an additional five Ellenburg Communities with acquisition advances of approximately $57 million to the partnerships which owned such Ellenburg Communities. All fundings related to the acquisition were funded by the Company with borrowings under the Company's line of credit, term bank facilities, assumed debt and the issuance of Common OP Units. During 1998, the Company received approximately $14.3 million, including approximately $365,000 of interest income, which was being held subject to the completion of due diligence procedures on the Ellenburg Communities. The $14.3 million was initially recorded as a liability until 1999 when a settlement of certain related issues was substantially complete and accordingly, in a non-cash transaction, relieved the liability and adjusted the purchase price of the Ellenburg Communities. In April 2000, the California Superior Court approved a settlement agreement (the "Settlement") in connection with the dissolution proceeding of ECC and its affiliated partnerships. As part of the Settlement, the Company received $13.5 million previously held in escrow in connection with the purchase of the Ellenburg Communities and recorded $3.0 million of interest income related to these funds. In connection with the Settlement, the Company sold three communities -- Mesa Regal RV Resort, Mon Dak and Naples Estates -- for an aggregate sales price of $59.0 million, including cash proceeds of $40.0 million and assumption of debt by the purchaser of $19.0 million. The Company recorded a $9.1 million gain on the sale of these Properties. Proceeds from the Settlement and property sales were used to pay down the Company's line of credit. 27 On January 6, 1998, the Company funded a $12.3 million loan (the "Meadows Loan") to Meadows Preservation, Inc. The Meadows Loan was collateralized by The Meadows manufactured home community located in Palm Beach Gardens, Florida. On April 1, 1999, the Company effectively exchanged the Meadows Loan for an equity and debt interest in the partnership that owns The Meadows. The Company consolidatesincludes The Meadows in investment in real estate and the related results of operations.operations in the Statement of Operations. On July 23, 1999, the Company acquired Coquina Crossing, located in St. Augustine, Florida, for a purchase price of approximately $10.4 million. The acquisition was funded with a borrowing under the Company's line of credit. Coquina Crossing is a 748-site senior community with 269274 developed sites and zoned expansion potential for 479 sites. In addition, Realty Systems, Inc. ("RSI"), an affiliate of the Company, purchased the model home inventory at the community for approximately $1.1 million. On February 29, 2000, MHC Systems, Inc., a consolidated subsidiary of the Company, disposed of the water and wastewater service company and facilities known as FFEC-Six in a cash sale. Net proceeds from the sale of approximately $4.2 million were used to pay down the Company's line of credit and a gain on the sale of $719,000 (or $.02 per fully diluted share) was recorded in other income on the accompanying statement of operations. In April 2000, the California Superior Court approved a settlement agreement (the "Settlement") in connection with the dissolution proceeding of ECC and its affiliated partnerships. As part of the Settlement, the Company received $13.5 million previously held in escrow in connection with the purchase of the Ellenburg Communities and recorded $3.0 million of interest income related to these funds. In connection with the Settlement, the Company sold three communities - Mesa Regal RV Resort, Mon Dak and Naples Estates - for an aggregate sales price of $59.0 million, including cash proceeds of $40.0 million and assumption of debt by the purchaser of $19.0 million. The Company recorded a $9.1 million gain on the sale of these Properties. Proceeds from the Settlement and property sales were used to pay down the Company's line of credit.. On December 28, 2000, the Company, through its joint venture with Meadows Management Company, acquired a 50% economic interest in Voyager RV Resort, a 1,576 site RV resort in Tucson, Arizona, for total consideration of $8.0 million. The Company's investment included cash of $3.0 million, its 50% interest in land held through the joint venture valued at $2.0 million and notes receivable from the principals of Meadows Management Company totaling $3.0 million. On January 3, 2001, the Company acquired two Florida Properties, totaling 730 sites, for an aggregate purchase price of approximately $16.3 million. The Lakes at Countrywood is a 421-site community in Plant City, near Tampa, Florida, and includes approximately 23 acres for expansion. Grand Island is a 309-site community in Grand Island, near Orlando, Florida, and includes a marina with 50 boat docks. The acquisition was funded with a borrowing under the Company's line of credit. On February 13, 2001, the Company completed the disposition of seven Properties, totaling 1,281 sites, in Kansas, Missouri and Oklahoma, for a total sale price of approximately $17.4 million. A gain of $8.1 million was recorded on the accompanying consolidated statements of operations. Proceeds from the sale were used to reduce the amount outstanding on the Company's line of credit. On October 5, 2001, the Company finalized a settlement agreement between the Lending Partnership, the Operating Partnership and the limited liability partnership which owns Candlelight Village in Columbus, Indiana. In 1996, the Company funded a recourse loan to the owner of Candlelight Village and accounted for the loan as an investment in real estate. The Company received $10.8 million in proceeds from the settlement, which was accounted for as a sale of real estate and recorded a $75,000 gain on the sale. Proceeds from the sale were used as working capital. CAPITAL IMPROVEMENTS Capital expenditures for improvements are identified by the Company as recurring capital expenditures ("Recurring CapEx"), site development costs and corporate headquarters costs. Recurring CapEx was approximately $7.9$12.7 million and $8.7$7.9 million for the years ended December 31, 20002001 and 1999,2000, respectively. Of these expenditures, the Company believes that approximately $7.1 million or $142 per site for 2001 and $6.5 million or $130 per site for 2000 and $6.3 million or $122 per site for 1999 are non-revenue producing improvements which are necessary in order to increase and/or maintain occupancy levels and maintain competitive market rents for new and renewing residents. Site development costs were approximately $7.9$9.7 million and $4.9$7.9 million for the years ended December 31, 20002001 and 1999,2000, respectively, and represent costs to develop expansion sites at certain of the Company's Properties. EQUITY TRANSACTIONS On March 26, 1999, the Operating Partnership repurchased and cancelled 200,000 OP Units from a limited partner of the Operating Partnership. 28 On September 30, 1999, the Operating Partnership completed a $125 million private placement of 9.0% Series D Cumulative Perpetual Preferred Units ("POP Units") to two institutional investors. The POP Units, which are callable by the Company after five years, have no stated maturity or mandatory redemption. Net proceeds from the offering of $121 million were used to repay amounts outstanding under the Company's line of credit facility and for other corporate purposes. 25 26 In March 1997, the Company's Board of Directors approved a common stock repurchase plan whereby the Company was authorized to repurchase and retire shares of its common stock. UnderNo shares of Common Stock were repurchased during the year ended December 31, 2001. However, under the plan, the Company repurchased approximately 2.2 million shares of Common Stock at an average price of $24.06 per share during the year ended December 31, 2000 and 4.1 million shares of Common Stock at an average price of $23.40 per share during the year ended December 31, 1999, using proceeds from borrowings on the line of credit. INFLATION Substantially all of the leases at the Properties allow for monthly or annual rent increases which provide the Company with the opportunity to achieve increases, where justified by the market, as each lease matures. Such types of leases generally minimize the risk of inflation to the Company. FUNDS FROM OPERATIONS FFO was redefined by NAREIT in October 1999, effective January 1, 2000, as net income (computed in accordance with GAAP), before allocation to minority interests, excluding gains (or losses) from sales of property, plus real estate depreciation and after adjustments for unconsolidated partnerships and joint ventures. The Company computes FFO in accordance with the NAREIT definition, which may differ from the methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be comparable to such other REIT's computations. Funds available for distribution ("FAD") is defined as FFO less non-revenue producing capital expenditures and amortization payments on mortgage loan principal. The Company believes that FFO and FAD are useful to investors as a measure of the performance of an equity REIT because, along with cash flows from operating activities, financing activities and investing activities, they provide investors an understanding of the ability of the Company to incur and service debt and to make capital expenditures. FFO and FAD in and of themselves do not represent cash generated from operating activities in accordance with GAAP and therefore should not be considered an alternative to net income as an indication of the Company's performance or to net cash flows from operating activities as determined by GAAP as a measure of liquidity and are not necessarily indicative of cash available to fund cash needs. The following table presents a calculation of FFO and FAD for the years ended December 31, 2001, 2000 1999 and 19981999 (amounts in thousands):
2001 2000 1999 1998 ---- ---- ------------ -------- ------- COMPUTATION OF FUNDS FROM OPERATIONS: Income before extraordinary loss on early extinguishmentExtinguishment of debt ............................debt................................................ $ 32,083 $ 32,986 $ 27,772 $ 28,930$27,772 Income allocated to Common OP Units ..................Units....................... 8,209 8,463 6,219 6,733 Depreciation on real estate assets and other costs ...costs........ 34,833 34,411 34,486 28,426 Gain on sale of Properties and other .................other...................... (8,168) (12,053) -- -- -------- -------- --------------- Funds from operations .............................operations.................................. $ 66,957 $ 63,807 $ 68,477 $ 64,089$68,477 ======== ======== =============== Weighted average Common Stock outstanding - diluted ..-- diluted...... 27,010 27,408 31,252 31,962 ======== ======== =============== COMPUTATION OF FUNDS AVAILABLE FOR DISTRIBUTION: Funds from operations ................................operations..................................... $ 66,957 $ 63,807 $ 68,477 $ 64,089$68,477 Non-revenue producing improvements to real estate ....estate......... (12,689) (7,855) (8,656) (8,005) -------- -------- --------------- Funds available for distribution ..................distribution....................... $ 54,268 $ 55,952 $ 59,821 $ 56,084$59,821 ======== ======== =============== Weighted average Common Stock outstanding - diluted ..-- diluted...... 27,010 27,408 31,252 31,962 ======== ======== ===============
2629 27 ITEM 7a.7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK The Company's earnings are affected by changes in interest rates, as a portion of the Company's outstanding indebtedness is at variable rates based on LIBOR. The Company's $150 million line of credit ($59.916.3 million outstanding at December 31, 2000)2001) bears interest at LIBOR plus 1.125% per annum and the Company's $100 million Term Loan bears interest at LIBOR plus 1.0%. per annum. If LIBOR increased/decreased by 1.0% during 2000,2001, interest expense would have increased/decreased by approximately $1.7$1.4 million based on the combined average balance outstanding under the Company's line of credit and Term Loan for the year ended December 31, 2000.2001. In July 1995,1998, the Company entered into an interest rate swap agreement (the "1998 Swap") fixing LIBOR on $100 million of the Company's floating rate debt at 6.4% for the period 1998 through 2003. The cost of the 1998 Swap consisted only of legal costs that were deemed immaterial. The value of the 1998 Swap was impacted by changes in the market rate of interest. Had the 1998 Swap been entered into on December 31, 1999, the applicable LIBOR swap rate would have been approximately 6.57%. Each 0.01% increase or decrease in the applicable swap rate for the 1998 Swap increases or decreases the value of the 1998 Swap versus its current value by approximately $28,000. The Company accounted for the 1998 Swap as a hedge. Payments and receipts under the 1998 Swap were accounted for as an adjustment to interest expense. On January 10, 2000, the Company unwound the 1998 Swap and received $1.0 million of proceeds which is amortized into interest expense through March 2003. On October 29, 2001, the Company entered into an interest rate swap agreement, fixing LIBOR on $100 million of the Company's floating rate debt at approximately 3.7% for the period October 2001 through August 2004. The terms of the swap require monthly settlements on the same dates that interest payments are due on the debt. In accordance with SFAS No. 133, the interest rate swap is reflected at market value. The Company believes the swap is a perfectly effective cash flow hedge per SFAS No. 133 and there will be no effect on net income as a result of the mark-to-market adjustment. The value of the hedge as of December 31, 2001 was approximately $489,000 and is recorded as an asset and included in other assets. Mark-to-market change in the value of the swap are included in other comprehensive income. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities". and its amendments, Statements 137 and 138 in June 1999 and June 2000, respectively. SFAS No. 133 permits early adoption as of the beginning of any fiscal quarter after its issuance. In June 1999, the FASB issued Statement No. 137 which deferred the effective date of SFAS No. 133 to all fiscal quarters for fiscal years beginning after June 15, 2000. The Company will adoptadopted SFAS No. 133 oneffective January 1, 2001. SFAS No. 133 will requirerequires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The Company has determined that the effect of SFAS No. 133 on the earnings and financial position of the Company will not be significant when implemented. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Combined Financial Statements on page F-1 of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEMS 10, 11, 12, 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 10, Item 11, Item 12, and Item 13 will be contained in a definitive proxy statement which the Registrant anticipates will be filed no later than April 28, 2001,2002, and thus this Part has been omitted in accordance with General Instruction G(3) to Form 10-K. 2730 28 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a) (1&2) See Index to Financial Statements and Schedules on page F-1 of this Form 10-K. (3) Exhibits:
2(a) Admission Agreement between Equity Financial and Management Co., Manufactured Home Communities, Inc. and MHC Operating Partnership 3.1(a) Articles of Incorporation of Manufactured Home Communities, Inc. 3.2(a) Articles of Amendment and Restatement of Manufactured Home Communities, Inc. 3.3(g) Amended Bylaws of Manufactured Home Communities, Inc. 4 Not applicable 9 Not applicable 10.1(a) Amended and Restated Agreement of Limited Partnership of MHC Operating Limited Partnership 10.2(a) Agreement of Limited Partnership of MHC Financing Limited Partnership 10.3(a) Agreement of Limited Partnership of MHC Management Limited Partnership 10.4(a) Property Management and Leasing Agreement between MHC Financing Limited Partnership and MHC Management Limited Partnership 10.5(a) Property Management and Leasing Agreement between MHC Operating Limited Partnership and MHC Management Limited Partnership 10.6(a) Services Agreement between Realty Systems, Inc. and MHC Management Limited Partnership 10.7(a) Rate Protection Agreement 10.8(a) Revolving Credit Note made by Realty Systems, Inc. to Equity Financial and Management Co. 10.9(a) Assignment to MHC Operating Limited Partnership of Revolving Credit Note made by Realty Systems, Inc. to Equity Financial and Management Co. 10.10(a) Stock Option Plan 10.11A(a) Indenture of Mortgage, Deed of Trust, Security Agreement, Financing Statement, Fixture Filing and Assignment of Rents 10.11B(a) Promissory Note 10.11C(a) Assignment of Loan Documents 10.11D(a) Assignment of Leases, Rents and Security Deposits 10.11E(a) Swap Agreement Pledge and Security Agreement 10.11F(a) Cash Collateral Account Security, Pledge and Assignment Agreement 10.11G(a) Assignment of Property Management and Leasing Agreement 10.11H(a) Trust Agreement 10.12(a) Form of Noncompetition Agreement 10.13(a) Form of Noncompetition Agreement 10.13A(a) Form of Noncompetition Agreement 10.14(a) General Electric Credit Corporation Commitment Letter 10.15(a) Administrative Services Agreement between Realty Systems, Inc. and Equity Group Investments, Inc. 10.16(a) Registration Rights and Lock-Up Agreement with the Company (the Original Owners, EF&M, Directors, Officers and Employees) 10.17(a) Administrative Services Agreement between the Company and Equity Group Investments, Inc. 10.18(a) Form of Subscription Agreement between the Company and certain officers and other individuals dated March 3, 1993 10.19(a) Form of Secured Promissory Note payable to the Company by certain officers dated March 3, 1993 10.20(a) Form of Pledge Agreement between the Company and certain officers dated March 3, 1993 10.21(a) Loan and Security Agreement between Realty Systems, Inc. and MHC Operating Limited Partnership 10.22(a) Equity and Registration Rights Agreement with the Company (the GM Trusts) 10.23(b) Agreement of Limited Partnership of MHC Lending Limited Partnership 10.23(c) Agreement of Limited Partnership of MHC-Bay Indies Financing Limited Partnership 10.24(c) Agreement of Limited Partnership of MHC-De Anza Financing Limited Partnership 10.25(c) Agreement of Limited Partnership of MHC-DAG Management Limited Partnership 10.26(d) Amendment No. 2 to MHC Operating Limited Partnership Amended and Restated Partnership Agreement dated February 15, 1996 10.27(d) Form of Subscription Agreement between the Company and certain members of management of the Company dated January 2, 1996 28
31 29 ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (CONTINUED) 10.28(d) Form of Secured Promissory Note payable to the Company by certain members of management of the Company dated January 2, 1996 10.29(d) Form of Pledge Agreement between the Company and certain members of management of the Company dated January 2, 1996 10.30(e) Second Amended and Restated MHC Operating Limited Partnership Agreement of Limited Partnership, dated as of March 15, 1996 10.31(f) Agreement of Limited Partnership of MHC Financing Limited Partnership Two 10.32(g) $265,000,000 Mortgage Note dated December 12,1997 10.33(g) Second Amended and Restated Credit Agreement (Revolving Facility) between the Company, MHC Operating Limited Partnership, and certain lenders and agents, dated April 28, 1998 10.34(g) First Amendment to Second Amended and Restated Credit Agreement (Revolving Facility) between the Company, MHC Operating Limited Partnership, and certain lenders and agents, dated December 18, 1998 10.35(h) Second Amendment to Second Amended and Restated Credit Agreement (Revolving Facility) between the Company, MHC Operating Limited Partnership, and certain lenders and agents, dated August 9, 2000 10.36(g) Amended and Restated Credit Agreement (Term Loan) between the Company, MHC Operating Limited Partnership, and certain lenders and agent, dated April 28, 1998 10.36(h) First Amendment to Amended and Restated Credit Agreement (Term Loan) between the Company, MHC Operating Limited Partnership, and certain lenders and agent, dated November 21, 2000 10.36(g) Letter Agreement between the Company and Bank of America National Trust and Savings Association confirming the $100 million swap transaction, dated July 11, 1995 10.39(h) $110,000,000 Amended, Restated and Consolidated Promissory Note dated June 28, 2000 10.40(h) $15,750,000 Promissory Note Secured by Leasehold Deed of Trust dated July 13, 2000 11 Not applicable 12(h) Computation of Ratio of Earnings to Fixed Charges 13 Not applicable 16 Not applicable 18 Not applicable 21(h) Subsidiaries of the registrant 22 Not applicable 23(h) Consent of Independent Auditors 24.1(h) Power of Attorney for John F. Podjasek, Jr. dated March 7, 2001 24.2(h) Power of Attorney for Michael A. Torres dated March 23, 2001 24.3(h) Power of Attorney for Thomas E. Dobrowski dated March 6, 2001 24.4(h) Power of Attorney for Gary Waterman dated March 14, 2001 24.5(h) Power of Attorney for Donald S. Chisholm dated March 2, 2001 24.6(h) Power of Attorney for Louis H. Masotti dated March 5, 2001 10.28(d) Form of Secured Promissory Note payable to the Company by certain members of management of the Company dated January 2, 1996 10.29(d) Form of Pledge Agreement between the Company and certain members of management of the Company dated January 2, 1996 10.30(e) Second Amended and Restated MHC Operating Limited Partnership Agreement of Limited Partnership, dated as of March 15, 1996 10.31(f) Agreement of Limited Partnership of MHC Financing Limited Partnership Two 10.32(g) $265,000,000 Mortgage Note dated December 12,1997 10.33(g) Second Amended and Restated Credit Agreement (Revolving Facility) between the Company, MHC Operating Limited Partnership, and certain lenders and agents, dated April 28, 1998 10.34(g) First Amendment to Second Amended and Restated Credit Agreement (Revolving Facility) between the Company, MHC Operating Limited Partnership, and certain lenders and agents, dated December 18, 1998 10.35(h) Second Amendment to Second Amended and Restated Credit Agreement (Revolving Facility) between the Company, MHC Operating Limited Partnership, and certain lenders and agents, dated August 9, 2000 10.36(g) Amended and Restated Credit Agreement (Term Loan) between the Company, MHC Operating Limited Partnership, and certain lenders and agent, dated April 28, 1998 10.36(h) First Amendment to Amended and Restated Credit Agreement (Term Loan) between the Company, MHC Operating Limited Partnership, and certain lenders and agent, dated November 21, 2000 10.36(g) Letter Agreement between the Company and Bank of America National Trust and Savings Association confirming the $100 million swap transaction, dated July 11, 1995 10.39(h) $110,000,000 Amended, Restated and Consolidated Promissory Note dated June 28, 2000 10.40(h) $15,750,000 Promissory Note Secured by Leasehold Deed of Trust dated July 13, 2000 10.41(i) Credit Agreement (Term Loan) between the Company, MHC Operating Limited Partnership and certain lenders and agents dated February 9, 2002. 10.42(i) Third Amendment to Second Amended and Restated Credit Agreement (Revolving Facility) between the Company, MHC Operating Limited Partnership, and certain lenders and agents, dated February 9, 2002 10.43(i) $50,000,000 Promissory Note secured by Leasehold Deeds of Trust (Stagecoach Mortgage) dated December 2, 2001. 11 Not applicable 12(i) Computation of Ratio of Earnings to Fixed Charges 13 Not applicable 16 Not applicable 18 Not applicable 21(i) Subsidiaries of the registrant 22 Not applicable 23(i) Consent of Independent Auditors 24.1(i) Power of Attorney for John F. Podjasek, Jr. dated March 27, 2002 24.2(i) Power of Attorney for Michael A. Torres dated March 19, 2002 24.3(i) Power of Attorney for Thomas E. Dobrowski dated March 15, 2002 24.4(i) Power of Attorney for Gary Waterman dated March 27, 2002 24.5(i) Power of Attorney for Donald S. Chisholm dated March 19, 2002 24.6(i) Power of Attorney for Louis H. Masotti dated March 15, 2002 27 Not applicable 28 Not applicable
(a) Included as an exhibit to the Company's Form S-11 Registration Statement, File No. 33-55994, and incorporated herein by reference. (b) Included as an exhibit to the Company's Report on Form 10-K dated December 31, 1993, and incorporated herein by reference. (c) Included as an exhibit to the Company's Report on Form 10-K dated December 31, 1994, and incorporated herein by reference. (d) Included as an exhibit to the Company's Report on Form 10-Q for the quarter ended March 31, 1996, and incorporated herein by reference. 32 ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (CONTINUED) (e) Included as an exhibit to the Company's Report on Form 10-Q for the quarter ended June 30, 1996, and incorporated herein by reference. (f) Included as an exhibit to the Company's Report on Form 10-K dated December 31, 1997, and incorporated herein by reference. (g) Included as an exhibit to the Company's Form S-3 Registration Statement, File No. 333-90813, and incorporated herein by reference. (h) Included as an exhibit to the Company's Report on Form 10-K dated December 31, 2000, and incorporated herein by reference. (i) Filed herewith. 29 30 ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (CONTINUED) (b) Reports on Form 8-K: None. (c) Exhibits: See Item 14 (a)14(a)(3) above. (d) Financial Statement Schedules: See Index to Financial Statements attached hereto on page F-1 of this Form 10-K. 3033 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MANUFACTURED HOME COMMUNITIES, INC., a Maryland corporation Date: March 23, 200129, 2002 By: /s/ Howard Walker -------------------- --------------------------------HOWARD WALKER -------------- ------------------------------------ Howard Walker Chief Executive Officer Date: March 23, 200129, 2002 By: /s/ JOHN ZOELLER -------------- ------------------------------------ John Zoeller --------------------- -------------------------------- John ZoellerExecutive Vice President, Treasurer and Chief Financial Officer Date: March 23, 200129, 2002 By: /s/ Mark Howell --------------------- --------------------------------MARK HOWELL -------------- ------------------------------------ Mark Howell Principal Accounting Officer 3134 32 MANUFACTURED HOME COMMUNITIES, INC. - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name Title DateNAME TITLE DATE ---- ----- ---- /s/ Howard WalkerHOWARD WALKER Chief Executive Officer - ----------------------------------------March 29, 2002 ------------------------------------------ *Attorney-in-Fact -------------- Howard Walker *Attorney-in-Fact March 23, 2001/s/ JOHN ZOELLER Vice President, Treasurer /s/ John ZoellerMarch 29, 2002 ------------------------------------------ and Chief Financial Officer - ------------------------------------------------------ John Zoeller *Attorney-in-Fact March 23, 2001 /s/ Samuel ZellSAMUEL ZELL Chairman of the Board - ----------------------------------------March 29, 2002 ------------------------------------------ -------------- Samuel Zell /s/ SHELI Z. ROSENBERG Director March 23, 2001 /s/29, 2002 ------------------------------------------ -------------- Sheli Z. Rosenberg /s/ DAVID A. HELFAND Director - ---------------------------------------- Sheli Z. Rosenberg March 23, 2001 /s/29, 2002 ------------------------------------------ -------------- David A. Helfand *DONALD S. CHISHOLM Director - ---------------------------------------- David A. Helfand March 23, 2001 *Donald S. Chisholm Director - ----------------------------------------29, 2002 ------------------------------------------ -------------- Donald S. Chisholm *THOMAS E. DOBROWSKI Director March 23, 2001 *Thomas E. Dobrowski Director - ----------------------------------------29, 2002 ------------------------------------------ -------------- Thomas E. Dobrowski *LOUIS H. MASOTTI Director March 23, 2001 *Louis H. Masotti Director - ----------------------------------------29, 2002 ------------------------------------------ -------------- Louis H. Masotti *JOHN F. PODJASEK, JR. Director March 23, 2001 *John F. Podjasek, Jr. Director - ----------------------------------------29, 2002 ------------------------------------------ -------------- John F. Podjasek, Jr. *MICHAEL A. TORRES Director March 23, 2001 *Michael A. Torres Director - ----------------------------------------29, 2002 ------------------------------------------ -------------- Michael A. Torres *GARY L. WATERMAN Director March 23, 2001 *Gary L. Waterman Director - ----------------------------------------29, 2002 ------------------------------------------ -------------- Gary L. Waterman March 23, 2001
3235 33 INDEX TO FINANCIAL STATEMENTS MANUFACTURED HOME COMMUNITIES, INC.
PAGE ---- Report of Independent Auditors .............................................................Auditors....................................................................................... F-2 Consolidated Balance Sheets as of December 31, 20002001 and 1999 ...............................2000......................................................... F-3 Consolidated Statements of Operations for the years ended December 31, 2001, 2000 1999 and 1998 .1999........................... F-4 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2001, 2000 1999 and 1998 .......................................................1999...... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 1999 and 1998 .1999........................... F-6 Notes to Consolidated Financial Statements .................................................Statements........................................................................... F-7 Schedule II --- Valuation and Qualifying Accounts ............................................Accounts..................................................................... S-1 Schedule III --- Real Estate and Accumulated Depreciation ....................................Depreciation............................................................. S-2
Certain schedules have been omitted as they are not applicable to the CompanyCompany. F-1 34 Report of Independent AuditorsREPORT OF INDEPENDENT AUDITORS To the Board of Directors of Manufactured Home Communities, Inc. We have audited the accompanying consolidated balance sheets of Manufactured Home Communities, Inc. as of December 31, 20002001 and 1999,2000, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000.2001. We have also audited the related financial statement schedules listed in the accompanying index. These financial statements and schedules are the responsibility of the management of Manufactured Home Communities, Inc. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Manufactured Home Communities, Inc. at December 31, 20002001 and 1999,2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000,2001, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects the information set forth therein. ERNST & YOUNG LLP Chicago, Illinois January 25, 2001,29, 2002, except for Note 10 as to which the date is February 8, 2002 and except for Note 18 as to which the date is February 13, 200122, 2002 F-2 35 MANUFACTURED HOME COMMUNITIES, INC. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2001 and 2000 AND 1999 (AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
2001 2000 1999 ---- -------------- ---------- ASSETS Investment in real estate: Land ...........................................................Land...................................................... $ 271,871 $ 271,822 $ 285,337 Land improvements ..............................................improvements......................................... 855,296 839,725 876,923 Buildings and other depreciable property .......................property.................. 110,971 106,629 102,083 ----------- --------------------- ---------- 1,238,138 1,218,176 1,264,343 Accumulated depreciation .......................................depreciation.................................. (211,878) (181,580) (150,757) ----------- --------------------- ---------- Net investment in real estate ................................estate.......................... 1,026,260 1,036,596 1,113,586 Cash and cash equivalents .........................................equivalents................................... 1,354 2,847 6,676 Notes receivable ..................................................receivable............................................ 1,506 4,984 4,284 Investment in and advances to affiliates ..........................affiliates.................... 34,387 21,215 11,689 Investment in joint ventures ......................................ventures................................ 11,853 13,267 9,501 Rents receivable ..................................................receivable............................................ 1,966 1,440 1,338 Deferred financing costs, net .....................................net............................... 5,867 6,344 5,042 Prepaid expenses and other assets .................................assets........................... 16,770 17,611 8,222 ----------- --------------------- ---------- Total assets ................................................... $ 1,104,304 $ 1,160,338 =========== ===========assets.............................................. $1,099,963 $1,104,304 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Mortgage notes payable .........................................payable.................................... $ 590,371 $ 556,578 $ 513,172 Unsecured term loan ............................................loan....................................... 100,000 100,000 Unsecured line of credit .......................................credit.................................. 16,250 59,900 107,900 Other notes payable ............................................payable....................................... 2,236 3,206 4,192 Accounts payable and accrued expenses ..........................expenses..................... 23,000 23,822 20,780 Accrued interest payable .......................................payable.................................. 4,582 5,116 5,612 Rents received in advance and security deposits ................deposits........... 5,133 5,184 6,831 Distributions payable ..........................................payable..................................... 12,062 11,100 11,020 Due to affiliates ..............................................affiliates......................................... 32 33 ----------- -----------32 ---------- ---------- Total liabilities ............................................liabilities...................................... 753,666 764,938 769,540 ----------- ----------- Commitments and contingencies Minority Interest --- Common OP Units and other .....................other.............. 46,147 46,271 54,397 Minority Interest --- Perpetual Preferred OP Units ..................Units........... 125,000 125,000 Stockholders' equity: Preferred stock, $.01 par value 10,000,000 shares authorized; none issued ....................issued................................ -- -- Common Stock, $.01 par value 50,000,000 shares authorized; 21,064,78521,562,343 and 22,813,35721,064,785 shares issued and outstanding for 2001 and 2000, and 1999, respectivelyrespectively........................ 215 210 229 Paid-in capital ................................................capital........................................... 245,827 235,681 275,664 Deferred compensation ..........................................compensation..................................... (4,062) (5,969) (6,326) Employee notes .................................................notes............................................ (3,841) (4,205) (4,540) Distributions in excess of accumulated earnings ................earnings........... (63,478) (57,622) (53,626) ----------- -----------Accumulated other comprehensive income.................... 489 -- ---------- ---------- Total stockholders' equity ...................................equity............................. 175,150 168,095 211,401 ----------- ----------- Total liabilities and stockholders' equity ..................... $ 1,104,304 $ 1,160,338 =========== ===========equity................ $1,099,963 $1,104,304 ========== ==========
The accompanying notes are an integral part of the financial statements F-3 36 MANUFACTURED HOME COMMUNITIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 1999 AND 19981999 (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
2001 2000 1999 1998 ---- ---- ------------ -------- -------- REVENUES Base rental income ............................................ $ 189,481 $ 181,672 $ 165,340income............................................ $195,644 $189,481 $181,672 RV base rental income .........................................income......................................... 5,748 7,414 9,526 7,153 Utility and other income ......................................income...................................... 22,014 20,366 20,096 18,219 Equity in income of affiliates ................................affiliates................................ 1,811 2,408 2,065 1,070 Interest income ...............................................income............................................... 639 1,009 1,669 3,048 --------- --------- ----------------- -------- -------- Total revenues .............................................revenues............................................. 225,856 220,678 215,028 194,830 --------- --------- ----------------- -------- -------- EXPENSES Property operating and maintenance ............................maintenance............................ 62,008 59,199 58,038 53,064 Real estate taxes .............................................taxes............................................. 17,420 16,888 16,460 14,470 Property management ...........................................management........................................... 8,984 8,690 8,337 7,108General and administrative.................................... 6,231 5,955 5,550 General and administrative .................................... 5,955 5,550 4,668 General and administrative - affiliates .......................-- affiliates...................... 456 468 542 743 Interest and related amortization .............................amortization............................. 51,305 53,280 53,775 49,693 Depreciation on corporate assets ..............................assets.............................. 1,243 1,139 1,005 995 Depreciation on real estate assets and other costs ............costs............ 34,833 34,411 34,486 28,426 --------- --------- ----------------- -------- -------- Total expenses .............................................expenses............................................. 182,480 180,030 178,193 159,167 --------- --------- ----------------- -------- -------- Income from operations ........................................operations........................................ 43,376 40,648 36,835 35,663 Gain on sale of Properties and other ..........................other.......................... 8,168 12,053 -- -- --------- --------- ----------------- -------- -------- Income before allocation to Minority Interests and extraordinary loss on early extinguishment of debtdebt... 51,544 52,701 36,835 35,663 (Income) allocated to Common OP Units .........................Units......................... (8,209) (8,463) (6,219) (6,733) (Income) allocated to Perpetual Preferred OP Units ............Units............ (11,252) (11,252) (2,844) -- --------- --------- ----------------- -------- -------- Income before extraordinary loss on early extinguishment of debt .....................................debt.................................................... 32,083 32,986 27,772 28,930 Extraordinary loss on early extinguishment of debt (net of $264 allocated to Minority Interests) ................... -- 1,041 -- -- --------- --------- ----------------- -------- -------- NET INCOME .................................................INCOME................................................. $ 32,083 $ 31,945 $ 27,772 $ 28,930 ========= ========= ================= ======== ======== Net income per Common Share before extraordinary item - basic .-- basic.............................................. $ 1.53 $ 1.54 $ 1.10 $ 1.13 ========= ========= ================= ======== ======== Net income per Common Share before extraordinary item - diluted-- diluted............................................ $ 1.49 $ 1.51 $ 1.09 $ 1.12 ========= ========= ================= ======== ======== Net income per Common Share - basic ...........................-- basic.......................... $ 1.53 $ 1.49 $ 1.10 $ 1.13 ========= ========= ================= ======== ======== Net income per Common Share - diluted .........................-- diluted........................ $ 1.49 $ 1.46 $ 1.09 $ 1.12 ========= ========= ================= ======== ======== Weighted average Common Shares outstanding - basic ............-- basic........... 21,036 21,469 25,224 25,626 ========= ========= ================= ======== ======== Weighted average Common Shares outstanding --- diluted (Note 3) .................................................... 27,010 27,408 31,252 31,962 ========= ========= ================= ======== ======== Distributions declared per Common Share outstanding ...........outstanding........... $ 1.78 $ 1.66 $ 1.55 $ 1.45 ========= ========= ================= ======== ======== Tax status of distributions paid during the year: Ordinary income ............................................income............................................ $ 1.31 $ 1.32 $ 1.16 $ 1.14 ========= ========= ================= ======== ======== Capital gain ...............................................gain............................................... $ -- $ -- $ -- ========= ========= ================= ======== ======== Return of capital ..........................................capital.......................................... $ 0.44 $ 0.31 $ -- $ 0.31 ========= ========= ================= ======== ========
The accompanying notes are an integral part of the financial statements F-4 37 MANUFACTURED HOME COMMUNITIES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 1999 AND 19981999 (AMOUNTS IN THOUSANDS)
2001 2000 1999 1998 ---- ---- ------------- --------- --------- PREFERRED STOCK, $.01 PAR VALUE ...................................VALUE............................. $ -- $ -- $ -- ========= ========= ================= ======== ======== COMMON STOCK, $.01 PAR VALUE Balance, beginning of year ........................................year.................................. $ 210 $ 229 $ 262 $ 248 Issuance of Common Stock through restricted stock grants ......grants................................................. 1 1 21 Exercise of options ........................................... 1options....................................... 4 1 1 (Repurchase) issuance of Common Stock .........................Stock..................... -- (21) (35) 11 --------- --------- ----------------- -------- -------- Balance, end of year ..............................................year........................................ $ 215 $ 210 $ 229 $ 262 ========= ========= ================= ======== ======== PAID --- IN CAPITAL Balance, beginning of year ........................................ $ 275,664 $ 364,603 $ 321,915year.................................. $235,681 $275,664 $364,603 Issuance of Common Stock for employee notes ...................notes............... -- -- 129-- Conversion of OP Units to Common Stock ........................Stock.................... 599 494 1,525 1,100 Issuance of Common Stock through exercise of options ..........options...... 7,743 2,719 2,034 2,372 Issuance of Common Stock through restricted stock grants ......grants................................................. 1,627 3,310 1,507 6,118 Issuance of Common Stock through employee stock purchase plan .plan................................................... 2,365 1,435 1,195 940 (Repurchase) issuanceRepurchase of Common Stock .........................Stock................................ -- (53,112) (98,160) 24,613 Adjustment for Common OP Unitholders in the Operating Partnership ................................Partnership............................................ (2,188) 5,171 2,960 7,416 --------- --------- ----------------- -------- -------- Balance, end of year .............................................. $ 235,681 $ 275,664 $ 364,603 ========= ========= =========year........................................ $245,827 $235,681 $275,664 ======== ======== ======== DEFERRED COMPENSATION Balance, beginning of year ........................................year.................................. $ (5,969) $ (6,326) $ (7,442) $ (2,885) Issuance of Common Stock through restricted stock grants ......grants................................................. (1,628) (3,311) (536) (5,692) Recognition of deferred compensation expense ..................expense.............. 3,535 3,668 1,652 1,135 --------- --------- ----------------- -------- -------- Balance, end of year ..............................................year........................................ $ (4,062) $ (5,969) $ (6,326) $ (7,442) ========= ========= ================= ======== ======== EMPLOYEE NOTES Balance, beginning of year ........................................year.................................. $ (4,205) $ (4,540) $ (4,654) $ (4,967) Notes received for issuance of Common Stock ...................Stock............... -- -- (129)-- Principal payments ............................................payments........................................ 364 335 114 442 --------- --------- ----------------- -------- -------- Balance, end of year ..............................................year........................................ $ (3,841) $ (4,205) $ (4,540) $ (4,654) ========= ========= ================= ======== ======== DISTRIBUTIONS IN EXCESS OF ACCUMULATED EARNINGS Balance, beginning of year ........................................ $ (53,626) $ (42,328) $ (33,736)year.................................. $(57,622) $(53,626) $(42,328) Net income ....................................................income................................................ 32,083 31,945 27,772 28,930 Distributions .................................................Other comprehensive income: Unrealized holding gains on derivative instruments..... 489 -- -- -------- -------- -------- Comprehensive income................................. 32,572 31,945 27,772 -------- -------- -------- Distributions............................................. (37,939) (35,941) (39,070) (37,522) --------- --------- ----------------- -------- -------- Balance, end of year .............................................. $ (57,622) $ (53,626) $ (42,328) ========= ========= =========year........................................ $(62,989) $(57,622) $(53,626) ======== ======== ========
The accompanying notes are an integral part of the financial statements F-5 38 MANUFACTURED HOME COMMUNITIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 1999 AND 19981999 (AMOUNTS IN THOUSANDS)
2001 2000 1999 1998--------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ............................................................income................................................ $ 32,083 $ 31,945 $ 27,772 $ 28,930 Adjustments to reconcile net income to cash provided by operating activities: Income allocated to minority interests ...........................interests................ 19,461 19,451 9,063 6,733 Gain on sale of Properties and other .............................other.................. (8,168) (12,053) -- -- Depreciation and amortization expense ............................expense................. 37,184 36,511 33,871 29,680 Equity in income of affiliates and joint ventures ................ventures..... (2,782) (2,928) (2,065) (1,070) Amortization of deferred compensation and other ..................other....... 3,535 3,668 2,623 1,563 (Decrease) increaseIncrease in rents receivable ..........................receivable.......................... (526) (102) (667) 116 (Increase)Decrease (increase) in prepaid expenses and other assets ..................assets............................................. 1,330 (9,389) (844) (3,359) Increase(Decrease) increase in accounts payable and accrued expenses ................expenses........................................... (1,358) 2,545 2,491 5,188 (Decrease) increase in rents received in advance and security deposits........................................deposits.................................. (51) (1,647) 336 4,196 --------- --------- --------- Net cash provided by operating activities .............................activities................. 80,708 68,001 72,580 71,977 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Collection of escrow proceeds on acquisition .......................... -- -- 14,295 (Contributions to)Contributions to and distributions from Affiliates, ......................net... (11,493) (7,250) (1,959) 399 Collections (funding) of notes receivable .............................receivable................. 3,478 (700) 11,426 (14,563) Investment inDistribution from (investment in) joint ventures ..........................................ventures.......... 1,697 (3,758) (2,279) (7,584) Proceeds from dispositions of assets ..................................assets...................... 24,209 46,490 -- -- Return(Funding) return of escrow (funding) for acquisition of rental properties - net .-- net....................................... (17,770) 4,581 (30,640) (241,076) Improvements: Improvements - corporate ...........................................-- corporate............................... (840) (498) (878) (1,487) Improvements --- rental properties ...................................properties....................... (12,689) (7,855) (8,656) (8,005) Site development costs .............................................costs.................................. (9,659) (7,908) (4,882) (4,741) --------- --------- --------- Net cash (used in) provided by (used in) investing activities ...................activities....... (23,067) 23,102 (37,868) (262,762) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from stock options and employee stock purchase plan ......plan........................................... 10,112 4,142 3,229 3,313 Net proceeds from issuance of Perpetual Preferred OP Units ............Units................................................... -- -- 121,890 -- Distributions to Common Stockholders, Common OP Unitholders and Perpetual Preferred OP Unitholders .............................Unitholders...... (58,111) (56,298) (40,445) (46,491) (Repurchase) issuanceRepurchase of Common Stock and OP Units ....................Units................... (41) (54,595) (99,847) 24,623 Collection of principal payments on employee notes ....................notes........ 364 335 114 442 Line of credit: Proceeds ...........................................................Proceeds................................................ 46,000 103,900 113,400 159,000 Repayments .........................................................Repayments.............................................. (89,650) (151,900) (150,500) (39,000) Refinancing --- net proceeds ............................................proceeds............................... 37,870 65,998 16,248 107,847 Principal payments ....................................................payments........................................ (5,047) (4,249) (4,733) (4,298) Debt issuance costs ...................................................costs....................................... (631) (2,265) (1,049) (1,903) --------- --------- --------- Net cash (used in) provided byused in financing activities ...................activities..................... (59,134) (94,932) (41,693) 203,533 --------- --------- --------- Net (decrease) increase in cash and cash equivalents ......................equivalents................. (1,493) (3,829) (6,981) 12,748 Cash and cash equivalents, beginning of year ..............................year................ 2,847 6,676 13,657 909 --------- --------- --------- Cash and cash equivalents, end of year ....................................year...................... $ 1,354 $ 2,847 $ 6,676 $ 13,657 ========= ========= ========= SUPPLEMENTAL INFORMATION Cash paid during the year for interest ....................................interest...................... $ 50,781 $ 52,947 $ 52,323 $ 45,674 ========= ========= =========
The accompanying notes are an integral part of the financial statements F-6 39 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 --- ORGANIZATION OF THE COMPANY AND BASIS OF PRESENTATION Manufactured Home Communities, Inc. (together with its consolidated subsidiaries, the "Company"), formed in March 1993, is a Maryland corporation which has elected to be taxed as a real estate investment trust ("REIT"). The Company owns or has a controlling interest in 154148 manufactured home communities (the "Properties") located in 2623 states, consisting of 51,45250,761 sites. The Company generally will not be subject to Federal income tax to the extent it distributes its REIT taxable income to its stockholders. The operations of the Company are conducted through certain entities that are owned or controlled by the Company. MHC Operating Limited Partnership (the "Operating Partnership") is the entity through which the Company conducts substantially all of its operations. The Company contributed the proceeds from its initial public offering to the Operating Partnership for a general partnership interest. The limited partners of the Operating Partnership (the "Common OP Unitholders") receive an allocation of net income which is based on their respective ownership percentage of the Operating Partnership which is shown on the Consolidated Financial Statements as Minority Interest -Interests -- Common OP Units. As of December 31, 2000,2001, the Minority Interests --- Common OP Units represented 5,514,3305,426,374 units of limited partnership interest ("OP Units") which are convertible into an equivalent number of shares of the Company's Common stock. The issuance of additional shares of common stock or common OP Units changes the respective ownership of the Operating Partnership for both the Minority Interests and the Company. Sub-partnershipsSubsidiaries of the Operating Partnership werehave been created to (i) facilitate mortgage financing (the "Financing Partnerships"); (ii) facilitate the Company's ability to provide financing to owners of manufactured home communities ("Lending Partnership"); (iii) own the management operations of the Company ("Management Partnerships"Partnership"); and (iv) own the assets and operations of certain utility companies which service the Company's propertiesProperties ("MHC Systems"). The accompanying financial statements represent the consolidated financial information of the Company and its subsidiaries. Due to the Company's ability as general partner to control either through ownership or by contract the Operating Partnership, the Financing Partnerships, the Lending Partnership, the Management PartnershipsPartnership and MHC Systems, each such subsidiary has been consolidated with the Company for financial reporting purposes. Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131") requires certain disclosures of selected information about operating segments in the annual financial statements and related disclosures about products and services, geographic areas, and major customers. The adoption of SFAS No. 131, in June 1998, did not affect the results of operations or financial position of the Company. The Company manages operations on a property by property basis. Since each property has similar economic and operational characteristics, the Company has one reportable segment, which is the operation of manufactured home communities. The Company has concentrations of Properties within the following states: Florida (45(49 Properties), California (25 Properties), Arizona (17 Properties), Michigan (11 Properties) and Colorado (10 Properties). These concentrations of Properties accounted for 35%36%, 17%19%, 9%8%, 4%, and 9%8%, respectively, of the Company's total revenues for the year ended December 31, 2000.2001. The Company also has Properties located in the following areas of the United States: Northeast, Northwest, Midwest, and Nevada/Utah/New Mexico. The Company's largest Property, Bay Indies, located in Venice, Florida, accounted for 3% of the Company's total revenues for the year ended December 31, 2000.2001. The distribution of the Properties throughout the United States reflects the Company's belief that geographic diversification helps insulate the portfolio from regional economic influences. The Company intends to target new acquisitions in or near markets where the Properties are located and will also consider acquisitions of properties outside such markets. NOTE 2 --- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Consolidation The Company consolidates all majority owed subsidiaries due to its ability to control the operations of the subsidiaries. All inter-company transactions have been eliminated in consolidation. F-7 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-7 40 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b)(c) Real Estate Real estate is recorded at cost less accumulated depreciation. The Company evaluates rental propertiesProperties for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (undiscounted) from a propertyProperty is less than its carrying value. Upon determination that a permanent impairment has occurred, rental propertiesProperties are reduced to fair value. For the year ended December 31, 2001, permanent impairment conditions did not exist at any of the Company's Properties. During the year ended December 31, 2000, MHC Acquisition One L.L.C., a consolidated subsidiary of the Company, recorded an impairment loss on the DeAnza Santa Cruz water and wastewater service company business (see Notes 5 and 17). ForIn August 2001, the year endedFinancial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment of Long-Lived Assets" which is effective for fiscal years beginning after December 31, 1999, permanent impairment conditions did not exist at any15, 2001. The application of the Company'sprovisions of this Statement is not expected to affect the earnings and financial position of the Company. Certain costs, including legal costs, relative to efforts by the Company to effectively change the use and operations of several Properties are currently recorded in other assets. These costs, to the extent these efforts are successful, are capitalized to the extent of the established value of the revised project and included in the net investment in real estate for the appropriate Properties. To the extent these efforts are not successful, these costs will be expensed. Depreciation is computed on the straight-line basis over the estimated useful lives of the assets. The Company uses a 30-year estimated life for buildings acquired and structural and land improvements, a ten-to-fifteen-year estimated life for building upgrades and a three-to-seven-year estimated life for furniture, fixtures and equipment. Expenditures for ordinary maintenance and repairs are expensed to operations as incurred and significant renovations and improvements that improve the asset and extend the useful life of the asset are capitalized over their estimated useful life. Initial direct leasing costs are expensed as incurred. Total depreciation expense was $36.1 million, $35.6 million $35.5 million and $29.4$35.5 million for the years ended December 31, 2001, 2000 and 1999, and 1998, respectively. (c)(d) Cash and Cash Equivalents The Company considers all demand and money market accounts and certificates of deposit with a maturity when purchased of three months or less to be cash equivalents. (d)(e) Notes Receivable Notes receivable generally are stated at their outstanding unpaid principal balances net of any deferred fees or costs on originated loans, or unamortized discounts or premiums. Interest income is accrued on the unpaid principal balance. Discounts or premiums are amortized to income using the interest method. (e)(f) Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments" requires disclosures about the fair value of financial instruments whether or not such instruments are recognized in the balance sheet. The Company's financial instruments include short-term investments, notes receivable, accounts receivable, accounts payable, other accrued expenses, mortgage notes payable and interest rate hedge arrangements. The fair values of all financial instruments, including notes receivable, were not materially different from their carrying values at December 31, 20002001 and 1999. (f)2000. F-8 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (g) Deferred Financing Costs Deferred financing costs include fees and costs incurred to obtain long-term financing. The costs are being amortized over the terms of the respective loans on a level yield basis. Unamortized deferred financing fees are written-off when debt is retired before the maturity date. Accumulated amortization for such costs was $1.9$3.0 million and $1.8$1.9 million at December 31, 2001 and 2000, and 1999, respectively. (g)(h) Revenue Recognition Rental income attributable to leases is recorded when earned from tenants. F-8 41 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (h)The Company will reserve for receivables when the Company believes the ultimate collection is less than probable. (i) Minority Interests Net income is allocated to Common OP Unitholders based on their respective ownership percentage of the Operating Partnership. An ownership percentage is represented by dividing the number of Common OP Units held by the Common OP Unitholders (5,514,330(5,426,374 and 5,633,1835,514,330 at December 31, 20002001 and 1999,2000, respectively) by OP Units and common stockCommon Stock outstanding. Issuance of additional shares of common stockCommon Stock or common OP Units changes the percentage ownership of both the Minority Interests and the Company. Due in part to the exchange rights (which provide for the conversion of Common OP Units into Common Stock on a one-for-one basis), such transactions and the proceeds therefrom are treated as capital transactions and result in an allocation between stockholders' equity and Minority Interests to account for the change in the respective percentage ownership of the underlying equity of the Operating Partnership. On September 30, 1999, the Operating Partnership completed a $125 million private placement of 9.0% Series D Cumulative Perpetual Preferred Units ("POP Units") with two institutional investors. The POP Units, which are callable by the Company after five years, have no stated maturity or mandatory redemption, have no voting rights and are not convertible into OP Units or Common Stock. Income is allocated to the POP Units at a preferred rate per annum of 9.0% on the original capital contribution of $125 million. Costs related to the placement of $3.1 million were recorded as a reduction to additional paid-in capital. (i)(j) Income Taxes Due to the structure of the Company as a REIT, the results of operations contain no provision for Federal income taxes. However, the Company may be subject to certain state and local income, excise or franchise taxes. The Company paid state and local taxes of approximately $50,000, $78,000 $85,000 and $78,000$85,000 during the years ended December 31, 2001, 2000 and 1999, and 1998.respectively. As of December 31, 2000,2001, net investment in real estate and notes receivable had a federalFederal tax basis of approximately $742$710 million and $24$20 million, respectively. (j)Reclassifications Certain 1999 and 1998 amounts have been reclassified to conform to the 2000 financial presentation. Such reclassifications have no effect on the operations or equity as originally presented. (k)Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities". and its amendments, Statements 137 and 138 in June of 1999 and June of 2000, respectively. The Company adopted SFAS No. 133 permits early adoption as of the beginning of any fiscal quarter after its issuance. In June 1999, the FASB issued Statement No. 137 which deferred the effective date of SFAS No. 133 to all fiscal quarters for fiscal years beginning after June 15, 2000. The Company will adopt SFAS No. 133 on January 1, 2001. SFAS No. 133 will requirerequires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The Company has determined that the effect of SFAS No. 133 on the earnings and financial position ofOn October 29, 2001, the Company will not be significant when implemented.entered into a swap agreement. (see Note 10) F-9 42 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 --- EARNINGS PER COMMON SHARE Earnings per common share are based on the weighted average number of common shares outstanding during each year. Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128") defines the calculation of basic and fully diluted earnings per share. Basic and fully diluted earnings per share are based on the weighted average shares outstanding during each year and basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. The conversion of OP Units has been excluded from the basic earnings per share calculation. The conversion of an OP Unit to a share of common stock has no material effect on earnings per common share. The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2001, 2000, 1999 (amounts in thousands):
2001 2000 1999 1998 ---- ---- ----------- ------- ------- NUMERATOR: Numerator for basic earnings per share --- Net income ................................income............................................. $32,083 $31,945 $27,772 $28,930 Effect of dilutive securities: Income allocated to Common OP Units (net of extraordinary loss on early extinguishment of debt) ............................................................... 8,209 8,199 6,219 6,733 ------- ------- ------- Numerator for diluted earnings per share - income-- Income available to Common Stockholders afterAfter assumed conversions .................conversions........................ $40,292 $40,144 $33,991 $35,663 ======= ======= ======= DENOMINATOR: Denominator for basic earnings per share --- Weighted average Common Stock outstanding .outstanding................... 21,036 21,469 25,224 25,626 Effect of dilutive securities: Weighted average Common OP Units ..........Units................... 5,466 5,592 5,704 5,955 Employee stock options ....................options............................. 508 347 324 381 ------- ------- ------- Denominator for diluted earnings per share - adjusted-- Adjusted weighted average Common Stock outstandingOutstanding after assumed conversions .....conversions........................ 27,010 27,408 31,252 31,962 ======= ======= =======
NOTE 4 --- COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS The following table presents the changes in the Company's outstanding common stockCommon Stock for the years ended December 31, 2001, 2000 1999 and 19981999 (excluding OP Units of 5,426,374, 5,514,330 5,633,183 and 5,976,8205,633,183 outstanding at December 31, 2001, 2000 1999 and 1998,1999, respectively):
2001 2000 1999 1998 ---- ---- -------------- ---------- ---------- Shares outstanding at January 1, .............................................................. 21,064,785 22,813,357 26,417,029 24,771,180 Common Stock purchased by key employees of the Company ..... -- -- 5,000 Common Stock issued through conversion of OP Units .........Units.......... 87,956 59,190 143,637 99,552 Common Stock issued through exercise of Options ............Options............. 387,115 138,029 126,565 141,403 Common Stock issued through stock grants ...................grants.................... 57,000 92,070 95,666 328,831 Common Stock issued through Employee Stock Purchase Plan ...Plan.... 98,987 68,739 59,060 44,804 Common Stock issued through Unit Trust Offering ............ -- -- 1,048,059 Common Stock repurchased and retired .......................retired........................ (133,500) (2,106,600) (4,028,600) (21,800) ---------- ---------- ----------------- Shares outstanding at December 31, .......................................................... 21,562,343 21,064,785 22,813,357 26,417,029 ========== ========== ==========
As of December 31, 2000,2001, the Company's percentage ownership of the Operating Partnership was approximately 79%80%. The remaining 21%20% is owned by the Common OP Unitholders. F-10 43 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 --- COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS (CONTINUED) In March 1997, the Company's Board of Directors approved a common stockCommon Stock repurchase plan whereby the Company was authorized to repurchase and retire shares of its common stock. UnderCommon Stock. No shares of Common Stock were repurchased during the year ended December 31, 2001. However, under the plan, the Company repurchased approximately 2.22.1 million shares of Common Stock at an average price of $24.06 per share during the year ended December 31, 2000 4.1and approximately 4.0 million shares of Common Stock at an average price of $23.40 per share during the year ended December 31, 1999, and 21,800 shares of Common Stock at an average price of $23.48 per share during the year ended December 31, 1998 using proceeds from borrowings on the line of credit. During 1998, the Company, as general partner ofyear ended December 31, 2000, the Operating Partnership approved the admission of new limited partners (the "1998 Acquisition Partners") to the Operating Partnership in connection with certain acquisitions of real estaterepurchased and investments in joint ventures (see Notes 5 and 6). The 1998 Acquisition Partners received 342,438cancelled approximately 60,000 OP Units which are exchangeable on a one-for-one basis for shares of the Company's common stock. On April 23, 1998, the Company completed an offering of 1,048,059 shares of common stock (the "Unit Trust Offering") and sold the shares to Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter"). The offering price per share was $25.4375, the closing price for shares of the Company's common stock on April 23, 1998, resulting in gross offering proceeds of approximately $26.7 million. Net of the Underwriter's discount and offering expenses, the Company received approximately $25 million. The Underwriter deposited the shares of common stock with the trustee of the Equity Investor Fund Cohen & Steers Realty Majors Portfolio, a unit investment trust (the "Trust"), in exchange for units in the Trust.from various holders. On March 26, 1999, the Operating Partnership repurchased and cancelled 200,000 OP Units from a limited partner of the Operating Partnership. During the year ended December 31, 2000, the Operating Partnership repurchased and cancelled approximately 60,000 OP Units from various holders. On September 30, 1999, the Operating Partnership completed a $125 million private placement of 9.0% Series D Cumulative Perpetual Preferred Units ("POP Units") with two institutional investors. The POP Units, which are callable by the Company after five years, have no stated maturity or mandatory redemption. Net proceeds from the offering of $121 million were used to repay amounts outstanding under the Company's line of credit facility and for other corporate purposes. The following distributions have been declared and / and/or paid to common stockholders and minority interestsMinority Interests since January 1, 1998.1999.
DISTRIBUTION FOR THE QUARTER SHAREHOLDER RECORD AMOUNT PER SHARE ENDING RECORD DATE PAYMENT DATE ------------------- ---------------------- ------------------ ---------------- ------ ---- ------------ $0.3625 March 31, 1998 March 27, 1998 April 10, 1998 $0.3625 June 30, 1998 June 26, 1998 July 10, 1998 $0.3625 September 30, 1998 September 25, 1998 October 9, 1998 $0.3625 December 31, 1998 December 16, 1998 December 30, 1998 - ------------------------------------------------------------------------------------------------------- $0.3875 March 31, 1999 March 26, 1999 April 9, 1999 $0.3875 June 30, 1999 June 25, 1999 July 9, 1999 $0.3875 September 30, 1999 September 24, 1999 October 8, 1999 $0.3875 December 31, 1999 December 31, 1999 January 14, 2000 - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ $0.4150 March 31, 2000 March 31, 2000 April 14, 2000 $0.4150 June 30, 2000 June 30, 2000 July 14, 2000 $0.4150 September 30, 2000 September 29, 2000 October 13, 2000 $0.4150 December 31, 2000 December 29, 2000 January 12, 2001 - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ $0.4450 March 31, 2001 March 30, 2001 April 13, 2001 $0.4450 June 30, 2001 June 29, 2001 July 13, 2001 $0.4450 September 30, 2001 September 28, 2001 October 12, 2001 $0.4450 December 31, 2001 December 28, 2001 January 11, 2002 - -----------------------------------------------------------------------------------------------
The Operating Partnership paidpays distributions of 9.0% per annum on the $125 million of POP Units. Distributions on the POP Units were paid quarterly on the last calendar day of each quarter beginning December 31, 1999. F-11 44 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 - COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS (CONTINUED) The Company adopted, effective July 1, 1997, the 1997 Non-Qualified Employee Stock Purchase Plan ("ESPP"). Pursuant to the ESPP, certain employees and directors of the Company may each annually acquire up to $250,000 of common stockCommon Stock of the Company. The aggregate number of shares of common stockCommon Stock available under the ESPP shall not exceed 1,000,000, subject to adjustment by the Board of Directors. The common stockCommon Stock may be purchased monthly at a price equal to 85% of the lesser of: (a) the closing price for a share of Common Stock on the last day of such month; and (b) the greater of: (i) the closing price for a share of Common Stock on the first day of such month, and (ii) the average closing price for a share of Common Stock for all the business days in the month. Shares of Common Stock issued through the ESPP for the years ended December 31, 2001, 2000 and 1999 were 96,485, 68,739 and 1998 were 68,739, 59,060, and 44,804, respectively. F-11 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 --- INVESTMENT IN REAL ESTATE Land improvements consist primarily of improvements such as grading, landscaping and infrastructure items such as streets, sidewalks or water mains. Depreciable property consists of permanent buildings in the Properties such as clubhouses, laundry facilities, maintenance storage facilities, and furniture, fixtures and equipment. On September 4, 1997, the Company entered into a portfolio purchase agreement (as amended by a supplemental agreement on December 17, 1997) to acquire 37 manufactured home communities (the "Ellenburg Communities") from partnerships having Ellenburg Capital Corporation ("ECC") as the general partner, for a purchase price in excess of $300 million. During 1997 and 1998, the Company closed on the acquisition of thirty-one31 of the Ellenburg Communities for an aggregate purchase price of approximately $278 million and gained control of an additional five Ellenburg Communities with acquisition advances of approximately $57 million to the partnerships which owned such Ellenburg Communities. All fundings related to the acquisition were funded by the Company with borrowings under the Company's line of credit, term bank facilities, assumed debt and the issuance of Common OP Units. During 1998, the Company received approximately $14.3 million, including approximately $365,000 of interest income, which was being held subject to the completion of due diligence procedures on the Ellenburg Communities. The $14.3 million was initially recorded as a liability until 1999 when a settlement of certain related issues was substantially complete and accordingly, in a non-cash transaction, relieved the liability and adjusted the purchase price of the Ellenburg Communities. In April 2000, the California Superior Court approved a settlement agreement (the "Settlement") in connection with the dissolution proceeding of ECC and its affiliated partnerships. As part of the Settlement, the Company received $13.5 million previously held in escrow in connection with the purchase of the Ellenburg Communities and recorded $3.0 million of interest income related to these funds. In connection with the Settlement, the Company sold three communities --- Mesa Regal RV Resort, Mon Dak and Naples Estates --- for an aggregate sales price of $59.0 million, including cash proceeds of $40.0 million and assumption of debt by the purchaser of $19.0 million. The Company recorded a $9.1 million gain on the sale of these Properties. Proceeds from the Settlement and property sales were used to pay down the Company's line of credit. See Note 17 for further discussion of the Settlement. On January 8,6, 1998, the Company acquired Quailfunded a $12.3 million loan (the "Meadows Loan") to Meadows Preservation, Inc. The Meadows Loan was collateralized by The Meadows manufactured home community located in Riverbank, California, for a purchase price of approximately $4.7 million. The acquisition was funded with a borrowing under the Company's line of credit. Quail Meadows consists of approximately 146 developed sites.Palm Beach Gardens, Florida. On April 30, 1998,1, 1999, the Company acquired Sherwood Forest RV Resort, located adjacent to one ofeffectively exchanged the Ellenburg CommunitiesMeadows Loan for an equity and debt interest in Kissimmee, Florida, for a purchase price of approximately $7.0 million.the partnership that owns The acquisition was funded with a borrowing under the Company's line of credit. Sherwood Forest RV Resort consists of approximately 512 developed sites and a 33 acre expansion parcel. On May 14, 1998, the Company acquired Casa Del Sol Resort III, located adjacent to one of the Company's Properties in Peoria, Arizona, for a purchase price of approximately $9.8 million. The acquisition was funded with a borrowing under the Company's line of credit. Casa Del Sol Resort III consists of 238 developed sites. F-12 45 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - INVESTMENT IN REAL ESTATE (CONTINUED) On June 4, 1998, the Company entered into a joint venture agreement with Wolverine Investors L.L.C. to acquire eighteen manufactured home communities (the "College Heights Communities"). The aggregate purchase price for the College Heights Communities was approximately $89 million.Meadows. The Company contributed approximately $19 million to the joint venture, Wolverine Investors L.L.C. contributed approximately $2.0 million to the joint ventureincludes The Meadows in investment in real estate and the remainderrelated results of operations in the acquisition was funded with a borrowing from a financial institutionstatement of approximately $68 million. The Company's $19 million contribution to the joint venture was funded with a borrowing under the Company's line of credit. Due to the Company's ability to control the joint venture through its approximate 95% interest, the College Heights Communities and related operations have been consolidated for financial reporting purposes. On August 13, 1998, the Company acquired Sunset Oaks, located in Plant City, Florida, adjacent to one of the Company's existing Properties, for a purchase price of approximately $3.6 million. The acquisition was funded with a borrowing under the Company's line of credit. Sunset Oaks consists of 168 developed sites.operations. On July 23, 1999, the Company acquired Coquina Crossing, located in St. Augustine, Florida, for a purchase price of approximately $10.4 million. The acquisition was funded with a borrowing under the Company's line of credit. Coquina Crossing is a 748-site senior community with 269 developed sites and zoned expansion potential for 479 sites. In addition, RSI, an affiliate of the Company,Realty Systems, Inc. purchased the model home inventory at the community for approximately $1.1 million. In March 2000, in accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of",of ", MHC Acquisition One L.L.C., a consolidated subsidiary of the Company, recorded an impairment loss on the DeAnza Santa Cruz water and wastewater service company business. Recent negotiations for the sale of the business as well as management'sManagement's estimates indicated that the undiscounted future cash flows from the business would be less than the carrying value of the business and its related assets. The Company recorded an asset impairment loss of $701,000 (or $0.03 per fully diluted share) which is included inas a reduction of other income onin the accompanying statementsstatement of operations.operations for the year ended December 31, 2000. This loss represents the difference between the carrying value of the DeAnza Santa Cruz water and wastewater service company business and its related assets and their estimated fair market value. On February 29, 2000, MHC Systems, Inc., a consolidated subsidiary of the Company, disposed of the water and wastewater service company facilities known as FFEC-Six in a cash sale. Net proceeds from the sale of approximately $4.2 million were used to pay down the Company's line of credit and a gain on the sale of $719,000 (or $0.03 per fully diluted share) was recorded in other income on the accompanying statementsstatement of operations for the year ended December 31, 2000. F-12 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 -- INVESTMENT IN REAL ESTATE (CONTINUED) On January 3, 2001, the Company acquired two Florida communities, totaling 730 sites, for an aggregate purchase price of approximately $17.3 million. The Lakes at Countrywood is a 422-site community in Plant City, near Tampa, Florida and includes approximately 23 acres for expansion. Grand Island is a 308-site community in Grand Island, near Orlando, Florida, and includes a marina with 50 boat docks. The acquisition was funded with a borrowing under the Company's line of credit. On February 13, 2001, the Company completed the disposition of the following seven communities, totaling 1,281 sites, in Kansas, Missouri and Oklahoma, for a total sale price of approximately $17.4 million: Dellwood Estates........ 136 sites Briarwood............... 166 sites Bonner Springs.......... 211 sites Carriage Park........... 143 sites North Star.............. 219 sites Quivira Hills........... 142 sites Rockwood................ 264 sites
A gain of $8.1 million was recorded on the sale. Proceeds from the sale were used to reduce the amount outstanding on the Company's line of credit. Effective June 30, 2001, the Company terminated its lease to a third-party operator for the campground and RV resort facilities at the Property known as Bulow Plantation in Flagler Beach, Florida, and assumed operation of these facilities directly. Beginning July 1, 2001 the Company no longer records lease income from Bulow RV Resort, however, the results of operations for Bulow RV Resort are included in the Company's results of operations. On October 5, 2001, the Company finalized a settlement agreement between MHC Lending Partnership, the Operating Partnership and the limited liability company which owns Candlelight in Columbus, Indiana. In 1996, the Company funded a recourse loan to the owner of Candlelight Village and accounted for the loan as an investment in real estate. The Company received $10.8 million in proceeds from the settlement, which was accounted for as a sale of real estate and recorded a $75,000 gain on the sale. Proceeds from the sale were used as working capital. The acquisitions have been accounted for utilizing the purchase method of accounting and, accordingly, the results of operations of acquired assets are included in the statementstatements of operations from the dates of acquisition. The Company acquired all of the Properties from unaffiliated third parties. During the year ended December 31, 2001, the Company capitalized approximately $2.4 million of costs, including legal costs, relative to efforts by the Company to effectively change the use and operations of several Properties which are currently recorded in other assets. These costs will be expensed if management determines these efforts will not be successful. The Company is actively seeking to acquire additional manufactured home communities and currently is engaged in negotiations relating to the possible acquisition of a number of communities. At any time these negotiations are at varying stages which may include contracts outstanding to acquire certain manufactured home communities which are subject to satisfactory completion of the Company's due diligence review. F-13 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 --- INVESTMENT IN JOINT VENTURE On March 18, 1998, the Company joined Plantation Company, L.L.C. and Trails Associates, L.L.C., two 50% joint venture investments with the principals of Meadows Management Company, to own two manufactured home communities known as "Plantation on the Lake" and "Trails West", for approximately $6.5 million. Plantation on the Lake is located in Riverside, California and consists of 385 developed sites and 122 expansion sites. Trails West is located in Tucson, Arizona and consists of 488 developed sites. The Company's investments were funded with a $3.9 million borrowing under the Company's line of credit and with the issuance of approximately $2.6 million in OP Units. During the year ended December 31, 2000, the Company recorded approximately $7,000 of net income from joint ventures and received approximately $230,000 in cash flow distributions. F-13 46 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - INVESTMENT IN JOINT VENTURE (CONTINUED) On December 28, 2000, the Company, through a joint venture with the principals of Meadows Management Company (the "Voyager Joint Venture"), acquired a 50% economic25% interest in Voyager RV Resort, a 1,576 site RV resort in Tucson, Arizona, for total consideration of $8.0$4.0 million. Voyager RV Resort is adjacent to Trails West. The Company's investment included cash of $3.0 million and its 50% interest in land held through the Trails West joint venture valued at $2.0 million and notes receivable from the principals of Meadows Management Company totaling $3.0 million. Due to the Company's inability to control the joint ventures, the Company accounts for its investment in the joint ventures onusing the equity method. Duringmethod of accounting. The Company recorded approximately $283,000 and $8,000 of net income from joint ventures in the yearyears ended December 31, 2001 and 2000, the Company recorded approximately $7,000 of Net Income from joint venturesrespectively; and received approximately $230,000$1.6 million and $400,000 in cash flow distributions. NOTE 7 --- INVESTMENT IN AND ADVANCES TO AFFILIATES Investment in and advances to affiliates consists principally of preferred stock of RSIRealty Systems, Inc. ("RSI") and LP Management Corp.its subsidiaries (collectively "Affiliates") and advances under a line of credit between the Company and RSI. The Company accounts for the investment in and advances to Affiliates using the equity method of accounting. Following is unaudited financial information for the Affiliates for the years ended December 31, 20002001 and 19992000 (amounts in thousands):
2001 2000 1999 ---- ------------ -------- Assets $ 34,20051,619 $ 23,20137,501 Liabilities, net of amounts due to the Company (12,985) (11,512)(17,232) (16,286) -------- -------- Net investment in Affiliates $ 21,21534,387 $ 11,68921,215 ======== ======== Home sales $ 42,64538,621 $ 34,66239,952 Cost of sales (29,819) (27,029)(30,657) (31,837) Other revenues and expenses, net (10,418) (5,568)(6,153) (5,707) -------- -------- Equity in income of Affiliates $ 2,4081,811 $ 2,0652,408 ======== ========
F-14 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 --- NOTES RECEIVABLE At December 31, 20002001 and 1999,2000, the Company had approximately $5.0$1.5 million and $4.3$5.0 million in notes receivable, respectively. On January 6, 1998, the Company funded a $12.3 million loan (the "Meadows Loan") to Meadows Preservation, Inc. The Meadows Loan was collateralized by The Meadows manufactured home community located in Palm Beach Gardens, Florida, bore interest at the lesser of 9% or the cash flow of the Property and matured on April 30, 1999, as amended. On April 1, 1999, the Company effectively exchanged The Meadows Loan for an equity interest in the partnership that owns The Meadows. The Company accounts for The Meadows as an acquisition and consolidates the Property and related results of operations. On May 12, 1998, the Company entered into an agreement to loan $5.9 million to Trails Associates, L.L.C. (the "Trails West Loan") for development of the Property known as Trails West. Subsequently, the Company had funded $3.2 million under the Trails West Loan. However, pursuant to the aforementioned Voyager Joint Venture transaction much of the land under development by Trails Associates, L.L.C. was contributed to the Voyager Joint Venture andIn December 2000, $1.2 million of the Trails West Loan was repaid. Therepaid and during 2001, the remaining balance of $1.9 million on the Trails West Loan is collateralized by the Property known as Trails West, bears interest at the rate of approximately 8.5%, requires monthly interest payments and matures on June 1, 2003. F-14 47 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - NOTES RECEIVABLE (CONTINUED)was repaid. On December 28, 2000, the Company, in connection with the Voyager Joint Venture, entered into an agreement to loan $3.0 million to certain principals of Meadows Management Company. The notes are collateralized with a combination of Common OP Units and partnership interests in this and other joint ventures. The notes bear interest at Primeprime plus 0.5%, per annum, require quarterly interest payments and mature on December 31, 2011. The outstanding balance on these notes as of December 31, 2001 is $1.5 million. NOTE 9 --- EMPLOYEE NOTES RECEIVABLE As of December 31, 2001 and 2000, the Company had employee notes receivable of approximately $3.8 million and $4.2 million respectively, collateralized by the Company's Common Stock. These notes are presented as a reduction of Stockholder's Equity. In December 1992, certain directors, officers and other individuals each entered into subscription agreements with the Company to acquire a total of 440,000 shares of the Company's common stock at $7.25 per share. The Company received from these individuals notes (the "1993 Employee Notes") in exchange for their shares. The 1993 Employee Notes accrue interest at 6.77%, per annum, mature on March 2, 2003, and are recourse against the employees in the event the pledged shares are insufficient to repay the obligations. On January 2, 1996, certain members of management of the Company entered into subscription agreements with the Company to acquire a total of 270,000 shares of the Company's common stockCommon Stock at $17.375 per share, the market price on that date. The Company received from these individuals notes (the "1996 Employee Notes") in exchange for their shares. The 1996 Employee Notes accrue interest at 5.91%, per annum, mature on January 2, 2005, and are recourse against the employees in the event the pledged shares are insufficient to repay the obligations. On March 23, 1998, a member of management of the Company entered into a subscription agreement with the Company to acquire a total of 5,000 shares of the Company's common stock at $25.75 per share, the market price on that date. The Company received from this individual a note in exchange for his shares. The note accrued interest at 5.97%, matured on March 23, 2008, and is recourse against the employee in the event the pledged shares are insufficient to repay the obligation. In January, 2000, the individual returned the shares of common stock and the note was cancelled.F-15 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 --- LONG-TERM BORROWINGS As of December 31, 20002001 and December 31, 1999,2000, the Company had outstanding mortgage indebtedness of approximately $556.6$590.4 million and $513.2$556.6 million, respectively, encumbering 7377 and 7273 of the Company's Properties, respectively. As of December 31, 20002001 and December 31, 1999,2000, the carrying value of such Properties was approximately $631$693 million and $638$631 million, respectively. On February 24, 2000,August 3, 2001, the Company entered into a $50.0 million mortgage agreements collateralizing two Properties for a total of $14.6 million. The mortgage notes mature on March 1, 2010, amortize beginning March 1, 2000 over 30 years and bear interest at a rate of approximately 8.3% per annum. On June 30, 2000, the Company obtained $110 million in debt financing consisting of two mortgage notes - one for $94.3 million and one for $15.7 million - securednote (the "Stagecoach Mortgage") collateralized by seven Properties as discussed below.7 Properties. The proceeds of the financing were used to repay $60 million of mortgage debt secured by the seven Properties, to repay amounts outstanding under the Company's line of credit and for working capital purposes. The Company recorded a $1.3 million charge in connection with the early repayment of the $60 million of mortgage debt. The outstanding mortgage indebtedness as of December 31, 2001 consists of: - - A $265.0 million mortgage note (the "$265 Million Mortgage") collateralized by 29 Properties beneficially owned by MHC Financing Limited Partnership. The $265 Million Mortgage has a maturity date of January 2, 2028 and pays interest at 7.015%. There is no principal amortization until February 1, 2008, after which principal and interest are to be paid from available cash flow and the interest rate will be reset at a rate equal to the then 10-year U.S. Treasury obligations plus 2.0%. The $265 Million Mortgage is presented net of a settled hedge of $3.0 million (net of accumulated amortization of $110,000)$137,000) which is being amortized into interest expense over the life of the loan. - - A $66.5$65.9 million mortgage note (the "College Heights Mortgage") collateralized by the 18 College Heights Communities.Properties. The College Heights Mortgage bears interest at a rate of 7.19%, amortizes beginning July 1, 1999 over 30 years and matures July 1, 2008. F-15 48 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - LONG-TERM BORROWINGS (CONTINUED) - - A $93.8$93.0 million mortgage note (the "DeAnza Mortgage") collateralized by 6 Properties beneficially owned by MHC-DeAnza Financing Limited Partnership. The DeAnza Mortgage bears interest at a rate of 7.82%, amortizes beginning August 1, 2000 over 30 years and matures July 1, 2010. - A $49.9 million mortgage note (the "Stagecoach Mortgage") collateralized by 7 Properties beneficially owed by MHC Stagecoach L.L.C. The Stagecoach Mortgage bears interest at a rate of 6.98%, amortizes beginning September 1, 2001 over 10 years and matures September 1, 2011. - A $22.9$22.5 million mortgage note (the "Bay Indies Mortgage") collateralized by one Property beneficially owned by MHC-Bay Indies Financing Limited Partnership. The Bay Indies Mortgage bears interest at a rate of 7.48%, amortizes beginning August 1, 1994 over 27.5 years and matures July 1, 2004. - - A $15.7$15.6 million mortgage note (the "Date Palm Mortgage") collateralized by one Property beneficially owned by MHC Date Palm, L.L.C. The Date Palm Mortgage bears interest at a rate of 7.96%, amortizes beginning August 1, 2000 over 30 years and matures July 1, 2010. - - Approximately $94.8$78.5 million of mortgage debt on 1815 other various Properties, which was recorded at fair market value with the related discount or premium being amortized over the life of the loan using the effective interest rate. Scheduled maturities for the outstanding indebtedness are at various dates through November 30, 2020, and fixed interest rates range from 7.15% to 8.92%8.75%. Included in this debt, the Company has a $2.4 million loan recorded to account for a direct financing lease entered into in May 1997. On August 9, 2000, the Company amended its unsecured line of credit with a bankgroup of banks (the "Credit Agreement") bearing interest at the London Interbank Offered Rate ("LIBOR") plus 1.125%. Among other things, the amendment lowered the total facility under the Credit Agreement to $150 million and extended the maturity to August 9, 2003. The Company pays a quarterly fee on the average unused amount of such credit equal to 0.15% of such amount. As of December 31, 2000, $59.92001, $133.8 million was outstandingavailable under the Credit Agreement. F-16 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 -- LONG-TERM BORROWINGS (CONTINUED) The Company has a $100 million unsecured term loan (the "Term Loan") with a group of banks with interest only payable monthly at a rate of LIBOR plus 1.0%. The Term Loan maturity has been extended to April 3, 2002. TheOn February 8, 2002, the Company has approximately $3.2 millionentered into a term loan credit agreement with the same group of installment notes payable, secured by a letter of credit, each withbanks, which extended the Term Loan to August 9, 2005. On October 29, 2001, the Company entered into an interest rate of 6.5%, maturing September 1, 2002. Approximately $1.9swap agreement, fixing at LIBOR on $100 million of the notes pay principal annually and interest quarterly andCompany's floating rate debt at approximately 3.7% for the remaining $1.3 millionperiod October 2001 through August 2004. The terms of the notes payswap require monthly settlements on the same dates interest only quarterly.payments are due on the debt. In accordance with SFAS No. 133, the interest rate swap will be reflected at market value. The Company believes the swap is a perfectly effective cash flow hedge under SFAS No. 133 and there will be no effect on net income as a result of the mark-to-market adjustment. As of December 31, 2001 the swap had a market value of $489,000 which is included in other assets. The effect of the mark-to-market adjustment, is reflected in other comprehensive income. In July 1995,1998, the Company entered into an interest rate swap agreement (the "1998 Swap") fixing LIBOR on $100 million of the Company's floating rate debt at 6.4% for the period 1998 through 2003. The value of the 1998 Swap was impacted by changes in the market rate of interest. The Company accounted for the 1998 Swap as a hedge. Payments and receipts under the 1998 Swap were accounted for as an adjustment to interest expense. On January 10, 2000, the Company terminated the 1998 Swap and received $1.0 million of proceeds which is being amortized as an adjustment to interest expense through March 2003. The Company has approximately $2.2 million of installment notes payable, secured by a letter of credit, each with an interest rate of 6.5%, maturing September 1, 2002. Approximately $900,000 of the notes pay principal annually and interest quarterly and the remaining $1.3 million of the notes pay interest only quarterly. Aggregate payments of principal on long-term borrowings for each of the next five years and thereafter are as follows (amounts in thousands):
YEAR AMOUNT ---- ---------------- -------- 20012002 $ 14,921 2002 105,6676,190 2003 73,36030,275 2004 32,67733,231 2005 3,227109,018 2006 20,384 Thereafter 489,832 ---------509,759 -------- Total $ 719,684 =========$708,857 ========
F-16F-17 49 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 --- LEASE AGREEMENTS The leases entered into between the tenant and the Company for the rental of a site are month-to-month or for a period of one to ten years, renewable upon the consent of the parties or, in some instances, as provided by statute. Noncancelable long-term leases with remaining terms up to eleven years, are in effect at certain sites within nineteen22 of the Properties. Rental rate increases at these Properties are primarily a function of increases in the Consumer Price Index, taking into consideration certain floors and ceilings. Additionally, periodic market rate adjustments are made as deemed necessary. Future minimum rents are scheduled to be received under noncancelable tenant leases at December 31, 20002001 as follows (amounts in thousands):
YEAR AMOUNT ---- ---------------- -------- 20012002 $ 37,389 2002 20,01641,906 2003 8,21329,654 2004 4,27226,574 2005 4,39325,339 2006 17,372 Thereafter 23,92145,120 -------- Total $ 98,204$185,965 ========
NOTE 12 --- GROUND LEASES The Company leases land under noncancellable operating leases at certain of the Properties expiring in various years from 2022 to 2031 with terms which require twelve equal payments per year plus additional rents calculated as a percent of gross revenues. For the years ended December 31, 2001, 2000 1999 and 1998,1999, ground lease rent was $1.6 million. Minimum future rental payments under the ground leases are $1.6 million for each of the next five years and $29.5$27.9 million thereafter. NOTE 13 --- TRANSACTIONS WITH RELATED PARTIES Equity Group Investments, Inc. ("EGI"), an entity controlled by Mr. Samuel Zell, Chairman of the Board of Directors, and certain of its affiliates have provided services such as administrative support, investor relations, corporate secretarial, real estate tax evaluation services, market consulting and research services, and computer and support services. Fees paid to EGI and its affiliates amounted to approximately $2,000, $26,000 $74,000 and $104,000$74,000 for the years ended December 31, 2001, 2000 1999 and 1998,1999, respectively. There were no significant amounts due to these affiliates as of December 31, 20002001 and 1999,2000, respectively. Certain related entities, owned by persons affiliated with Mr. Zell, have provided services to the Company. These entities include, but are not limited to, Rosenberg & Liebentritt, P.C. which provided legal services including property acquisition services in 1999 and 1998;1999; The Riverside Agency, Inc. which provided insurance brokerage services andservices. In addition, Equity Office Properties Trust, of which providedMr. Zell is the Chairman of the Board, provides office space to the Company. Fees paid to these entities amounted to approximately $454,000, $442,000 $473,000 and $850,000$473,000 for the years December 31, 2001, 2000 1999 and 1998,1999, respectively. Amounts due to these affiliates were approximately $32,000 and $33,000 as of both December 31, 2001 and 2000, and 1999, respectively. Of the amounts charged by these affiliates during the years ended December 31, 2000, 1999 and 1998, approximately $0, $12,000 and $175,000, respectively, were capitalized. Related party agreements or fee arrangements are generally for a term of one year and approved by independent members of the Board of Directors. F-17F-18 50 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 --- STOCK OPTION PLAN AND STOCK GRANTS A Stock Option Plan (the "Plan") was adopted by the Company in December 1992. Pursuant to the Plan, certain officers, directors, employees and consultants of the Company may be offered the opportunity to acquire shares of common stockCommon Stock through the grant of stock options ("Options"), including non-qualified stock options and, for key employees, incentive stock options within the meaning of Section 422 of the Internal Revenue Code. The Compensation Committee will determine the vesting schedule, if any, of each Option and the term, which term shall not exceed ten years from the date of grant. As to the Options that have been granted through December 31, 2000,2001, generally, one-third are exercisable one year after the initial grant, one-third are exercisable two years following the date such Options were granted and the remaining one-third are exercisable three years following the date such Options were granted. The Plan allows for 10,000 Options to be granted annually to each director. The common stockCommon Stock with respect to which the Options may be granted during any calendar year to any grantee shall not exceed 250,000 shares. In addition, the Plan provides for the granting of stock appreciation rights ("SARs") and restricted stock grants ("Stock Grants"). A maximum of 4,000,000 shares of common stock wasCommon Stock were available for grant under the Plan as of December 31, 2000.2001. In 2001, 2000 1999 and 1998,1999, the Company issued 0, 19,181 14,666 and 18,23814,666 shares related to Stock Grants, respectively, which represented a portion of certain employee bonuses. The fair market value of these Stock Grants of approximately $0, $525,000 $352,000 and $445,000$352,000 at the date of grant was recorded as compensation expense by the Company in 2001, 2000 1999and 1998,and 1999, respectively. In 1998, the Company awarded 233,500 Stock Grants to certain members of senior management of the Company. These Stock Grants vest over five years, but may be restricted for a period of up to ten years depending upon certain performance benchmarks tied to increases in funds from operations being met. The fair market value of these Stock Grants of approximately $5.7 million as of the date of grant was treated in 1998 as deferred compensation. The Company amortized approximately $593,000$2.0 million and $569,000$593,000 related to these Stock Grants in 2001 and 2000, and 1999, respectively, andrespectively. The balance of unamortized deferred compensation related to these Stock Grants totaling approximately 12,000 shares valued at $295,000 were cancelled.is $2,206,000 as of December 31, 2001. In 1999, the Company awarded 65,000 Stock Grants to certain members of senior management of the Company. These Stock Grants vest over three years with one-half vesting in 1999. The fair market value of these Stock Grants of approximately $1.5 million as of the date of grant was treated in 1999 as deferred compensation. The Company amortized approximately $385,000$386,000 and $770,000$385,000 related to these Stock Grants in 20002001 and 1999,2000, respectively. In 2000, the Company awarded 69,750 Stock Grants to certain members of senior management of the Company. These Stock Grants vest over three years with one-half vesting in 2000. The fair market value of these Stock Grants of approximately $1.9 million as of the date of grant was treated in 2000 as deferred compensation. The Company amortized approximately $478,000 and $955,000 related to these Stock Grants in 2000.2001 and 2000 respectively. The balance of unamortized deferred compensation related to these Stock Grants is $478,000 as of December 31, 2001. In 2001, the Company awarded 43,000 Stock Grants to certain members of senior management of the Company. These Stock Grants vest over five years, but may be restricted for a period of up to ten years depending upon certain performance benchmarks tied to increases in funds from operations being met. The fair market value of these Stock Grants of approximately $1.2 million as of the date of grant was treated in 2001 as deferred compensation. The Company amortized approximately $239,000 related to these Stock Grants in 2001. The balance of unamortized deferred compensation related to these Stock Grants is approximately $957,000 as of December 31, 2001. In 1999, the Plan was amended to provide a Stock Grant of 2,000 shares vesting over three years in lieu of the 10,000 Options granted after the amendment to each director, if the director so elects. The Company recognizedfair market value of Stock Grants awarded to directors of approximately $134,000$386,000, $401,000 and $129,000 of expense and recorded approximately $267,000 and $257,000 of deferred compensation$432,000 in 1999, 2000 and 1999,2001 respectively, were treated as deferred compensation. The Company amortized approximately $406,280 related to 16,000these Stock Grants in both2001. The balance of unamortized deferred compensation related to the 1999, 2000, and 1999.2001 Stock Grants is $0, $134,000 and $288,000 respectively as of December 31, 2001. F-19 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 -- STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED) The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related Interpretations in accounting for its Options and Stock Grants because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123") requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's Options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Additionally, the amount recognized as expense for the Stock Grants during any given year of the performance period is dependent on certain performance benchmarks being met. F-18 51 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 - STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED) Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its Options and Stock Grants under the fair value method of that Statement. The fair value for the Options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2001, 2000 1999 and 1998,1999, respectively: risk-free interest rates of 5.5%3.5%, 6.3%5.5% and 5.7%6.3%; dividend yields of 6.3%, 6.3% and 5.8%6.3%; volatility factors of the expected market price of the Company's common stockStock of .19, .20 .21 and .23;.21; and a weighted-average expected life of the Options of 5 years. The fair value of the Stock Grants granted in 2001, 2000 1999 and 19981999 has been estimated at approximately 30% below the calculated fair market value on the date of grant because these Stock Grants may remain restricted even after they become fully vested. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's Options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the Company's Options. In addition, the existing models are not representative of the effects on reported net income for future years. For purposes of pro forma disclosures, the estimated fair value of the Options is amortized to expense over the Options' vesting period and the estimated fair value of the Stock Grants is amortized to expense over the same period. The pro forma effect of SFAS No. 123 on the Company's net income for the years ended December 31, 2001, 2000 and 1999 and 1998 was $648,000 ($134,000) ($00.02 per share), $134,000 ($138,000) ($00.0 per share) and $225,000$138,000 ($0.010.0 per share), respectively. A summary of the Company's stock option activity, and related information for the years ended December 31, 2001, 2000 1999 and 19981999 follows:
Shares Subject Weighted Average to Options Share Exercise Price Per ShareWEIGHTED AVERAGE SHARES SUBJECT EXERCISE PRICE TO OPTIONS PER SHARE -------------- ---------------- ------------------------ Balance at December 31, 1997 1,690,493 $19.91 Options granted 378,986 22.04 Options exercised (141,403) 18.07 Options canceled (28,697) 24.09 --------- ------ Balance at December 31, 1998 1,899,379 21.08$21.08 Options granted 313,400 23.91 Options exercised (126,565) 19.25 Options canceled (66,767) 24.08 --------- ------ Balance at December 31, 1999 2,019,447 $21.7221.72 Options granted 440,077 25.94 Options exercised (250,092) 23.17 Options canceled (101,227) 24.33 --------- ------ Balance at December 31, 2000 2,108,205 $22.3022.30 Options granted 234,150 29.44 Options exercised (387,115) 19.98 Options canceled (69,891) 25.05 --------- Balance at December 31, 2001 1,885,349 23.57 ========= ======
F-20 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 -- STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED) On March 23, 2001, the Company's Board of Directors approved resolutions amending and restating the Plan effective March 23, 2001 (the "Amended Plan") to increase the number of Common Shares issuable thereunder by 2,000,000 shares of Common Stock to an aggregate of 6,000,000 shares. On May 8, 2001, the Company's shareholder's approved the Amended Plan. As of December 31, 2001, 2000 and 1999, and 1998,1,252,344 shares, 416,603 shares 747,258 shares and 1,075,091747,258 shares remained available for grant, respectively, and 1,422,211 shares, 1,562,074 shares 1,426,072 shares and 1,269,9821,426,072 shares were exercisable, respectively. Exercise prices for Options outstanding as of December 31, 20002001 ranged from $12.875$12.88 to $26.750,$30.65, with the substantial majority of the exercise prices exceeding $17.25. The remaining weighted-average contractual life of those Options was 6.36.2 years. The weighted average exercise price of outstanding and exercisable options was $22.39 as of December 31, 2001. NOTE 15 --- PREFERRED STOCK The Company's Board of Directors is authorized under the Company's charter, without further stockholder approval, to issue, from time to time, in one or more series, 10,000,000 shares of $.01 par value preferred stock (the "Preferred Stock"), with specific rights, preferences and other attributes as the Board may determine, which may include preferences, powers and rights that are senior to the rights of holders of the Company's common stock.Common Stock. However, under certain circumstances, the issuance of preferred stock may require stockholder approval pursuant to the rules and regulations of theThe New York Stock Exchange. As of December 31, 20002001 and 1999,2000, no Preferred Stock was issued by the Company. F-19 52 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 --- SAVINGS PLAN The Company has a qualified retirement plan, with a salary deferral feature designed to qualify under Section 401 of the Code (the "401(k) Plan"), to cover its employees and those of its Subsidiaries, if any. The 401(k) Plan permits eligible employees of the Company and those of any Subsidiary to defer up to 16%19% of their eligible compensation on a pre-tax basis subject to certain maximum amounts. In addition, the Company will match dollar-for-dollar the participant's contribution up to 4% of the participant's eligible compensation. In addition, amounts contributed by the Company will vest, on a prorated basis, according to the participant's vesting schedule. After five years of employment with the Company, the participants will be 100% vested for all amounts contributed by the Company. Additionally, a discretionary profit sharing component of the 401(k) Plan provides for a contribution to be made annually for each participant in an amount, if any, as determined by the Company. All employee contributions are 100% vested. The Company's contribution to the 401(k) Plan was approximately $353,000, $315,000 $385,000 and $256,000,$385,000, for the years ended December 31, 2001, 2000 1999 and 1998,1999, respectively. The Company's anticipated plan contribution for the profit sharing component of the 401(k) Plan is approximately $85,000$139,000 for the year ended December 31, 2000.2001. NOTE 17 --- COMMITMENTS AND CONTINGENCIES DEANZA SANTA CRUZ MOBILE ESTATES The residents of DeAnza Santa Cruz Mobile Estates, a property located in Santa Cruz, California (the "City") previously brought several actions opposing certain fees and charges in connection with water service at the Property. The trial of the ongoing utility charge dispute with the residents of this Property concluded on January 22, 1999. This summary provides the history and reasoning underlying the Company's defense of the residents' claims and explains the Company's decision to continue to defend its position, which the Company believes is fair and accurate. DeAnza Santa Cruz Mobile Estates is a 198-site communityCommunity overlooking the Pacific Ocean. It is subject to the City's rent control ordinance which limits annual rent increases to 75% of CPI. The Company purchased this Property in August 1994 from certain unaffiliated DeAnza entities ("DeAnza"). Prior to the Company's purchase in 1994, DeAnza made the decision to submeter and separately bill tenants at the Property for both water and sewer in 1993 in the face of the City's rapidly rising utility costs. F-21 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 -- COMMITMENTS AND CONTINGENCIES (CONTINUED) Under California Civil Code Section 798.41, DeAnza was required to reduce rent by an amount equal to the average cost of usage over the preceding 12 months. This was done. With respect to water charges, because DeAnza did not lookingwant to submit to jurisdiction ofbe regulated by the California Public Utility Commission ("CPUC"), DeAnza relied on California Public Utilities Code Section 2705.5 ("CPUC Section 2705.5") to determine what rates would be charged for water on an ongoing basis without becoming a public utility. DeAnza and the Company interpreted the statute as providing that in a submetered mobile home park, the property owner is not subject to regulation and control of the CPUC so long as the users are charged what they would be charged by the utility company if users received their water directly from the utility company. In Santa Cruz, customers receiving their water directly from the city'sCity's water utility were charged a certain lifeline rate for the first 400 ccfs of water and a greater rate for usage over 400 ccfs of water, a readiness to serve charge of $7.80 per month and tax on the total. In reliance on CPUC Section 2705.5, DeAnza implemented its billings on this schedule notwithstanding that it did not receive the discount for the first 400 ccfs of water because it was a commercial and not a residential customer. A dispute with the residents ensued over the readiness to serve charge and tax thereon. The residents argued that California Civil Code Section 798.41 required that the Property owner could only pass through its actual costs of water (and that the excess charges over the amount of the rent rollback were an improper rent increase) and that CPUC Section 2705.5 was not applicable. DeAnza unbundled the utility charges from rent consistent with California Civil Code Section 798.41 and it has generally been undisputed that the rent rollback was accurately calculated. In August 1994, when the Company acquired the Property, the Company reviewed the respective legal positions of the Santa Cruz Homeowners Association ("HOA") and DeAnza and concurred with DeAnza. TheirDeAnza's reliance on CPUC Section 2705.5 made both legal and practical sense in that residents paid only what they would pay if they lived in a residential neighborhood within the City and permitted DeAnza to recoup part of the expenses of operating a submetered system through the readiness to serve charge. F-20 53 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED) Over a period of 18 months from 1993 into May of 1995, a series of complaints were filed by the HOA and Herbert Rossman, a resident, against DeAnza, and later, the Company. DeAnza and the Company demurred to each of these complaints on the grounds that the CPUC had exclusive jurisdiction over the setting of water rates and that residents under rent control had to first exhaust their administrative remedies before proceeding in a civil action. At one point, the case was dismissed (with leave to amend) on the basis that jurisdiction was with the CPUC and, at another point, Mr. Rossman was dismissed from the case because he had not exhausted his administrative remedies. On June 29, 1995, a hearing was held before a Santa CruzCity rent control officer on billing and submetering issues related to both water and sewer. The Company and DeAnza prevailed on all issues related to sewer and the rent rollback related to water, but the hearing officer determined that the Company could only pass through its actual cost of water, i.e., a prorated readiness to serve charge and tax thereon. The hearing officer did not deal with the subsidy being given to residents through the quantity charge and ordered a rebate in a fixed amount per resident. The Company and DeAnza requested reconsideration on this issue, among others, which reconsideration was denied by the hearing officer. The Company then took a writ of mandate (an appeal from an administrative order) to the Superior Court and, pending this appeal, the residents, the Company and the City agreed to stay the effect of the hearing officer's decision until the Court rendered judgment. In July 1996, the Superior Court affirmed the hearing officer's decision without addressing concerns about the failure to take the subsidy on the quantity charge into account. F-22 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 -- COMMITMENTS AND CONTINGENCIES (CONTINUED) The Company requested that the City and the HOA agree to a further stay pending appeal to the court of appeal, but they refused and the appeal court denied the Company's request for a stay in late November 1996. Therefore, on January 1, 1997, the Company reduced its water charges at this Property to reflect a pass-through of only the readiness to serve charge and tax at the master meter (approximately $0.73) and to eliminate the subsidy on the water charges. On their March 1, 1997 rent billings, residents were credited for amounts previously "overcharged" for readiness to serve charge and tax. The amount of the rebate given by the Company and DeAnza was $36,400. In calculating the rebate, the Company and DeAnza took into account the previous subsidy on water usage although this issue had not yet been decided by the court of appeal. The Company and DeAnza felt legally safe in so doing based on language in the hearing officer's decision that actual costs could be passed through. On March 12, 1997, the Company also filed an application with the CPUC to dedicate the water system at this Property to public use and have the CPUC set cost-based rates for water usage. The Company believed it was obligated to take this action because of its consistent reliance on CPUC Section 2705.5 as a safe harbor from CPUC jurisdiction. That is, when the Company could no longer charge for water as the local serving utility would charge, it was no longer exempt from the CPUC's jurisdiction and control under CPUC Section 2705.5. On March 20, 1997,1998, the court of appeal issued the writ of mandate requested by the Company on the grounds that the hearing officer had improperly calculated the amount of the rebate (meaning the Company had correctly calculated the rent credits), but also ruling that the hearing officer was correct when he found that the readiness to serve charge and tax thereon as charged by DeAnza and the Company were an inappropriate rent increase. The decision primarily reflected the court of appeal's view that CPUC Section 2705.5 operated as a ceiling and that California Civil Code Section 798.41 allowed for a charge based on actual costs, including costs of administration, operation and maintenance of the system, but that the Company had not to provide evidence of such costs. The court of appeal further agreed with the Company that the City's hearing officer did not have the authority under California Civil Code Section 798.41 to establish rates that could be charged in the future. Following this decision, the CPUC granted the Company its certificate of convenience and necessity on December 17, 1998 and approved cost-based rates and charges for water that exceed what residents were paying under the Company's reliance on CPUC Section 2705.5. Concurrently, the CPUC also issued an Order Instituting Investigation ("OII") confirming its exclusive jurisdiction over the issue of water rates in a submetered system and commencing an investigation into the confusion and turmoil over billings in submetered properties. Specifically, the OII states: "The Commission has exclusive and primary jurisdiction over the establishment of rates for water and sewer services provided by private entities." Specifically, the CPUC ruling regarding the Company's application stated: "The ultimate question of what fees and charges may or may not be assessed, beyond external supplier pass-through charges, for in-park facilities when a mobile home park does not adhere to the provisions of CPUC Section 2705.5, must be decided by the Commission." F-21 54 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED) After the court of appeal decision, the HOA brought all of its members back into the underlying civil action for the purpose of determining damages, including punitive damages, against the Company. The trial was continued from July 1998 to January 1999 to give the CPUC time to act on the Company's application. Notwithstanding the action taken by the CPUC in issuing the OII in December 1998, the trial court denied the Company's motion to dismiss on jurisdictional grounds and trial commenced before a jury on January 11, 1999. Not only did the trial court not consider the Company's motion to dismiss, the trial court refused to allow evidence of the OII or the Company's CPUC approval to go before the jury. Notwithstanding the Company's strenuous objections, the judge also allowed evidence of the Company's and DeAnza's litigation tactics to be used as evidence of bad faith and oppressive actions (including evidence of the application to the CPUC requesting a $22.00 readiness to serve charge). The Company's motion for a mistrial based upon these evidentiary rulings was denied. On January 22, 1999, the jury returned a verdict awarding $6.0 million of punitive damages against the Company and DeAnza. The Company had previously agreed to indemnify DeAnza on the matter. F-23 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 -- COMMITMENTS AND CONTINGENCIES (CONTINUED) The Company has bonded the judgment pending appeal in accordance with California procedural rules, which require a bond equal to 150% of the amount of the judgment. Post-judgment interest will accrue at the statutory rate of 10.0% per annum. On April 19, 1999, the trial court denied all of the Company's and DeAnza's post-trial motions for judgement notwithstanding the verdict, new trial and remittitur.remittur. The trial court also awarded $700,000 of attorneys' fees to plaintiffs. The Company has appealed the jury verdict and attorneys' fees award (which also accrues interest at the statutory rate of 10.0% per annum). On December 21, 2001 the California Court of Appeal for the Sixth District reversed the $6.0 million punitive damage award and the appeal has been fully briefed by both parties.related award of attorneys' fees on the basis that punitive damages are not available as a remedy for a statutory violation of the MRL. The decision of the appellate court left the HOA with the right to seek a new trial in which it must prove its entitlement to either the statutory penalty and attorneys' fees available under the MRL or punitive damages based on causes of action for fraud, misrepresentation or other tort. The Company is awaiting notice of scheduling of oral argument onexpects the appeal.HOA to seek a new trial during 2002. The Company intends to vigorously defend itself. In two related appeals, the Company had argued that the trial court's ability to enter an award of attorneys' fees in favor of the HOA and to take certain other actions was preempted by the exercise of exclusive jurisdiction by the CPUC over the issue of how to set rates for water in a submetered mobile home park. During 2000, the California court of appeal rejected the Company's preemption argument with respect to these prior rulings in favor of plaintiffs, one of which had awarded plaintiffs approximately $100,000 of attorneys' fees. The California Supreme Court declined to accept the case for review and the Company paid the judgment, including post-judgment interest thereon, and settled the matter for approximately $200,000 late in 2000. The jury verdict appeal also raisesIn a similar jurisdictional argument as well as several other arguments for reversal or reduction of the punitive damage award or for a new trial. An important distinction between the appellate ruling in 2000 and the preemption issue as it is presented on appeal in the jury verdict case is that the preemption argument rejected was "retroactive" while the preemption issue remaining on appeal is prospective. One of the other arguments raised by the Company in the jury verdict appeal is that punitive damages are not available in a case brought under Section 798.41 of the California Mobilehome Residency Law ("MRL") since the MRL contains its own penalty provisions. Although no assurances can be given, the Company believes the appeal will be successful. Subsequently,separate matter, in December 2000 the HOA and certain individual residents of the Property filed a complaint in the Superior Court of California, County of Santa Cruz (No. CV 139825) against the Company, certain affiliates of the Company and certain employees of the Company. The new lawsuit seeks damages, including punitive damages, for intentional infliction of emotional distress, unfair business practices, and unlawful retaliation purportedly arising from allegedly retaliatory rent increases which were noticed by the Company to certain residents in September 2000. The Company believes that the residents who received rent increase notices with respect to rent increases above those permitted by the local rent control ordinance were not covered by the ordinance either because they did not comply with the provisions of the ordinance or because they are exempted by state law. On December 29, 2000, the Superior Court of California, County of Santa Cruz enjoined such rent increases. The Company intends to vigorously defend the matter, which may go to trial in the summer of 2001. F-22 55 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED)2002. ELLENBURG COMMUNITIES The Company and certain other parties entered into a settlement agreement ("the Settlement"), which was approved by the courtLos Angeles County Superior Court in April 2000. The settlementSettlement resolved substantially all of the litigation and appeals involving the Ellenburg Properties, and transactions arising out of the settlement closed on May 22, 2000 (see Note 5). Only the appeals of the two entities remain, neither of which is expected to materially affect the Company. In connection with the Ellenburg Acquisition, on September 8, 1999, Ellenburg Fund 20 ("Fund 20") filed a cross complaint in the Ellenburg dissolution proceeding against the Company and certain of its affiliates alleging causes of action for fraud and other claims in connection with the Ellenburg acquisition. The Company subsequently successfully had the cross complaint against the Company and its affiliates dismissed with prejudice by the California Superior Court. However, Fund 20 has appealed. This appeal was one not resolved by the Settlement. The Company believes Fund 20's allegations are without merit and will vigorously defend itself. F-24 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 -- COMMITMENTS AND CONTINGENCIES (CONTINUED) In October 2001, Fund 20 sued the Company and certain of its affiliates again, this time in Almeda County, California making substantially the same allegations. The Company obtained an injunction preventing the case from proceeding until the Fund 20 appeal is decided and other related proceedings in Arizona (from which the Company has already been dismissed with prejudice) are concluded. CANDLELIGHT PROPERTIES, L.L.C In 1996, 1997 and 1998, the Lending Partnership made loans to Candlelight Properties, L.L.C. ("Borrower") in the aggregate principal amount of $8,050,000 (collectively, the "Loan". The Loan iswas secured by a mortgage on Candlelight Village ("Candlelight"), a Property in Columbus, Indiana, and iswas guaranteed by Ronald E. Farren, ("Farren"), the 99% owner of Borrower. The Company accountsaccounted for the Loan as an investment in real estate and, accordingly, Candlelight's results of operations are consolidatedrental revenues and operating costs were included with the Company's rental revenues and operating costs for financial reporting purposes. Concurrently with the funding of the Loan, Borrower granted the Operating Partnership the option to acquire Candlelight upon the maturity of the Loan. The Operating Partnership notified Borrower that it was exercising its option to acquire Candlelight in March 1999, and the Loan subsequently matured on May 3, 1999. However, Borrower failed to repay the Loan and refused to convey Candlelight to the Operating Partnership. Borrower filed suit in the Circuit Court of Bartholomew County, Indiana ("Court") on May 5, 1999, seeking declaratory judgment on the validity of the exercise of the option. The Lending Partnership filed suit in the Court the next day, seeking to foreclose its mortgage, and the suits were consolidated (collectively, the "State Court Litigation") by the Court. The Court issued an Order on December 1, 1999, finding, among other things, thatOn September 20, 2001, the Operating Partnership had validly exercised the option. Both parties filed motionsentered into a settlement agreement providing for a cash payment of $10.8 million to correct errors in the Order, and on May 15, 2000, the Court issued judgments against Borrower and Farren and in favor of the Operating Partnership in the option case and the Lending Partnership inand dismissal with prejudice of all litigation among the foreclosure case. Borrowerparties and Farren appealed both judgments, andtheir affiliates, among other terms. The closing under the Court has stayedSettlement Agreement occurred on October 5, 2001. The Company accounted for the judgments pending such appeals.Settlement as a disposition of the property. WESTWINDS The Operating Partnership is the ground lessee ("Lessee") of certain property in San Jose, California under ground leases ("Leases") from the Nicholson Family Trust ("Lessor"). On February 13, 2001, Lessor filed a petition for arbitration of disputes over whether certain items constitute "gross revenue" under the Leases in which petition Lessor seeks damages and the Lending Partnership intend to continue vigorously pursuing this matter and believe that, while no assurance can be given, such efforts will be successful. On May 3, 2000, Hanover Group, Inc. ("Hanover") and Farren filed suit against the Company and certain executive and senior officerstermination of the CompanyLeases. Lessee responded on March 12, 2001 disputing Lessor's contentions. Lessor claims that "gross revenue" for the purpose of calculating percentage rent owing to Lessor under the ground leases includes certain amounts Lessee has recouped from tenants of the Property (who are protected by rent control) related to ground rent already paid to Lessor. Lessee has successfully been able to pass-through to tenants at the property increases in ground rent under the Leases. Lessee contends that this pass-through results in reimbursement of lease expense, not "gross revenue." Lessor also contends that the "net income" of RSI from the Property should be included in the United States District Courtgross revenue calculation. Lessee disputes this for Southern District of Indiana, Indianapolis Division. The complaint alleges violations of securities lawsmany reasons, including, but not limited to, the fact that RSI is not a lessee under the Leases, the sales activity is not conducted by Lessee, and fraud arisingRSI is a separate company from the loan transaction being litigated in the State Court Litigation and seeks damages, including treble damages. The Company believes that the complaint is related to rulings made by the Court and is without merit. The Company has filed aLessee. Lessor's motion for summary judgment on the pleadings (which has been fully briefed),pass-through issue was denied by an arbitration panel on November 2, 2001. Lessor and will continue to vigorously defend itself and the officers of the Company. On May 24, 2000, Hanover and Farren filed suit against the Operating Partnership in the Superior Court of Marion County, Indiana. The complaint seeks declaratory relief and specific performance with respect to the Operating Partnership's alleged obligation to reconvey to Hanover the Operating Partnership's 1% ownership interest in Borrower. The Company believes that the complaint is related to rulings made by the Court and is without merit. The partiesLessee have agreed to a staymediate the dispute prior to arbitration. The Company does not believe that the amounts in this proceeding pendingquestion are material even if resolved against the outcomeLessee and, based upon advice of counsel, does not believe that the appealsLessor will be successful in terminating the State Court Litigation.Leases. OTHER The Company is involved in various other legal proceedings arising in the ordinary course of business. Management believes that all proceedings herein described or referred to, taken together, are not expected to have a material adverse impact on the Company. F-23F-25 56 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 --- SUBSEQUENT EVENTS OnEffective January 3, 2001,1, 2002, the Company acquired two Florida communities, totaling 729 sites,purchased all of the outstanding Common Stock of RSI from affiliated and non-affiliated owners for an aggregate purchase price of approximately $16.3 million. Golden Lakes is$675,000. As a 421-site community in Plant City, near Tampa, Florida and includes approximately 23 acres for expansion. Chain O' Lakes is a 308-site community in Grand Island, near Orlando, Florida, and includes a marina with 50 boat docks. On February 13, 2001,result, the Company closed the saleowns and controls RSI and will consolidate RSI as of seven communities, totaling 1,282 sites, in Kansas, Missouri and Oklahoma for a total sale price of approximately $19.1 million. F-24January 1, 2002. F-26 57 MANUFACTURED HOME COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 --- QUARTERLY FINANCIAL DATA (UNAUDITED) The following is unaudited quarterly data for 2001, 2000 1999 and 19981999 (amounts in thousands, except for per share amounts):
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER 20002001 3/31 6/30 9/30 12/31 ---- ---- ---- ---- ------------ ------- ------- ------- Total Revenues............................................. $57,148 $54,271 $53,875 $55,384Revenues......................................... $57,532 $56,218 $55,536 $56,570 Income before allocation to Minority Interests and extraordinary loss on early extinguishment of debt.....debt... $18,739 $10,512 $10,468 $11,825 Net income available to common shareholders............ $12,644 $ 6,135 $ 6,097 $ 7,207 Weighted average Common Shares outstanding -- Basic.... 20,793 20,969 21,108 21,266 Weighted average Common Shares outstanding -- Diluted.. 26,771 26,898 27,071 27,293 Net income per Common Share outstanding -- Basic....... $ 0.61 $ 0.29 $ 0.29 $ 0.34 Net income per Common Share outstanding -- Diluted..... $ 0.59 $ 0.29 $ 0.28 $ 0.33
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER 2000 3/31 6/30 9/30 12/31 ---- ------- ------- ------- ------- Total Revenues......................................... $57,148 $54,271 $53,875 $55,384 Income before allocation to Minority Interests......... $10,743 $21,547 $9,715$ 9,715 $10,696 Net income available to common shareholders................ $6,331shareholders............ $ 6,331 $13,921 $5,451 $6,244$ 5,451 $ 6,244 Weighted average Common Shares outstanding - Basic.........-- Basic.... 22,297 21,871 21,166 20,559 Weighted average Common Shares outstanding - Diluted.......-- Diluted.. 28,242 27,809 27,077 26,520 Net income per Common Share outstanding - Basic............ $0.28 $0.64 $0.26 $0.30-- Basic....... $ 0.28 $ 0.64 $ 0.26 $ 0.30 Net income per Common Share outstanding - Diluted.......... $0.28 $0.63 $0.25 $0.30-- Diluted..... $ 0.28 $ 0.63 $ 0.25 $ 0.30
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER 1999 3/31 6/30 9/30 12/31 ---- ---- ---- ---- ------------ ------- ------- ------- Total Revenues.............................................Revenues......................................... $54,390 $52,446 $53,537 $54,654 Income before allocation to Minority Interests.............Interests......... $10,078 $8,477 $8,417 $7,056$ 8,477 $ 8,417 $ 7,056 Net income available to common shareholders................ $8,234 $6,968 $6,877 $5,693shareholders............ $ 8,234 $ 6,968 $ 6,877 $ 5,693 Weighted average Common Shares outstanding - Basic.........-- Basic.... 26,157 25,773 25,613 23,381 Weighted average Common Shares outstanding - Diluted.......-- Diluted.. 32,340 31,829 31,586 29,281 Net income per Common Share outstanding - Basic............ $0.31 $0.27 $0.27 $0.24-- Basic....... $ 0.31 $ 0.27 $ 0.27 $ 0.24 Net income per Common Share outstanding - Diluted.......... $0.31 $0.27 $0.27 $0.24-- Diluted..... $ 0.31 $ 0.27 $ 0.27 $ 0.24
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER 1998 3/31 6/30 9/30 12/31 ---- ---- ---- ---- ----- Total Revenues............................................. $44,872 $47,894 $50,809 $51,254 Income before allocation to Minority Interests............. $9,586 $9,066 $8,440 $8,570 Net income available to common shareholders................ $7,765 $7,343 $6,837 $6,984 Weighted average Common Shares outstanding - Basic......... 24,805 25,659 25,988 26,033 Weighted average Common Shares outstanding - Diluted....... 31,095 32,095 32,339 32,382 Net income per Common Share outstanding - Basic............ $0.31 $0.29 $0.26 $0.27 Net income per Common Share outstanding - Diluted.......... $0.31 $0.28 $0.26 $0.26
F-25F-27 58 SCHEDULE II MANUFACTURED HOME COMMUNITIES, INC. VALUATION AND QUALIFYING ACCOUNTS DECEMBER 31, 200021, 2001
ADDITIONS ----------------------------------- BALANCE AT CHARGED TO BALANCE AT BEGINNING CHARGED TO TO OTHER AT END OF OF PERIOD INCOME ACCOUNTS DEDUCTIONS(1) PERIOD --------- ------ ------------------ ---------- ---------- ------------- --------------- For the year ended December 31, 1998: Allowance for doubtful accounts......... $250,000 $167,774 $ -- ($167,774) $250,000 For the year ended December 31, 1999: Allowance for doubtful accounts.........accounts..... $250,000 $413,573 $ -- ($363,573) $300,000 For the year ended December 31, 2000: Allowance for doubtful accounts.........accounts..... $300,000 $322,574 $ -- ($322,574) $300,000 For the year ended December 31, 2001: Allowance for doubtful accounts..... $300,000 $426,579 $ -- ($322,574)426,579) $300,000
- --------------- (1) Deductions represent tenant receivables deemed uncollectible. S-1 59 SCHEDULE III MANUFACTURED HOME COMMUNITIES, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 20002001 (AMOUNTS IN THOUSANDS)
Costs Capitalized Subsequent to Initial Cost to Acquisition Company (Improvements) ------- -------------- Depreciable Depreciable Real Estate Location Encumbrances Land Property Land PropertyCOSTS CAPITALIZED SUBSEQUENT TO INITIAL COST TO ACQUISITION COMPANY (IMPROVEMENTS) ------------------------ -------------------- DEPRECIABLE DEPRECIABLE REAL ESTATE LOCATION ENCUMBRANCES LAND PROPERTY LAND PROPERTY - ----------- ----------------- ---- ------------ -------- ------------ ---- -------- ---- -------- Apollo Village Phoenix AZ 0 932 3,219 0 363 Brentwood Manor Mesa AZ 4,701 1,998 6,024 0 240 Carefree Manor Phoenix AZ 0 706 3,040 0 85 Casa del Sol #1 Peoria AZ 6,783 2,215 6,467 0 193 Casa del Sol #2 Glendale AZ 6,917 2,104 6,283 0 133 Casa del Sol #3 Glendale AZ 0 2,450 7,452 0 67 Central Park Phoenix AZ 7,182 1,612 3,784 0 387 Desert Skies Phoenix AZ 0 792 3,126 0 42 Fairview Manor Tucson AZ 0 1,674 5,100 0 426 Hacienda De Valencia Mesa AZ 8,417 833 2,701 0 753 Palm Shadows Glendale AZ 3,208 1,400 4,218 0 288 Sedona Shadows Sedona AZ 2,666 1,096 3,431 0 180 Sunrise Heights Phoenix AZ 0 1,000 3,016 0 235 The Mark Mesa AZ 0 1,354 4,660 6 615 The Meadows Tempe AZ 9,256 2,613 7,887 0 388 Whispering Palms Phoenix AZ 0 670 2,141 0 60 California Hawaiian San Jose CA 17,968 5,825 17,755 0 776 Colony Park Ceres CA 0 890 2,837 0 42 Concord Cascade Pacheco CA 10,377 985 3,016 0 540 Contempo Marin San Rafael CA 16,142 4,788 16,379 0 1,353 Coralwood Modesto CA 0 0 5,047 0 110 Date Palm Country Club Cathedral City CA 15,717 4,138 14,064 (23) 1,316 Four Seasons Fresno CA 0 756 2,348 0 90 Laguna Lake San Luis Obispo CA 5,669 2,845 6,520 0 49 Lamplighter Spring Valley CA 9,389 633 2,201 0 436 Meadowbrook Santee CA 0 4,345 13,139 0 232 Monte del Lago Castroville CA 8,300 3,150 9,469 0 484 Quail Meadows Riverbank CA 0 1,155 3,469 0 137 Nicholson Plaza San Jose CA 0 0 4,512 0 (3) Rancho Mesa El Cajon CA 0 2,130 6,389 0 39 Rancho Valley El Cajon CA 4,643 685 1,902 0 367 Royal Holiday Hemet CA 0 778 2,643 0 140 Royal Oaks Visalia CA 0 602 1,921 0 88 DeAnza Santa Cruz Santa Cruz CA 5,629 2,103 7,201 0 (418) Santiago Estates Sylmar CA 0 3,562 10,767 0 146 Sea Oaks Los Osos CA 0 871 2,703 0 105
Gross Amount Carried at Close of Period 12/31/00 --------------- Depreciable Accumulated Date of Real Estate Location Land Property Total Depreciation Acquisition ----------- -------- ---- -------- ----- ------------------ ----------- Apollo Village Phoenix AZ 5,284 932 3,582 4,514 (749) 19943,219 0 446 Brentwood Manor Mesa AZ 4,575 1,998 6,264 8,262 (1,626) 19936,024 (1) 292 Carefree Manor Phoenix AZ 0 706 3,125 3,831 (312) 19983,307 0 (135) Casa del Sol #1 Peoria AZ 6,786 2,215 6,660 8,875 (741) 19966,467 0 329 Casa del Sol #2 Glendale AZ 6,920 2,104 6,416 8,520 (696) 19966,283 (1) 270 Casa del Sol #3 Glendale AZ 6,631 2,450 7,519 9,969 (649) 19987,452 0 166 Central Park Phoenix AZ 7,185 1,612 4,171 5,783 (2,281) 19833,784 0 452 Desert Skies Phoenix AZ 0 792 3,168 3,960 (310) 19983,629 0 (432) Fairview Manor Tucson AZ 0 1,674 5,526 7,200 (519) 19984,708 0 875 Hacienda De Valencia Mesa AZ 8,421 833 3,454 4,287 (1,787) 19842,701 0 850 Palm Shadows Glendale AZ 3,121 1,400 4,506 5,906 (1,155) 19934,218 0 356 Sedona Shadows Sedona AZ 2,645 1,096 3,611 4,707 (415) 19973,431 0 286 Sunrise Heights Phoenix AZ 0 1,000 3,251 4,251 (744) 19943,016 0 269 The Mark Mesa AZ 1,360 5,275 6,635 (1,086) 19940 1,354 4,660 6 718 The Meadows Tempe AZ 9,260 2,613 8,275 10,888 (1,911) 19947,887 0 439 Whispering Palms Phoenix AZ 0 670 2,201 2,871 (218) 19982,399 0 (138) California Hawaiian San Jose CA 17,976 5,825 18,531 24,356 (2,254) 199717,755 0 813 Colony Park Ceres CA 0 890 2,879 3,769 (277) 19984,513 0 (1,610) Concord Cascade Pacheco CA 10,381 985 3,556 4,541 (1,878) 19833,016 0 682 Contempo Marin San Rafael CA 16,149 4,788 17,732 22,520 (3,668) 199416,379 (1) 1,851 Coralwood Modesto CA 0 5,157 5,157 (577) 19970 5,047 0 148 Date Palm Country Club Cathedral City CA 4,115 15,380 19,495 (3,191) 199415,608 4,138 14,064 (23) 1,796 Four Seasons Fresno CA 0 756 2,438 3,194 (278) 19972,348 0 126 Laguna Lake San Luis Obispo CA 5,570 2,845 6,569 9,414 (762) 19987,640 1 (959) Lamplighter Spring Valley CA 9,393 633 2,637 3,270 (1,403) 19832,201 0 502 Meadowbrook Santee CA 0 4,345 13,371 17,716 (1,217) 199812,528 0 924 Monte del Lago Castroville CA 8,160 3,150 9,953 13,103 (1,113) 19979,469 0 629 Quail Meadows Riverbank CA 0 1,155 3,606 4,761 (329) 19983,469 0 149 Nicholson Plaza San Jose CA 0 4,509 4,509 (504) 1997-- 4,512 0 44 Rancho Mesa El Cajon CA 0 2,130 6,428 8,558 (600) 19986,616 0 (173) Rancho Valley El Cajon CA 4,645 685 2,269 2,954 (1,231) 19831,902 0 469 Royal Holiday Hemet CA 0 778 2,783 3,561 58 19980 2,840 Royal Oaks Visalia CA 0 602 2,009 2,611 (223) 19971,921 0 146 DeAnza Santa Cruz Santa Cruz CA 5,581 2,103 6,783 8,886 (1,402) 19947,201 0 2,103 Santiago Estates Sylmar CA 0 3,562 10,913 14,475 (867) 199814,205 0 (3,098) Sea Oaks Los Osos CA 0 871 2,808 3,679 (310)2,703 0 128 GROSS AMOUNT CARRIED AT CLOSE OF PERIOD 12/31/01 ------------------------- DEPRECIABLE ACCUMULATED DATE OF REAL ESTATE LAND PROPERTY TOTAL DEPRECIATION ACQUISITION - ----------- -------- ----------- ---------- ------------ ----------- Apollo Village 932 3,665 4,597 (883) 1994 Brentwood Manor 1,997 6,316 8,313 (1,846) 1993 Carefree Manor 706 3,172 3,878 (425) 1998 Casa del Sol #1 2,215 6,796 9,011 (936) 1996 Casa del Sol #2 2,103 6,553 8,656 (875) 1996 Casa del Sol #3 2,450 7,618 10,068 (909) 1998 Central Park 1,612 4,236 5,848 (2,442) 1983 Desert Skies 792 3,197 3,989 (419) 1998 Fairview Manor 1,674 5,583 7,257 (720) 1998 Hacienda De Valencia 833 3,551 4,384 (1,931) 1984 Palm Shadows 1,400 4,574 5,974 (1,324) 1993 Sedona Shadows 1,096 3,717 4,813 (550) 1997 Sunrise Heights 1,000 3,285 4,285 (861) 1994 The Mark 1,360 5,378 6,738 (1,284) 1994 The Meadows 2,613 8,326 10,939 (2,204) 1994 Whispering Palms 670 2,261 2,931 (300) 1998 California Hawaiian 5,825 18,568 24,393 (2,880) 1997 Colony Park 890 2,903 3,793 (375) 1998 Concord Cascade 985 3,698 4,683 (2,019) 1983 Contempo Marin 4,787 18,230 23,017 (4,319) 1994 Coralwood 0 5,195 5,195 (760) 1997 Date Palm Country Club 4,115 15,860 19,975 (3,774) 1994 Four Seasons 756 2,474 3,230 (370) 1997 Laguna Lake 2,846 6,681 9,527 (1,004) 1998 Lamplighter 633 2,703 3,336 (1,510) 1983 Meadowbrook 4,345 13,452 17,797 (1,677) 1998 Monte del Lago 3,150 10,098 13,248 (1,468) 1997 Quail Meadows 1,155 3,618 4,773 (454) 1998 Nicholson Plaza 0 4,556 4,556 (658) 1997 Rancho Mesa 2,130 6,443 8,573 (821) 1998 Rancho Valley 685 2,371 3,056 (1,320) 1983 Royal Holiday 778 2,840 3,618 (97) 1998 Royal Oaks 602 2,067 2,669 (301) 1997 DeAnza Santa Cruz 2,103 9,304 11,407 (1,677) 1994 Santiago Estates 3,562 11,107 14,669 (1,233) 1998 Sea Oaks 871 2,831 3,702 (409) 1997
S-2 60 SCHEDULE III MANUFACTURED HOME COMMUNITIES, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 20002001 (AMOUNTS IN THOUSANDS)
Costs Capitalized Subsequent to Initial Cost to Acquisition Company (Improvements) ------- -------------- Depreciable Depreciable Real Estate Location Encumbrances Land Property Land PropertyCOSTS CAPITALIZED SUBSEQUENT TO INITIAL COST TO ACQUISITION COMPANY (IMPROVEMENTS) ------------------------ ---------------------- DEPRECIABLE DEPRECIABLE REAL ESTATE LOCATION ENCUMBRANCES LAND PROPERTY LAND PROPERTY - ----------- ---------------------- ------------ -------- ------------ ---- -------- ---- ------------------- ------ ----------- Sunshadow San Jose CA 0 0 5,707 0 7389 Westwinds (4 properties) San Jose CA 0 0 17,616 0 3,9464,131 Bear Creek Sheridan CO 0 1,100 3,35931,559 0 69(28,094) Cimarron Broomfield CO 8,0838,086 863 2,790 0 410464 Golden Terrace Golden CO 8,0388,041 826 2,415 0 306436 Golden Terrace South Golden CO 2,400 750 2,265 0 341477 Golden Terrace West Golden CO 9,7339,737 1,694 5,065 0 723750 Hillcrest Village Aurora CO 15,47015,476 1,912 5,202 289 1,744290 1,967 Holiday Hills Denver CO 19,42919,437 2,159 7,780 0 2,6951 3,156 Holiday Village CO Co. Springs CO 6,2616,264 567 1,759 0 425588 Pueblo Grande Pueblo CO 3,4753,476 241 1,069 0 287334 Woodland Hills Denver CO 011,765 1,928 4,408 0 2,0602,192 Aspen Meadows Rehoboth DE 0 1,148 3,4604,543 0 114(948) Camelot Acres Rehoboth DE 7,000 1,778 5,4237,003 527 2,058 0 218574 Mariners Cove Millsboro DE 0 990 2,971 0 2,7382,949 McNicol Rehoboth DE 0 563 1,7102,106 0 37(347) Sweetbriar Rehoboth DE 0 498 1,527 0 953,027 1 (1,337) Waterford Estates Bear DE 0 5,250 16,202 0 271370 Whispering Pines Lewes DE 0 1,536 4,609 0 638 Arrowhead724 Maralago Cay Lantana FL 0 5,325 15,420 0 5351,090 Bay Indies Venice FL 23,00022,525 10,483 3,390 0 29,29029,549 Bay Lake Estates Nokomis FL 4,6914,651 990 3,304 0 (24)495 Buccaneer N. Ft. Myers FL 19,70219,532 4,207 14,410 0 668756 Bulow Village Flagler Beach FL 1,2201,110 3,637 949 0 3,2664,186 Carriage Cove Daytona Beach FL 8,2818,221 2,914 8,68210,176 0 218 Colonies of Margate(1,168) Coral Cay Margate FL 16,88716,742 5,890 20,211 0 7811,580 Coquina St Augustine FL 0 5,286 5,545 0 1,611 Country2,363 Meadows at Countrywood Plant City FL 0 4,514 13,54213,175 0 5751,442 Country Place New Port Richey FL 4,0064,008 663 0 18 5,9926,288 Country Side North Vero Beach FL 0 3,711 11,13314,751 0 608(2,646) East Bay Oaks Largo FL 6,6716,674 1,240 3,322 0 314377 Eldorado Village Largo FL 4,5744,576 778 0 0 2,6072,669 Grand Island Grand island FL 0 1,723 5,208 38 629 Heritage Village Vero Beach FL 0 2,403 7,259 0 248327 Hillcrest Clearwater FL 0 1,278 3,9285,850 0 148(1,624) Holiday Ranch Largo FL 0 925 2,8663,142 0 90 Holiday Village FL Vero Beach FL 0 350 1,374 0 88
(155)
Gross Amount Carried at Close of PeriodGROSS AMOUNT CARRIED AT CLOSE OF PERIOD 12/31/00 --------------- Depreciable Accumulated Date of Real Estate Location Land Property Total Depreciation Acquisition01 ------------------------ DEPRECIABLE ACCUMULATED DATE OF REAL ESTATE LAND PROPERTY TOTAL DEPRECIATION ACQUISITION - ----------- -------- ---- -------- ---------------- ---------- ------------ ----------- Sunshadow San Jose CA 0 5,780 5,780 (646)5,796 5,796 (848) 1997 Westwinds (4 properties) San Jose CA 0 21,562 21,562 (2,142)21,747 21,747 (3,185) 1997 Bear Creek Sheridan CO 1,100 3,428 4,528 (338)3,465 4,565 (460) 1998 Cimarron Broomfield CO 863 3,200 4,063 (1,739)3,254 4,117 (1,864) 1983 Golden Terrace Golden CO 826 2,721 3,547 (1,406)2,851 3,677 (1,515) 1983 Golden Terrace South Golden CO 750 2,606 3,356 (301)2,742 3,492 (399) 1997 Golden Terrace West Golden CO 1,694 5,788 7,482 (2,565)5,815 7,509 (2,753) 1986 Hillcrest Village Aurora CO 2,201 6,946 9,147 (3,593)2,202 7,169 9,371 (3,903) 1983 Holiday Hills Denver CO 2,159 10,475 12,634 (5,240)2,160 10,936 13,096 (5,705) 1983 Holiday Village CO Co. Springs CO 567 2,184 2,751 (1,170)2,347 2,914 (1,236) 1983 Pueblo Grande Pueblo CO 241 1,356 1,597 (724)1,403 1,644 (780) 1983 Woodland Hills Denver CO 1,928 6,468 8,396 (1,517)6,600 8,528 (1,767) 1994 Aspen Rehoboth DEMeadows 1,148 3,574 4,722 (366)3,595 4,743 (495) 1998 Camelot Acres Rehoboth DE 527 2,569 3,096 (1,346)2,632 3,159 (1,449) 1983 Mariners Cove Millsboro DE 990 5,709 6,699 (1,821)5,920 6,910 (2,071) 1987 McNicol Rehoboth DE 563 1,747 2,310 (173)1,759 2,322 (232) 1998 Sweetbriar Rehoboth DE 498 1,622 2,120 (154)499 1,690 2,189 (211) 1998 Waterford Bear DEEstates 5,250 16,473 21,723 (1,617)16,572 21,822 (1,969) 1996 Whispering Pines Lewes DE 1,536 5,247 6,783 (2,034)5,333 6,869 (2,232) 1998 Arrowhead Lantana FLMaralago Cay 5,325 15,955 21,280 (1,724)16,510 21,835 (2,291) 1997 Bay Indies Venice FL 10,483 32,680 43,163 (7,502)32,939 43,422 (8,621) 1994 Bay Lake Estates Nokomis FL 990 3,280 4,270 (819)3,799 4,789 (965) 1994 Buccaneer N. Ft. Myers FL 4,207 15,078 19,285 (3,181)15,166 19,373 (3,709) 1994 Bulow Village Flagler Beach FL 3,637 4,215 7,852 (606)5,135 8,772 (768) 1994 Carriage Cove Daytona Beach FL 2,914 8,900 11,814 (889)9,008 11,922 (1,199) 1998 Colonies of Margate Margate FLCoral Cay 5,890 20,992 26,882 (4,450)21,791 27,681 (5,185) 1994 Coquina St Augustine FL 5,286 7,156 12,442 (181)7,908 13,194 (404) 1999 Country Meadows Plant City FLat Countrywood 4,514 14,117 18,631 (1,434)14,617 19,131 (1,948) 1998 Country Place New Port Richey FL 681 5,992 6,673 (1,737)6,288 6,969 (1,973) 1986 Country Side North Vero Beach FL 3,711 11,741 15,452 (1,180)12,105 15,816 (1,597) 1998 East Bay Oaks Largo FL 1,240 3,636 4,876 (2,018)3,699 4,939 (2,156) 1983 Eldorado Village Largo FL 778 2,607 3,385 (1,443)2,669 3,447 (1,541) 1983 Grand Island 1,761 5,837 7,598 (170) 2001 Heritage Village Vero Beach FL 2,403 7,507 9,910 (1,677)7,586 9,989 (1,946) 1994 Hillcrest Clearwater FL 1,278 4,076 5,354 (395)4,226 5,504 (537) 1998 Holiday Ranch Largo FL 925 2,956 3,881 (291) 1998 Holiday Village FL Vero Beach FL 350 1,462 1,812 (99)2,987 3,912 (396) 1998
S-3 61 SCHEDULE III MANUFACTURED HOME COMMUNITIES, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 20002001 (AMOUNTS IN THOUSANDS)
Costs Capitalized Subsequent to Initial Cost to Acquisition Company (Improvements) ------- -------------- Depreciable Depreciable Real Estate Location Encumbrances Land Property Land PropertyCOSTS CAPITALIZED SUBSEQUENT TO INITIAL COST TO ACQUISITION COMPANY (IMPROVEMENTS) ------------------------ ---------------------- DEPRECIABLE DEPRECIABLE REAL ESTATE LOCATION ENCUMBRANCES LAND PROPERTY LAND PROPERTY - ----------- ------------------------ ------------ -------- ------------ ---- -------- ---- ------------------- ------ ----------- Holiday Village FL Vero Beach FL 0 350 1,792 0 (313) Indian Oaks Rockledge FL 1,6583,091 1,089 3,3764,527 0 536(518) Lake Fairways N. Ft. Myers FL 0 6,075 18,134 0 480810 Lake Haven Dunedin FL 8,0688,071 1,135 4,047 0 482763 Lakewood Village Melbourne FL 0 1,863 5,627 0 263(1) 385 Landings Port Orange FL 0 2,446 7,4838,496 0 294(576) Mid-Florida Lakes Leesburg FL 25,33025,112 5,997 20,635 0 2,1842,683 Oak Bend Ocala FL 0 850 2,572 0 466605 Pickwick Port Orange FL 6,3748,375 2,803 8,4978,870 0 17346 Pine Lakes N. Ft. Myers FL 0 6,306 14,579 0 4,6364,770 Sherwood Forest Kissimmee FL 10,0129,637 4,852 14,59619,642 0 1,852(2,849) Sherwood Forest RV Park Kissimmee FL 0 2,870 3,621 568 347636 Southern Palms Eustis FL 0 2,169 6,4925,884 0 3251,013 Spanish Oaks Ocala FL 7,5707,445 2,250 6,922 0 394 Sunset509 Oaks at Countrywood Plant City FL 0 1,111 2,513 (340) 120188 The Heritage N. Ft. Myers FL 0 1,438 4,371 249 1,8382,046 The Lakes at Countrywood Plant city FL 0 2,377 7,086 37 627 The Meadows, FL Palm Beach Gardens FL 6,2466,202 3,229 9,870 0 (69) Gardens220 Windmill Manor Bradenton FL 4,2856,282 2,153 6,842 0 1266,125 (1) 874 Windmill Village --- Ft. Myers N. Ft. Myers FL 9,4029,406 1,417 5,440 0 827942 Windmill Village North Sarasota FL 9,0659,069 1,523 5,063 0 462580 Windmill Village South Sarasota FL 5,5615,563 1,106 3,162 0 223311 Five Seasons Cedar Rapids IA 0 1,053 3,4365,361 0 421(1,440) Holiday Village, IA Sioux City IA 0 313 3,744 0 319351 Golf Vistas Monee IL 0 2,843 4,719 0 2,4763,529 Willow Lake Estates Elgin IL 21,57821,392 6,138 21,033 0 1,4051,953 Burns Harbor Estates Chesterton IN 0 916 2,909 0 1,363 Candlelight Village Columbus IN 0 1,513 4,538 250 1,9491,469 Oak Tree Village Portage IN 6,0896,092 0 0 569 3,4003,465 Windsong Indianapolis IN 0 1,482 4,4806,509 0 104 Bonner Springs Bonner Springs KS 0 343 1,041 0 200 Carriage Park Kansas City KS 0 309 938 0 418 Quivira Hills Kansas City KS 0 376 1,139 0 184(1,916) Pheasant Ridge Mt. Airy MD 0 376 1,779 0 181356 Creekside Wyoming MI 0 1,109 3,4163,646 0 163(19) Camelot Acres Burnsville MN 0 527 2,0581,778 6,577 0 511 Briarwood Brookline MO(901) Casa Village Billings MT 8,040 1,011 3,109 181 1,913 Del Rey Albuquerque NM 0 423 1,2821,926 5,800 0 189 Dellwood Estates Warrensburg MO677 Bonanza Las Vegas NV 9,988 908 2,643 0 300 912613 Boulder Cascade Las Vegas NV 7,878 2,995 12,413 0 110
(2,756)
Gross Amount Carried at Close of PeriodGROSS AMOUNT CARRIED AT CLOSE OF PERIOD 12/31/00 --------------- Depreciable Accumulated Date of Real Estate Location Land Property Total Depreciation Acquisition01 ------------------------ DEPRECIABLE ACCUMULATED DATE OF REAL ESTATE LAND PROPERTY TOTAL DEPRECIATION ACQUISITION - ----------- -------- ---- -------- ---------------- ---------- ------------ ----------- Holiday Village FL 350 1,479 1,829 (176) 1998 Indian Oaks Rockledge FL 1,089 3,912 5,001 (375)4,009 5,098 (518) 1998 Lake Fairways N. Ft. Myers FL 6,075 18,614 24,689 (3,852)18,944 25,019 (4,500) 1994 Lake Haven Dunedin FL 1,135 4,529 5,664 (2,470)4,810 5,945 (2,645) 1983 Lakewood Village Melbourne FL 1,863 5,890 7,753 (1,320)1,862 6,012 7,874 (1,537) 1994 Landings Port Orange FL 2,446 7,777 10,223 (788)7,920 10,366 (1,068) 1998 Mid-Florida Lakes Leesburg FL 5,997 22,819 28,816 (4,677)23,318 29,315 (5,489) 1994 Oak Bend Ocala FL 850 3,038 3,888 (731)3,177 4,027 (853) 1993 Pickwick Port Orange FL 2,803 8,670 11,473 (860)8,916 11,719 (1,161) 1998 Pine Lakes N. Ft. Myers FL 6,306 19,215 25,521 (3,839)19,349 25,655 (4,505) 1994 Sherwood Forest Kissimmee FL 4,852 16,448 21,300 (1,462)16,793 21,645 (2,048) 1998 Sherwood Forest RV Park Kissimmee FL 3,438 3,968 7,406 (342)4,257 7,695 (506) 1998 Southern Palms Eustis FL 2,169 6,817 8,986 (406)6,897 9,066 (654) 1998 Spanish Oaks Ocala FL 2,250 7,316 9,566 (1,734)7,431 9,681 (2,003) 1993 Sunset Oaks Plant City FLat Countrywood 771 2,633 3,404 (194)2,701 3,472 (285) 1998 The Heritage N. Ft. Myers FL 1,687 6,209 7,896 (1,415)6,417 8,104 (1,657) 1993 The Lakes at Countrywood 2,414 7,713 10,127 (226) 2001 The Meadows, FL Palm Beach FL 3,229 9,801 13,030 (477)10,090 13,319 (824) 1999 Gardens Windmill Manor Bradenton FL 2,153 6,968 9,121 (694)2,152 6,999 9,151 (939) 1998 Windmill Village --- Ft. Myers N. Ft. Myers FL 1,417 6,267 7,684 (3,319)6,382 7,799 (3,575) 1983 Windmill Village North Sarasota FL 1,523 5,525 7,048 (3,025)5,643 7,166 (3,230) 1983 Windmill Village South Sarasota FL 1,106 3,385 4,491 (1,900)3,473 4,579 (2,025) 1983 Five Seasons Cedar Rapids IA 1,053 3,857 4,910 (412)3,921 4,974 (579) 1998 Holiday Village, IA Sioux City IA 313 4,063 4,376 (1,914)4,095 4,408 (2,074) 1986 Golf Vistas Monee IL 2,843 7,195 10,038 (642)8,248 11,091 (1,071) 1997 Willow Lake Estates Elgin IL 6,138 22,438 28,576 (4,621)22,986 29,124 (5,432) 1994 Burns Harbor Estates Chesterton IN 916 4,272 5,188 (1,015)4,378 5,294 (1,236) 1993 Candlelight Village Columbus IN 1,763 6,487 8,250 (661) 1996 Oak Tree Village Portage IN 569 3,400 3,969 (1,092)3,465 4,034 (1,268) 1987 Windsong Indianapolis IN 1,482 4,584 6,066 (401)4,593 6,075 (621) 1998 Bonner Springs Bonner Springs KS 343 1,241 1,584 (448) 1989 Carriage Park Kansas City KS 309 1,356 1,665 (507) 1989 Quivira Hills Kansas City KS 376 1,323 1,699 (480) 1989 Pheasant Ridge Mt. Airy MD 376 1,960 2,336 (1,150)2,135 2,511 (1,198) 1988 Creekside Wyoming MI 1,109 3,579 4,688 (351)3,627 4,736 (481) 1998 Camelot Burnsville MNAcres 1,778 5,641 7,419 (564)5,676 7,454 (761) 1998 Briarwood Brookline MO 423 1,471 1,894 (545) 1989 Dellwood Estates Warrensburg MO 300 1,022 1,322 (378) 1989Casa Village 1,192 5,022 6,214 (2,398) 1983 Del Rey 1,926 6,477 8,403 (1,883) 1993 Bonanza 908 3,256 4,164 (1,806) 1983 Boulder Cascade 2,995 9,657 12,652 (1,183) 1998
S-4 62 SCHEDULE III MANUFACTURED HOME COMMUNITIES, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 20002001 (AMOUNTS IN THOUSANDS)
Costs Capitalized Subsequent to Initial Cost to Acquisition Company (Improvements) ------- -------------- Depreciable Depreciable Real Estate Location Encumbrances Land Property Land PropertyCOSTS CAPITALIZED SUBSEQUENT TO INITIAL COST TO ACQUISITION COMPANY (IMPROVEMENTS) ------------------------ ---------------------- DEPRECIABLE DEPRECIABLE REAL ESTATE LOCATION ENCUMBRANCES LAND PROPERTY LAND PROPERTY - ----------- ------------------------ ------------ -------- ------------ ---- -------- ---- ------------------- ------ ----------- North Star Kansas City MO 0 451 1,365 0 263 Casa Village Billings MT 8,037 1,011 3,109 181 1,654 Del Rey Albuquerque NM 0 1,926 5,800 0 534 Bonanza Las Vegas NV 9,984 908 2,643 0 542 Boulder Cascade Las Vegas NV 8,027 2,995 9,020 0 399 Cabana Las Vegas NV 08,425 2,648 7,989 0 136174 Flamingo West Las Vegas NV 0 1,730 5,266 0 585688 Villa Borega Las Vegas NV 7,5987,470 2,896 8,774 0 124186 Brook Gardens Lackawanna NY 0 3,828 11,04510,310 0 3111,099 Greenwood Village Manorville NY 0 3,667 11,361 0 539 Rockwood Tulsa OK 0 645 1,622 0 2909,414 485 2,814 Falcon Wood Village Eugene OR 74 1,112 3,426 0 63109 Quail Hollow Fairview OR 0 0 3,249 0 69102 Shadowbrook Clackamas OR 0 1,197 3,693 0 68102 Green Acres Breinigsville PA 16,00716,014 2,680 7,479 0 1,9922,149 Fun n Sun RV Park San Benito TX 0 2,533 7,572 0 5670 8,414 All Seasons Salt Lake City UT 0 510 1,623 0 112163 Westwood Village Farr West UT 0 1,346 4,179 0 8451,030 Meadows of Chantilly Chantilly VA 0 5,430 16,440 0 1,3211,627 Kloshe Illahee Federal Way WA 6,5806,469 2,408 7,286 0 4983 Independence Hill Morgantown WV 0 299 898 0 198259 College Heights Consolidated (18 properties) Various 66,48465,914 17,045 71,382 0 523493 Management Business Chicago IL 0 0 436 0 6,7037,542 -------- -------- -------- ------ -------- $555,847 $270,055 $824,426 $1,767 $121,928------- $589,954 $269,795 $871,001 $2,076 $95,266 ======== ======== ======== ====== ========
=======
Gross Amount Carried at Close of PeriodGROSS AMOUNT CARRIED AT CLOSE OF PERIOD 12/31/00 --------------- Depreciable Accumulated Date of Real Estate Location Land Property Total Depreciation Acquisition01 ------------------------ DEPRECIABLE ACCUMULATED DATE OF REAL ESTATE LAND PROPERTY TOTAL DEPRECIATION ACQUISITION - ----------- -------- ---- -------- ---------------- ---------- ------------ ----------- North Star Kansas City MO 451 1,628 2,079 (601) 1989 Casa Village Billings MT 1,192 4,763 5,955 (2,173) 1983 Del Rey Albuquerque NM 1,926 6,334 8,260 (1,646) 1993 Bonanza Las Vegas NV 908 3,185 4,093 (1,668) 1983 Boulder Cascade Las Vegas NV 2,995 9,419 12,414 (846) 1998 Cabana Las Vegas NV 2,648 8,125 10,773 (1,791)8,163 10,811 (2,075) 1994 Flamingo West Las Vegas NV 1,730 5,851 7,581 (1,207)5,954 7,684 (1,416) 1994 Villa Borega Las Vegas NV 2,896 8,898 11,794 (1,006)8,960 11,856 (1,315) 1997 Brook Gardens Lackawanna NY 3,828 11,356 15,184 (1,169)11,409 15,237 (1,575) 1998 Greenwood Manorville NY 3,667 11,900 15,567 (1,130)Village 4,152 12,228 16,380 (1,482) 1998 Rockwood Tulsa OK 645 1,912 2,557 (1,022) 1983 Falcon Wood Village Eugene OR 1,112 3,489 4,601 (389)3,535 4,647 (512) 1997 Quail Hollow Fairview OR 0 3,318 3,318 (372)3,351 3,351 (490) 1997 Shadowbrook Clackamas OR 1,197 3,761 4,958 (438)3,795 4,992 (577) 1997 Green Acres Breinigsville PA 2,680 9,471 12,151 (3,673)9,628 12,308 (4,016) 1988 Fun n Sun RV Park San Benito TX 2,533 8,139 10,672 (841)8,414 10,947 (1,155) 1998 All Seasons Salt Lake City UT 510 1,735 2,245 (204)1,786 2,296 (274) 1997 Westwood Village Farr West UT 1,346 5,024 6,370 (547)5,209 6,555 (745) 1997 Meadows of Chantilly Chantilly VA 5,430 17,761 23,191 (4,045)18,067 23,497 (4,707) 1994 Kloshe Illahee Federal Way WA 2,408 7,335 9,743 (821)7,369 9,777 (1,072) 1997 Independence Hill Morgantown WV 299 1,096 1,395 (403)1,157 1,456 (450) 1990 College Heights Consolidated (18 properties) Various 17,045 71,905 88,950 (5,904)71,875 88,920 (8,387) 1998 Management Business Chicago IL 0 7,139 7,139 (4,880)7,978 7,978 (5,700) 1990 -------- -------- ---------- --------- $271,822 $946,354 $1,218,176 ($181,580)$271,871 $966,267 $1,238,138 $(211,878) ======== ======== ========== =========
- --------------- NOTES: (1) For depreciable property, the Company uses a 30-year estimated life for buildings acquired and structural and land improvements, a ten-to-fifteen year estimated life for building upgrades and a three-to-seven year estimated life for furniture and fixtures. (2) The schedule excludes five Properties in which the Company has a non-controlling joint venture interest and accounts for using the equity method of accounting. (3) The balance of furniture and fixtures included in the total amounts was approximately $12.2 million as of December 31, 2000.2001. (4) The aggregate cost of land and depreciable property for Federal income tax purposes was approximately $1.1 billion, as of December 31, 2000.2001. (5) All Properties were acquired, except for Country Place Village, which was constructed. S-5 63 SCHEDULE III MANUFACTURED HOME COMMUNITIES, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 20002001 (AMOUNTS IN THOUSANDS) The changes in total real estate for the years ended December 31, 2001, 2000 1999 and 19981999 were as follows:
2001 2000 1999 1998 ---- ---- -------------- ---------- ---------- Balance, beginning of year ...... $ 1,264,343 $ 1,237,431 $ 936,318 Acquisitions (1) ............year.... $1,218,176 $1,264,343 $1,237,431 Acquisitions(1)............. 17,770 (4,581) 12,496 286,880 Improvements ................Improvements................ 23,140 16,261 16,700 14,566 Dispositions (2)Dispositions(2) and other ..other... (20,948) (57,847) (2,284) (333) ----------- ----------- --------------------- ---------- ---------- Balance, end of year ............ $ 1,218,176 $ 1,264,343 $ 1,237,431 =========== =========== ===========year.......... $1,238,138 $1,218,176 $1,264,343 ========== ========== ==========
- --------------- (1) Acquisitions for the year ended December 31, 2000 include return of escrow proceeds. (2) Dispositions includesfor 2000 include the non-cash assumption of $19.0 million of debt by the purchaser of a Property. The changes in accumulated depreciation for the years ended December 31, 2001, 2000 1999 and 19981999 were as follows:
2001 2000 1999 1998 ---- ---- ------------ -------- -------- Balance, beginning of year .. $ 150,757 $ 118,021 $ 89,208year.... $181,580 $150,757 $118,021 Depreciation expense ....expense........ 35,205 35,548 35,020 29,146 Dispositions and other ..other...... (4,907) (4,725) (2,284) (333) --------- --------- ----------------- -------- -------- Balance, end of year ........ $ 181,580 $ 150,757 $ 118,021 ========= ========= =========year.......... $211,878 $181,580 $150,757 ======== ======== ========
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