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
[ ]|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2002
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 Identification No.)
incorporation or organization) Identification No.)
TWO NORTH RIVERSIDE PLAZA, SUITE 800, CHICAGO, ILLINOIS 60606
800, CHICAGO, ILLINOIS (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]|X| No [ ]| |
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). 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 $640.1$571.5 million as of February 11, 200228, 2003 based upon the closing
price of $32.55$29.04 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 15, 2002, 21,740,24824, 2003, 22,223,647 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 May 8, 2002.7, 2003.
MANUFACTURED HOME COMMUNITIES, INC.
TABLE OF CONTENTS
PAGEPage
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PART II.
Item 1. Business.................................................................................Business............................................................................... 3
Item 2. Properties...............................................................................Properties............................................................................. 8
Item 3. Legal Proceedings........................................................................Proceedings...................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......................................Holders.................................... 16
PART IIII.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters................Matters.............. 17
Item 6. Selected Financial Data and Operating Information........................................Data................................................................ 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....Operations.. 20
Item 7A. Quantitative and Qualitative Disclosure About Market Risk................................ 30Risk.............................. 31
Item 8. Financial Statements and Supplementary Data.............................................. 30Data............................................ 31
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..... 30Disclosure... 31
PART IIIIII.
Item 10. Directors and Executive Officers of the Registrant....................................... 30Registrant..................................... 32
Item 11. Executive Compensation................................................................... 30Compensation................................................................. 32
Item 12. Security Ownership of Certain Beneficial Owners and Management........................... 30Management......................... 32
Item 13. Certain Relationships and Related Transactions........................................... 30Transactions......................................... 32
Item 14. Controls and Procedures................................................................ 32
PART IVIV.
Item 14.15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................... 318-K........................ 33
2
PART I
ITEM 1. BUSINESS
THE COMPANY
GENERAL
Manufactured Home Communities, Inc. (together, together with itsMHC Operating Limited
Partnership (the "Operating Partnership") and other consolidated subsidiaries
("Subsidiaries"), are referred to herein as the "Company"), "MHC", "we", "us",
and "our". The Company is a fully integrated company whichthat owns and operates
manufactured home communities ("Communities") and recreational vehicle resorts
("Resorts") (collectively known as "Properties"). The Company was formed to
continue the property operations, business objectives and acquisition strategies
of an entity that had owned and operated Communities since 1969. As of December
31, 2002, we owned or had an ownership interest in a portfolio of 142
Communities and Resorts located throughout the United States containing 51,582
residential sites. Our Properties are located in 21 states (with the number of
Properties in each state shown parenthetically) - Florida (51), California (25),
Arizona (19), Colorado (10), Delaware (7), Nevada (5), Oregon (4), Indiana (3),
Illinois (2), Iowa (2), New York (2), Texas (2), Utah (2), Pennsylvania (1),
Maryland (1), Montana (1), New Mexico (1), Michigan (1), Virginia (1), West
Virginia (1), and Washington (1).
Communities are residential developments designed and improved for the
placement of detached, single-family manufactured homes whichthat 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. In some
cases, utilities are provided or arranged for by the owner of the Community,Community;
otherwise, the resident contracts for the utility directly. Some Communities
provide water and sewer service through municipal or regulated 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 nestersempty-nesters or (2)2) families and first-time
homeowners. The Company believesWe believe both types of Communities are attractive investments and
focusesfocus on owning Communities in or near large metropolitan markets and retirement
destinations.
The Company was formedResorts are similar to continueCommunities in their overall design and the
property operations, business
objectivesamenities they provide. However, our Resorts include sites designed to
accommodate Site Set homes, park model homes, luxury motorcoaches and acquisition strategiesa variety
of an entity that had owned and operated
Communities since 1969. As of December 31, 2001, the Company ownedrecreational vehicles. Our Resorts are marketed to attract residents seeking
a second home or had an
ownership interest invacation home as well as those seeking a portfolio of 148 Communities andlong-term or full
season recreational vehicle ("RV") resorts (the "Properties") located throughoutsite. A majority of our Resort residents own homes
in the United States
containing 50,761 residential sites. The Properties are located in 23 states
(withResort and/or lease the number of Properties in each state shown parenthetically) -- Florida
(49), California (25), Arizona (17), Michigan (11), Colorado (10), Delaware (7),
Nevada (5), Indiana (3), Oregon (3), Illinois (2), Iowa (2), New York (2), Utah
(2), Pennsylvania (1), Maryland (1), Minnesota (1), Montana (1), New Mexico (1),
Ohio (1), Texas (1), Virginia (1), West Virginia (1), and Washington (1)site annually or for a full season (six months or
longer).
As of
December 31, 2001, the Company also owned a commercial building located in
California.
The Company hasWe have approximately 8001,000 full-time employees dedicated to carrying out
the Company'sour operating philosophy and strategies of value enhancement and service to
residents. The Companyoperations of each Property are coordinated by an on-site team of
employees that typically utilizesincludes a onemanager or two-person management team,
for the on-site management of each of the Properties. Typically,
clerical and maintenance workers, are employedeach of whom work to assist these individuals in the
managementprovide maintenance and
care of the Properties. Direct supervision of on-site management is the
responsibility of the Company'sour 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 60 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
100% of 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 primarily through certain entities which
are owned or controlled by the
Company. MHC Operating Limited Partnership (the
"Operating Partnership") isPartnership. The Company contributed the entity through which the Company conducts
substantially all ofproceeds from its operations. Subsidiaries ofinitial
public offering and subsequent offerings to the Operating Partnership have 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"); and (iii) own the assets and
operations of certain utility companies which service the Properties ("MHC
Systems").for a
general partnership interest. The financial results of the Operating Partnership
and subsidiaries
(together, the "Subsidiaries")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
In addition, since certain activities, if performed by the Company,
may not have beenbe qualifying REIT activities under the Internal Revenue Code of 1986,
as amended (the "Code"), the Company has investedformed taxable REIT subsidiaries as
defined in the non-voting preferred stock
of various corporations whichCode to engage in such activities. Realty Systems, Inc. ("RSI")
is a preferred stockwholly owned subsidiary of the Company that, doing business
3
as Carefree Sales, is engaged in the business of purchasing, selling leasing and financingleasing
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.Community Systems, Inc. ("CSI") leases
from the Operating Partnership certain real property within or adjacent to
certain of the Properties consisting of golf courses, pro shops, restaurants and RV 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.restaurants.
BUSINESS OBJECTIVES AND OPERATING STRATEGIES
The CompanyOur strategy seeks to maximize both current income and long-term growth in
income. The Company focusesWe focus on CommunitiesProperties that have strong cash flow and expectswe expect to hold
such Properties for long-term investment and capital appreciation. In
determining cash flow potential, the Company evaluates the
Community'swe evaluate our ability to attract and retain
high quality residents in our Properties who take pride in their CommunityProperty and in
their home. These business objectives and their implementation are determined by
the Company'sour Board of Directors and may be changed at any time. The Company'sOur 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
resident satisfaction; and
- Selectively acquiring CommunitiesProperties 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 isWe are committed to enhancing itsour reputation as the most respected brand
name in the industry. ItsOur strategy is to own and operate the highest quality
CommunitiesProperties in major metropolitansought-after locations near both urban 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 CommunityProperty with a variety of organized recreational and social
activities and superior amenities. In addition, we regularly conduct evaluations
of the Company regularly surveyscost of housing in the market places in which our Properties are located
as well as survey rental rates of competing propertiesCommunities and conductsResorts. From time
to time we also conduct satisfaction surveys of our residents to determine the
factors residentsthey consider most important in choosing a manufactured home
community.Property.
FUTURE ACQUISITIONS
The Company acquiredOver the last seven years our portfolio of Properties has grown by 73
Properties. We continually review the Properties in our portfolio to ensure they
fit our business objectives. Over the last 3 years, through the acquisition or
gained a controlling interest in eighty-eightsale of 44 Properties, during 1997 through 1999, more than doubling its portfolio. The
Company believeswe have redeployed capital to markets we believe have
greater long-term potential. We believe that opportunities for propertyProperty
acquisitions are still available and in general consolidation within the
industry will continue (see --- The Industry --- Industry Consolidation). However,
the Company believeswe also believe that many transactions occurring during 1999 and 2000 in the private marketplace are
at valuations significantly in excessthat would prevent a reasonable return on the invested capital.
When investing capital we consider all potential uses of the Company's current public market
valuation.capital including
repurchases of our stock. As a result, during 1999 and 2000 the Company accelerated itswe implemented our
stock repurchase program. The Company'sprogram and our Board of Directors continues to review the
conditions under which the Companywe will repurchase itsour 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 Site Set homes and continued
constraints on development of new CommunitiesProperties continue to add to their
attractiveness as an investment. The Company believes it hasWe believe we have a competitive advantage in
the acquisition of new CommunitiesProperties due to itsour experienced management, significant
presence in major real estate markets and substantial capital resources. The Company isWe are
actively seeking to acquire additional Communities and currently isResorts and are engaged
in various stages of negotiations relating to the possible acquisition of a
number of Communities.
The Company anticipatesProperties.
4
We anticipate that newly acquired propertiesProperties will be located in the United
States. The Company utilizesWe utilize 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
expectswe expect to expand itsour
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 tomay issue units of limited partnership interest ("OP
Units") to finance acquisitions. The Company
believesWe believe that an ownership structure which
includes the Operating Partnership will permit the Companyus to acquire additional
Communities and Resorts in transactions that may defer all or a portion of the
sellers' tax consequences.
When evaluating potential acquisitions, the Companywe will consider such factors as:
(i)- - the replacement cost of the property; (ii)Property,
- - the geographic area and type of property; (iii)Property,
- - the location, construction quality, condition and design of the property; (iv)Property,
- - the current and projected cash flow of the propertyProperty and the ability to
increase cash flow; (v)flow,
- - the potential for capital appreciation of the property; (vi)Property,
- - the terms of tenant leases, including the potential for rent increases; (vii)increases,
- - the potential for economic growth and the tax and regulatory environment
of the community in which the propertyProperty is located; (viii)located,
- - the potential for expansion of the physical layout of the propertyProperty and the
number of sites; (ix)sites,
- - the occupancy and demand by residents for propertiesProperties of a similar type in
the vicinity and the residents profile; (x)residents' profile,
- - the prospects for liquidity through sale, financing or refinancing of the
property;
and (xi)Property,
- - the competition from existing CommunitiesProperties and the potential for the
construction of new CommunitiesProperties in the area.
The Company expectsWe expect to purchase CommunitiesProperties with physical and market characteristics
similar to the Properties in itsour current portfolio.
PROPERTY EXPANSIONS
Several of the Company'sour 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 Companyus 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'sOur acquisition philosophy has included the
desire to own Properties with potential Expansion Site development, and the Company haswe have
been successful in acquiring a number of such Properties. Several examples of
these Properties include the 1993 acquisition of The Heritage with potential
development of approximately 288 Expansion Sites, the 1994 acquisition of Bulow
Village with potential development of approximately 725 Expansion Sites, the
1997 acquisition of Golf Vista Estates with potential development of
approximately 12888 Expansion Sites, and the 1999 acquisition in 1999 of Coquina Crossing with
potential development of approximately 393 Expansion Sites, and the acquisition in 2001
acquisitions of Grand Island and The Lakes at Countrywood with combined
potential Expansion Sites of 224 sites.
Of the Company's 148our 142 Properties, ten may be expanded consistent with existing zoning
regulations. In 2002, the Company expects2003, we expect to develop an additional 141130 Expansion Sites
within three3 of these Properties. As of December 31, 2001, the Company2002, we had approximately 817753
Expansion Sites available for occupancy in 2425 of the Properties. The CompanyWe filled 205154
Expansion Sites in 20012002 and expectsexpect to fill an additional 200150 to 250200 Expansion
Sites in 2002.2003.
LEASES
TheAt our Communities a typical lease entered into between the resident and
the Company for the rental of a site 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 applicable law,
for non-payment of rent, violation of communityCommunity 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 2225 of the
Properties. TheseCommunities. Some of 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. CommunitiesOur Properties are subject to various laws, ordinances and
regulations, including regulations relating to recreational facilities such as
swimming pools, clubhouses and other common areas. The Company believesWe believe that each Property
has the necessary permits and approvals to operate.
5
Rent Control Legislation. StateAt certain of our Communities, state and local
rent control laws, principally in California, and Florida, limit the Company'sour ability to increase
rents and to recover increases in operating expenses and the costs of capital
improvements at
certain Properties.improvements. Enactment of such laws has been considered from time to time in
other jurisdictions. The CompanyWe presently expectsexpect to continue to maintain Communities,
and may purchase additional properties,Communities, 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 Propertieswe own
Communities limit rent increases to changes in the CPI or some percentage
thereof. As part of our effort to realize the value of our Properties subject to
restrictive regulation, we have initiated lawsuits against several
municipalities imposing such regulation in an attempt to balance the interests
of our shareholders with the interests of our residents
Insurance. Management believesWe believe 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 iswe are self-insured for terrorist incidents. The Company
believes itsincidents, except at certain
Properties where terrorist insurance coverage is required by debt covenants. We
believe our insurance coverage is adequate based on the Company'sour assessment of the risks
to be insured, the probability of loss and the relative cost of available
coverage. The Company hasWe have obtained title insurance insuring fee title to the Properties in
an aggregate amount which the Company believeswe believe to be adequate.
INDUSTRY
THE INDUSTRY
The Company believesWe believe that modern Communities, such as the Properties similar to ours 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 believesWe believe that the supply of new CommunitiesProperties 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
CommunitiesProperties 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 thea 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 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. The five public REITs that own Communities own
approximately 532531 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 believesWe believe that this relatively high
degree of fragmentation in the industry provides the Company,us, as a national
organization with experienced management and substantial financial
resources, the opportunity to purchase additional Communities.
- Stable Tenant Base: The Company believesWe believe 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 clubhouses,
recreational and social activities and (iii) since moving a Site 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.
6
SITE SET HOUSING
Based on the current growth in the number of individuals living in Site
Set homes, the Company believeswe believe that Site 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 Site set.
The Company believesWe believe that the growing popularity of Site Set housing is primarily
the result of the following factors:
- - Importance of Home Ownership. According to the Fannie Mae ("FNMA") 20002001 National
Housing Survey ("FNMA Survey") renters' desire to own a home continues to
be a top priority.
According to the report, "A home is more than merely
shelter. Owning a home provides a sense of financial security...Americans
view owning a home as the second most important action a person can take
to achieve financial security, behind stating an IRA [401(k)] or other
type of retirement account.6
- - Affordability. For a significant number of persons,people, Site Set housing
represents the only means of achieving home ownership. In addition, the
total cost of housing in a CommunityProperty (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" residential alternatives.
- - Lifestyle Choice. As the average age of the United States population has
increased, Site Set housing has become an increasingly popular housing
alternative for retirement and "empty-nest" living. According to the FNMA
Survey, 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 peopleindividuals who are nearing retirement (age 40 to 54),
approximately 33% plan on moving upon retirement. The Company believesWe believe that Site Set
housing is especially attractive to such individuals when located within a
CommunityProperty that offers an appealing amenity package, close proximity to
local services, social activities, low maintenance and a secure
environment.
- - Construction Quality. Since 1976, all Site 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 Site Set housing construction quality are the
only Federally regulated standards governing housing quality of any type
in the United States. Site 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 Site 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 Site Set housing industry has
experienced a recent trend towards multi-section homes. Many modern Site Set
homes are longer (up to 80 feet compared to 50 feet in the 1960's) and
wider than earlier models. Many such homes have vaulted ceilings,
fireplaces and as many as four bedrooms, and closely resemble single
family ranch style site-built homes.
AVAILABLE INFORMATION
We file reports electronically with the Securities and Exchange
Commission. The public may read and copy any materials we file with the SEC at
the SEC's Public Reference Room at 450 Fifth Street, NW., Washington, DC 20549.
The public may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy information and statements, and other information
regarding issuers that file electronically with the SEC at http://www.sec.gov.
We maintain an Internet site with information about the Company and hyperlinks
to our filings with the SEC at http://www.mhchomes.com. Requests for copies of
our filings with the SEC and other investor inquiries should be directed to:
Investor Relations Department
Manufactured Home Communities, Inc.
Two North Riverside Plaza
Chicago, Illinois 60606
Phone: 1-800-247-5279
e-mail: investor_relations@mhchomes.com
7
ITEM 2. PROPERTIES
The Company believes that theOur Properties provide attractive amenities and common facilities that
create a comfortable and attractive Communityhome for theour 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 residents
in our Properties own their homes, it is their responsibility to maintain their
homes and the surrounding area. It is management'sour role to ensure that residents comply
with Communityour Property policies and to provide maintenance of the common areas,
facilities and amenities. The Company holdsWe hold periodic meetings of its propertywith our Property management
personnel for training and implementation of the Company'sour strategies. The Properties
historically have had, and the Company
believeswe believe they will continue to have, low turnover
and high occupancy rates.
The distribution of theour Properties throughout the United States reflects
the Company'sour belief that geographic diversification helps insulate the portfolio from
regional economic influences. The Company intendsWe intend to target new acquisitions in or near
markets where theour Properties are located and will also consider acquisitions of
propertiesProperties outside such markets. The Company'sfollowing table identifies our five largest
markets ofand provides information regarding our Properties including Communities
owned are Florida (49 Properties), California (25
Properties), Arizona (17 Properties), Michigan (11 Properties) and Colorado (10
Properties). These markets accounted for 36%, 17%, 9%, 3%, and 10%,
respectively, of the Company's total revenues for the year ended December 31,
2001. The Company also has Properties located in the following markets:
Northeast, Northwest, Midwest, and Nevada/Utah/New Mexico. The Company'sjoint ventures.
NUMBER OF PERCENT OF PERCENT OF TOTAL
MAJOR MARKET PROPERTIES TOTAL SITES TOTAL SITES REVENUES
------------ ---------- ----------- ----------- --------
Florida 51 23,038 44.66% 38.61%
California 25 6,215 12.05% 19.96%
Arizona 19 5,413 10.49% 8.76%
Colorado 10 3,455 6.70% 8.54%
Delaware 7 2,238 4.34% 4.10%
Other 30 11,223 21.76% 20.03%
--- ------ ------ ------
Total 142 51,582 100.00% 100.00%
=== ====== ====== ======
Our largest Property, Bay Indies, located in Venice, Florida, accounted for 3%2.7%
of the
Company'sour total revenues for the year ended December 31, 2001.2002.
The following table lists our Resort Properties and those Communities in
which we have a non-controlling joint venture interest:
NUMBER
OF SITES
LOCATION AS OF
PROPERTY CITY, STATE 12/31/02
- ---------------------------- ---------------------- ---------------
RESORT PROPERTIES
Mt Hood Welches OR 436
Fun & Sun San Benito TX 1,435
Southern Palms Eustis FL 950
Sherwood Forest RV Kissimmee FL 512
Bulow RV Flagler Beach FL 352
Tropic Winds Harlingen TX 531
Countryside Apache Junction AZ 560
Golden Sun Apache Junction AZ 329
Breezy Hill Pompano Beach FL 762
Highland Wood Pompano Beach FL 148
Date Palm RV Cathedral City CA 140
--------
TOTAL RESORT PROPERTY SITES 6,155
--------
COMMUNITIES OWNED IN JOINT VENTURES
Trails West Tucson AZ 503
Plantation Calimesa CA 385
Manatee Bradenton FL 290
Home Hallandale FL 136
Villa del Sol Sarasota FL 207
Voyager RV Resort Tuscon AZ --
Preferred Interests in College Heights --
--------
TOTAL SITES OWNED IN JOINT VENTURES 1,521
--------
8
The following tables settable sets forth certain information relating to the
PropertiesCommunities we owned by the Company as of December 31, 2001,2002, categorized by the
Company'sour major markets.
"CoreWe define our core Community portfolio ("Core Portfolio" represents an analysis of Properties) as Communities owned
throughout both yearsperiods of comparison. Excluded from the Core Portfolio are any
Communities acquired or sold during the period, any Resort Properties and any
Communities owned through joint ventures which, together, are referred to as the
"Non-Core" Properties. The following table excludes the following RV
resortResort Properties (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-controllingany
Communities owned through joint venture interest
and accounts for using the equity method of accounting.Ventures.
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 12/31/0102 12/31/02 12/31/01 12/31/0002 12/31/01
12/31/00
-------- ------------------------ --------------------------------- ------------------------ -------- --------- --------- --------- -------------------
FLORIDA
FLORIDA
NORTHERN, CENTRAL & EASTERN FLORIDA:
Maralago Cay Lantana FL 602 96.3% 95.7% $417 $405
Brittany Estates Tallahassee FL 299 84.6% 93.6% $285 $270EAST COAST:
Bulow Plantation FLaglerFlagler Beach FL 276 99.4%97.5% (b) 97.8%99.4% (b) $322 $258 $244
Carriage Cove Daytona Beach FL 418 95.7% 97.4% 98.3%$426 $399 $370
Coquina Crossing St Augustine FL 361 91.1%84.5% (b) 86.8%91.1% (b) $324 $317 $305
Coral Cay at Vero Beach Margate FL 819 91.5% 93.4% 96.3%$435 $428 $411
Countryside North Vero Beach FL 646 95.7%96.6% (b) 95.5%95.7% (b) $324 $315 $298
Fernwood Deland FL 92 94.6% 95.7% $260 $250
Grand Island Grand Island FL(a) 309 76.4% $282
Heritage Village Vero Beach FL 436 96.1% 97.0% 97.2%$354 $346 $308
Holiday Village FL Vero Beach FL 128 72.7% 78.1% 79.7%$307 $286
$281Holiday Village Ormond Beach FL (a) 301 87.4% (d) $313 (d)
Indian Oaks Rockledge FL 211 96.2%98.1% (b) 94.8%96.2% (b) $260 $243 $234
Lakewood Village Melbourne FL 349 92.8% 95.1% 95.7%$387 $359
$345Lighthouse Pointe Port Orange FL 433 89.1% (b) 88.9% (b) $324 $308
Maralago Cay Lantana FL 602 94.5% 96.3% $437 $417
Pickwick Port Orange FL 432 98.6% 97.2% $335 $310
The Meadows Palm Beach Gardens FL 388 85.3% (b) 82.6% (b) $373 $331
CENTRAL:
Grand Island Grand Island FL (a) 307 71.5% (b) 76.4% (b) $291 $282
Mid-Florida Lakes Leesburg FL 1,226 91.1%88.6% (b) 93.2%91.1% (b) $339 $325 $313
Oak Bend Ocala FL 262 87.4%88.2% (b) 84.4%87.4% (b) $292 $250 $239
Pickwick Port Orange FL 432 97.2% 94.9% $310 $296
Sherwood Forest Kissimmee FL 769 96.6%96.9% (b) 94.7%96.6% (b) $345 $334
$319Villas at Spanish Oaks Ocala FL 459 91.5% 93.9% 93.7%$317 $301
$281
The Landings Port Orange FL 433 88.9%(b) 89.4%(b) $308 $293
The Meadows, FL Palm Beach Gardens FL 380 82.6%(b) 81.1%(b) $331 $314
TAMPA/NAPLES:GULF COAST (TAMPA/NAPLES):
Bay Indies Venice FL 1,309 98.2% 98.9% 99.9%$345 $323 $314
Bay Lake Estates Nokomis FL 228 95.6% 96.1% 98.2%$424 $370 $354
Boulevard Estates Clearwater FL 297 89.2% 89.6% $349 $333
Buccaneer N. Ft. Myers FL 971 98.5% 99.1% 99.3%$348 $331 $317
Chalet Village Tampa FL 60 90.0% 90.0% $327 $309
Country Place New Port Richey FL 515 97.9%99.4% (b) 90.9%97.9% (b) $272 $237 $230
Down Yonder Largo FL 361362 99.2% 99.4% 98.9%$388 $375 $356
East Bay Oaks Largo FL 328 96.0% 97.3% 97.0%$391 $367 $351
Eldorado Village Largo FL 227 94.3% 96.0% 96.9%$391 $370
$356
Friendly Village of KapokGlen Ellen Clearwater FL 236 84.3% 84.7% $349 $341(a) 117 76.9% (d) $322 (d)
Hacienda Village New Port Richey Fl (a) 519 95.0% (d) $333 (d)
Harbor View New Port Richey FL (a) 471 98.9% (d) $228 (d)
Hillcrest Clearwater FL 279 83.9% 84.2% 80.3%$367 $345 $322
Holiday Ranch Largo FL 150 92.7% 94.0%92.7% $353 $341 $333
Lake Fairways N. Ft. Myers FL 896 99.2% 99.1% 99.4%$376 $364 $348
Lake Haven Dunedin FL 379 89.7% 92.9% 97.6%$399 $382 $376
Lakes at Countrywood Plant City FL(a) 421FL (a) 423 94.8% (b) 96.5% (b) $256 $246
Meadows at Countrywood Plant City FL 736737 99.1% 98.9% 98.8%$299 $285 $277
Oaks at Countrywood Plant City FL 168 67.9%70.8% (b) 64.9%67.9% (b) $256 $248 $231
Pine Lakes N. Ft. Myers FL 584 99.3% 99.1% 99.8%$458 $439
$421
SatelliteSilk Oak Clearwater FL 87 90.8% 90.8% $302 $292(a) 180 93.3% (d) $358 (d)
The Heritage N. Ft. Myers FL 455 83.5%87.3% (b) 79.6%83.5% (b) $319 $306 $290
Windmill Manor Bradenton FL 292 94.9% 95.9% 96.2%$370 $357 $340(d)
Windmill Village -- Ft. Myers N. Ft. Myers FL 491 98.0%96.3% 98.6% $323 $310 $297
Windmill Village North Sarasota FL 471 98.1% 98.5% 99.8%$346 $332 $320
Windmill Village South Sarasota FL 306 99.7% 99.3% 100.0%$364 $332
$321
------- ----- ------ ---- ---- ---- ----
TOTAL FLORIDA MARKET 19,154 94.3% 94.7% $333 $323
------- -----19,681 94.0% 98.7% $346 $307
------ ---- ---- ---- ----
FLORIDA MARKET --- CORE PORTFOLIO 18,424 94.6% 95.1% $336 $323
------- -----17,363 94.4% 97.4% $363 $343
------ ---- ---- ---- ----
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 12/31/0102 12/31/02 12/31/01 12/31/0002 12/31/01
12/31/00
-------- ----------------------- --------- ------------------------------------ ------------------ ---------- ----------- ----------- --------- --------- --------- -------------------
CALIFORNIA
CALIFORNIA
NORTHERN CALIFORNIA:
California Hawaiian San Jose CA 419418 97.6% 98.1%(b) 98.1%(b) $675 $636 $600
Colony Park Ceres CA 186178 93.8% 86.0% 76.9%$375 $353 $345
Concord Cascade Pacheco CA 283 98.9% 98.9% $560 $544 $521
Contempo Marin San Rafael CA 396 98.7% 98.7% $674 $644 $631
Coralwood Modesto CA 194 99.0% 97.4% 92.8%$438 $413 $403
Four Seasons Fresno CA 242 75.6% 73.6% 71.5%$267 $254 $244
Laguna Lake San Luis Obispo CA 290 99.7% 99.7% $368 $344 $328
Monte del Lago Castroville CA 314310 97.7% (b) 97.8%(b) 99.4%(b)$560 $513 $485
Quail Meadows Riverbank CA 146 100.0% 98.6%100.0% $390 $363 $340
Royal Oaks Visalia CA 149 81.9% 83.2%81.9% $290 $273 $258
DeAnza Santa Cruz Santa Cruz CA 198 99.0% 99.5% 100.0%$558 $526 $514
Sea Oaks Los Osos CA 125 97.6% 100.0% 100.0%$418 $349 $344
Sunshadow San Jose CA 121 100.0% 100.0% $651 $605 $583
Westwinds (4 Properties) San Jose CA 723 99.2% 98.9% 99.9%$719 $656 $615
SOUTHERN CALIFORNIA:
Date Palm Country Club Cathedral City CA 538 94.1% 95.9% 93.9%$679 $640 $631
Lamplighter Spring Valley CA 270 99.3% 98.1% 99.6%$642 $565 $535
Meadowbrook Santee CA 332 100.0% 99.1% 99.4%$627 $603 $590
Rancho Mesa El Cajon CA 158 99.4% 99.4% $567 $535 $510
Rancho Valley El Cajon CA 140 100.0% 98.6% 99.3%$627 $550 $518
Royal Holiday Hemet CA 179 67.0% 64.2% 72.6%$285 $277 $259
Santiago Estates Sylmar CA 299300 96.3% 96.0% 94.6%$646 $617
$591
------- ----- ---------- ---- ---- ----
TOTAL CALIFORNIA MARKET 5,7025,690 95.8% 95.4% 95.2% $538 $516
-------$568 $531
----- ---------- ---- ---- ----
CALIFORNIA MARKET --- CORE PORTFOLIO 5,7025,690 95.8% 95.4% 95.2% $538 $516
-------$568 $531
----- ------ ---- ---- ---- ----
ARIZONA
Apollo Village Phoenix AZ 237236 83.9% (b) 91.6%(b) 92.8%(b)$401 $371
$356The Highlands at
Brentwood Manor Mesa AZ 274273 88.9% 93.8% 94.9%$475 $456 $431
Carefree Manor Phoenix AZ 128 92.2% 97.7% 99.2%$353 $322 $303
Casa del Sol #1 Peoria AZ 246245 81.2% 86.6% 94.7%$460 $422 $407
Casa del Sol #2 Glendale AZ 239 86.6% 94.1% 97.9%$477 $455 $438
Casa del Sol #3 Glendale AZ 238236 89.8% 94.1% 96.2%$477 $439 $420
Central Park Phoenix AZ 293 92.5% 95.2% 96.9%$409 $386 $373
Desert Skies Phoenix AZ 164 93.9% 97.6% 97.0%$338 $317 $293
Fairview Manor Tucson AZ 235 85.1% 91.1% 92.8%$342 $326 $311
Hacienda de Valencia Mesa AZ 365364 79.4% 85.2% 94.2%$395 $377 $361
Palm Shadows Glendale AZ 294 87.1% 90.8% 94.9%$372 $355 $336
Sedona Shadows Sedona AZ 198 93.4% 91.4% 88.0%$355 $327 $306
Sunrise Heights Phoenix AZ 199 88.4% 90.5% 95.5%$386 $358 $347
The Mark Mesa AZ 410 74.9% 91.7% 95.9%$392 $383 $361
The Meadows Tempe AZ 391 85.2% 92.3% 98.0%$455 $439 $416
Whispering Palms Phoenix AZ 116 93.1% 94.8% 99.1%$295 $282
$267
------- ----- ---------- ---- ---- ----
TOTAL ARIZONA MARKET 4,0274,021 85.9% 91.9% 95.4%$410 $385
$367
------- ----- ---------- ---- ---- ----
ARIZONA MARKET --- CORE PORTFOLIO 4,0274,021 85.9% 91.9% 95.4%$410 $385
$367
------- ----- ---------- ---- ---- ----
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 12/31/0102 12/31/02 12/31/01 12/31/0002 12/31/01
12/31/00
-------- ----------------------- -------- --------- --------- --------- ---------- ----------------------------------- ---------------- ----------- ---------- ----------- ------------ --------------
COLORADO
MICHIGAN
Americana Estate Kalamazoo MI 162 88.9% 93.2% $306 $294
Appletree Walker MI 239 94.1% 96.7% $334 $318
Brighton Village Brighton MI 197 98.0% 99.0% $384 $369
College Heights Auburn Hills MI 162 98.8% 98.1% $392 $372
Creekside Wyoming MI 165 94.5% 97.6% $374 $356
Groveland Manor Holly MI 186 89.2% 91.4% $358 $346
Hillcrest Acres Kalamazoo MI 150 94.0% 96.0% $319 $307
Metro Romulus MI 227 99.6% 98.7% $364 $384
Riverview Estates Bay City MI 197 78.2% 78.2% $259 $249
South Lyon Woods South Lyon MI 211 98.6% 98.1% $455 $439
Timberland Ypsilianti MI 185 91.9% 91.4% $343 $332
------- ----- ------ ---- ----
TOTAL MICHIGAN MARKET 2,081 93.4% 94.4% $359 $344
------- ----- ------ ---- ----
MICHIGAN MARKET -- CORE
PORTFOLIO 2,081 93.4% 94.4% $359 $344
------- ----- ------ ---- ----
COLORADO
Bear Creek Sheridan CO 124 97.6% 100.0%97.6% $446 $409 $385
Cimarron Broomfield CO 327 97.6% 98.2% 99.1%$445 $417 $391
Golden Terrace Golden CO 265 96.6% 98.6% 99.2%$491 $464 $431
Golden Terrace South Golden CO 80160 95.0% 96.3% 100.0%$487 $441 $407
Golden Terrace West Golden CO 316 96.5% 98.1% 100.0%$498 $454 $424
Hillcrest Village Aurora CO 602601 91.7% 95.5% 96.3%$491 $445 $422
Holiday Hills Denver CO 737736 92.3% 95.4% 97.1%$466 $437 $412
Holiday Village Co. Springs CO 240 92.9% 96.7% 96.3%$446 $427 $403
Pueblo Grande Pueblo CO 252 96.4% 96.8% 96.8%$296 $281 $265
Woodland Hills Denver CO 434 93.8% 97.9% 98.6%$439 $418
$390
------- ----- ---------- ---- ---- ----
TOTAL COLORADO MARKET 3,3773,455 94.2% 96.8% 97.9%$394 $424
$399
------- ----- ---------- ---- ---- ----
COLORADO MARKET --- CORE PORTFOLIO 3,3773,455 94.2% 96.8% 97.9%$394 $424
$399
------- ----- ------ ---- ---- ---- ----
NORTHEAST
Aspen Meadows Rehoboth DE 200 100.0% 99.5% 100.0%$277 $262 $250
Camelot Meadows Rehoboth DE 319302 100.0% 99.9% 100.0%$272 $265 $252
Mariners Cove Millsboro DE 375374 90.0% (b) 89.3%(b) 88.5%(b)$399 $381 $356
McNicol Rehoboth DE 93 100.0% 98.9% 97.8%$278 $258 $248
Sweetbriar Rehoboth DE 142146 95.9% 98.6% 100.0%$228 $199
$187
Waterford Estates Bear DE 731 97.4%96.4% (b) 96.9%97.4% (b) $410 $398 $379
Whispering Pines Lewes DE 393392 95.2% 96.9%95.2% $274 $269 $258
Pheasant Ridge Mt. Airy MD 101 98.0% 97.0% 99.0%$468 $453 $424
Brook Gardens Lackawanna NY 424 93.9% 96.5% 97.2%$446 $435 $423
Greenwood Village Manorville NY 486507 99.3% 99.4%(b) 97.3%(b) $406 $389 $366
Green Acres Breinigsville PA 595 94.8% 96.1% 97.3%$438 $420 $408
Meadows of Chantilly Chantilly VA 500 94.8% 96.6% 92.0%$544 $512 $493
Independence Hill Morgantown WV 203 87.2% 88.2% 90.1%$221 $214
$204
------- ----- ---------- ---- ---- ----
TOTAL NORTHEAST MARKET 4,5624,568 95.6% 96.3% 96.0%$387 $372
$355
------- ----- ---------- ---- ---- ----
NORTHEAST MARKET --- CORE PORTFOLIO 4,5624,568 95.6% 96.3% 96.0%$387 $372
$355
------- ----- ---------- ---- ---- ----
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 12/31/0102 12/31/02 12/31/01 12/31/0002 12/31/01
12/31/00
-------- ------------------------ -------------------------------------------------- ----------------- -------- --------- ---------- ---------- ---------
--------- ---------MIDWEST
MIDWEST
Five Seasons Cedar Rapids IA 390 79.0%76.4% (b) 79.7%79.0% (b) $264 $253 $240
Holiday Village IA SouxSioux City IA 519 73.8% 80.5% 87.7%$253 $248 $241
Golf Vista Estates Monee IL 371411 88.1% (b) 88.4%(b) 90.6%(b)$393 $387 $344
Willow Lake Estates Elgin IL 617 94.2% 96.8% 97.4%$660 $624
$583
Burns Harbor EstatesForest Oaks Chesterton IN 227 76.2% 83.7% 89.0%$333 $305 $287
Oak Tree Village Portage IN 379361 88.9% 90.0% 93.1%$332 $302 $283
Windsong Indianapolis IN 268 72.0% 84.0% 91.4%$309 $292
$277
Camelot Acres Burnsville MN 302 99.8% 99.3% $417 $390
Royal Village Toledo OH 233 90.1% 89.3% $319 $300
-------Creekside Wyoming MI 165 93.3% 94.5% $382 $374
----- ---------- ---- ---- ----
TOTAL MIDWEST MARKET 3,306 88.3% 91.9% $377 $350
-------2,958 83.3% 87.9% $399 $380
----- ---------- ---- ---- ----
MIDWEST MARKET --- CORE PORTFOLIO 3,306 88.3% 91.9% $377 $350
-------2,958 83.3% 87.9% $399 $380
----- ------ ---- ---- ---- ----
NEVADA, UTAH, NEW MEXICO
Del Rey Albuquerque NM 407 76.7% 84.5% 90.9% $328$341 $328
Bonanza Las Vegas NV 353 72.8% 75.9% 81.6% $465$473 $465
Boulder Cascade Las Vegas NV 298299 82.1% 86.9% 89.3%$436 $417 $394
Cabana Las Vegas NV 263 95.4% 97.3% 98.9%$442 $432 $415
Flamingo West Las Vegas NV 258 84.1%88.8% (b) 80.2%84.1% (b) $449 $430 $406
Villa Borega Las Vegas NV 293 87.0% 91.1% 95.9%$433 $421 $402(d)
All Seasons Salt Lake City UT 121 96.7% 98.3% 97.5%$352 $328 $315
Westwood Village Farr West UT 314 96.5%95.2% (b) 95.2%96.5% (b) $259 $237
$232
------- ----- ---------- ---- ---- ----
TOTAL NEVADA, UTAH, NEW MEXICO MARKET 2,3072,308 85.2% 88.1% 90.6% $380 $369
-------$398 $383
----- ---------- ---- ---- ----
NEVADA, UTAH, NEW MEXICO MARKET --- CORE PORTFOLIO 2,3072,308 85.2% 88.1% 90.6%$398 $380
$369
------- ----- ------ ---- ---- ---- ----
NORTHWEST
Casa Village Billings MT 491 88.0% 92.3% 98.0%$294 $282 $272
Falcon Wood Village Eugene OR 183 98.9% 98.4%92.9% 97.8% $364 $363 $345
Quail Hollow Fairview OR 137 93.4% 97.8% 98.6%$500 $442 $426
Shadowbrook Clackamas OR 156 96.8% 98.7% 99.4%$494 $444 $429
Kloshe Illahee Federal Way WA 258 99.6% 99.2%99.6% $513 $478
$454
------- ----- ------ ---- ---- ---- ----
TOTAL NORTHWEST MARKET 1,225 96.3% 98.5% $376 $359
------- -----92.9% 96.1% $397 $374
------ ---- ---- ---- ----
NORTHWEST MARKET --- CORE PORTFOLIO 1,225 96.3% 98.5% $376 $359
------- -----92.9% 96.1% $397 $374
------ ---- ---- ---- ----
GRAND TOTAL ALL MARKETS 45,741 93.6% 94.7% $388 $367
======= =====43,906 92.2% 93.0% $403 $385
====== ==== ==== ==== ====
GRAND TOTAL ALL MARKETS --- CORE PORTFOLIO 45,011 93.9%41,588 92.5% (c) 94.9%94.0% (c) $384 $367
======= =====$409 $387
====== ==== ==== ==== ====
- ---------------
(a) Represents a Property that is not part of the Core Portfolio.
(b) The process of filling Expansion Sites at these Properties is ongoing. A
decrease in occupancy may reflect development of additional Expansion
Sites.
(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 tableProperty acquired in the
monthly base rent per site amounts for 2000.2002.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations.
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. This
summary provides the history and reasoning underlying the Company's defenseproperty. As a result of the residents' claims and explains the Company's decision to continue to defend
its position, whichone action, the
Company believes is fair and accurate.
DeAnza Santa Cruz Mobile Estates is a 198-site Community overlooking the
Pacific Ocean. It is subjectrebated approximately $36,000 to the City's rent control ordinance which limits
annual rent increases to 75% of CPI.residents. 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
want to be 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'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. DeAnza'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 inthen proceeded to a residential neighborhood within the City and
permitted DeAnzajury trial alleging these
"overcharges" entitled them to recoup partan award of the expenses of operatingpunitive damages. In January 1999, 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 byjury awarded 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 City 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.
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, 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 ofin 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 appealed 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.damages. On December 21, 2001 the
California Court of Appeal for the Sixth District reversed the $6.0 million
punitive damage award, the related award of attorneys' fees, and, as a result,
all post-judgementpost-judgment interest thereon, on the basis that punitive damages are not
available as a remedy for a statutory violation of the MRL.California Mobile Home
Residency Law ("MRL"). The decision of the appellate court left the HOA, the
plaintiff in this matter, 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 HOA has filed in
Superior Court, seeking statutory penalties and attorneys' fees, which may be
heard in late March, 2002. The Company intendsIn order to vigorously defend itself
against these claims.
In two related appeals,resolve this matter, the Company
had argued thataccrued for and agreed to pay $201,000 to the trial court's
ability to enterHOA. This payment resolves the
punitive damage claim. The HOA's attorney has made a motion asking for an award
of attorneys' fees and costs in favorthe amount of approximately $1.5 million as a
result of this resolution 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 $100,000litigation. The Company will vigorously oppose
any award of attorneys' fees.
The California Supreme Court declinedfees and costs, and has asked the court to accept the case for review andrule that the
Company paidis the judgment, including post-judgment interest thereon, and settled
the matter for approximately $200,000 late in 2000.prevailing party.
In a 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.Company (the "2000 Lawsuit"). The new lawsuit seeks2000
Lawsuit sought 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 entered into a settlement agreement with the plaintiffs in the
2000 Lawsuit which settlement was approved by the court on July 22, 2002. The
Company believes the settlement agreement is of significant benefit to the
Company. First, pursuant to the settlement agreement all past, present and
future tenants of the Property agree to alternative dispute resolution
procedures which provide that during the next 25 years future disputes will be
resolved through arbitration before a retired judge rather than in court, and
that in such future arbitration proceedings all claims to trial by jury and for
punitive damages are waived.
Second, the settlement agreement provides a process for determining the
rent for 15 sites not subject to rent control, including in certain
circumstances, back rent owing from certain dates in 2001. The settlement
agreement generally gives tenants at these sites three (3) options with respect
to their tenancies. Such tenants may (1) enter into a 34-year lease providing a
rent based on rent control with future escalations based on the CPI, but with
the Company retaining the right to charge market rents determined by the Company
upon turnover; (2) enter into a ten (10) year lease with a monthly rent to be
determined by binding arbitration and effective October 1, 2001; or (3) elect to
sell such tenant's home to a third party and pay back rent owing to the Company
(the amount of which will be determined by arbitration if not agreed to between
the tenant and the Company) since January 1, 2001. In certain circumstances the
Company will purchase the tenant's home based upon a mechanism provided in the
settlement agreement.
In exchange for the tenants' agreement to the alternative dispute
resolution procedures, the process for resolving back rent owed by tenants not
subject to rent control, and to dismiss the 2000 Lawsuit, the Company accrued
for and agreed to pay $730,000.
OTHER CALIFORNIA RENT CONTROL LITIGATION
As part of the Company's effort to realize the value of its Properties
subject to rent control, the Company has initiated lawsuits against several
municipalities in California. The Company's goal is to achieve a level of
regulatory fairness in California's rent control jurisdictions, and in
particular those jurisdictions that prohibit increasing rents to market upon
turnover. This regulatory feature, called vacancy control, allows tenants to
sell their homes for a premium representing the value of the future discounted
rent-controlled rents. In the Company's view, such regulation results in a
transfer of the value of the Company's shareholders' land, which would otherwise
be reflected in market rents, to tenants upon the sales of their homes in the
form of an inflated purchase price that cannot be attributed to the value of the
home being sold. As a result, in the Company's view, the Company loses the value
of its asset and the selling tenant leaves the community with a windfall
13
premium. The Company has discovered through the litigation process that certain
municipalities considered condemning the Company's communities at values well
below the value of the underlying land. In the Company's view, a failure to
articulate market rents for sites governed by restrictive rent control would put
the Company at risk for condemnation or eminent domain proceedings based on
artificially reduced rents. Such a physical taking, should it occur, could
represent substantial lost value to shareholders. The Company is cognizant of
the need for affordable housing in the jurisdictions, but asserts that
restrictive rent regulation with vacancy control does not promote this purpose
because the benefits of such regulation are fully capitalized into the prices of
the homes sold. The Company estimates that the annual rent subsidy to tenants in
these jurisdictions is approximately $15 million. In a more well-balanced
regulatory environment, the Company would receive market rents that would
eliminate the subsidy and homes would trade at or near their intrinsic value.
The Company's efforts to achieve a balanced regulatory environment
incentivize tenant groups to file lawsuits against the Company seeking large
damage awards. The 2000 Lawsuit described above under DeAnza Santa Cruz Mobile
Estates is one example. The homeowners association at Contempo Marin ("CMHOA"),
a 396 site property in San Rafael, California, sued the Company in December 2000
over a prior settlement agreement on a capital pass-through after the Company
sued the City of San Rafael in October 2000 alleging its rent control ordinance
is unconstitutional. In the Contempo Marin case, the CMHOA prevailed on a motion
for summary judgment on an issue that permits the Company to collect only $3.72
out of a pass-through amount of $7.50 that the Company believes had been agreed
to by the CMHOA in a settlement agreement. The Company intends to vigorously
defend the matter, which may gomatter. The Company believes that such lawsuits will be a consequence
of the Company's efforts to trialchange rent control since tenant groups actively
desire to preserve the premium value of their homes in addition to the
summerdiscounted rents provided by rent control. The Company has determined that its
efforts to rebalance the regulatory environment despite the risk of 2002.litigation
from tenant groups are necessary not only because of the $15 million annual
subsidy to tenants, but also because of the condemnation risk.
ELLENBURG COMMUNITIES
The Company and certain other parties entered into a settlement agreement
("the Settlement"(the "Settlement"), which was approved by the Los Angeles County Superior Court
in April 2000. The Settlement 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).2000. Only the appealsappeal of one entity remains, the
two
entities remain, neitheroutcome of which is not expected to materially affect the Company.Company (see Note 5).
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. ThisAlthough this appeal
was one not resolved by the Settlement. The Company believesSettlement, the California Court of Appeal dismissed
Fund 20's allegations are
without merit and will vigorously defend itself.substantive appeals on March 13, 2003 as moot.
In October 2001, Fund 20 sued the Company and certain of its affiliates
again, this time in AlmedaAlameda 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, 1997When the March 13, 2003 Court of Appeal dismissal becomes final in
May 2003, the Company will seek to have the Alameda County action dismissed if
Fund 20 will not voluntarily dismiss this action. The Company believes Fund 20's
allegations are without merit and 1998,will vigorously defend itself.
COUNTRYSIDE AT VERO BEACH
The Company has received letters dated June 17, 2002 and August 26, 2002
from Indian River County ("County"), claiming that the Lending Partnership made loans to Candlelight
Properties, L.L.C. ("Borrower")Company currently owes
sewer impact fees in the aggregate principal amount of $8,050,000
(collectively,approximately $518,000 with respect to the
"Loan". The Loan was secured byProperty known as Countryside at Vero Beach, located in Vero Beach, Florida,
purportedly under the terms of an agreement between the County and a mortgage on Candlelight
Village ("Candlelight"), a Property in Columbus, Indiana, and was guaranteed by
Ronald E. Farren, the 99%prior owner
of Borrower.the Property. In response, the Company has advised the County that these fees
are no longer due and owing as a result of a 1996 settlement agreement between
the County and the prior owner of the Property, providing for the payment of
$150,000 to the County to discharge any further obligation for the payment of
impact or connection fees for sewer service at the Property. The Company accounted forpaid
this settlement amount (with interest) to the Loan
as an investmentCounty in real estate and, accordingly, Candlelight's rental revenues
and operating costs were includedconnection with the
Company's rental revenues and
operating costs for financial reporting purposes. Concurrently with the fundingacquisition of the Loan, Borrower grantedProperty. Accordingly, the Operating PartnershipCompany believes that
the option to acquire
Candlelight uponCounty's claims are without merit.
DELAWARE DECLARATORY JUDGMENT ACTION
In April 2002, 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 by the
Court.
On September 20, 2001, the partiesCompany entered into a settlement agreement
providingStipulation and Consent Order to
Cease and Desist (the "Consent Order") with the State of Delaware (the "State").
The Consent Order resolved various issues raised by the State concerning the
terms of a
14
new lease form used or proposed for use by the Company at certain of its
Properties in Delaware. Among other provisions, the Consent Order contemplated
that the Company would work with the State to develop and implement a cash payment of $10.8 millionnew lease
form for use in Delaware. The Consent Order expressly provided that nothing
contained therein would preclude the Company from seeking declaratory relief
from a court as to the Lending Partnership and
dismissallegality or enforceability of any provisions which the
Company might wish to incorporate in future leases.
Throughout the summer of 2002, the Company's Delaware legal counsel
engaged in dialogue with prejudicerepresentatives of all litigation amongthe State concerning various
matters, including the lease provisions to which the State had objected but
which the Company wished to incorporate in future leases. Through this process,
it became apparent that the parties could not reach agreement as to the legality
or enforceability of the proposed lease provisions, and their
affiliates, among other terms. The closingthat the Company would
need to seek declaratory relief from a court in order to resolve the matter, as
contemplated by the Consent Order. Accordingly, on August 29, 2002, the Company
filed a Petition for Declaratory Judgment and Other Relief (as amended, the
"Petition") in Sussex County, Delaware Superior Court (the "Court").
In response to the filing of the Petition, on October 1, 2002, the State
filed its Answer to Petition for Declaratory and Other Relief, and Counterclaims
for Civil Enforcement and Contempt (as amended, "Answer and Counterclaim") with
the Court. In the Answer and Counterclaim, the State seeks, inter alia,
restitution, statutory penalties, investigative costs and attorneys' fees under
the Settlement Agreement
occurredDelaware Mobile Home Lots and Leases Act, the Consumer Fraud Act, the
Uniform Deceptive Trade Practices Act and the Delaware Consumer Contracts law,
and separately seeks a finding of contempt and related contempt penalties for
alleged violations of the Consent Order.
The Company filed a Motion to Dismiss Respondents' Counterclaims with the
Court on October 5, 2001.29, 2002, and the State filed a Motion for Summary Judgment
with the Court on November 15, 2002. These motions are in the briefing stage. On
December 30, 2002, the Company filed a First Amended Petition for Declaratory
Judgment and Other Relief with the Court, and on January 31, 2003, the State
filed an Amended Answer and Counterclaim with the Court. The State filed a
Motion to Dismiss with Prejudice Petitioner's First Amended Petition for
Declaratory Judgment an Other Relief for Failure to Join and Indispensable Third
Party with the Court on February 25, 2003.
The Company accounted forbelieves that it has complied, and continues to comply, with
the Settlement as a
dispositionConsent Order, and that the filing of the property.Petition was expressly
contemplated by the Consent Order. The Company believes that the State's
allegations in the Answer and Counterclaim are without merit and will vigorously
defend itself.
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
termination of the Leases. 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 leasesLeases 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 propertyProperty 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.RSI
from the Property should be included in the gross revenue calculation. Lessee
disputes this for many 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 RSI is a separate company from Lessee.
Lessor's motion for summary judgment on the pass-through issue was denied
by an arbitration panel on November 2, 2001. Lessor and Lessee have agreed to mediate
the dispute and the matter was settled and the lease was amended in early 2002.
Pursuant to the settlement and amendment, Lessee agreed to pay $338,000 related
to prior period rent which was expensed in the first quarter of 2002 and to
arbitration.prepay rent of $632,000 based on a recalculation of rent in the amended lease.
The Company does not believe that the
amounts in question are material even if resolved against the Lesseerent prepayment and based
upon advice of counsel, does not believe that the Lessorrelated legal costs will be successful in
terminatingamortized into ground rent
expense over the Leases.remaining life of the lease.
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.
15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.The Annual Meeting of Stockholders of the Company, for which proxies were
solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934,
was held on May 8, 2002. At the Annual Meeting, Samuel Zell, David A. Helfand
and Michael A. Torres were each elected to serve as directors of the Company
until the 2005 Annual Meeting of Stockholders.
Votes Cast
-----------------------------------
For Withheld
---------------- -------------
Samuel Zell 17,515,839 60,873
David A. Helfand 17,515,876 60,836
Michael A. Torres 17,523,492 53,220
There were 4,156,070 broker non-votes.
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 The 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)
-------- -------- -------- ------------- -----------------
2002
1st Quarter $33.0000 $33.6300 $30.6500 $.4750 $.15
2nd Quarter 35.1000 35.6600 32.5000 .4750 .18
3rd Quarter 31.8800 35.1400 30.0500 .4750 .17
4th Quarter 29.6300 31.9200 27.5000 .4750 .00
2001
1st Quarter $27.0000 $28.7500 $25.8800 $ .4450 $ .00$29.0000 $25.5400 $.4450 $.00
2nd Quarter 28.1000 28.2000 26.480028.3500 26.3100 .4450 .16
3rd Quarter 30.4200 30.4200 28.050030.4700 27.9000 .4450 .16
4th Quarter 31.2100 31.6400 30.000031.6700 29.8000 .4450 .11
2000
1st Quarter $23.1250 $25.7500 $22.2500 $ .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
(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,
20012002 was approximately 4,400.5,065.
17
MANUFACTURED 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, 2002, 2001, 2000, 1999 1998 and 19971998 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)
(1) YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
1997
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)--------- --------- --------- --------- ---------
OPERATING DATA:
REVENUES
Base rental income........................................... $195,644 $189,481 $181,672 $165,340 $108,984
RVPROPERTY OPERATIONS:
Community base rental income........................................income ........................... $ 197,795 $ 194,103 $ 188,051 $ 180,348 $ 164,086
Resort base rental income .............................. 9,147 5,748 7,414 9,526 7,153
--
Utility and other income..................................... 22,014 20,366 20,096 18,219 11,785income ............................... 19,713 20,403 19,378 19,569 17,617
--------- --------- --------- --------- ---------
Property operating revenues ......................... 226,655 220,254 214,843 209,443 188,856
Property operating and maintenance ..................... 63,554 61,481 58,661 57,595 52,481
Real estate taxes ...................................... 18,212 17,296 16,766 16,309 14,346
Property management .................................... 9,292 8,984 8,690 8,337 7,108
--------- --------- --------- --------- ---------
Property operating expenses ......................... 91,058 87,761 84,117 82,241 73,935
--------- --------- --------- --------- ---------
Income from property operations .................. 135,597 132,493 130,726 127,202 114,921
HOME SALES OPERATIONS:
Gross revenues from inventory home sales ............... 33,543 -- -- -- --
Cost of inventory home sales ........................... (27,192) -- -- -- --
--------- --------- --------- --------- ---------
Gross profit from inventory home sales ........... 6,351 -- -- -- --
Brokered resale revenues, net .......................... 1,592 -- -- -- --
Home selling expenses .................................. (7,671) -- -- -- --
Ancillary services revenues, net ....................... 522 -- -- -- --
--------- --------- --------- --------- ---------
Income from home sales operations ................ 794 -- -- -- --
OTHER INCOME AND EXPENSES:
Interest income ........................................ 967 639 1,009 1,669 1,070
Equity in income of affiliates...............................affiliates ......................... -- 1,811 2,408 2,065 1,070 800
Interest income.............................................. 639 1,009 1,669 3,048
1,941
-------- -------- -------- -------- --------
Total revenues............................................. 225,856 220,678 215,028 194,830 123,510
-------- -------- -------- -------- --------
EXPENSES
Property operating and maintenance........................... 62,008 59,199 58,038 53,064 32,343
Real estate taxes............................................ 17,420 16,888 16,460 14,470 8,352
Property management.......................................... 8,984 8,690 8,337 7,108 5,079Other corporate income ................................. 1,277 1,353 670 280 355
General and administrative................................... 6,687 6,423 6,092 5,411 4,559administrative ............................. (8,192) (6,687) (6,423) (6,092) (5,411)
Interest and related amortization............................ 51,305 53,280 53,775 49,693 21,753amortization ...................... (50,729) (51,305) (53,280) (53,775) (49,693)
Depreciation on corporate assets............................. 1,243 1,139 1,005 995 590assets ....................... (1,277) (1,243) (1,139) (1,005) (995)
Depreciation on real estate assets and other costs........... 34,833 34,411 34,486 28,426 17,365
-------- -------- -------- -------- --------costs ..... (35,911) (34,728) (34,312) (34,393) (28,336)
--------- --------- --------- --------- ---------
Total expenses............................................. 182,480 180,030 178,193 159,167 90,041
-------- -------- -------- -------- --------other income and expenses ..................... (93,865) (90,160) (91,067) (91,251) (79,962)
--------- --------- --------- --------- ---------
Income from operations....................................... 43,376 40,648 36,835 35,663 33,469operations ................................. 42,526 42,333 39,659 35,951 34,959
Net income from discontinued operations ................ 1,083 1,043 989 884 704
Gain on sale of propertyProperties and other...........................other ................... 13,014 8,168 12,053 -- --
--
-------- -------- -------- -------- ----------------- --------- --------- --------- ---------
Income before allocation to minority interests
and extraordinary loss on early extinguishment of debt.....Minority Interests ...... 56,623 51,544 52,701 36,835 35,663 33,469
(Income) allocated to Common OP Units........................Units .................. (8,926) (8,209) (8,463) (6,219) (6,733) (4,373)
(Income) allocated to Perpetual Preferred OP Units...........Units ..... (11,252) (11,252) (11,252) (2,844) --
--
-------- -------- -------- -------- --------
Income--------- --------- --------- --------- ---------
Net income before extraordinary loss on the early
extinguishment of debt.....................................debt .............................. 36,445 32,083 32,986 27,772 28,930
29,096
Extraordinary loss on earlythe extinguishment of debt (net of
$264 and $105 allocated to minority interests)........................................ .............. -- -- (1,041) -- --
(451)
-------- -------- -------- -------- ----------------- --------- --------- --------- ---------
NET INCOME.................................................INCOME ....................................... $ 36,445 $ 32,083 $ 31,945 $ 27,772 $ 28,930
========= ========= ========= ========= =========
Income from operations per Common Share - basic .......... $ 28,645
======== ======== ======== ======== ========1.57 $ 1.60 $ 1.47 $ 1.16 $ 1.11
========= ========= ========= ========= =========
Income from operations per Common Share - diluted ........ $ 1.54 $ 1.57 $ 1.45 $ 1.15 $ 1.09
========= ========= ========= ========= =========
Net income per Common Share before
extraordinary item -- basic..............................................- basic ............................ $ 1.69 $ 1.53 $ 1.54 $ 1.10 $ 1.13
$ 1.18
======== ======== ======== ======== ================= ========= ========= ========= =========
Net income per Common Share before
extraordinary item -- diluted............................................- diluted .......................... $ 1.64 $ 1.49 $ 1.51 $ 1.09 $ 1.12
$ 1.16
======== ======== ======== ======== ================= ========= ========= ========= =========
Net income per Common Share -- basic.........................- basic ...................... $ 1.69 $ 1.53 $ 1.49 $ 1.10 $ 1.13
$ 1.16
======== ======== ======== ======== ================= ========= ========= ========= =========
Net income per Common Share -- diluted.......................- diluted .................... $ 1.64 $ 1.49 $ 1.46 $ 1.09 $ 1.12
$ 1.15
======== ======== ======== ======== ================= ========= ========= ========= =========
Dividend declared per Common Share...........................Share ....................... $ 1.90 $ 1.78 $ 1.66 $ 1.55 $ 1.45
$ 1.32
======== ======== ======== ======== ================= ========= ========= ========= =========
Weighted average Common Shares outstanding -- basic..........- basic ....... 21,617 21,036 21,469 25,224 25,626
24,689========= ========= ========= ========= =========
Weighted average Common OP Units outstanding.................outstanding ............. 5,403 5,466 5,592 5,704 5,955
3,749========= ========= ========= ========= =========
Weighted average Common Shares outstanding -- diluted........- diluted ..... 27,632 27,010 27,408 31,252 31,962
28,762========= ========= ========= ========= =========
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,
-----------------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
1997
----------- ----------- ----------- ----------- ---------------------
BALANCE SHEET DATA:
Real estate, before accumulated depreciation(2)... $1,238,138 $1,218,176 $1,264,343 $1,237,431depreciation (2) .... $ 936,3181,296,007 $ 1,238,138 $ 1,218,176 $ 1,264,343 $ 1,237,431
Total assets...................................... 1,099,963assets ........................................ 1,162,850 1,101,805 1,104,304 1,160,338 1,176,841
864,365
Total mortgages and loans.........................loans ........................... 760,233 708,857 719,684 725,264 750,849
495,172
Minority interests................................interests .................................. 168,501 171,147 171,271 179,397 70,468
67,453
Stockholders' equity..............................equity ................................ 177,619 175,150 168,095 211,401 310,441
280,575
OTHER DATA:
Funds from operations(3)..........................operations (3) ........................... $ 68,393 $ 66,957 $ 63,807 $ 68,477 $ 64,089
$ 50,834
Net cash flow:
Operating activities...........................activities ............................. $ 80,176 $ 80,708 $ 68,001 $ 72,580 $ 71,977
Investing activities ............................. $ 54,581
Investing activities...........................(72,973) $ (23,067) $ 23,102 $ (37,868) $ (262,762)
$(239,445)
Financing activities...........................activities ............................. $ (1,287) $ (59,134) $ (94,932) $ (41,693) $ 203,533
$ 185,449
Total Properties (at end of period)(4)............ 148 ............. 142 149 154 157 154 121
Total sites (at end of period).................... 50,761 51,452 54,002 ...................... 51,582 50,663 51,304 53,846 53,009 44,108
Total sites (weighted average)average for the year) (5)................. ..... 42,962 46,243 46,964 46,914 43,932 29,323
- ---------------
(1) See the Consolidated Financial Statements of the Company included
elsewhere herein. Certain 2001, 2000, 1999, and 1998 amounts have been
reclassified to conform to the 2002 financial presentation. Such
reclassifications have no effect on the operations or equity as originally
presented.
(2) The Company believesWe believe 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 CompanyWe generally considersconsider Funds From Operations ("FFO") to be an appropriate
measure of the non-GAAP 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,April 2002, 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 believesWe believe 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 theour ability of the
Company to incur and service
debt and to make capital expenditures. The
Company computesWe compute 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 REITsREITs' 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'sour 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, 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, twothree 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,
twothree Properties were purchased;acquired, including one through the termination of a
lease; 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. During the year ended December 31, 2002, eleven
Properties were acquired; net operating income attributable to such
Properties during 2002 was approximately $2.0 million, which included
approximately $809,000 of depreciation expense. Also during the year ended
December 31, 2002, eighteen Properties was sold; net operating income
attributable to such Properties during 2002 was $5.4 million, which
included approximately $1.2 million of depreciation expense.
(5) Excludes recreational vehicleResort sites and sites heldin Properties owned through unconsolidated
joint ventures.
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 orand sold since January
1, 1999. The Company defines its core Community portfolio ("Core Portfolio") as
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.2000:
PROPERTY TRANSACTION DATE SITES
-------- ---------------- -----------
TOTAL SITES AS OF JANUARY 1, 1999......................... 53,0092000 ................................... 53,846
ACQUISITIONS:
The Meadows............................................. April 1, 1999 380
Coquina Crossing........................................ July 23, 1999 270
Grand Island (f.k.a. Golden Lakes)...................... ............................. January 3, 2001 421307
Lakes at Countrywood (f.k.a. Chain O' Lakes)................................ January 3, 2001 309423
Bulow Resort RV.........................................RV ................................................ July 1, 2001 352
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES:
Lakeshore Communities (2 properties).................... 1999 343Mt. Hood ....................................................... March 12, 2002 450
Harbor View Village ............................................ July 10, 2002 471
Countryside .................................................... July 31, 2002 560
Golden Sun ..................................................... July 31, 2002 329
Breezy Hill .................................................... July 31, 2002 762
Highland Woods ................................................. August 14, 2002 148
Holiday Village ................................................ July 31, 2002 301
Tropic Winds ................................................... August 7, 2002 531
Silk Oak Lodge ................................................. October 1, 2002 180
Hacienda Village ............................................... December 18, 2002 519
Glen Ellen ..................................................... December 31, 2002 117
EXPANSION SITE DEVELOPMENT:DEVELOPMENT AND OTHER:
Sites added in 1999..................................... --
Sites added in 2000.....................................2000 ............................................ 108
Sites added in 2001.....................................2001 ............................................ 143
Sites added in 2002 ............................................ 90
DISPOSITIONS:
Garden West Office Plaza................................ October 26, 1999 --
FFEC-Six (water and wastewater service company)......... ................ February 29, 2000 --
Mesa Regal RV Resort....................................Resort ........................................... May 22, 2000 (2,005)
Naples Estates..........................................Estates ................................................. May 22, 2000 (484)
Mon Dak.................................................Dak ........................................................ May 22, 2000 (219)(161)
Dellwood Estates........................................Estates ............................................... February 13, 2001 (136)
Briarwood...............................................Briarwood ...................................................... February 13, 2001 (166)
Bonner Springs..........................................Springs ................................................. February 13, 2001 (211)
Carriage Park...........................................Park .................................................. February 13, 2001 (143)
North Star..............................................Star ..................................................... February 13, 2001 (219)
Quivira Hills...........................................Hills .................................................. February 13, 2001 (142)
Rockwood................................................Rockwood ....................................................... February 13, 2001 (264)
Candlelight.............................................Candlelight .................................................... October 5, 2001 (585)
------College Heights (17 Properties) ............................... September 1, 2002 (3,220)
Camelot Acres .................................................. November 13, 2002 (319)
-------
TOTAL SITES AS OF DECEMBER 31, 2001.......................................... 50,761
======2002 ................................. 51,582
=======
20
TRENDS
Occupancy in the Company'sour Properties as well as theour ability to increase rental
rates directly affectsaffect revenues. In 2001,2002, occupancy in the Company'sour Core Portfolio
has remained relatively stable.decreased 1.3%. Also during 2001,2002, average monthly base rental rates for the Core
Portfolio increased approximately 4.5%5.3%. The Company
believes these trendsWe project continued growth during 2003
in our Core Portfolio performance. Core Portfolio base rental-rate growth is
expected to be approximately 4 percent. Assuming current economic conditions
continue to impact occupancies, overall revenue growth will continue through 2002.be approximately 2.5
to 3 percent. Core Portfolio operating expenses are expected to grow in excess
of CPI due to continued increases in insurance, real estate taxes and utility
expenses. These projections would result in growth of approximately 2 percent in
Core Portfolio income from operations (also referred to as net operating income
or "NOI").
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company'sOur consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States, which
require the Companyus to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and the related disclosures. The Company believesWe
believe that the following critical accounting policies, among others, affect
itsour more significant judgments and estimates used in the preparation of itsour
consolidated financial statements.
The CompanyWe periodically evaluates itsevaluate our long-lived assets, including itsour investments
in real estate, for impairment indicators. TheOur 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 Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of Financial
Instruments" ("SFAS No. 107107") and Statement No. 133 ("SFAS No. 133133"),
"Accounting for Derivative Instruments and Hedging Activities" requires the Companyus to
make estimates and judgments that affect the fair value of the instruments.
The Company, whereWhere possible, baseswe base the fair values of itsour financial instruments, including
itsour derivative instrument,instruments, on listed market prices and third party quotes.
Where these are not available, the Company bases
itswe base our estimates on other factors relevant
to the financial instrument.
Real estate is recorded at cost less accumulated depreciation.
Depreciation is computed on the straight-line basis over the estimated useful
lives of the assets. We use 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. The determination of useful lives, salvage
value, and depreciation method used are in conformity with GAAP. However, the
useful lives, salvage value, and customary depreciation method used for land
improvements and other significant assets may significantly and materially
overstate the depreciation of the underlying assets and therefore understate the
Net Income of the Company. In addition, the Financial Accounting Standards Board
("FASB") is currently reviewing the methods of depreciation and cost
capitalization for all industries and in June 2001 issued FASB Exposure Draft,
"Accounting in Interim and Annual Financial Statements for Certain Costs and
Activities Related to Property, Plant and Equipment", the implementation of
which, if issued, could also have a material effect on the Company's results of
operations.
Certain costs, primarily legal costs, relative to our efforts to
effectively change the use and operations of several Properties subject to rent
control (see Note 17) are currently classified 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 (see Note 5). To the extent these
efforts are not successful, these costs will be expensed. In addition, we
capitalize certain costs, primarily legal costs, related to entering into lease
agreements which govern the term under which we may enter into leases with
individual tenants and which are expensed over the term of the lease agreement.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities. The Interpretation requires a variable interest
entity to be consolidated by a company if that company is subject to a majority
of the risk of loss from the variable interest entity's activities or entitled
to receive a majority of the entity's residual returns or both. The
consolidation requirements of Interpretation 46 apply immediately to variable
interest entities created after January 31, 2003. The consolidation requirements
apply to older entities in the first fiscal year or interim period beginning
after June 15, 2003. The Company will adopt FIN 46 in the third quarter of 2003.
We have not yet determined the effect the adoption of the Interpretation will
have on the Company.
21
We have chosen to account for our stock compensation in accordance with
APB No. 25, "Accounting for Stock Issued to Employees", based upon the intrinsic
value method, which results in no compensation expense for options issued with
an exercise price equal to or exceeding the market value of the Common Shares on
the date of grant. We will elect to account for our stock compensation in
accordance with SFAS No. 123 and its amendment (SFAS No. 148), "Accounting for
Stock Based Compensation", effective in the first quarter of 2003, which will
result in compensation expense being recorded based on the fair value of the
stock option compensation issued. We have not yet determined the effect the
statement will have on the Company.
22
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 2002 TO YEAR ENDED DECEMBER 31, 2001
Since December 31, 2000, the gross investment in real estate increased
from $1,218 million to $1,296 million as of December 31, 2002, due primarily to
the aforementioned acquisitions and dispositions of Properties during the
period. The total number of sites owned or controlled increased from 51,304 as
of December 31, 2000 to 51,582 as of December 31, 2002.
The following table summarizes certain financial and statistical data for
the Property Operations for the Core Portfolio and the Total Portfolio for the
years ended December 31, 2002 and 2001.
CORE PORTFOLIO TOTAL PORTFOLIO
-------------------------------------------- --------------------------------------------
INCREASE / INCREASE /
(dollars in thousands) 2002 2001 (DECREASE) % CHANGE 2002 2001 (DECREASE) % CHANGE
-------- -------- ---------- -------- -------- -------- ---------- --------
Community base rental income ...... $186,889 $179,579 $ 7,310 4.1% $197,795 $194,103 $ 3,692 1.9%
Resort base rental income ......... 494 439 55 12.5% 9,147 5,748 3,399 59.1%
Utility and other income .......... 18,244 18,786 (542) (2.9%) 19,713 20,403 (690) (3.4%)
-------- -------- ---------- -------- -------- -------- ---------- --------
Property operating revenues .. 205,627 198,804 6,823 3.4% 226,655 220,254 6,401 2.9%
Property operating and
Maintenance .................. 54,240 53,024 1,216 2.3% 63,554 61,481 2,073 3.4%
Real estate taxes ................. 16,443 15,271 1,172 7.7% 18,212 17,296 916 5.3%
Property management ............... 8,430 8,120 310 3.8% 9,292 8,984 308 3.4%
-------- -------- ---------- -------- -------- -------- ---------- --------
Property operating expenses .. 79,113 76,415 2,698 3.5% 91,058 87,761 3,297 3.8%
-------- -------- ---------- -------- -------- -------- ---------- --------
Income from property operations ... $126,514 $122,389 $ 4,125 3.4% $135,597 $132,493 $ 3,104 2.3%
======== ======== ========== ======== ======== ======== ========== ========
Site and Occupancy Information (1):
Average total sites ............... 41,489 41,428 61 0.1% 44,552 46,243 (1,691) (3.7%)
Average occupied sites ............ 38,642 39,108 (466) (1.2%) 41,435 43,576 (2,141) (4.9%)
Occupancy % ....................... 93.1% 94.4% (1.3%) (1.3%) 93.0% 94.2% (1.2%) (1.2%)
Monthly base rent per site ........ $ 403.04 $ 382.65 $ 20.39 5.3% $ 397.80 $ 371.20 $ 26.61 7.1%
Total sites
As of December 31, ........... 41,588 41,472 116 0.3% 43,906 45,743 (1,837) (4.0%)
Total occupied sites
As of December 31, ........... 38,399 38,991 (592) (1.5%) 40,410 42,887 (2,477) (5.8%)
(1) Site and occupancy information excludes Resort sites and Properties owned
through unconsolidated joint ventures as well as the sites of Properties
sold during 2002.
Property Operating Revenues
The 4.1% increase in Community base rental income for the Core Portfolio
reflects a 5.3% increase in monthly base rent per site coupled with a 1.2%
decrease in average occupied sites. The decrease in utility and other income for
the Core Portfolio is due primarily to decreases in utility income, which
resulted from lower expenses for these items.
Property Operating Expenses
The increase in property operating and maintenance expense for the Core
Portfolio is due primarily to increases in property payroll, insurance and other
expenses, repair and maintenance and administrative expenses, partially offset
by decreased utility expense. The increase in Core Portfolio real estate taxes
is generally due to higher property assessments on certain Properties. Property
management expense for the Core Portfolio, which reflects costs of managing the
23
Results of Operations (continued)
Properties and is estimated based on a percentage of Property operating
revenues, increased by 3.8% due to increases in payroll costs and office
expenses.
Home Sales Operations
The following table summarizes certain financial and statistical data for
the Home Sales Operations for the years ended December 31, 2002 and 2001.
HOME SALES OPERATIONS
-------------------------------------------------
INCREASE /
(dollars in thousands) 2002 2001 (DECREASE) % CHANGE
---------- ---------- ---------- ----------
(Pro forma)
Gross revenues from new home sales $ 30,618 $ 32,608 (1,990) (6.1%)
Cost of new home sales ............ (24,689) (25,925) 1,236 4.8%
---------- ---------- ---------- ----------
Gross profit from new home sales .. 5,929 6,683 (754) (11.3%)
Gross revenues from used home sales 2,925 3,631 (706) (19.4%)
Cost of used home sales ........... (2,503) (2,561) 58 2.3%
---------- ---------- ---------- ----------
Gross profit from used home sales . 422 1,070 (648) (60.6%)
Brokered resale revenues, net ..... 1,592 1,723 (131) (7.6%)
Home selling expenses ............. (7,671) (8,240) 569 6.9%
Ancillary services revenues, net .. 522 1,092 (570) (52.2%)
---------- ---------- ---------- ----------
Income from home sales operations . $ 794 $ 2,328 (1,534) (65.9%)
========== ========== ========== ==========
HOME SALES VOLUMES:
New home sales .................. 420 485 (65) (13.4%)
Used home sales ................. 184 250 (66) (26.4%)
Brokered home resales ........... 986 1,114 (128) (11.5%)
Prior to January 1, 2002, the results of operations of RSI were accounted
for using the equity method and reported on a single line item called Equity in
Income of Affiliates. As a result of the acquisition of RSI (see Note 7), the
Company owns and controls RSI and consolidates the financial results of RSI with
those of the Company. The pro forma presentation of detailed 2001 amounts is for
comparison purposes and has no effect on previously reported net income. For the
year ended December 31, 2001, equity in income of affiliates was approximately
$1.8 million and included the $2.3 million of income from home sales operations
presented above as well as $539,000 of interest income, $15,000 of corporate
expenses and $1.0 million of interest expense.
New home sales gross profit reflects a 13.4% decrease in sales volume
coupled with a 1.1% increase in the gross margin. The average selling price of
new homes increased $6,000 or 8.7% compared to 2001. Used home gross profit
reflects a decrease in both volume and gross margin on used home sales. Brokered
resale revenues reflects decreased resale volumes. The 6.9% decrease in home
selling expenses primarily reflects reductions in payroll and advertising
expenses.
Other Income and Expenses
The increase in interest income reflects a decrease in notes receivable
offset by an increase in chattel notes receivable acquired through the
acquisition of RSI. The decrease in other corporate income primarily reflects
decreased income from unconsolidated joint ventures. The increase in general and
administrative expense is due to increases in costs related to operating a
public company, increased payroll costs and increased consulting and legal
costs. 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, 2002 and 2001 were $731.8 million and $713.2 million,
respectively. The effective interest rate was 6.8% and 7.0% per annum for the
years ended December 31, 2002 and 2001, respectively.
24
RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF YEAR ENDED DECEMBER 31, 2001 TO YEAR ENDED DECEMBER 31, 2000
Since December 31, 1999, the gross investment in real estate increaseddecreased
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 54,00253,846 as
of December 31, 1999 to 50,76150,663 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/ %-------------------------------------------- --------------------------------------------
INCREASE / INCREASE /
(dollars in thousands) 2001 2000 (DECREASE) % CHANGE 2001 2000 (DECREASE) % CHANGE
-------- -------- ---------- -------------- -------- -------- ---------- ------
(DOLLARS IN THOUSANDS)--------
BaseCommunity base rental income(1)............income (1) .. $192,160 $183,615 $8,545$ 8,545 4.7% $195,644 $189,064 $ 6,580 3.5%
Resort base rental income ......... 439 345 94 27.2% 5,748 7,415 (1,667) (22.5%)
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%).......... 19,783 18,319 1,464 8.0% 22,014 20,782 1,232 5.9%
-------- -------- ------ ---------------- -------- -------- ------- ------
Total revenues.................-------- ---------- --------
Property operating revenues . 212,382 202,279 10,103 5.0% 225,856 220,678 5,178 2.3%223,406 217,261 6,145 2.8%
Property operating and
maintenance....................maintenance .................. 57,787 54,150 3,637 6.7% 62,008 59,199 2,809 4.7%
Real estate taxes................taxes ................. 16,773 16,321 452 2.8% 17,420 16,888 532 3.2%
Property management..............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-------- ---------- --------
Property operating expenses.......expenses .. 83,154 78,592 4,562 5.8% 95,099 91,200 3,89988,412 84,777 3,635 4.3%
-------- -------- ------ ---------------- -------- -------- ------- -------------- ---------- --------
Income from property 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%134,994 132,484 2,510 1.9%
======== ======== ====== ================ ======== ======== ======= ============== ========== ========
Site and Occupancy Information(3)Information (2):
Average total sites..............sites ............... 44,966 44,828 138 0.3% 46,243 46,964 (721) (1.5%)
Average occupied sites...........sites ............ 42,384 42,320 6164 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.......site ........ $ 377.82 $ 361.47 $16.35$ 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 theirthe resident's 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 theexcludes Properties owned through
unconsolidated joint ventures or the RVand Resort Properties.
22
Property Operating 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.
25
RESULTS OF OPERATIONS (CONTINUED)
Property 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%.
Other Income and Expenses
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 53,009 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 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................. 204,134 195,531 8,603 4.4% 220,678 215,028 5,650 2.6%
Property operating and
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....... 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.......... 125,396 119,899 5,497 4.6% 129,478 126,101 3,377 2.7%
Interest and related
amortization................... -- -- -- -- 53,280 53,775 (495) (0.9%)
Depreciation on corporate
assets......................... -- -- -- -- 1,139 1,005 134 13.3%
Property depreciation and
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 5.7% $ 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 $13.31 3.9% $ 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.
24
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 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
Properties 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.
2526
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
As of December 31, 2001, the Company2002, we had $1.4$7.3 million in cash and cash equivalents
and $133.8$65.3 million available on its lineour Line of credit. The Company
expectsCredit. We expect to meet itsour
short-term liquidity requirements, including its
distributions, generally through
itsour working capital, net cash provided by operating activities and availability
under the existing lineLine of credit. The
Company expectsCredit. We expect 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 itsour existing lineLine of creditCredit 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/or paid to common stockholders
and minority interests since January 1, 1999.
DISTRIBUTION FOR THE SHAREHOLDER
AMOUNT PER SHARE QUARTER ENDING RECORD DATE PAYMENT DATE
----------------- ------------------ ------------------ ----------------
$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 2002
distribution to common stockholders at $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 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. As 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 includes
The Meadows in investment in real estate and the related results of 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 274 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 .
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 $12.7 million
and $7.9 million for the years ended December 31, 2001 and 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 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 $9.7 million
and $7.9 million for the years ended December 31, 2001 and 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.
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. No 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 Companyus with the opportunity to achieve
increases, where justified by the market, as each lease matures. Such types of
leases generally minimize the risk of inflationour risks to the Company.inflation.
FUNDS FROM OPERATIONS
FFO, a non-GAAP financial performance measure, was redefined by NAREIT in
October 1999, effective January 1, 2000,April 2002, 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'sREITs' 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, 2002, 2001 2000 and 19992000 (amounts in thousands):
2002 2001 2000
1999
-------- -------- ---------------
COMPUTATION OF FUNDS FROM OPERATIONS:
Income before extraordinary loss on early
Extinguishmentextinguishment of debt................................................debt .............................. $ 36,445 $ 32,083 $ 32,986 $27,772
Income allocated to Common OP Units.......................Units .................... 8,926 8,209 8,463 6,219
Depreciation on real estate assets and other costs........ 34,833 34,411 34,486costs ..... 35,911 34,728 34,312
Depreciation expense included in discontinued operations 125 105 99
Gain on sale of Properties and other......................other ................... (13,014) (8,168) (12,053)
--
-------- -------- ---------------
Funds from operations..................................operations ............................... $ 68,393 $ 66,957 $ 63,807
$68,477
======== ======== ===============
Weighted average Common Stock outstanding -- diluted......- diluted .... 27,632 27,010 27,408
31,252
======== ======== ===============
COMPUTATION OF FUNDS AVAILABLE FOR DISTRIBUTION:
Funds from operations.....................................operations .................................. $ 68,393 $ 66,957 $ 63,807 $68,477
Non-revenue producing improvements to real estate.........estate ...... (13,377) (12,689) (7,855)
(8,656)
-------- -------- ---------------
Funds available for distribution.......................distribution .................... $ 55,016 $ 54,268 $ 55,952
$59,821
======== ======== ===============
Weighted average Common Stock outstanding -- diluted......- diluted .... 27,632 27,010 27,408
31,252
======== ======== ===============
27
ACQUISITIONS AND DISPOSITIONS
During the year ended December 31, 2000, in accordance with a settlement
agreement (the "Settlement") related to a previously disclosed purchase of a
portfolio of Properties known as the Ellenburg Acquisition, we received $13.5
million previously held in escrow. In connection with the Settlement, we 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. On February 29, 2000,
MHC Systems, Inc., a consolidated subsidiary of the Company, sold the water and
wastewater service company and facilities known as FFEC-Six in a cash sale with
net proceeds of approximately $4.2 million.
During the year ended December 31, 2001, we acquired two Florida
Properties for an aggregate purchase price of approximately $17.3 million and
completed the sale of seven properties in Kansas, Missouri and Oklahoma, for a
total sale price of approximately $17.4 million. Also during 2001, we finalized
a settlement agreement whereby we received $10.8 million in proceeds related to
the sale of a Property in Indiana.
During the year ended December 31, 2002, we acquired the eleven Properties
listed in the table below. The acquisitions were funded with borrowings on our
Line of Credit and the assumption of $47.9 million of mortgage debt, which
includes a $3.0 million mark-to-market adjustment. In addition, we purchased
adjacent land and land improvements for several Properties for approximately
$559,000.
TOTAL PURCHASE
DATE ACQUIRED PROPERTY LOCATION SITES PRICE DEBT ASSUMED
- ---------------------- -------------------------- ----------------------- ---------- -------------- ------------
($ millions) ($ millions)
March 12, 2002 Mt. Hood Village Welches, OR 450 $ 7.2 $ --
July 10, 2002 Harbor View Village New Port Richey, FL 471 15.5 8.1
July 31, 2002 Golden Sun Apache Junction, AZ 329 6.3 3.1
July 31, 2002 Countryside RV Resort Apache Junction, AZ 560 7.5 --
July 31, 2002 Holiday Village Ormond Beach, FL 301 10.4 7.1
July 31, 2002 Breezy Hill RV Resort Pompano Beach, FL 762 20.5 10.5
August 14, 2002 Highland Woods Pompano Beach, FL 148 3.9 2.5
August 7, 2002 Tropic Winds RV Resort Harlingen, TX 531 4.9 --
October 1, 2002 Silk Oak Lodge Clearwater, FL 180 6.2 3.9
December 18, 2002 Hacienda Village New Port Richey, FL 519 16.8 10.2
December 31, 2002 Glen Ellen Clearwater, FL 117 2.4 2.5
---------- -------------- ------------
TOTALS 4,368 $ 101.6 $ 47.9
========== ============== ============
During the year ended 2002, we effectively sold 17 Properties as part of a
restructuring of the College Heights Joint Venture discussed hereinafter. In
addition, we sold Camelot Acres, a 319 site Property in Burnsville, Minnesota,
for approximately $14.2 million.
INVESTMENTS IN JOINT VENTURES
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.
Effective September 1, 2002, the Company restructured its investment in
Wolverine Property Investment Limited Partnership (the "College Heights Joint
Venture" or the "Venture"), a joint venture with Wolverine Investors, LLP. The
Venture included 18 Properties with 3,581 sites. The results of operations of
the College Heights Joint Venture prior to restructuring were included with the
results of the Company due to the Company's voting equity interest and control
over the Venture. Pursuant to the restructuring, the Company sold its general
partnership interest, sold all of the Company's voting equity interest and
reduced the Company's total investment in the College Heights Joint Venture. As
consideration for the sale, the Company retained sole ownership of Down Yonder,
a 361 site community in Clearwater, Florida, received cash of approximately $5.2
million and retained preferred limited partnership interests of approximately
$10.3 million, recorded net of a $2.4 million reserve. The continuing preferred
limited partnership interests are accounted for using the equity method and
reported as an investment in a joint venture.
28
ACQUISITION OF REALTY SYSTEMS, INC.
On January 1, 2002, the Company purchased all of the common stock of
Realty Systems, Inc. ("RSI"). The Company previously owned the non-voting
preferred stock of RSI and had notes receivable from RSI which were recorded as
an investment in affiliate. The Company purchased the common stock of RSI from
Equity Group Investments, Inc., controlled by Samuel Zell, Chairman of the Board
of Directors of the Company, for approximately $675,000. As a result of this
acquisition, the Company owns and controls RSI and consolidates the financial
results of RSI with those of the Company including $839,000 of cash from the
acquisition on January 1, 2002.
CAPITAL IMPROVEMENTS
Capital expenditures for improvements are identified by the Company as
recurring capital expenditures ("Recurring CapEx"), site development costs and
corporate costs. Recurring CapEx was approximately $13.4 million and $12.7
million for the years ended December 31, 2002 and 2001, respectively. Of these
expenditures, the Company believes that approximately $7.6 million or $147 per
site for 2002 and $7.1 million or $142 per site for 2001 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 $10.4 million and $9.7
million for the years ended December 31, 2002 and 2001, respectively, and
represent costs to develop expansion sites at certain of the Company's
Properties and costs for improvements to sites when a smaller used home is
replaced with a larger new home.
EQUITY TRANSACTIONS
In March 1997, the Company's Board of Directors approved a common stock
repurchase plan whereby we were authorized to repurchase and retire shares of
its common stock. No shares of Common Stock were repurchased during the years
ended December 31, 2002 or 2001.
In order to qualify as a REIT for federal income tax purposes, the Company
must distribute 90% or more of its taxable income (excluding capital gains). The
following distributions have been declared and/or paid to common stockholders
and minority interests since January 1, 2000.
DISTRIBUTION FOR THE QUARTER SHAREHOLDER RECORD
AMOUNT PER SHARE ENDING DATE PAYMENT DATE
- ------------------ ---------------------- ---------------------- ------------------------
$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
- ------------------ ---------------------- ---------------------- ------------------------
$0.4750 March 31, 2002 March 29, 2002 April 12, 2002
$0.4750 June 30, 2002 June 28, 2002 July 12, 2002
$0.4750 September 30, 2002 September 27, 2002 October 11, 2002
$0.4750 December 31, 2002 December 27, 2002 January 10, 2003
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 annual on the last
calendar day of each quarter beginning December 31, 1999. The Company expects to
continue to make regular annual distributions and has set its 2003 distribution
to common stockholders at $1.98 per share per annum.
29
MORTGAGES AND CREDIT FACILITIES
We have an unsecured Line of Credit with a group of banks (the "Line of
Credit") with a total facility of $150 million, bearing interest at a rate of
LIBOR plus 1.125% that matures on August 9, 2003 with two one-year extension
options with which we may extend the maturity through August 9, 2005. We pay a
quarterly fee on the average unused amount of the total facility equal to 0.15%
of such amount. As of December 31, 2002, $65.3 million was available under the
Credit Agreement.
We have a $100 million unsecured term loan (the "Term Loan") with a group
of banks with interest only payable monthly at the London Interbank Offered Rate
("LIBOR") of LIBOR plus 1.375% that matures on August 9, 2003 with two one-year
extension options with which we may extend the maturity through August 9, 2005
On October 29, 2001, we entered into an interest rate swap agreement (the
"2001 Swap"), effectively fixing LIBOR on $100 million of our floating rate debt
at approximately 3.7% per annum for the period October 2001 through August 2004.
The terms of the 2001 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 2001 Swap will be reflected at market value. We believe the 2001
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, 2000, we 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. In addition,
we 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 and 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.
During the year ended December 31, 2001, we repaid three maturing
mortgages in the amount of $12.1 million using proceeds from our Line of Credit.
In addition, we 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.
During the year ended December 31, 2002, as part of the purchase of RSI,
in a non-cash transaction, we assumed a $12.5 million note payable ("Conseco
Financing Note"), collateralized by manufactured home inventory. The Conseco
Financing Note was repaid at a discount during the year using proceeds from our
Line of Credit. In addition, we repaid a maturing mortgage note in the amount of
$1.1 million and $2.1 million of other unsecured notes payable using proceeds
from our Line of Credit.
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
-------------------------------------- -----------
2003 $ 13,753
2004 38,758
2005 193,377
2006 19,965
2007 268,494
Thereafter 225,190
Net unamortized premiums and discounts 696
-----------
Total $ 760,233
===========
Certain of our 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.
30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The Company'sOur earnings are affected by changes in interest rates, assince a portion of
the Company'sour outstanding indebtedness is at variable rates based on LIBOR. The Company's $150 million lineOur Line of
creditCredit ($16.384.8 million outstanding at December 31, 2001)2002) bears interest at LIBOR
plus 1.125% per annum and the
Company'sour $100 million Term Loan bears interest at LIBOR
plus 1.0% per annum. If LIBOR increased/decreased by 1.0% during 2001,2002, interest
expense would have increased/decreased by approximately $1.4$1.6 million based on
the combined average balance outstanding under the Company's lineLine of creditCredit and
Term Loan for the year ended December 31, 2001.
In July 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.2002.
In June 1998, the Financial Accounting Standards Board ("FASB")FASB issued Statement No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and
Hedging Activities"133 and its amendments, Statements
137 and 138 in June of 1999 and June of 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 adopted
SFAS No. 133 effective January 1, 2001. SFAS No. 133 requires 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.
In July 1998, we entered into an interest rate swap agreement (the "1998
Swap") effectively 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. We 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, we
unwound the 1998 Swap and received $1.0 million of proceeds which is amortized
into interest expense through March 2003.
On October 29, 2001, we entered into the 2001 Swap, 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 2001 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 2001 Swap is reflected at market
value. We believe the 2001 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. As of December 31, 2002, the 2001 Swap represented a
liability of approximately $4.5 million and is recorded in accounts payable and
accrued expenses. Mark-to-market changes in the value of the 2001 Swap are
included in other comprehensive income.
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.
31
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, 2002,2003, and thus this Part has been
omitted in accordance with General Instruction G(3) to Form 10-K.
30ITEM 14. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of December 31, 2002, an evaluation was performed under the supervision
and with the participation of the Company's management, including the CEO and
CFO, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on that evaluation, the Company's
management, including the CEO and CFO, concluded that the Company's disclosure
controls and procedures were effective as of December 31, 2002.
CHANGES IN INTERNAL CONTROLS
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to December 31, 2002.
32
PART IV
ITEM 14.15. 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
3110.28(d) Form of Secured Promissory Note payable to the Company
by certain members of management of the Company dated
January 2, 1996
33
ITEM 14.15. 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
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
10.43(i) $50,000,000 Promissory Note secured by Leasehold Deeds
of Trust (Stagecoach Mortgage) dated December 2, 2001.
11 Not applicable
12(j) Computation of Ratio of Earnings to Fixed Charges
13 Not applicable
16 Not applicable
18 Not applicable
21(j) Subsidiaries of the registrant
22 Not applicable
23(j) Consent of Independent Auditors
24.1(j) Power of Attorney for John F. Podjasek, Jr. dated March
21, 2003
24.2(j) Power of Attorney for Michael A. Torres dated March 27,
2003
24.3(j) Power of Attorney for Thomas E. Dobrowski dated March
21, 2003
24.4(j) Power of Attorney for Gary Waterman dated March 21,
2003
24.5(j) Power of Attorney for Donald S. Chisholm dated March
21, 2003
24.6(j) Power of Attorney for Louis H. Masotti dated March 24,
2003
27 Not applicable
28 Not applicable
99.1(j) Certifications
34
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
(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) Included as an exhibit to the Company's Report on Form 10-K
dated December 31, 2001, and incorporated herein by reference
(j) Filed herewith.herewith
(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.
3335
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 29, 200228, 2003 By: /s/ HOWARD WALKER
--------------Howard Walker
-------------------- ------------------------------------
Howard Walker
Chief Executive Officer
Date: March 29, 200228, 2003 By: /s/ JOHN ZOELLER
--------------John Zoeller
--------------------- ------------------------------------
John Zoeller
Executive Vice President, Treasurer
and Chief Financial Officer
Date: March 29, 200228, 2003 By: /s/ MARK HOWELL
--------------Mark Howell
--------------------- ------------------------------------
Mark Howell
Principal Accounting Officer
3436
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 DATE
---- ----- ----
/s/ HOWARD WALKER Chief Executive Officer March 29, 2002
------------------------------------------ *Attorney-in-Fact --------------
Howard Walker
/s/ JOHN ZOELLER Vice President, Treasurer March 29, 2002
------------------------------------------ and Chief Financial Officer --------------
John Zoeller *Attorney-in-Fact
/s/ SAMUEL ZELL Chairman of the Board March 29, 2002
------------------------------------------ --------------
Samuel Zell
/s/ SHELI Z. ROSENBERG Director March 29, 2002
------------------------------------------ --------------
Sheli Z. Rosenberg
/s/ DAVID A. HELFAND Director March 29, 2002
------------------------------------------ --------------
David A. Helfand
*DONALD S. CHISHOLM Director March 29, 2002
------------------------------------------ --------------
Donald S. Chisholm
*THOMAS E. DOBROWSKI Director March 29, 2002
------------------------------------------ --------------
Thomas E. Dobrowski
*LOUIS H. MASOTTI Director March 29, 2002
------------------------------------------ --------------
Louis H. Masotti
*JOHN F. PODJASEK, JR. Director March 29, 2002
------------------------------------------ --------------
John F. Podjasek, Jr.
*MICHAEL A. TORRES Director March 29, 2002
------------------------------------------ --------------
Michael A. Torres
*GARY L. WATERMAN Director March 29, 2002
------------------------------------------Name Title Date
---- ----- ----
/s/ Howard Walker Chief Executive Officer March 28, 2003
- ---------------------------- *Attorney-in-Fact --------------
Howard Walker
/s/ John Zoeller Executive Vice President, Treasurer March 28, 2003
- ---------------------------- and Chief Financial Officer --------------
John Zoeller *Attorney-in-Fact
/s/ Samuel Zell Chairman of the Board March 28, 2003
- ---------------------------- --------------
Samuel Zell
/s/ Sheli Z. Rosenberg Director March 28, 2003
- ---------------------------- --------------
Sheli Z. Rosenberg
/s/ David A. Helfand Director March 28, 2003
- ---------------------------- --------------
David A. Helfand
*Donald S. Chisholm Director March 28, 2003
- ---------------------------- --------------
Donald S. Chisholm
*Thomas E. Dobrowski Director March 28, 2003
- ---------------------------- --------------
Thomas E. Dobrowski
*Louis H. Masotti Director March 28, 2003
- ---------------------------- --------------
Louis H. Masotti
*John F. Podjasek, Jr. Director March 28, 2003
- ---------------------------- --------------
John F. Podjasek, Jr.
*Michael A. Torres Director March 28, 2003
- ---------------------------- --------------
Michael A. Torres
*Gary L. Waterman Director March 28, 2003
- ---------------------------- --------------
Gary L. Waterman
3537
CERTIFICATIONS
I, John M. Zoeller, certify that:
1. I have reviewed this annual report on Form 10-K of Manufactured Home
Communities, Inc;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 28, 2003 By: /s/ John M. Zoeller
--------------- ----------------------------------------------------
John M. Zoeller
Executive Vice President and Chief Financial Officer
38
I, Howard Walker, certify that:
1. I have reviewed this annual report on Form 10-K of Manufactured Home
Communities, Inc;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 28, 2003 By: /s/ Howard Walker
--------------- -----------------------------------------------------
Howard Walker
Chief Executive Officer
39
INDEX TO FINANCIAL STATEMENTS
MANUFACTURED HOME COMMUNITIES, INC.
PAGE
----
Report of Independent Auditors.......................................................................................Auditors ............................................................................... F-2
Consolidated Balance Sheets as of December 31, 20012002 and 2000.........................................................2001................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 2002, 2001 2000 and 1999...........................2000..................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 2002, 2001 2000 and 1999......2000........................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 2000 and 1999...........................2000..................... 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
Company.
F-1
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, 20012002 and 2000,2001, 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,
2001.2002. We have also audited the related financial statement schedules listed in
the accompanying index.index to financial statements and schedules at item 15(a).
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, 20012002 and 2000,2001, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2001,2002, 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.
As discussed in Note 2 to the consolidated financial statements, in 2002
Manufactured Home Communities, Inc. changed its method of accounting for
discontinued operations.
ERNST & YOUNG LLP
Chicago, Illinois
January 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 22, 200227, 2003
F-2
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2002 AND 2001 and 2000
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
DECEMBER 31, DECEMBER 31,
2002 2001
2000
---------- ---------------------- ------------
ASSETS Investment in real estate:
Land......................................................Land .......................................................... $ 284,219 $ 271,871
$ 271,822
Land improvements.........................................improvements ............................................. 893,839 855,296 839,725
Buildings and other depreciable property..................property ...................... 117,949 110,971
106,629
---------- ---------------------- ------------
1,296,007 1,238,138
1,218,176
Accumulated depreciation..................................depreciation ...................................... (238,098) (211,878)
(181,580)
---------- ---------------------- ------------
Net investment in real estate..........................estate ............................... 1,057,909 1,026,260 1,036,596
Cash and cash equivalents...................................equivalents ........................................ 7,270 1,354
2,847
Notes receivable............................................receivable ................................................. 10,044 1,506 4,984
Investment in and advances to affiliates....................affiliates ......................... -- 34,387 21,215
Investment in joint ventures................................ventures ..................................... 19,634 11,853
13,267
Rents receivable............................................receivable, net ............................................ 1,735 1,966 1,440
Deferred financing costs, net...............................net .................................... 5,030 5,867
6,344Inventory ........................................................ 33,638 --
Prepaid expenses and other assets........................... 16,770 17,611
---------- ----------assets ................................ 27,590 18,612
------------ ------------
Total assets.............................................. $1,099,963 $1,104,304
========== ==========assets .................................................. $ 1,162,850 $ 1,101,805
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable....................................payable ........................................ $ 575,370 $ 590,371
$ 556,578
Unsecured term loan.......................................loan ........................................... 100,000 100,000
Unsecured line of credit..................................credit ...................................... 84,750 16,250 59,900
Other notes payable.......................................payable ........................................... 113 2,236 3,206
Accounts payable and accrued expenses..................... 23,000 23,822expenses ......................... 31,010 24,874
Accrued interest payable..................................payable ...................................... 6,415 4,582 5,116
Rents received in advance and security deposits...........deposits ............... 5,966 5,133
5,184
Distributions payable.....................................payable ......................................... 13,106 12,062
11,100
Due to affiliates......................................... 32 32
---------- ---------------------- ------------
Total liabilities...................................... 753,666 764,938liabilities ........................................... 816,730 755,508
Commitments and contingencies
Minority Interest --interest - Common OP Units and other..............other .................... 43,501 46,147
46,271
Minority Interest --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,stock, $.01 par value
50,000,000 shares authorized; 21,562,34322,093,240 and 21,064,78521,562,343
shares issued and outstanding for 2002 and 2001, and 2000, respectively........................respectively 218 215
210
Paid-in capital...........................................capital ............................................... 256,394 245,827
235,681
Deferred compensation.....................................compensation ......................................... (3,069) (4,062)
(5,969)
Employee notes............................................notes ................................................ (2,713) (3,841) (4,205)
Distributions in excess of accumulated earnings...........earnings ............... (68,713) (63,478) (57,622)
Accumulated other comprehensive income....................(loss) income ................. (4,498) 489
--
---------- ---------------------- ------------
Total stockholders' equity.............................equity .................................. 177,619 175,150
168,095------------ ------------
Total liabilities and stockholders' equity................ $1,099,963 $1,104,304
========== ==========equity .................... $ 1,162,850 $ 1,101,805
============ ============
The accompanying notes are an integral part of the financial statements
F-3
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 2000 AND 19992000
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
---------- ---------- ----------
2002 2001 2000
1999
-------- -------- ------------------ ---------- ----------
REVENUES
Base rental income............................................ $195,644 $189,481 $181,672
RVPROPERTY OPERATIONS:
Community base rental income.........................................income .................................... $ 197,795 $ 194,103 $ 188,051
Resort base rental income ....................................... 9,147 5,748 7,414 9,526
Utility and other income...................................... 22,014 20,366 20,096income ........................................ 19,713 20,403 19,378
---------- ---------- ----------
Property operating revenues ............................. 226,655 220,254 214,843
Property operating and maintenance .............................. 63,554 61,481 58,661
Real estate taxes ............................................... 18,212 17,296 16,766
Property management ............................................. 9,292 8,984 8,690
---------- ---------- ----------
Property operating expenses ..................................... 91,058 87,761 84,117
---------- ---------- ----------
Income from property operations .......................... 135,597 132,493 130,726
HOME SALES OPERATIONS:
Gross revenues from inventory home sales ........................ 33,543 -- --
Cost of inventory home sales .................................... (27,192) -- --
---------- ---------- ----------
Gross profit from inventory home sales ................... 6,351 -- --
Brokered resale revenues, net ................................... 1,592 -- --
Home selling expenses ........................................... (7,671) -- --
Ancillary services revenues, net ................................ 522 -- --
---------- ---------- ----------
Income from home sales operations ........................... 794 -- --
OTHER INCOME AND EXPENSES:
Interest income ................................................. 967 639 1,009
Equity in income of affiliates................................affiliates .................................. -- 1,811 2,408
2,065
Interest income............................................... 639 1,009 1,669
-------- -------- --------
Total revenues............................................. 225,856 220,678 215,028
-------- -------- --------
EXPENSES
Property operating and maintenance............................ 62,008 59,199 58,038
Real estate taxes............................................. 17,420 16,888 16,460
Property management........................................... 8,984 8,690 8,337
General and administrative.................................... 6,231 5,955 5,550Equity in income of unconsolidated joint ventures ............... 1,277 1,353 670
General and administrative -- affiliates...................... 456 468 542...................................... (8,192) (6,687) (6,423)
Interest and related amortization............................. 51,305 53,280 53,775amortization ............................... (50,729) (51,305) (53,280)
Depreciation on corporate assets.............................. 1,243 1,139 1,005assets ................................ (1,277) (1,243) (1,139)
Depreciation on real estate assets and other costs............ 34,833 34,411 34,486
-------- -------- --------costs .............. (35,911) (34,728) (34,312)
---------- ---------- ----------
Total expenses............................................. 182,480 180,030 178,193
-------- -------- --------other income and expenses ............................. (93,865) (90,160) (91,067)
Income from operations........................................ 43,376 40,648 36,835operations .......................................... 42,526 42,333 39,659
Net income from discontinued operations ......................... 1,083 1,043 989
Gain on sale of Properties and other..........................other ............................ 13,014 8,168 12,053
--
-------- -------- ------------------ ---------- ----------
Income before allocation to Minority Interests and extraordinary loss on early extinguishment of debt................. 56,623 51,544 52,701 36,835
(Income) allocated to Common OP Units.........................Units ........................... (8,926) (8,209) (8,463) (6,219)
(Income) allocated to Perpetual Preferred OP Units............Units .............. (11,252) (11,252) (2,844)
-------- -------- --------
Income(11,252)
---------- ---------- ----------
Net income before extraordinary loss on early
extinguishment of debt....................................................debt ...................................... 36,445 32,083 32,986 27,772
Extraordinary loss on earlythe extinguishment of debt (net of $264
allocated to Minority Interests)..............minority interests) ............................ -- 1,041 -- -------- -------- --------(1,041)
---------- ---------- ----------
NET INCOME.................................................INCOME ................................................ $ 36,445 $ 32,083 $ 31,945
========== ========== ==========
Net income from operations per Common Share - basic ............. $ 27,772
======== ======== ========1.57 $ 1.60 $ 1.47
========== ========== ==========
Net income from operations per Common Share - diluted ........... $ 1.54 $ 1.57 $ 1.45
========== ========== ==========
Net income per Common Share before extraordinary
item -- basic..............................................- basic ............................. $ 1.69 $ 1.53 $ 1.54 $ 1.10
======== ======== ========1.49
========== ========== ==========
Net income per Common Share before extraordinary
item -- diluted............................................- diluted ........................... $ 1.49 $ 1.51 $ 1.09
======== ======== ========
Net income per Common Share -- basic.......................... $ 1.53 $ 1.49 $ 1.10
======== ======== ========
Net income per Common Share -- diluted........................1.64 $ 1.49 $ 1.46
$ 1.09
======== ======== ================== ========== ==========
Weighted average Common Shares outstanding -- basic...........- basic .............. 21,617 21,036 21,469
25,224
======== ======== ================== ========== ==========
Weighted average Common Shares outstanding --- diluted (Note 3)...................................................(see Note 2) 27,632 27,010 27,408
31,252
======== ======== ================== ========== ==========
Distributions declared per Common Share outstanding.................................... $ 1.90 $ 1.78 $ 1.66
$ 1.55
======== ======== ================== ========== ==========
Tax status of Common Shares distributions paid during the year:
Ordinary income............................................income ................................................. $ 1.50 $ 1.31 $ 1.32
$ 1.16
======== ======== ================== ========== ==========
Capital gain...............................................gain .................................................... $ -- $ -- $ --
======== ======== ================== ========== ==========
Return of capital..........................................capital ............................................... $ 0.37 $ 0.44 $ 0.31
$ --
======== ======== ================== ========== ==========
The accompanying notes are an integral part of the financial statements
F-4
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 2000 AND 19992000
(AMOUNTS IN THOUSANDS)
2002 2001 2000
1999
--------- --------- ------------------- ---------- ----------
PREFERRED STOCK, $.01 PAR VALUE.............................VALUE .................................. $ -- $ -- $ --
======== ======== ================== ========== ==========
COMMON STOCK, $.01 PAR VALUE
Balance, beginning of year..................................year ....................................... $ 215 $ 210 $ 229 $ 262
Issuance of Common Stock through restricted stock grants.................................................grants ..... 1 1 1
Exercise of options.......................................options .......................................... 2 4 1 1
(Repurchase) issuance of Common Stock.....................Stock ........................ -- -- (21)
(35)
-------- -------- ------------------ ---------- ----------
Balance, end of year........................................year ............................................. $ 218 $ 215 $ 210
$ 229
======== ======== ================== ========== ==========
PAID --- IN CAPITAL
Balance, beginning of year.................................. $235,681 $275,664 $364,603year ....................................... $ 245,827 $ 235,681 $ 275,664
Issuance of Common Stock for employee notes...............notes .................. -- -- --
Conversion of OP Units to Common Stock....................Stock ....................... 227 599 494 1,525
Issuance of Common Stock through exercise of options......options ......... 5,782 7,743 2,719 2,034
Issuance of Common Stock through restricted stock grants.................................................grants ..... 2,709 1,627 3,310 1,507
Issuance of Common Stock through employee stock purchase plan...................................................plan 2,512 2,365 1,435 1,195
Repurchase of Common Stock................................Stock ................................... -- -- (53,112) (98,160)
Adjustment for Common OP Unitholders
in the Operating Partnership............................................Partnership ............................... (663) (2,188) 5,171
2,960
-------- -------- ------------------ ---------- ----------
Balance, end of year........................................ $245,827 $235,681 $275,664
======== ======== ========year ............................................. $ 256,394 $ 245,827 $ 235,681
========== ========== ==========
DEFERRED COMPENSATION
Balance, beginning of year..................................year ....................................... $ (4,062) $ (5,969) $ (6,326) $ (7,442)
Issuance of Common Stock through restricted stock grants.................................................grants ..... (2,709) (1,628) (3,311) (536)
Recognition of deferred compensation expense..............expense ................. 3,702 3,535 3,668
1,652
-------- -------- ------------------ ---------- ----------
Balance, end of year........................................year ............................................. $ (3,069) $ (4,062) $ (5,969)
$ (6,326)
======== ======== ================== ========== ==========
EMPLOYEE NOTES
Balance, beginning of year..................................year ....................................... $ (3,841) $ (4,205) $ (4,540) $ (4,654)
Notes received for issuance of Common Stock...............Stock .................. -- -- --
Principal payments........................................payments ........................................... 1,128 364 335
114
-------- -------- ------------------ ---------- ----------
Balance, end of year........................................year ............................................. $ (2,713) $ (3,841) $ (4,205)
$ (4,540)
======== ======== ================== ========== ==========
DISTRIBUTIONS IN EXCESS OF ACCUMULATED COMPREHENSIVE EARNINGS
Balance, beginning of year.................................. $(57,622) $(53,626) $(42,328)year ....................................... $ (62,989) $ (57,622) $ (53,626)
Net income................................................income ................................................... 36,445 32,083 31,945 27,772
Other comprehensive income:
Unrealized holding (losses) gains on derivative instruments.....instruments (4,987) 489 --
--
-------- -------- ------------------ ---------- ----------
Comprehensive income.................................income ...................................... 31,458 32,572 31,945
27,772
-------- -------- --------
Distributions.............................................---------- ---------- ----------
Distributions ................................................ (41,680) (37,939) (35,941)
(39,070)
-------- -------- ------------------ ---------- ----------
Balance, end of year........................................ $(62,989) $(57,622) $(53,626)
======== ======== ========year ............................................. $ (73,211) $ (62,989) $ (57,622)
========== ========== ==========
The accompanying notes are an integral part of the financial statements
F-5
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 2000 AND 19992000
(AMOUNTS IN THOUSANDS)
2002 2001 2000
1999
--------- --------- ------------------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................income .............................................................. $ 36,445 $ 32,083 $ 31,945 $ 27,772
Adjustments to reconcile net income to cash provided by operating
activities:
Income allocated to minority interests................interests ............................... 20,178 19,461 19,451 9,063
Gain on sale of Properties and other..................other ................................. (13,014) (8,168) (12,053) --
Depreciation and amortization expense.................expense ................................ 38,057 37,184 36,511 33,871
Equity in income of affiliates and joint ventures.....ventures .................... (1,158) (2,782) (2,928) (2,065)
Amortization of deferred compensation and other.......other ...................... 3,930 3,535 3,668
2,623Increase in provision for uncollectable rents receivable ............. 941 427 323
Changes in assets and liabilities:
Increase in rents receivable.......................... (526) (102) (667)receivable ......................................... (1,186) (953) (425)
Decrease (increase)in inventory ................................................ 1,887 -- --
(Increase) decrease in prepaid expenses and other assets.............................................assets ............. (7,610) 1,330 (9,389)
(844)
(Decrease) increaseIncrease (decrease) in accounts payable and accrued expenses...........................................expenses ......... 1,471 (1,358) 2,545
2,491
(Decrease) increaseIncrease (decrease) in rents received in advance and security deposits..................................deposits 235 (51) (1,647)
336
--------- --------- ------------------- ---------- ----------
Net cash provided by operating activities.................activities ............................... 80,176 80,708 68,001
72,580
--------- --------- ------------------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of rental properties ........................................ (56,531) (17,770) 4,581
Proceeds from dispositions of assets .................................... 14,171 24,209 46,490
Distributions from (investment in) joint ventures ....................... (7,149) 1,697 (3,758)
Proceeds from restructuring of College Heights joint venture, net ....... 4,647 -- --
Contributions to and distributions from Affiliates, net...net ................. -- (11,493) (7,250)
(1,959)Purchase of RSI ......................................................... (675) -- --
Cash received in acquisition of RSI ..................................... 839 -- --
Collections (funding) of notes receivable.................receivable ............................... (3,784) 3,478 (700)
11,426
Distribution from (investment in) joint ventures.......... 1,697 (3,758) (2,279)
Proceeds from dispositions of assets...................... 24,209 46,490 --
(Funding) return of escrow for acquisition ofImprovements:
Improvements - corporate ............................................. (681) (840) (498)
Improvements - rental properties -- net....................................... (17,770) 4,581 (30,640)
Improvements:
Improvements -- corporate............................... (840) (498) (878)
Improvements -- rental properties............................................................ (13,377) (12,689) (7,855)
(8,656)
Site development costs..................................costs ............................................... (10,433) (9,659) (7,908)
(4,882)
--------- --------- ------------------- ---------- ----------
Net cash (used in) provided by investing activities.......activities ..................... (72,973) (23,067) 23,102
(37,868)
--------- --------- ------------------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from stock options and employee stock purchase plan...........................................plan ........ 8,296 10,112 4,142 3,229
Net proceeds from issuance of Perpetual Preferred OP
Units................................................... -- -- 121,890
Distributions to Common Stockholders, Common OP Unitholders
and Perpetual Preferred OP Unitholders......Unitholders ............................... (58,314) (58,111) (56,298) (40,445)
Repurchase of Common Stock and OP Units...................Units ................................. -- (41) (54,595) (99,847)
Collection of principal payments on employee notes........notes ...................... 1,128 364 335 114
Line of credit:
Proceeds................................................Proceeds ............................................................. 82,000 46,000 103,900
113,400
Repayments..............................................Repayments ........................................................... (13,500) (89,650) (151,900)
(150,500)
Refinancing --- net proceeds...............................proceeds (repayments) ................................. (16,096) 37,870 65,998
16,248
Principal payments........................................payments ...................................................... (4,217) (5,047) (4,249)
(4,733)
Debt issuance costs.......................................costs ..................................................... (584) (631) (2,265)
(1,049)
--------- --------- ------------------- ---------- ----------
Net cash used in financing activities.....................activities ................................... (1,287) (59,134) (94,932)
(41,693)
--------- --------- ------------------- ---------- ----------
Net increase (decrease) in cash and cash equivalents.................equivalents ........................ 5,916 (1,493) (3,829) (6,981)
Cash and cash equivalents, beginning of year................year ................................ 1,354 2,847 6,676
13,657
--------- --------- ------------------- ---------- ----------
Cash and cash equivalents, end of year......................year ...................................... $ 7,270 $ 1,354 $ 2,847
$ 6,676
========= ========= =================== ========== ==========
SUPPLEMENTAL INFORMATION
Cash paid during the year for interest......................interest ...................................... $ 46,097 $ 50,781 $ 52,947
$ 52,323
========= ========= =================== ========== ==========
The accompanying notes are an integral part of the financial statements
F-6
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 --- ORGANIZATION OF THE COMPANY AND BASIS OF PRESENTATION
Manufactured Home Communities, Inc. (together, together with itsMHC Operating Limited
Partnership (the "Operating Partnership") and other consolidated subsidiaries
("Subsidiaries"), are referred to herein as the "Company"), "MHC", "we", "us",
and "our". 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 148 manufactured home communities
(the "Properties") located in 23 states, consisting of 50,761 sites. The Company
generally will not be subject to Federal income tax to the extent it distributes
90% of 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.
We are a fully integrated company that owns and operates manufactured home
communities ("Communities") and recreational vehicle resorts ("Resorts"). The
Company was formed to continue the property operations, business objectives and
acquisition strategies of an entity that had owned and operated Communities
since 1969. As of December 31, 2002, we owned or had an ownership interest in a
portfolio of 142 Communities and Resorts (the "Properties") located throughout
the United States containing 51,582 residential sites.
The operations of the Company are conducted primarily 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.Partnership. The Company contributed the proceeds from its initial
public offering to the Operating Partnership for a general partnership interest.
The financial results of the Operating Partnership and the Subsidiaries are
consolidated in the Company's consolidated financial statements. In addition,
since certain activities, if performed by the Company, may not have been
qualifying REIT activities under the Internal Revenue Code of 1986, as amended
(the "Code"), the Company has formed a taxable REIT subsidiaries as defined in
the Code to engage in such activities. Realty Systems, Inc. ("RSI") is a wholly
owned subsidiary of the Company that, doing business as Carefree Sales, is
engaged in the business of purchasing, selling and leasing 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. Community Systems, Inc. ("CSI"), a wholly owned subsidiary,
leases from the Operating Partnership certain real property within or adjacent
to certain of the Properties consisting of golf courses, pro shops, and
restaurants.
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 Interests --- Common OP Units.
As of December 31, 2001,2002, the Minority Interests --- Common OP Units represented
5,426,3745,359,927 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.
Subsidiaries of the Operating Partnership have 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 Partnership"); and (iv) own the assets and operations of
certain utility companies which service the Company's Properties ("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
Partnership 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 (49 Properties), California (25 Properties), Arizona (17
Properties), Michigan (11 Properties) and Colorado (10 Properties). These
concentrations of Properties accounted for 36%, 19%, 8%, 4% and 8%,
respectively, of the Company's total revenues for the year ended December 31,
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, 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 allits majority owed subsidiaries due to itsin which it
has the ability to control the operations of the subsidiaries. The Company
does not consolidate entities it does not have sole control of the major
decisions. All inter-company transactions have been eliminated in
consolidation. The Company's acquisitions were all accounted for as
purchases in accordance with Accounting Principles Board Opinion No. 16
"Business Combinations" for those transactions initiated before June 30,
2001 and in accordance with Statement of Financial Accounting Standards
No. 141 "Business Combinations" for those transactions completed after
June 30, 2001.
In January 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities. The Interpretation requires a
variable interest entity to be consolidated by a company if that company
is subject to a majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's
residual returns or both. The consolidation requirements of Interpretation
46 apply immediately to variable interest entities created after January
31, 2003. The consolidation requirements apply to older entities in the
first fiscal year or interim period beginning after June 15, 2003. The
Company will adopt FIN 46 in the third quarter of 2003. We have not yet
determined the effect the adoption of the Interpretation will have on the
Company.
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.
(c) Segments
We manage all our 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 following table identifies our five largest markets
and provides information regarding our Communities and Resorts including
Communities owned in joint ventures.
NUMBER OF PERCENT OF PERCENT OF
MAJOR MARKET PROPERTIES TOTAL SITES TOTAL SITES TOTAL REVENUES
- --------------- -------------- ------------- ------------- --------------
Florida 51 23,038 44.66% 38.61%
California 25 6,215 12.05% 19.96%
Arizona 19 5,413 10.49% 8.76%
Colorado 10 3,455 6.70% 8.54%
Delaware 7 2,238 4.34% 4.10%
Other 30 11,223 21.76% 20.03%
- --------------- -------------- ------------- ------------- --------------
Total 142 51,582 100.00% 100.00%
=============== ============== ============= ============= ==============
Our largest Property, Bay Indies, located in Venice, Florida, accounted
for 2.7% of our total revenues for the year ended December 31, 2002. The
operation of manufactured home communities segment comprises approximately
97.8%, 97.2% and 97.0% of total revenues for the years ended December 31,
2002, 2001 and 2000, respectively. The operation of manufactured home
communities segment comprises approximately 92.2% and 94.0% of total
assets at December 31, 2002 and 2001, respectively. The distribution of
the Properties throughout the United States reflects our belief that
geographic diversification helps insulate the portfolio from regional
economic influences. We intend to target new acquisitions in or near
markets where the Properties are located and will also consider
acquisitions of properties outside such markets.
(d) Inventory
Inventory consists of new and used manufactured homes, is stated at
the lower of cost or market and is net of a valuation allowance calculated
after consideration of the N.A.D.A. (National Automobile Dealers
Association) Manufactured Housing Appraisal Guide and the current market
value of each home included in the manufactured home inventory. Inventory
sales revenues and resale revenues are recognized when the home sale is
closed. Resale revenues are stated net of commissions paid to employees of
$677,000 for the year ended December 31, 2002.
(e) Real Estate
Real estate is recorded at cost less accumulated depreciation. The Company
evaluates rental Properties for impairment when conditions exist which may
indicate that it is probable that the sum of expected future cash flows
(undiscounted) from a Property is less than its carrying value. Upon
determination that a permanent impairment has occurred, rental Properties 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). In August
2001, the Financial 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 15, 2001.
The application of the provisions 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 usesWe use 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 and then expensed over their
estimated useful life. Initial direct leasing costsOur estimates of useful lives, salvage value, and
depreciation method used are expensed as incurred.proscribed by various generally accepted
accounting principles ("GAAP") literature. In addition, the Financial
Accounting Standards Board ("FASB") is currently reviewing the methods of
depreciation and cost capitalization for all industries and in June 2001
issued FASB Exposure Draft, "Accounting in Interim and Annual Financial
Statements for Certain Costs and Activities Related to Property, Plant and
Equipment", the implementation of which, if issued, could also have a
material effect on the Company's results of operations. Total depreciation
expense was $36.1$37.3 million, $35.6$36.0 million and $35.5 million for the years
ended December 31, 2002, 2001 and 2000, respectively.
F-8
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
We evaluate our Properties for impairment when conditions exist
which may indicate that it is probable that the sum of expected future
cash flows (undiscounted) from a Property is less than its carrying value.
Upon determination that a permanent impairment has occurred, our
Properties are reduced to fair value. For the year ended December 31,
2002, permanent impairment conditions did not exist at any of our
Properties. During the year ended December 31, 2000, a consolidated
subsidiary of the Company, recorded an impairment loss on the DeAnza Santa
Cruz water and 1999,
respectively.
(d)wastewater service company business (see Note 5). In August
2001, the FASB issued Statement of Financial Accounting Standards No. 144
("SFAS No. 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets" which is effective for fiscal years beginning after December 15,
2001. The Company adopted SFAS No. 144 during 2001 and we have presented
separately as discontinued operations in all periods the results of
operations for all assets sold during 2002 or assets classified as real
estate held for disposition as of December 31, 2002. The gain on sale of
discontinued operations for 2002 is included in the gain on sale of
properties and other.
Certain costs, primarily legal costs, relative to our efforts to
effectively change the use and operations of several Properties subject to
rent control (see Note 17) are currently classified 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 (see Note 5).
To the extent these efforts are not successful, these costs will be
expensed. In addition, we capitalize certain costs, primarily legal costs,
related to entering into lease agreements which govern the term under
which we may enter into leases with individual tenants and which are
expensed over the term of the lease agreement.
(f) Cash and Cash Equivalents
The Company considersWe consider all demand and money market accounts and certificates of
deposit with a maturity, when purchased, of three months or less to be
cash equivalents.
(e)(g) 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.premiums net of a valuation allowance.
Interest income is accrued on the unpaid principal balance. Discounts or
premiums are amortized to income using the interest method. (f)In certain
cases we finance the sale of homes to our residents (referred to as
"Chattel Loans") which are secured by the homes. The valuation allowance
for the Chattel Loans is calculated based a comparison of the outstanding
principal balance of each note compared to the N.A.D.A. value and the
current market value of the underlying manufactured home collateral.
(h) 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, 20012002
and 2000.
F-8
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g)2001.
(i) 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 $3.0$2.4 million and $1.9$3.0 million
at December 31, 2002 and 2001, and 2000, respectively.
(h)(j) Revenue Recognition
Rental income attributable to leases is recorded when earned from
tenants. The CompanyWe will reserve for receivables when the Company believeswe believe the ultimate
collection is less than probable. (i)Our provision for uncollectable rents
receivable was $700,000 as of December 31, 2002 and $300,000 as of
December 31, 2001. Income from home sales is recognized when the
F-9
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
home title is transferred.
(k) 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 (5,426,374(5,359,927 and 5,514,3305,426,374 at December 31, 20012002
and 2000,2001, respectively) by OP Units and shares of Common Stock
outstanding. Issuance of additional shares of Common Stock or commonCommon 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 shares of 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.
(j)(l) 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
CompanyWe paid state and local taxes of approximately $20,000,
$50,000 $78,000 and $85,000$78,000 during the years ended December 31, 2002, 2001 2000 and
1999,2000, respectively. As of December 31, 2001,2002, net investment in real estate
and notes receivable had a Federal tax basis of approximately $710$697 million
and $20$13 million, respectively.
(k)(m) 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 effective
January 1, 2001. SFAS No. 133 requires the Company toWe 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. On October 29, 2001, the
Company entered into a swap agreement.agreement (see Note 10)
F-9. The purpose for the
hedge is to effectively fix the interest rate on $100 million of the
Company's floating rate unsecured debt. The objective of entering into
this hedge was to limit the Company's exposure to variable interest rates.
(n) Reclassifications
Certain 2001 and 2000 amounts have been reclassified to conform to
the 2002 financial presentation. Such reclassifications have no effect on
the operations or equity as originally presented.
(o) Stock Compensation
We have chosen to account for our stock compensation in accordance
with APB No. 25, "Accounting for Stock Issued to Employees", based upon
the intrinsic value method, which results in no compensation expense for
options issued with an exercise price equal to or exceeding the market
value of the Common Shares on the date of grant. We will elect to account
for our stock compensation in accordance with SFAS No. 123 and its
amendment (SFAS No. 148), "Accounting for Stock Based Compensation",
effective in the first quarter of 2003, which will result in compensation
expense being recorded based on the fair value of the stock option
compensation issued. We have not yet determined the effect the statement
will have on the Company.
F-10
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.
Income from discontinued operations on a basic and fully diluted basis was $0.04
per share for the years ended December 31, 2002, December 31, 2001 and December
31, 2000, respectively. Extraordinary loss on the extinguishment of debt on a
basic and fully diluted basis was $0.04 per share for the year ended December
31, 2000.
The following table sets forth the computation of basic and diluted
earnings per share for the years ended December 31, 2002, 2001, 2000 1999 (amounts in
thousands):
2002 2001 2000
1999
------- ------- --------------- -------- --------
NUMERATOR:
Numerator for basic earnings per share ---
Net income............................................. $32,083 $31,945 $27,772income ....................................... $ 36,445 $ 32,083 $ 31,945
Effect of dilutive securities:
Income allocated to Common OP Units
(net of extraordinary loss on early
extinguishment of debt)............................................ .......................... 8,926 8,209 8,199
6,219
------- ------- --------------- -------- --------
Numerator for diluted earnings per share ---
Income available to Common Stockholders Afterafter
assumed conversions........................ $40,292 $40,144 $33,991
======= ======= =======conversions .............................. $ 45,371 $ 40,292 $ 40,144
======== ======== ========
DENOMINATOR:
Denominator for basic earnings per share ---
Weighted average Common Stock outstanding...................outstanding ........ 21,617 21,036 21,469 25,224
Effect of dilutive securities:
Weighted average Common OP Units...................Units ................. 5,403 5,466 5,592
5,704
Employee stock options.............................options ........................... 612 508 347
324
------- ------- --------------- -------- --------
Denominator for diluted earnings per share ---
Adjusted weighted average Common Stock Outstandingoutstanding
after assumed conversions........................conversions ........................ 27,632 27,010 27,408
31,252
======= ======= =============== ======== ========
NOTE 4 --- COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS
The following table presents the changes in the Company's outstanding
Common Stock for the years ended December 31, 2002, 2001 2000 and 19992000 (excluding OP
Units of 5,359,927, 5,426,374 5,514,330 and 5,633,1835,514,330 outstanding at December 31, 2002,
2001 2000 and 1999,2000, respectively):
2002 2001 2000
1999
---------- ---------- ---------------------- ------------ ------------
Shares outstanding at January 1,.............................. ............................ 21,562,343 21,064,785 22,813,357 26,417,029
Common Stock issued through conversion of OP Units..........Units ..... 66,447 87,956 59,190 143,637
Common Stock issued through exercise of Options.............options ........ 282,959 387,115 138,029 126,565
Common Stock issued through stock grants....................grants ............... 108,341 57,000 92,070 95,666
Common Stock issued through Employee Stock Purchase Plan....Plan 73,150 98,987 68,739 59,060
Common Stock repurchased and retired........................retired ................... -- (133,500) (2,106,600)
(4,028,600)
---------- ---------- ---------------------- ------------ ------------
Shares outstanding at December 31,............................ .......................... 22,093,240 21,562,343 21,064,785
22,813,357
========== ========== ====================== ============ ============
As of December 31, 2002 and 2001, the Company's percentage ownership of
the Operating Partnership was approximately 80%. The remaining approximately 20%
is owned by the Common OP Unitholders.
F-10F-11
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 Stock
repurchase plan whereby the Company was authorized to repurchase and retire up
to 1.0 million shares of its Common Stock. No shares of Common Stock were
repurchased during the yearyears ended December 31, 2002 or 2001. However, under the
plan, the Company repurchased approximately 2.1 million shares of Common Stock
at an average price of $24.06 per share during the year ended December 31, 2000,
and approximately
4.0 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 lineLine of credit.Credit.
During the year ended December 31, 2000, the Operating Partnership
repurchased and cancelled approximately 60,000 OP Units 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.
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 fromThe Operating Partnership pays distributions of 9.0% per annum on the offering$125
million of $121 millionPOP Units. Distributions on the POP Units were used to repay amounts
outstanding underpaid quarterly on the
Company's linelast calendar day of credit facility and for other corporate
purposes.each quarter beginning December 31, 1999.
The following distributions have been declared and/or paid to common
stockholders and Minority Interests since January 1, 1999.2000.
DISTRIBUTION FOR THE QUARTER SHAREHOLDER RECORD
AMOUNT PER SHARE ENDING RECORD DATE PAYMENT DATE
------------------- ----------------------- ---------------- ------------------ ----------------
-------------------- ------------------
$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
- --------------------------------------------------------------------------------------------------------------- ------------------ -------------------- ------------------
$0.4750 March 31, 2002 March 29, 2002 April 12, 2002
$0.4750 June 30, 2002 June 28, 2002 July 12, 2002
$0.4750 September 30, 2002 September 27, 2002 October 11, 2002
$0.4750 December 31, 2002 December 27, 2002 January 10, 2003
- ---------------- ------------------ -------------------- ------------------
The Operating Partnership pays 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.
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
Stock of the Company. The aggregate number of shares of Common Stock available
under the ESPP shall not exceed 1,000,000, subject to adjustment by the Board of
Directors. The Common 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;the offering period; 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.offering period. Shares of Common Stock issued through the
ESPP for the years ended December 31, 2002, 2001 and 2000 were 71,107, 96,485
and 1999 were 96,485, 68,739, and 59,060, respectively.
F-11F-12
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,During the Company entered into a portfolio purchase
agreement (as amended by a supplemental agreement onyear ended 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 price31, 2000, 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 Communitiesaccordance 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 withrelated to our purchase of a portfolio of
Properties known as the dissolution proceeding of
ECC and its affiliated partnerships. As part of the Settlement, the CompanyEllenburg Acquisition, we received $13.5 million
previously held in escrow in connection with the purchase
of the Ellenburg Communities and recordedwhich $3.0 million ofwas recorded as interest income
related to these funds. In connection with the Settlement, the Companywe 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. TheOn February 29, 2000,
a consolidated subsidiary of the Company, recordedsold the water and wastewater service
company and facilities known as FFEC-Six in a $9.1cash sale with net proceeds of
approximately $4.2 million and a gain on the sale of these Properties. Proceeds from$719,000 (or $0.03 per
fully diluted share) was recorded in other income on 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 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 includes
The Meadows in investment in real estate and the related resultsaccompanying statement
of operations infor 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 269 developed sites and
zoned expansion potential for 479 sites. In addition, Realty Systems, Inc.
purchased the model home inventory at the community for approximately $1.1
million.year ended December 31, 2000.
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 ",
MHC Acquisition One L.L.C.of", a
consolidated subsidiary of the Company, recorded an impairment loss on the
DeAnza Santa Cruz water and wastewater service company business. Management'sOur 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 CompanyWe recorded
an asset impairment loss of $701,000 (or $0.03 per fully diluted share) which is
included as a reduction of other income in the accompanying statement of
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 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 statement of operations forDuring 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 Companywe acquired two Florida
communities,Properties, 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, Floridamillion 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 dispositionsale of the
following seven communities,properties, 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
million. 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 CompanyIn addition, we
terminated itsa 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,Also during 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 Companywe
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 Companywhereby we received $10.8 million in proceeds
fromrelated to the settlement, which was accounted for as a sale of real estatea Property in Indiana.
During the year ended December 31, 2002, we acquired the eleven Properties
listed in the table below. The acquisitions were funded with borrowings on our
Line of Credit and recordedthe assumption of $47.9 million of mortgage debt, which
includes a $75,000 gain on$3.0 million discount mark-to-market adjustment. In addition, we
purchased adjacent land and land improvements for several Properties for
approximately $559,000.
TOTAL PURCHASE
DATE ACQUIRED PROPERTY LOCATION SITES PRICE DEBT ASSUMED
- ----------------- ----------------------- ------------------- ----- ------------ ------------
($ millions) ($ millions)
March 12, 2002 Mt. Hood Village Welches, OR 450 $ 7.2 $ ---
July 10, 2002 Harbor View Village New Port Richey, FL 471 15.5 8.1
July 31, 2002 Golden Sun Apache Junction, AZ 329 6.3 3.1
July 31, 2002 Countryside RV Resort Apache Junction, AZ 560 7.5 ---
July 31, 2002 Holiday Village Ormond Beach, FL 301 10.4 7.1
July 31, 2002 Breezy Hill RV Resort Pompano Beach, FL 762 20.5 10.5
August 14, 2002 Highland Woods Pompano Beach, FL 148 3.9 2.5
August 7, 2002 Tropic Winds RV Resort Harlingen, TX 531 4.9 ---
October 1, 2002 Silk Oak Lodge Clearwater, FL 180 6.2 3.9
December 18, 2002 Hacienda Village New Port Richey, FL 519 16.8 10.2
December 31, 2002 Glen Ellen Clearwater, FL 117 2.4 2.5
----- ------------ ------------
TOTALS 4,368 $ 101.6 $ 47.9
===== ============ ============
F-13
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INVESTMENT IN REAL ESTATE (CONTINUED)
Also during 2002, we effectively sold 17 Properties as part of a
restructuring of the sale. Proceeds from the sale were used as working
capital.
TheCollege Heights Joint Venture discussed hereinafter. In
addition, we sold Camelot Acres, a 319 site Property in Burnsville, Minnesota,
for approximately $14.2 million.
All acquisitions have been accounted for utilizing the purchase method of
accounting and, accordingly, the results of operations of acquired assets are
included in the statements of operations from the dates of acquisition. The
CompanyWe
acquired all of the Properties from unaffiliated third parties.
During the yearyears ended December 31, 2002 and 2001, the Companywe capitalized
approximately $5.7 million and $2.4 million of costs, includingrespectively, primarily
legal costs, relative to our 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 isWe actively seekingseek to acquire additional manufactured home
communitiesProperties and currently isare
engaged in negotiations relating to the possible acquisition of a number of
communities.Properties. 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'sour 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 recorded approximately $1.3 million, $283,000 and $8,000 of
net income from joint ventures in the Company joined Plantation Company, L.L.C.years ended December 31, 2002, 2001 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"2000, respectively; and "Trails West", forreceived approximately $6.5 million.
Plantation on the Lake is located in Riverside, California$607,000 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$1.6 million in
OP Units.
Ondistributions in the years ended December 28, 2000, the Company, through a joint venture with the
principals of Meadows Management Company (the "Voyager Joint Venture"), acquired
a 25% interest in Voyager RV Resort, a 1,576 site RV resort in Tucson, Arizona,
for total consideration of $4.0 million. Voyager RV Resort is adjacent to Trails
West. The Company's investment included cash of $3.0 million31, 2002 and its 50%
interest in land held through the Trails West joint venture valued at $2.0
million.2001, respectively. Due
to the Company's inability to control the joint ventures, the Company accounts
for its investment in the joint ventures using the equity method of accounting.
The following is a summary of the Company's investments on unconsolidated joint
ventures:
NUMBER OF ECONOMIC INVESTMENT AS OF INVESTMENT AS OF
PROPERTY LOCATION SITES INTEREST (A) DEC. 31, 2002 DEC. 31, 2001
- -------------------------------------- -------------- --------- ------------ ---------------- ----------------
(in thousands) (in thousands)
Trails West Tucson, AZ 503 50% $ 1,917 $ 1,908
Plantation Calimesa, CA 385 50% 2,861 2,763
Manatee Bradenton, FL 290 90% 631 723
Home Hallandale, FL 136 90% 1,092 1,106
Villa del Sol Sarasota, FL 207 90% 726 808
Voyager RV Resort Tucson, AZ -- 25% 4,463 4,545
Preferred Interests in College Heights -- 17% 7,944 --
--------- ---------------- ----------------
1,521 $ 19,634 $ 11,853
========= ================ ================
(a) The percentages shown approximate the Company's economic interest. The
Company's legal interest may differ.
Effective September 1, 2002, the Company recorded approximately $283,000restructured its investment in
Wolverine Property Investment Limited Partnership (the "College Heights Joint
Venture" or the "Venture"), a joint venture with Wolverine Investors, LLP. The
Venture included 18 Properties with 3,581 sites. The results of operations of
the College Heights Joint Venture prior to restructuring were included with the
results of the Company due to the Company's voting equity interest and $8,000control
over the Venture. Pursuant to the restructuring, the Company sold its general
partnership interest, sold all of net income
from joint venturesthe Company's voting equity interest and
reduced the Company's total investment in the years ended December 31, 2001 and 2000, respectively;
andCollege Heights Joint Venture. As
consideration for the sale, the Company retained sole ownership of Down Yonder,
a 361 site Community in Clearwater, Florida, received cash of approximately $1.6$5.2
million and $400,000 in distributions.
NOTE 7 -- INVESTMENT IN AND ADVANCES TO AFFILIATES
Investment in and advances to affiliates consists principallyretained preferred limited partnership interests of approximately
$10.3 million, recorded net of a $2.4 million reserve. The continuing preferred
stock of Realty Systems, Inc. ("RSI") and its subsidiaries (collectively
"Affiliates") and advances under a line of credit between the Company and RSI.
The Company accountslimited partnership interests will be accounted 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, 2001 and
2000 (amountsreported as an investment in thousands):
2001 2000
-------- --------
Assets $ 51,619 $ 37,501
Liabilities, net of amounts due
to the Company (17,232) (16,286)
-------- --------
Net investment in Affiliates $ 34,387 $ 21,215
======== ========
Home sales $ 38,621 $ 39,952
Cost of sales (30,657) (31,837)
Other revenues and expenses, net (6,153) (5,707)
-------- --------
Equity in income of Affiliates $ 1,811 $ 2,408
======== ========
a joint venture.
F-14
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - ACQUISITION OF REALTY SYSTEMS, INC.
On January 1, 2002, the Company purchased all of the common stock of
Realty Systems, Inc. ("RSI"). The Company previously owned the non-voting
preferred stock of RSI and had notes receivable from RSI which were recorded as
an investment in affiliate. The Company purchased the common stock of RSI from
Equity Group Investments, Inc., controlled by Samuel Zell, Chairman of the Board
of Directors of the Company, for approximately $675,000. As a result of this
acquisition, the Company owns and controls RSI and consolidates the financial
results of RSI with those of the Company. Prior to the purchase of the common
stock of RSI, we accounted for our investment in RSI on the equity method and
classified the investment as investment in and advances to affiliates.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition:
(amounts in thousands)
ASSETS
Buildings and other depreciable property $ 6,656
Cash and cash equivalents .............. 839
Notes receivable ....................... 4,772
Investment in joint ventures ........... 200
Inventory .............................. 35,524
Prepaid expenses and other assets ...... 2,724
----------------------
Total assets acquired ............... 50,715
LIABILITIES
Other notes payable .................... (12,862)
Accounts payable and accrued expenses .. (2,718)
Accrued interest payable ............... (73)
----------------------
Total liabilities assumed ........... (15,653)
Conversion of previous investment ...... (34,387)
----------------------
Cash paid for common equity interest ... $ (675)
======================
NOTE 8 --- NOTES RECEIVABLE
At December 31, 20012002 and 2000,2001, the Company had approximately $1.5$10.0 million
and $5.0$1.5 million in notes receivable, respectively.
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 funded $3.2 million
under the Trails West Loan. In December 2000, $1.2 million of the Trails West
Loan was repaid and during 2001, the remaining balance on the Trails West Loan
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 prime
plus 0.5% per annum, require quarterly interest only payments and mature on
December 31, 2011. The outstanding balance on these notes as of December 31,
20012002 is $1.5 million.
The Company has approximately $8.5 million in Chattel Loans receivable,
which yield interest at a per annum average rate of approximately 9.4%, have an
average term and amortization of 5 to 15 years, require monthly principal and
interest payments and are collateralized by manufactured homes at certain of the
Properties.
NOTE 9 --- EMPLOYEE NOTES RECEIVABLE
As of December 31, 20012002 and 2000,2001, the Company had employee notes
receivable of approximately $3.8$2.7 million and $4.2$3.8 million respectively,
collateralized by shares of 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 stockCommon 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 accrueaccrued interest at 6.77% per annum,
maturematured on March 2, 2003 and are recourse againstwere repaid before the employees in the event the
pledged shares are insufficient to repay the obligations.maturity date.
F-15
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - EMPLOYEE NOTES RECEIVABLE (CONTINUED)
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 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.
F-15
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 --- LONG-TERM BORROWINGS
As of December 31, 20012002 and December 31, 2000,2001, the Company had outstanding
mortgage indebtedness of approximately $590.4$575.4 million and $556.6$590.4 million,
respectively, encumbering 7766 and 7377 of the Company's Properties, respectively.
As of December 31, 20012002 and December 31, 2000,2001, the carrying value of such
Properties was approximately $720 million and $693 million, and $631 million, respectively.
On August 3, 2001, the Company entered into a $50.0 million mortgage note
(the "Stagecoach Mortgage") collateralized by 7 Properties. The proceeds were
used to repay amounts under the Company's line of credit and for working capital
purposes.
The outstanding mortgage indebtedness as of December 31, 20012002 consists of:
- - A $265.0 million mortgage note (the "$265 Million Mortgage")
collateralized by 2928 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%. per annum. 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
$137,000)$247,000) which is being amortized into interest expense over the life of
the loan.
- A $65.9 million mortgage note (the "College Heights Mortgage")
collateralized by 18 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.
- A $93.0$92.3 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%, per annum, amortizes
beginning August 1, 2000 over 30 years and matures July 1, 2010.
- - A $49.9$49.4 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%, per annum, amortizes beginning
September 1, 2001 over 10 years and matures September 1, 2011.
- - A $22.5$22.0 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%, per
annum, amortizes beginning August 1, 1994 over 27.5 years and matures July
1, 2004.
- - A $15.6$15.5 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%, per annum, amortizes beginning
August 1, 2000 over 30 years and matures July 1, 2010.
- - Approximately $78.5$131.6 million of mortgage debt on 1524 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%6.5% to 8.75%.9.3% per annum. 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 itsWe have an unsecured lineLine of creditCredit with a group of banks (the "Credit Agreement""Line of
Credit") with a total facility of $150 million, bearing interest at the London Interbank
Offered Rate ("LIBOR")a rate of
LIBOR plus 1.125%. Among other things, the amendment lowered
the total facility under the Credit Agreement to $150 million and extended that matures on August 9, 2003 with two one-year extension
options with which we may extend the maturity tothrough August 9, 2003. The Company pays2005. We pay a
quarterly fee on the average unused amount of such creditthe total facility equal to 0.15%
of such amount. As of December 31, 2001, $133.82002, $65.3 million was available under the
Credit Agreement.
F-16
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 -- LONG-TERM BORROWINGS (CONTINUED)
The Company hasWe have a $100 million unsecured term loan (the "Term Loan") with a group
of banks with interest only payable monthly at a ratethe London Interbank Offered Rate
("LIBOR") of LIBOR plus 1.0%.
The Term Loan maturity has been extended to April 3, 2002. 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 that matures on August 9, 2005.2003 with two one-year
extension options with which we may extend the maturity through August 9, 2005
F-16
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - LONG-TERM BORROWINGS (CONTINUED)
On October 29, 2001, the Companywe entered into an interestthe 2001 Swap effectively fixing the
LIBOR rate swap
agreement, fixing at LIBOR on $100 million of the Company'sour floating rate debt at approximately 3.7% per
annum for the period October 2001 through August 2004. The terms of the swap2001
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 swap2001 Swap will
be reflected at market value. The Company believesWe believe the swap2001 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.adjustments. As of December 31, 20012002, the
hedge represented a liability of approximately $4.5 million and is recorded in
accounts payable and accrued expenses. Mark-to-market changes in the value of
the swap had a market value of $489,000 which isare included in other assets. The
effect of the mark-to-market adjustment, is reflected in other comprehensive income.
In July 1998, the Companywe entered into an interest rate swap agreement (the "1998
Swap") effectively 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. The CompanyWe 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 terminatedwe
unwound the 1998 Swap and received $1.0 million of proceeds which is being
amortized as
an adjustment tointo 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
---------- ---------------------------------------------- -----------
20022003 $ 6,190
2003 30,27513,753
2004 33,23138,758
2005 109,018193,377
2006 20,38419,965
2007 268,494
Thereafter 509,759
--------225,190
Net unamortized premiums and discounts 696
-----------
Total $708,857
========$ 760,233
===========
F-17
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 are in effect at certain sites within 2225 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, 20012002 as follows (amounts in
thousands):
YEAR AMOUNT
---------- ------------------- -------------
20022003 $ 41,906
2003 29,65444,211
2004 26,57445,999
2005 25,33943,378
2006 17,37232,432
2007 29,443
Thereafter 45,120
--------38,528
-------------
Total $185,965
========$ 233,991
=============
F-17
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2002, 2001 2000 and 1999,2000,
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 $27.9$26.3 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. Fees paid to EGI and its affiliates amounted to approximately $1,000,
$2,000 $26,000 and $74,000$26,000 for the years ended December 31, 2002, 2001 2000 and 1999,2000,
respectively. There were no significant amounts due to these affiliates as of
December 31, 20012002 and 2000,2001, 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; The Riverside Agency, Inc. which provided insurance brokerage services. In addition,services and
Equity Office Properties Trust, of which Mr. Zell is the Chairman of the Board,
which provides office space to the Company. Fees paid to these entities amounted
to approximately $645,000, $454,000 $442,000 and $473,000$442,000 for the years December 31,
2002, 2001 2000 and 1999,2000, respectively. Amounts due to these affiliates were
approximately $52,000 and $32,000 as of both December 31, 20012002 and 2000,2001,
respectively.
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-18
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 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, 2001,2002, 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 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 were available for grant under the Plan as of December 31, 2001.
In 2001, 2000 and 1999, the Company issued 0, 19,181 and 14,666 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 and $352,000 at the date of grant was recorded as compensation
expense by the Company in 2001, 2000 and 1999, respectively.2002.
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.compensation and amortized in
accordance with their vesting. The Company amortized approximately $1.1 million,
$2.0 million, and $593,000 related to these Stock Grants in 2002, 2001, and
2000, respectively. The balance of unamortized deferred compensation related to
these Stock Grants is $2,206,000$1.1 million as of December 31, 2001.2002.
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.compensation and amortized in accordance with their vesting. The
Company amortized approximately $0, $386,000, and $385,000 related to these
Stock Grants in 2002, 2001, and 2000, respectively. The balance of unamortized
deferred compensation related to these Stock Grants is $0 as of December 31,
2002.
F-18
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
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.compensation and amortized in accordance with their vesting. The
Company amortized approximately $478,000, $478,000, and $955,000 related to
these Stock Grants in 2002, 2001, and 2000, respectively. The balance of
unamortized deferred compensation related to these Stock Grants is $478,000$0 as of
December 31, 2001.2002.
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.compensation and amortized in
accordance with their vesting. The Company amortized approximately $239,000 and
$239,000 related to these Stock Grants in 2001.2002 and 2001, respectively. The
balance of unamortized deferred compensation related to these Stock Grants is
approximately $957,000$718,000 as of December 31, 2001.2002.
In 2002, the Company awarded 69,750 Stock Grants to certain members of
senior management of the Company. These Stock Grants vest over three 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 $2.2 million as of the
date of grant was treated in 2002 as deferred compensation and amortized in
accordance with their vesting. The Company amortized approximately $1.4 million
related to these Stock Grants in 2002. The balance of unamortized deferred
compensation related to these Stock Grants is approximately $724,000 as of
December 31, 2002.
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 fair market value of
Stock Grants awarded to directors of approximately $386,000,$537,000, $432,000 and
$401,000 in 2002, 2001 and $432,000 in 1999, 2000 and 2001 respectively, were treated as deferred
compensation.compensation and amortized in accordance with their vesting. The Company
amortized approximately $406,280$457,000 related to these Stock Grants in 2001.2002. The
balance of unamortized deferred compensation related to the 1999,2002, 2001 and 2000 and 2001
Stock Grants is $0, $134,000$358,000, $144,000 and $288,000$0, 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)2002.
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,"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.
Effective in the first quarter of 2003, we will adopt the fair value method as
proscribed in SFAS No. 123. We have not yet determined which of the proposed
methodologies we will utilize.
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 2002, 2001 2000 and 1999,2000, respectively: risk-free interest rates of
3.5%, 5.5%3.5% and 6.3%5.5%; dividend yields of 6.3%5.6%, 6.3% and 6.3%; volatility factors
of the expected market price of the Company's commonCommon Stock of .14, .19 .20 and .21;.20;
and a weighted-average expected life of the Options of 5 years. The fair value
of the Stock Grants granted in 2001, 20002001 and 19992000 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.
F-19
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
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, 2002, 2001 and 2000 and 1999 was $648,000$296,000 ($0.01 per share),
$725,000 ($0.02 per share),
$134,000 and $479,000 ($0.0 per share) and $138,000 ($0.00.1 per share), respectively.
A summary of the Company's stock option activity, and related information
for the years ended December 31, 2002, 2001 2000 and 19992000 follows:
WEIGHTED AVERAGE
SHARES SUBJECT EXERCISE PRICE PER
TO OPTIONS PER SHARE
-------------- -----------------------------------
Balance at December 31, 1998 1,899,379 $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 $ 21.72
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 22.30
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
=========Options granted 105,750 31.97
Options exercised (283,159) 20.48
Options canceled (49,493) 24.94
--------------
Balance at December 31, 2002 1,658,447 24.59
==============
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'sshareholders approved the Amended Plan.
As of December 31, 2002, 2001 2000 and 1999,2000, 1,252,344 shares, 416,6031,252,344 shares
and 747,258416,603 shares remained available for grant, respectively, and 1,328,617,
shares, 1,422,211 shares 1,562,074 shares and 1,426,0721,562,074 shares were exercisable, respectively.
Exercise prices for Options outstanding as of December 31, 20012002 ranged from
$12.88 to $30.65,$33.55, with the substantial majority of the exercise prices exceeding
$17.25.$19.28. The remaining weighted-average contractual life of those Options was 6.25.6
years. The weighted average exercise price of outstanding and exercisable
optionsOptions was $22.39$27.03 as of December 31, 2001.2002.
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. However,
under certain circumstances, the issuance of preferred stock may require
stockholder approval pursuant to the rules and regulations of The New York Stock
Exchange. As of December 31, 20012002 and 2000,2001, no Preferred Stock was issued by the
Company.
F-20
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 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 $248,000, $353,000 $315,000 and $385,000,$315,000, for the years ended
December 31, 2002, 2001 2000 and 1999,2000, respectively. The Company's plan contribution
for the profit sharing component of the 401(k) Plan is $139,000$142,000 for the year
ended December 31, 2001.2002.
The Company has established a supplemental executive retirement plan (the
"SERP") to provide certain officers and directors an opportunity to defer a
portion of their eligible compensation in order to save for retirement and for
the education of their children. The SERP is restricted to investments in
Company common shares, certain marketable securities that have been specifically
approved, or cash equivalents. In accordance with EITF 97-14 "Accounting for
Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi
Trust and Invested", the deferred compensation liability represented in the SERP
and the securities issued to fund such deferred compensation liability are
consolidated by the Company on the balance sheet. Assets held in the SERP are
included in other assets and are classified as trading securities and reported
at fair value, with unrealized gains and losses included in earnings. Company
shares held in the SERP are classified in shareholders equity due to the
inability of the Company to repurchase these shares.
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. This
summary provides the history and reasoning underlying the Company's defenseproperty. As a result of the residents' claims and explains the Company's decision to continue to defend
its position, whichone action, the
Company believes is fair and accurate.
DeAnza Santa Cruz Mobile Estates is a 198-site Community overlooking the
Pacific Ocean. It is subjectrebated approximately $36,000 to the City's rent control ordinance which limits
annual rent increases to 75% of CPI.residents. 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
want to be 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'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. DeAnza'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 inthen proceeded to a residential neighborhood within the City and
permitted DeAnzajury trial alleging these
"overcharges" entitled them to recoup partan award of the expenses of operatingpunitive damages. In January 1999, 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 byjury awarded 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 City 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, 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 ofin 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 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
remittur. The trial court also awarded $700,000 of attorneys' fees to
plaintiffs. The Company appealed the jury verdict and attorneys' fees award
(which also accrues interest at the statutory rate of 10.0% per annum).damages. On December 21, 2001 the
California Court of Appeal for the Sixth District reversed the $6.0 million
punitive damage award, and the related award of attorneys' fees, and, as a result,
all post-judgment interest thereon, on the basis that punitive damages are not
available as a remedy for a statutory violation of the MRL.California Mobile Home
Residency Law ("MRL"). The decision of the appellate court left the HOA, the
plaintiff in this matter, 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 expects the HOAIn order to seek a new trial
during 2002. The Company intends to vigorously defend itself.
In two related appeals,resolve this matter, the Company
had argued thataccrued for and agreed to pay $201,000 to the trial court's
ability to enterHOA. This payment resolves the
punitive damage claim. The HOA's attorney has made a motion asking for an award
of attorneys' fees and costs in favorthe amount of approximately $1.5 million as a
result of this resolution 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 $100,000litigation. The Company will vigorously oppose
any award of attorneys' fees.
The California Supreme Court declinedfees and costs and has asked the court to accept the case for review andrule that the
Company paidis the judgment, including post-judgment interest thereon, and
settled the matter for approximately $200,000 late in 2000.prevailing party.
In a 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.Company (the "2000 Lawsuit"). The new lawsuit seeks2000
Lawsuit sought 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.
F-21
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company entered into a settlement agreement with the plaintiffs in the
2000 Lawsuit which settlement was approved by the court on July 22, 2002. The
Company believes the settlement agreement is of significant benefit to the
Company. First, pursuant to the settlement agreement all past, present and
future tenants of the Property agree to alternative dispute resolution
procedures which provide that during the next 25 years future disputes will be
resolved through arbitration before a retired judge rather than in court, and
that in such future arbitration proceedings all claims to trial by jury and for
punitive damages are waived.
Second, the settlement agreement provides a process for determining the
rent for 15 sites not subject to rent control, including in certain
circumstances, back rent owing from certain dates in 2001. The settlement
agreement generally gives tenants at these sites three (3) options with respect
to their tenancies. Such tenants may (1) enter into a 34-year lease providing a
rent based on rent control with future escalations based on the CPI, but with
the Company retaining the right to charge market rents determined by the Company
upon turnover; (2) enter into a ten (10) year lease with a monthly rent to be
determined by binding arbitration and effective October 1, 2001; or (3) elect to
sell such tenant's home to a third party and pay back rent owing to the Company
(the amount of which will be determined by arbitration if not agreed to between
the tenant and the Company) since January 1, 2001. In certain circumstances the
Company will purchase the tenant's home based upon a mechanism provided in the
settlement agreement.
In exchange for the tenants' agreement to the alternative dispute
resolution procedures, the process for resolving back rent owed by tenants not
subject to rent control, and to dismiss the 2000 Lawsuit, the Company accrued
for and agreed to pay $730,000 in 2002.
OTHER CALIFORNIA RENT CONTROL LITIGATION
As part of the Company's effort to realize the value of its Properties
subject to rent control, the Company has initiated lawsuits against several
municipalities in California. The Company's goal is to achieve a level of
regulatory fairness in California's rent control jurisdictions, and in
particular those jurisdictions that prohibit increasing rents to market upon
turnover. This regulatory feature, called vacancy control, allows tenants to
sell their homes for a premium representing the value of the future discounted
rent-controlled rents. In the Company's view, such regulation results in a
transfer of the value of the Company's shareholders' land, which would otherwise
be reflected in market rents, to tenants upon the sales of their homes in the
form of an inflated purchase price that cannot be attributed to the value of the
home being sold. As a result, in the Company's view, the Company loses the value
of its asset and the selling tenant leaves the community with a windfall
premium. The Company has discovered through the litigation process that certain
municipalities considered condemning the Company's communities at values well
below the value of the underlying land. In the Company's view, a failure to
articulate market rents for sites governed by restrictive rent control would put
the Company at risk for condemnation or eminent domain proceedings based on
artificially reduced rents. Such a physical taking, should it occur, could
represent substantial lost value to shareholders. The Company is cognizant of
the need for affordable housing in the jurisdictions, but asserts that
restrictive rent regulation with vacancy control does not promote this purpose
because the benefits of such regulation are fully capitalized into the prices of
the homes sold. The Company estimates that the annual rent subsidy to tenants in
these jurisdictions is approximately $15 million. In a more well-balanced
regulatory environment, the Company would receive market rents that would
eliminate the subsidy and homes would trade at or near their intrinsic value.
The Company's efforts to achieve a balanced regulatory environment
incentivize tenant groups to file lawsuits against the Company seeking large
damage awards. The 2000 Lawsuit described above under DeAnza Santa Cruz Mobile
Estates is one example. The homeowners association at Contempo Marin ("CMHOA"),
a 396 site property in San Rafael, California, sued the Company in December 2000
over a prior settlement agreement on a capital pass-through after the Company
sued the City of San Rafael in October 2000 alleging its rent control ordinance
is unconstitutional. In the Contempo Marin case, the CMHOA prevailed on a motion
for summary judgment on an issue that permits the Company to collect only $3.72
out of a pass-through amount of $7.50 that the Company believes had been agreed
to by the CMHOA in a settlement agreement. The Company intends to vigorously
defend the matter, which may gomatter. The Company believes that such lawsuits will be a consequence
of the Company's efforts to trialchange rent control since tenant groups actively
desire to preserve the premium value of their homes in addition to the
summerdiscounted rents provided by rent control. The Company has determined that its
efforts to rebalance the regulatory environment despite the risk of 2002.litigation
from tenant groups are necessary not only because of the $15 million annual
subsidy to tenants, but also because of the condemnation risk.
F-22
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
ELLENBURG COMMUNITIES
The Company and certain other parties entered into a settlement agreement
("the Settlement"(the "Settlement"), which was approved by the Los Angeles County Superior Court
in April 2000. The Settlement 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).2000. Only the appealsappeal of one entity remains, the
two
entities remain, neitheroutcome of which is not expected to materially affect the Company.Company (see Note 5).
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. ThisAlthough, this appeal
was one not resolved by the Settlement. The Company believesSettlement, the California Court of Appeal dismissed
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)substantive appeals on March 13, 2003 as moot.
In October 2001, Fund 20 sued the Company and certain of its affiliates
again, this time in AlmedaAlameda 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, 1997When the March 13, 2003 Court of Appeal dismissal becomes final in
May 2003, the Company will seek to have the Alameda County action dismissed if
Fund 20 will not voluntarily dismiss this action. The Company believes Fund 20's
allegations are without merit and 1998,will vigorously defend itself.
COUNTRYSIDE AT VERO BEACH
The Company has received letters dated June 17, 2002 and August 26, 2002
from Indian River County ("County"), claiming that the Lending Partnership made loans to Candlelight
Properties, L.L.C. ("Borrower")Company currently owes
sewer impact fees in the aggregate principal amount of $8,050,000
(collectively,approximately $518,000 with respect to the
"Loan". The Loan was secured byProperty known as Countryside at Vero Beach, located in Vero Beach, Florida,
purportedly under the terms of an agreement between the County and a mortgage on Candlelight
Village ("Candlelight"), a Property in Columbus, Indiana, and was guaranteed by
Ronald E. Farren, the 99%prior owner
of Borrower.the Property. In response, the Company has advised the County that these fees
are no longer due and owing as a result of a 1996 settlement agreement between
the County and the prior owner of the Property, providing for the payment of
$150,000 to the County to discharge any further obligation for the payment of
impact or connection fees for sewer service at the Property. The Company accounted forpaid
this settlement amount (with interest) to the Loan
as an investmentCounty in real estate and, accordingly, Candlelight's rental revenues
and operating costs were includedconnection with the
Company's rental revenues and
operating costs for financial reporting purposes. Concurrently with the fundingacquisition of the Loan, Borrower grantedProperty. Accordingly, the Operating PartnershipCompany believes that
the option to acquire
Candlelight uponCounty's claims are without merit.
DELAWARE DECLARATORY JUDGMENT ACTION
In April 2002, 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 by the
Court.
On September 20, 2001, the partiesCompany entered into a settlement agreement
providingStipulation and Consent Order to
Cease and Desist (the "Consent Order") with the State of Delaware (the "State").
The Consent Order resolved various issues raised by the State concerning the
terms of a new lease form used or proposed for use by the Company at certain of
its Properties in Delaware. Among other provisions, the Consent Order
contemplated that the Company would work with the State to develop and implement
a cash payment of $10.8 millionnew lease form for use in Delaware. The Consent Order expressly provided that
nothing contained therein would preclude the Company from seeking declaratory
relief from a court as to the Lending Partnership and
dismissallegality or enforceability of any provisions which
the Company might wish to incorporate in future leases.
Throughout the summer of 2002, the Company's Delaware legal counsel
engaged in dialogue with prejudicerepresentatives of all litigation amongthe State concerning various
matters, including the lease provisions to which the State had objected but
which the Company wished to incorporate in future leases. Through this process,
it became apparent that the parties could not reach agreement as to the legality
or enforceability of the proposed lease provisions, and their
affiliates, among other terms. The closingthat the Company would
need to seek declaratory relief from a court in order to resolve the matter, as
contemplated by the Consent Order. Accordingly, on August 29, 2002, the Company
filed a Petition for Declaratory Judgment and Other Relief (as amended, the
"Petition") in Sussex County, Delaware Superior Court (the "Court").
F-23
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
In response to the filing of the Petition, on October 1, 2002, the State
filed its Answer to Petition for Declaratory and Other Relief, and Counterclaims
for Civil Enforcement and Contempt (as amended, "Answer and Counterclaim") with
the Court. In the Answer and Counterclaim, the State seeks, inter alia,
restitution, statutory penalties, investigative costs and attorneys' fees under
the Settlement Agreement
occurredDelaware Mobile Home Lots and Leases Act, the Consumer Fraud Act, the
Uniform Deceptive Trade Practices Act and the Delaware Consumer Contracts law,
and separately seeks a finding of contempt and related contempt penalties for
alleged violations of the Consent Order.
The Company filed a Motion to Dismiss Respondents' Counterclaims with the
Court on October 5, 2001.29, 2002, and the State filed a Motion for Summary Judgment
with the Court on November 15, 2002. These motions are in the briefing stage. On
December 30, 2002, the Company filed a First Amended Petition for Declaratory
Judgment and Other Relief with the Court, and on January 31, 2003, the State
filed an Amended Answer and Counterclaim with the Court. The State filed a
Motion to Dismiss with Prejudice Petitioner's First Amended Petition for
Declaratory Judgment an Other Relief for Failure to Join and Indispensable Third
Party with the Court on February 25, 2003.
The Company accounted forbelieves that it has complied, and continues to comply, with
the Settlement as a
dispositionConsent Order, and that the filing of the property.Petition was expressly
contemplated by the Consent Order. The Company believes that the State's
allegations in the Answer and Counterclaim are without merit and will vigorously
defend itself.
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 seekssought damages and
termination of the Leases. Lessee responded on March 12, 2001 disputing Lessor's
contentions. Lessor claimsclaimed that "gross revenue" for the purpose of calculating
percentage rent owing to Lessor under the ground leases includesLeases included certain amounts Lessee
hashad recouped from tenants of the Property (who are protected by rent control)
related to ground rent already paid to Lessor. Lessee hashad successfully been able
to pass-through to tenants at the propertyProperty increases in ground rent under the
Leases. Lessee contendscontended that this pass-through resultsresulted in reimbursement of
lease expense, not "gross revenue." Lessor also contendscontended that the "net income"
of RSI from the Property should be included in the gross revenue calculation.
Lessee disputesdisputed this for many 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 RSI is a separate company from Lessee.
Lessor's motion for summary judgment on the pass-through issue was denied
by an arbitration panel on November 2, 2001. Lessor and Lessee have agreed to mediate
the dispute and the matter was settled and the lease was amended in early 2002.
Pursuant to the settlement and amendment, Lessee agreed to pay $338,000 related
to prior period rent which was expensed in the first quarter of 2002 and to
arbitration.prepay rent of $632,000 based on a recalculation of rent in the amended lease.
The Company does not believe that the
amounts in question are material even if resolved against the Lesseerent prepayment and based
upon advice of counsel, does not believe that the Lessorrelated legal costs will be successful in
terminatingamortized into ground rent
expense over the Leases.remaining life of the lease.
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-25
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 -- SUBSEQUENT EVENTS
Effective January 1, 2002, the Company purchased all of the outstanding
Common Stock of RSI from affiliated and non-affiliated owners for approximately
$675,000. As a result, the Company owns and controls RSI and will consolidate
RSI as of January 1, 2002.
F-26F-24
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 --- QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is unaudited quarterly data for 2002, 2001 2000 and 19992000 (amounts
in thousands, except for per share amounts):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
20012002 3/31 6/30 9/30 12/31
----- ------------------------------------------------------ ------- ------- ------- -------
Total Revenues......................................... $57,532 $56,218 $55,536 $56,570revenues (a) ................................... $64,019 $65,214 $66,020 $69,303
Income from discontinued operations (a) .............. $ 298 $ 287 $ 241 $ 257
Income before allocation to Minority Interests and
extraordinary loss on early extinguishment of debt...debt $11,695 $10,841 $11,170 $22,917
Net income available to common shareholders .......... $ 7,115 $ 6,438 $ 6,712 $16,180
Weighted average Common Shares outstanding - Basic ... 21,433 21,563 21,676 21,794
Weighted average Common Shares outstanding - Diluted . 27,508 27,664 27,693 27,678
Net income per Common Share outstanding - Basic ...... $ 0.33 $ 0.30 $ 0.31 $ 0.74
Net income per Common Share outstanding - Diluted .... $ 0.32 $ 0.29 $ 0.30 $ 0.73
(a) Amounts may differ from previously disclosed amounts due to
reclassification of discontinued operations.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
2001 3/31 6/30 9/30 12/31
- ------------------------------------------------------ ------- ------- ------- -------
Total revenues (a) ................................... $57,088 $55,785 $55,076 $56,108
Income from discontinued operations (a) .............. $ 280 $ 229 $ 280 $ 254
Income before allocation to Minority Interests and
extraordinary loss on early extinguishment of debt $18,739 $10,512 $10,468 $11,825
Net income available to common shareholders............shareholders .......... $12,644 $ 6,135 $ 6,097 $ 7,207
Weighted average Common Shares outstanding -- Basic....- Basic ... 20,793 20,969 21,108 21,266
Weighted average Common Shares outstanding -- Diluted..- Diluted . 26,771 26,898 27,071 27,293
Net income per Common Share outstanding -- Basic.......- Basic ...... $ 0.61 $ 0.29 $ 0.29 $ 0.34
Net income per Common Share outstanding -- Diluted.....- 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 $10,696
Net income available to common shareholders............ $ 6,331 $13,921 $ 5,451 $ 6,244
Weighted average Common Shares outstanding -- Basic.... 22,297 21,871 21,166 20,559
Weighted average Common Shares outstanding -- Diluted.. 28,242 27,809 27,077 26,520
Net income per Common Share outstanding -- Basic....... $ 0.28 $ 0.64 $ 0.26 $ 0.30
Net income per Common Share outstanding -- 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......................................... $54,390 $52,446 $53,537 $54,654
Income before allocation to Minority Interests......... $10,078 $ 8,477 $ 8,417 $ 7,056
Net income available to common shareholders............ $ 8,234 $ 6,968 $ 6,877 $ 5,693
Weighted average Common Shares outstanding -- Basic.... 26,157 25,773 25,613 23,381
Weighted average Common Shares outstanding -- Diluted.. 32,340 31,829 31,586 29,281
Net income per Common Share outstanding -- Basic....... $ 0.31 $ 0.27 $ 0.27 $ 0.24
Net income per Common Share outstanding -- Diluted..... $ 0.31 $ 0.27 $ 0.27 $ 0.24
F-27(a) Amounts may differ from previously disclosed amounts due to
reclassification of discontinued operations.
F-25
SCHEDULE II
MANUFACTURED HOME COMMUNITIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 21, 200131, 2002
ADDITIONS
--------------------------------------------------
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING CHARGEDINCOME TO OTHER ATDEDUCTIONS(1) END OF
OF PERIOD INCOME ACCOUNTS DEDUCTIONS(1) PERIOD
---------- ---------- ---------- ------------- -------------------
For the year ended December 31, 1999:
Allowance for doubtful 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.....accounts......... $300,000 $426,579 $ -- ($426,579) $300,000
For the year ended December 31, 2002:
Allowance for doubtful accounts......... $300,000 $940,565 $ -- ($426,579) $300,000540,565) $700,000
- ---------------
(1) Deductions represent tenant receivables deemed uncollectible.
S-1
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 20012002
(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 5,2844,074 932 3,219 0 446515
Brentwood Manor Mesa AZ 4,575 1,9984,439 1,997 6,024 (1) 2920 432
Carefree Manor Phoenix AZ 0 706 3,3073,040 0 (135)155
Casa del Sol #1 Peoria AZ 6,78610,460 2,215 6,467 0 329692
Casa del Sol #2 Glendale AZ 6,920 2,1049,758 2,103 6,283 (1) 2700 359
Casa del Sol #3 Glendale AZ 6,63111,337 2,450 7,452 0 166258
Central Park Phoenix AZ 7,1855,161 1,612 3,784 0 452515
Countryside RV Phoenix AZ 0 2,056 6,241 0 0
Desert Skies Phoenix AZ 0 792 3,6293,126 0 (432)136
Fairview Manor Tucson AZ 0 1,674 4,708 0 8751,042
Golden Sun RV Resort Scottsdale AZ 3,077 1,678 5,049 0 0
Hacienda De Valencia Mesa AZ 8,4215,248 833 2,701 0 8501,169
Palm Shadows Glendale AZ 3,1213,028 1,400 4,218 0 356367
Sedona Shadows Sedona AZ 2,6452,573 1,096 3,431 0 286352
Sunrise Heights Phoenix AZ 0 1,000 3,016 0 269358
The Mark Mesa AZ 0 1,354 4,660 6 718781
The Meadows Tempe AZ 9,26012,298 2,613 7,887 0 439521
Whispering Palms Phoenix AZ 0 670 2,3992,141 0 (138)154
California Hawaiian San Jose CA 17,97627,823 5,825 17,755 0 8131,354
Colony Park Ceres CA 0 890 4,5132,837 0 (1,610)200
Concord Cascade Pacheco CA 10,3815,312 985 3,016 0 682759
Contempo Marin San Rafael CA 16,149 4,78826,095 4,787 16,379 (1) 1,8510 2,219
Coralwood Modesto CA 0 0 5,047 0 148207
Date Palm Country Club Cathedral City CA 15,60815,470 4,138 14,064 (23) 1,796(21) 2,185
Date Palm RV Cathedral City CA 0 0 216 0 0
Four Seasons Fresno CA 0 756 2,348 0 126182
Laguna Lake San Luis Obispo CA 5,5705,378 2,845 7,6406,520 1 (959)228
Lamplighter Spring Valley CA 9,3933,821 633 2,201 0 502590
Meadowbrook Santee CA 0 4,345 12,528 0 9241,040
Monte del Lago Castroville CA 8,1608,003 3,150 9,469 0 629859
Quail Meadows Riverbank CA 0 1,155 3,469 0 149202
Nicholson Plaza San Jose CA 0 --0 4,512 0 4448
Rancho Mesa El Cajon CA 0 2,130 6,6166,389 0 (173)63
Rancho Valley El Cajon CA 4,6453,544 685 1,902 0 469589
Royal Holiday Hemet CA 0 778 2,643 0 2,840205
Royal Oaks Visalia CA 0 602 1,921 0 146
DeAnza Santa Cruz Santa Cruz CA 5,581 2,103 7,201 0 2,103
Santiago Estates Sylmar CA 0 3,562 14,205 0 (3,098)
Sea Oaks Los Osos CA 0 871 2,703 0 128225
GROSS AMOUNT CARRIED
AT CLOSE OF PERIODGross Amount Carried
at Close of
Period 12/31/01
-------------------------
DEPRECIABLE ACCUMULATED DATE OF
REAL ESTATE LAND PROPERTY TOTAL DEPRECIATION ACQUISITION02
------------------------------------
Depreciable Accumulated Date of
Land Property Total Depreciation Acquisition
- ----------------------------------------- -------- ----------- --------------------- ------------- ------------ -----------
Apollo Village 932 3,665 4,597 (883)3,734 4,666 (1,023) 1994
Brentwood Manor 1,997 6,316 8,313 (1,846)6,456 8,453 (2,073) 1993
Carefree Manor 706 3,172 3,878 (425)3,195 3,901 (562) 1998
Casa del Sol #1 2,215 6,796 9,011 (936)7,159 9,374 (1,142) 1996
Casa del Sol #2 2,103 6,553 8,656 (875)6,642 8,745 (1,060) 1996
Casa del Sol #3 2,450 7,618 10,068 (909)7,710 10,160 (1,177) 1998
Central Park 1,612 4,236 5,848 (2,442)4,299 5,911 (2,610) 1983
Countryside RV 2,056 6,241 8,297 (65) 2002
Desert Skies 792 3,197 3,989 (419)3,262 4,054 (578) 1998
Fairview Manor 1,674 5,583 7,257 (720)5,750 7,424 (894) 1998
Golden Sun RV Resort 1,678 5,049 6,727 (54) 2002
Hacienda De Valencia 833 3,551 4,384 (1,931)3,870 4,703 (2,075) 1984
Palm Shadows 1,400 4,574 5,974 (1,324)4,585 5,985 (1,497) 1993
Sedona Shadows 1,096 3,717 4,813 (550)3,783 4,879 (693) 1997
Sunrise Heights 1,000 3,285 4,285 (861)3,374 4,374 (981) 1994
The Mark 1,360 5,378 6,738 (1,284)5,441 6,801 (1,489) 1994
The Meadows 2,613 8,326 10,939 (2,204)8,408 11,021 (2,501) 1994
Whispering Palms 670 2,261 2,931 (300)2,295 2,965 (405) 1998
California Hawaiian 5,825 18,568 24,393 (2,880)19,109 24,934 (3,536) 1997
Colony Park 890 2,903 3,793 (375)3,037 3,927 (657) 1998
Concord Cascade 985 3,698 4,683 (2,019)3,775 4,760 (2,169) 1983
Contempo Marin 4,787 18,230 23,017 (4,319)18,598 23,385 (5,007) 1994
Coralwood 0 5,195 5,195 (760)5,254 5,254 (948) 1997
Date Palm Country Club 4,115 15,860 19,975 (3,774)4,117 16,249 20,366 (4,393) 1994
Date Palm RV 0 216 216 (72) 1994
Four Seasons 756 2,474 3,230 (370)2,530 3,286 (468) 1997
Laguna Lake 2,846 6,681 9,527 (1,004)6,748 9,594 (1,229) 1998
Lamplighter 633 2,703 3,336 (1,510)2,791 3,424 (1,623) 1983
Meadowbrook 4,345 13,452 17,797 (1,677)13,568 17,913 (2,107) 1998
Monte del Lago 3,150 10,098 13,248 (1,468)10,328 13,478 (1,838) 1997
Quail Meadows 1,155 3,618 4,773 (454)3,671 4,826 (582) 1998
Nicholson Plaza 0 4,556 4,556 (658)4,560 4,560 (814) 1997
Rancho Mesa 2,130 6,443 8,573 (821)6,452 8,582 (994) 1998
Rancho Valley 685 2,371 3,056 (1,320)2,491 3,176 (1,416) 1983
Royal Holiday 778 2,840 3,618 (97)2,848 3,626 (391) 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)2,146 2,748 (385) 1997
S-2
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 20012002
(AMOUNTS IN THOUSANDS)
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO ACQUISITION
COMPANY (IMPROVEMENTS)
------------------------Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
---------------------- DEPRECIABLE DEPRECIABLE
REAL ESTATE LOCATION ENCUMBRANCES LAND PROPERTY LAND PROPERTY---------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
- ----------- ---------------------------------------------------- --------------- -- ------------ -------- ----------- ------ -----------------------
DeAnza Santa Cruz Santa Cruz CA 8,643 2,103 7,201 0 (16)
Santiago Estates Sylmar CA 0 3,562 10,767 0 455
Sea Oaks Los Osos CA 0 871 2,703 0 242
Sunshadow San Jose CA 0 0 5,707 0 89104
Westwinds (4 properties) San Jose CA 0 0 17,616 0 4,1314,816
Bear Creek Sheridan CO 0 1,100 31,5593,359 0 (28,094)173
Cimarron Broomfield CO 8,0864,707 863 2,790 0 464565
Golden Terrace Golden CO 8,0414,239 826 2,415 0 436558
Golden Terrace South Golden CO 2,400 750 2,265 0 477503
Golden Terrace West Golden CO 9,7378,522 1,694 5,065 0 750878
Hillcrest Village Aurora CO 15,47610,692 1,912 5,202 290 1,9672,178
Holiday Hills Denver CO 19,43715,016 2,159 7,780 1 3,1563,517
Holiday Village CO Co. Springs CO 6,2643,574 567 1,759 0 588877
Pueblo Grande Pueblo CO 3,4761,897 241 1,069 0 334390
Woodland Hills Denver CO 11,7657,547 1,928 4,408 0 2,1922,308
Aspen Meadows Rehoboth Beach DE 0 1,148 4,5433,460 0 (948)172
Camelot AcresMeadows Rehoboth Beach DE 7,0030 527 2,058 0 5741,251 3,611
Mariners Cove Millsboro DE 0 990 2,971 0 2,9493,203
McNicol Rehoboth Beach DE 0 563 2,1061,710 0 (347)58
Sweetbriar Rehoboth Beach DE 0 498 3,0271,527 1 (1,337)243
Waterford Estates Bear DE 0 5,250 16,202 0 370409
Whispering Pines Lewes DE 0 1,536 4,609 0 724777
Maralago Cay Lantana FL 0 5,325 15,420 0 1,0901,767
Bay Indies Venice FL 22,52522,020 10,483 3,390 0 29,54931,559 10 2,300
Bay Lake Estates Nokomis FL 4,6513,761 990 3,3043,390 0 495696
Breezy Hill RV Pompano Beach FL 10,493 5,510 16,555 0 0
Buccaneer N. Ft. Myers FL 19,53214,508 4,207 14,410 0 756966
Bulow Village RV Flagler Beach FL 0 0 228 0 0
Bulow Village Flagler Beach FL 1,1100 3,637 949 0 4,1864,836
Carriage Cove Daytona Beach FL 8,2218,156 2,914 10,1768,682 0 (1,168)603
Coral Cay Margate FL 16,74220,954 5,890 20,211 0 1,5802,183
Coquina St Augustine FL 0 5,286 5,545 0 2,3634,090
Meadows at Countrywood Plant City FL 0 4,514 13,175 0 1,4421,915
Country Place New Port Richey FL 4,0088,530 663 0 18 6,2886,963
Country Side North Vero Beach FL 0 3,711 14,75111,133 0 (2,646)1,438
Down Yonder Largo FL 7,887 2,652 7,981 0 0
East Bay Oaks Largo FL 6,6745,578 1,240 3,322 0 377
Eldorado Village Largo FL 4,576 778 0 0 2,669
Grand Island Grand island FL 0 1,723 5,208 38 629
Heritage Village Vero Beach FL 0 2,403 7,259 0 327
Hillcrest Clearwater FL 0 1,278 5,850 0 (1,624)
Holiday Ranch Largo FL 0 925 3,142 0 (155)437
GROSS AMOUNT CARRIED
AT CLOSE OF PERIODGross Amount Carried
at Close of
Period 12/31/01
------------------------
DEPRECIABLE ACCUMULATED DATE OF
REAL ESTATE LAND PROPERTY TOTAL DEPRECIATION ACQUISITION02
------------------------------------
Depreciable Accumulated Date of
Land Property Total Depreciation Acquisition
- ----------------------------------------- -------- ----------- --------------------- ------------- ------------ -----------
DeAnza Santa Cruz 2,103 7,185 9,288 (2,073) 1994
Santiago Estates 3,562 11,222 14,784 (1,929) 1998
Sea Oaks 871 2,945 3,816 (512) 1997
Sunshadow 0 5,796 5,796 (848)5,811 5,811 (1,053) 1997
Westwinds (4 properties) 0 21,747 21,747 (3,185)22,432 22,432 (4,061) 1997
Bear Creek 1,100 3,465 4,565 (460)3,532 4,632 (575) 1998
Cimarron 863 3,254 4,117 (1,864)3,355 4,218 (1,995) 1983
Golden Terrace 826 2,851 3,677 (1,515)2,973 3,799 (1,632) 1983
Golden Terrace South 750 2,742 3,492 (399)2,768 3,518 (504) 1997
Golden Terrace West 1,694 5,815 7,509 (2,753)5,943 7,637 (2,968) 1986
Hillcrest Village 2,202 7,169 9,371 (3,903)7,380 9,582 (4,217) 1983
Holiday Hills 2,160 10,936 13,096 (5,705)11,297 13,457 (6,186) 1983
Holiday Village CO 567 2,347 2,914 (1,236)2,636 3,203 (1,341) 1983
Pueblo Grande 241 1,403 1,644 (780)1,459 1,700 (841) 1983
Woodland Hills 1,928 6,600 8,528 (1,767)6,716 8,644 (2,020) 1994
Aspen Meadows 1,148 3,595 4,743 (495)3,632 4,780 (632) 1998
Camelot Acres 527 2,632 3,159 (1,449) 1983Meadows 1,778 5,669 7,447 (921) 1998
Mariners Cove 990 5,920 6,910 (2,071)6,174 7,164 (2,330) 1987
McNicol 563 1,759 2,322 (232)1,768 2,331 (289) 1998
Sweetbriar 499 1,690 2,189 (211)1,770 2,269 (362) 1998
Waterford Estates 5,250 16,572 21,822 (1,969)16,611 21,861 (2,325) 1996
Whispering Pines 1,536 5,333 6,869 (2,232)5,386 6,922 (2,435) 1998
Maralago Cay 5,325 16,510 21,835 (2,291)17,187 22,512 (2,919) 1997
Bay Indies 10,483 32,939 43,422 (8,621)10,493 33,859 44,352 (9,754) 1994
Bay Lake Estates 990 3,799 4,789 (965)4,086 5,076 (1,121) 1994
Breezy Hill RV 5,510 16,555 22,065 (180) 2002
Buccaneer 4,207 15,166 19,373 (3,709)15,376 19,583 (4,244) 1994
Bulow Village RV 0 228 228 (14) 2001
Bulow Village 3,637 5,135 8,772 (768)5,785 9,422 (945) 1994
Carriage Cove 2,914 9,008 11,922 (1,199)9,285 12,199 (1,618) 1998
Coral Cay 5,890 21,791 27,681 (5,185)22,394 28,284 (5,935) 1994
Coquina 5,286 7,908 13,194 (404)9,635 14,921 (801) 1999
Meadows at Countrywood 4,514 14,617 19,131 (1,948)15,090 19,604 (2,389) 1998
Country Place 681 6,288 6,969 (1,973)6,963 7,644 (2,242) 1986
Country Side North 3,711 12,105 15,816 (1,597)12,571 16,282 (2,254) 1998
Down Yonder 2,652 7,981 10,633 (89) 1998
East Bay Oaks 1,240 3,699 4,939 (2,156)3,759 4,999 (2,296) 1983
Eldorado Village 778 2,669 3,447 (1,541) 1983
Grand Island 1,761 5,837 7,598 (170) 2001
Heritage Village 2,403 7,586 9,989 (1,946) 1994
Hillcrest 1,278 4,226 5,504 (537) 1998
Holiday Ranch 925 2,987 3,912 (396) 1998
S-3
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 20012002
(AMOUNTS IN THOUSANDS)
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO ACQUISITION
COMPANY (IMPROVEMENTS)
------------------------Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
---------------------- DEPRECIABLE DEPRECIABLE
REAL ESTATE LOCATION ENCUMBRANCES LAND PROPERTY LAND PROPERTY---------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
- ----------- ------------------------------------------------------ --------------- -- ------------ -------- ----------- ------ -----------------------
Eldorado Village Largo FL 3,954 778 2,341 0 424
Glen Ellen Clearwater FL 2,480 627 1,882 0 0
Grand Island Grand Island FL 0 1,723 5,208 125 1,462
Hacienda Village New Port Richey FL 10,198 4,362 13,088 0 0
Harbor View New Port Richey FL 8,140 4,045 12,146 0 0
Heritage Village Vero Beach FL 0 2,403 7,259 0 549
Highland Wood RV Pompano Beach FL 2,453 1,043 3,130 0 0
Hillcrest Clearwater FL 0 1,278 3,928 0 469
Holiday Ranch Largo FL 0 925 2,866 0 157
Holiday Village FL Vero Beach FL 0 350 1,7921,374 0 (313)130
Holiday Village Ormond Beach FL 7,122 2,610 7,837 0 0
Indian Oaks Rockledge FL 3,0914,511 1,089 4,5273,376 0 (518)702
Lake Fairways N. Ft. Myers FL 0 6,075 18,134 0 81035 1,263
Lake Haven Dunedin FL 8,0717,418 1,135 4,047 0 7631,466
Lakewood Village Melbourne FL 0 1,8631,862 5,627 (1) 385
Landings0 489
Lighthouse Pointe Port Orange FL 0 2,446 8,496 0 (576)7,483 23 759
Mid-Florida Lakes Leesburg FL 25,11222,421 5,997 20,635 0 2,6833,632
Oak Bend Ocala FL 0 850 2,572 0 605802
Pickwick Port Orange FL 8,37510,587 2,803 8,870 0 46454
Pine Lakes N. Ft. Myers FL 0 6,306 14,579 0 4,77021 5,214
Sherwood Forest Kissimmee FL 9,6379,250 4,852 19,64214,596 0 (2,849)3,172
Sherwood Forest RV Park Kissimmee FL 0 2,870 3,621 568 636750
Silk Oak Clearwater FL 3,926 1,670 5,028 0 0
Southern Palms Eustis FL 0 2,169 5,884 0 1,0131,422
Spanish Oaks Ocala FL 7,4457,309 2,250 6,922 0 509708
Oaks at Countrywood Plant City FL 0 1,111 2,513 (340) 188395
The Heritage N. Ft. Myers FL 0 1,438 4,371 249 2,0462,659
The Lakes at Countrywood Plant cityCity FL 0 2,377 7,086 37 6277,085 75 1,210
The Meadows, FL Palm Beach Gardens FL 6,2026,155 3,229 9,870 0 220939
Windmill Manor Bradenton FL 6,2828,047 2,153 6,125 (1) 8740 939
Windmill Village --- Ft. Myers N. Ft. Myers FL 9,4068,818 1,417 5,440 0 9421,045
Windmill Village North Sarasota FL 9,0698,273 1,523 5,063 0 580828
Windmill Village South Sarasota FL 5,5635,377 1,106 3,162 0 311551
Five Seasons Cedar Rapids IA 0 1,053 5,3613,436 0 (1,440)515
Holiday Village, IA Sioux City IA 0 313 3,744 0 351401
Golf Vistas Monee IL 0 2,843 4,719 0 3,5294,737
Willow Lake Estates Elgin IL 21,39222,011 6,138 21,033 0 1,953
Burns Harbor Estates Chesterton IN 0 916 2,909 0 1,469
Oak Tree Village Portage IN 6,092 0 0 569 3,465
Windsong Indianapolis IN 0 1,482 6,509 0 (1,916)
Pheasant Ridge Mt. Airy MD 0 376 1,779 0 356
Creekside Wyoming MI 0 1,109 3,646 0 (19)
Camelot Acres Burnsville MN 0 1,778 6,577 0 (901)
Casa Village Billings MT 8,040 1,011 3,109 181 1,913
Del Rey Albuquerque NM 0 1,926 5,800 0 677
Bonanza Las Vegas NV 9,988 908 2,643 0 613
Boulder Cascade Las Vegas NV 7,878 2,995 12,413 0 (2,756)2,540
GROSS AMOUNT CARRIED
AT CLOSE OF PERIODGross Amount Carried
at Close of
Period 12/31/01
------------------------
DEPRECIABLE ACCUMULATED DATE OF
REAL ESTATE LAND PROPERTY TOTAL DEPRECIATION ACQUISITION02
------------------------------------
Depreciable Accumulated Date of
Land Property Total Depreciation Acquisition
- ----------------------------------------- -------- ----------- --------------------- ------------- ------------ -----------
Eldorado Village 778 2,765 3,543 (1,643) 1983
Glen Ellen 627 1,882 2,509 (5) 2002
Grand Island 1,848 6,670 8,518 (389) 2001
Hacienda Village 4,362 13,088 17,450 (36) 2002
Harbor View 4,045 12,146 16,191 (133) 2002
Heritage Village 2,403 7,808 10,211 (2,216) 1994
Highland Wood RV 1,043 3,130 4,173 (34) 2002
Hillcrest 1,278 4,397 5,675 (862) 1998
Holiday Ranch 925 3,023 3,948 (527) 1998
Holiday Village FL 350 1,479 1,829 (176)1,504 1,854 (281) 1998
Holiday Village 2,610 7,837 10,447 (90) 2002
Indian Oaks 1,089 4,009 5,098 (518)4,078 5,167 (760) 1998
Lake Fairways 6,075 18,944 25,019 (4,500)6,110 19,397 25,507 (5,166) 1994
Lake Haven 1,135 4,810 5,945 (2,645)5,513 6,648 (2,841) 1983
Lakewood Village 1,862 6,012 7,874 (1,537)6,116 7,978 (1,760) 1994
Landings 2,446 7,920 10,366 (1,068)Lighthouse Pointe 2,469 8,242 10,711 (1,426) 1998
Mid-Florida Lakes 5,997 23,318 29,315 (5,489)24,267 30,264 (6,327) 1994
Oak Bend 850 3,177 4,027 (853)3,374 4,224 (977) 1993
Pickwick 2,803 8,916 11,719 (1,161)9,324 12,127 (1,501) 1998
Pine Lakes 6,306 19,349 25,655 (4,505)6,327 19,793 26,120 (5,194) 1994
Sherwood Forest 4,852 16,793 21,645 (2,048)17,768 22,620 (2,752) 1998
Sherwood Forest RV Park 3,438 4,257 7,695 (506)4,371 7,809 (686) 1998
Silk Oak 1,670 5,028 6,698 (14) 2002
Southern Palms 2,169 6,897 9,066 (654)7,306 9,475 (1,071) 1998
Spanish Oaks 2,250 7,431 9,681 (2,003)7,630 9,880 (2,273) 1993
Oaks at Countrywood 771 2,701 3,472 (285)2,908 3,679 (387) 1998
The Heritage 1,687 6,417 8,104 (1,657)7,030 8,717 (1,921) 1993
The Lakes at Countrywood 2,414 7,713 10,127 (226)2,452 8,295 10,747 (513) 2001
The Meadows, FL 3,229 10,090 13,319 (824)10,809 14,038 (1,303) 1999
Windmill Manor 2,152 6,999 9,151 (939)2,153 7,064 9,217 (1,098) 1998
Windmill Village --- Ft. Myers 1,417 6,382 7,799 (3,575)6,485 7,902 (3,840) 1983
Windmill Village North 1,523 5,643 7,166 (3,230)5,891 7,414 (3,443) 1983
Windmill Village South 1,106 3,473 4,579 (2,025)3,713 4,819 (2,154) 1983
Five Seasons 1,053 3,921 4,974 (579)3,951 5,004 (898) 1998
Holiday Village, IA 313 4,095 4,408 (2,074)4,145 4,458 (2,238) 1986
Golf Vistas 2,843 8,248 11,091 (1,071)9,456 12,299 (1,384) 1997
Willow Lake Estates 6,138 22,986 29,124 (5,432)23,573 29,711 (6,287) 1994
Burns Harbor Estates 916 4,378 5,294 (1,236) 1993
Oak Tree Village 569 3,465 4,034 (1,268) 1987
Windsong 1,482 4,593 6,075 (621) 1998
Pheasant Ridge 376 2,135 2,511 (1,198) 1988
Creekside 1,109 3,627 4,736 (481) 1998
Camelot Acres 1,778 5,676 7,454 (761) 1998
Casa 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
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 20012002
(AMOUNTS IN THOUSANDS)
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO ACQUISITION
COMPANY (IMPROVEMENTS)
------------------------Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
---------------------- DEPRECIABLE DEPRECIABLE
REAL ESTATE LOCATION ENCUMBRANCES LAND PROPERTY LAND PROPERTY---------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
- ----------- ------------------------------------------------------ --------------- -- ------------ -------- ----------- ------ -----------------------
Forest Oaks (fka Burns Harbor) Chesterton IN 0 916 2,909 0 1,537
Oak Tree Village Portage IN 4,538 0 0 569 3,498
Windsong Indianapolis IN 0 1,482 4,480 0 140
Pheasant Ridge Mt. Airy MD 0 376 1,779 0 376
Creekside Wyoming MI 0 1,109 3,646 0 19
Casa Village Billings MT 0 1,011 3,109 181 2,104
Del Rey Albuquerque NM 0 1,926 5,800 0 703
Bonanza Las Vegas NV 4,722 908 2,643 0 681
Boulder Cascade Las Vegas NV 7,691 2,995 9,020 0 693
Cabana Las Vegas NV 8,4259,487 2,648 7,989 0 174230
Flamingo West Las Vegas NV 0 1,730 5,266 0 688957
Villa Borega Las Vegas NV 7,4707,333 2,896 8,774 0 186218
Brook Gardens Lackawanna NY 0 3,828 10,310 0 1,0991,167
Greenwood Village Manorville NY 0 3,667 9,414 485 2,8143,075
Falcon Wood Village Eugene OR 42 1,112 3,426 0 109148
Quail Hollow Fairview OR 0 0 3,249 0 102137
Shadowbrook Clackamas OR 0 1,197 3,693 0 102113
Mt. Hood Welches OR 0 1,817 5,733 0 0
Green Acres Breinigsville PA 16,01413,924 2,680 7,479 0 2,1492,319
Fun n Sun RV Park San Benito TX 0 2,533 0 412 9,379
Tropic Winds Harlingen TX 0 8,4141,221 3,809 0 0
All Seasons Salt Lake City UT 0 510 1,623 0 163199
Westwood Village Farr West UT 0 1,346 4,179 0 1,0301,132
Meadows of Chantilly Chantilly VA 026,769 5,430 16,440 0 1,6272,119
Kloshe Illahee Federal Way WA 6,4696,350 2,408 7,286 0 83111
Independence Hill Morgantown WV 0 299 898 0 259
College Heights Consolidated
(18 properties) Various 65,914 17,045 71,382297
Realty Systems, Inc. 0 4930 0 0 2,052
Community Systems, Inc. 0 0 0 0 1,164
Management Business Chicago IL 0 0 436 0 7,5429,011
-------- -------- -------- ------ -------
$589,954 $269,795 $871,001 $2,076 $95,266--------
$575,289 $280,259 $854,250 $3,960 $157,538
======== ======== ======== ====== ===============
GROSS AMOUNT CARRIED
AT CLOSE OF PERIODGross Amount Carried
at Close of
Period 12/31/01
------------------------
DEPRECIABLE ACCUMULATED DATE OF
REAL ESTATE LAND PROPERTY TOTAL DEPRECIATION ACQUISITION02
------------------------------------
Depreciable Accumulated Date of
Land Property Total Depreciation Acquisition
- ----------------------------------------- -------- ----------- --------------------- ------------- ------------ -----------
Forest Oaks (fka Burns Harbor) 916 4,446 5,362 (1,466) 1993
Oak Tree Village 569 3,498 4,067 (1,442) 1987
Windsong 1,482 4,620 6,102 (954) 1998
Pheasant Ridge 376 2,155 2,531 (1,253) 1988
Creekside 1,109 3,665 4,774 (628) 1998
Casa Village 1,192 5,213 6,405 (2,622) 1983
Del Rey 1,926 6,503 8,429 (2,125) 1993
Bonanza 908 3,324 4,232 (1,945) 1983
Boulder Cascade 2,995 9,713 12,708 (1,610) 1998
Cabana 2,648 8,163 10,811 (2,075)8,219 10,867 (2,362) 1994
Flamingo West 1,730 5,954 7,684 (1,416)6,223 7,953 (1,634) 1994
Villa Borega 2,896 8,960 11,856 (1,315)8,992 11,888 (1,629) 1997
Brook Gardens 3,828 11,409 15,237 (1,575)11,477 15,305 (1,830) 1998
Greenwood Village 4,152 12,228 16,380 (1,482)12,489 16,641 (1,699) 1998
Falcon Wood Village 1,112 3,535 4,647 (512)3,574 4,686 (642) 1997
Quail Hollow 0 3,351 3,351 (490)3,386 3,386 (612) 1997
Shadowbrook 1,197 3,795 4,992 (577)3,806 5,003 (720) 1997
Mt. Hood 1,817 5,733 7,550 (172) 2002
Green Acres 2,680 9,628 12,308 (4,016)9,798 12,478 (4,365) 1988
Fun n Sun RV Park 2,533 8,414 10,947 (1,155)2,945 9,379 12,324 (1,298) 1998
Tropic Winds 1,221 3,809 5,030 (25) 2002
All Seasons 510 1,786 2,296 (274)1,822 2,332 (348) 1997
Westwood Village 1,346 5,209 6,555 (745)5,311 6,657 (960) 1997
Meadows of Chantilly 5,430 18,067 23,497 (4,707)18,559 23,989 (5,366) 1994
Kloshe Illahee 2,408 7,369 9,777 (1,072)7,397 9,805 (1,327) 1997
Independence Hill 299 1,157 1,456 (450)1,195 1,494 (500) 1990
College Heights Consolidated
(18 properties) 17,045 71,875 88,920 (8,387) 1998Realty Systems, Inc. 0 2,052 2,052 -- 2002
Community Systems, Inc. 0 1,164 1,164 -- 2002
Management Business 0 7,978 7,978 (5,700)9,447 9,447 (6,624) 1990
-------- ------------------ ---------- ---------
$271,871 $966,267 $1,238,138 $(211,878)
========$284,219 $1,011,788 $1,296,007 ($238,098)
======== ========== ========== =========
- ---------------
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$20.3 million as of December 31, 2001.2002.
(4) The aggregate cost of land and depreciable property for Federal income tax
purposes was approximately $1.1 billion, as of December 31, 2001.2002.
(5) All Properties were acquired, except for Country Place Village, which was
constructed.
S-5
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 20012002
(AMOUNTS IN THOUSANDS)
The changes in total real estate for the years ended December 31, 2002, 2001 2000 and
19992000 were as follows:
2002 2001 2000
1999
---------- ---------- ---------------------- ------------ ------------
Balance, beginning of year.... $1,218,176 $1,264,343 $1,237,431
Acquisitions(1).............year ... $ 1,238,138 $ 1,218,176 $ 1,264,343
Acquisitions (1) ......... 107,138 17,770 (4,581)
12,496
Improvements................ 23,140Improvements ............. 24,491 23,188 16,261
16,700
Dispositions(2)Dispositions (2) and other... (20,948)other (73,760) (20,996) (57,847)
(2,284)
---------- ---------- ---------------------- ------------ ------------
Balance, end of year.......... $1,238,138 $1,218,176 $1,264,343
========== ========== ==========year ......... $ 1,296,007 $ 1,238,138 $ 1,218,176
============ ============ ============
- ---------------
(1) Acquisitions for the year ended December 31, 2000 include return of escrow
proceeds. Acquisitions for the year ended December 31, 2002 include the
non-cash assumption by the Company of $47.9 million of mortgage debt.
(2) Dispositions for 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, 2002,
2001 2000 and 19992000 were as follows:
2002 2001 2000
1999
-------- -------- ------------------ ---------- ----------
Balance, beginning of year.... $181,580 $150,757 $118,021year $ 211,878 $ 181,580 $ 150,757
Depreciation expense........expense . 37,188 35,205 35,548
35,020
Dispositions and other......other (10,968) (4,907) (4,725)
(2,284)
-------- -------- ------------------ ---------- ----------
Balance, end of year.......... $211,878 $181,580 $150,757
======== ======== ========year ..... $ 238,098 $ 211,878 $ 181,580
========== ========== ==========
S-6