1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000MARCH 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-11718
MANUFACTURED HOME COMMUNITIES, INC.
(Exact name of registrant as specified in its Charter)
MARYLAND 36-3857664
(State or other jurisdiction of (I.R.S. Employer incorporation or organization) (I.R.S. Employer Identification No.)
TWO NORTH RIVERSIDE PLAZA, SUITE 800, CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip Code)
(312) 279-1400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
20,833,89621,136,568 shares of Common Stock as of October 31, 2000.April 30, 2001.
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MANUFACTURED HOME COMMUNITIES, INC.
TABLE OF CONTENTS
PART I - FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page
----
Consolidated Balance Sheets as of September 30, 2000
(unaudited) and December 31, 1999 .....................................3
Consolidated Statements of Operations for the quarters
and nine months ended September 30, 2000 and 1999
(unaudited)............................................................4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999 (unaudited)..........................5
Notes to Consolidated Financial Statements.............................6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..........................................15
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.................................................20
ITEM 6. Exhibits and Reports on Form 8-K..................................20
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets as of March 31, 2001 (unaudited) and December 31, 2000.........................3
Consolidated Statements of Operations for the quarters ended March 31, 2001 and 2000 (unaudited)...........4
Consolidated Statements of Cash Flows for the quarters ended March 31, 2001 and 2000 (unaudited)...........5
Notes to Consolidated Financial Statements.................................................................6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................................15
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.........................................20
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings..................................................................................21
ITEM 6. Exhibits and Reports on Form 8-K...................................................................21
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MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000MARCH 31, 2001 AND DECEMBER 31, 19992000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30,MARCH 31, DECEMBER 31,
2001 2000
1999
(UNAUDITED)
----------- ---------------------------- ------------------
ASSETS
Investment in real estate:
Land ..........................................................Land.................................................................... $ 273,559 $ 271,822
$ 285,337
Land improvements ............................................. 834,627 876,923improvements....................................................... 843,589 839,725
Buildings and other depreciable property ...................... 106,093 102,083
----------- -----------
1,212,542 1,264,343property................................ 107,606 106,629
----------------- ------------------
1,224,754 1,218,176
Accumulated depreciation ...................................... (173,067) (150,757)
----------- -----------depreciation................................................ (186,223) (181,580)
----------------- ------------------
Net investment in real estate ............................... 1,039,475 1,113,586estate......................................... 1,038,531 1,036,596
Cash and cash equivalents ........................................ 6,277 6,676equivalents.................................................. 3,215 2,847
Notes receivable ................................................. 3,297 4,284receivable........................................................... 4,966 4,984
Investment in and advances to affiliates ......................... 18,413 11,689affiliates................................... 22,250 21,215
Investment in joint ventures ..................................... 9,331 9,501ventures............................................... 13,597 13,267
Rents receivable ................................................. 1,070 1,338......................................................... 1,542 1,440
Deferred financing costs, net .................................... 6,659 5,042net.............................................. 6,073 6,344
Prepaid expenses and other assets ................................ 13,259 8,222
----------- -----------assets.......................................... 20,451 17,611
----------------- ------------------
Total assets ..................................................assets............................................................ $ 1,097,7811,110,625 $ 1,160,338
=========== ===========1,104,304
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable ........................................payable.................................................. $ 557,623555,532 $ 513,172556,578
Unsecured term loan ...........................................loan..................................................... 100,000 100,000
Unsecured line of credit ...................................... 40,900 107,900credit................................................ 54,900 59,900
Other notes payable ........................................... 3,209 4,192payable..................................................... 3,206 3,206
Accounts payable and accrued expenses ......................... 29,108 20,780expenses................................... 25,164 23,822
Accrued interest payable ...................................... 4,560 5,612payable................................................ 4,967 5,116
Rents received in advance and security deposits ............... 7,016 6,831deposits......................... 8,442 5,184
Distributions payable ......................................... 11,009 11,020payable................................................... 11,978 11,100
Due to affiliates .............................................affiliates....................................................... 32 33
----------- -----------32
----------------- ------------------
Total liabilities ........................................... 753,457 769,540
----------- -----------liabilities..................................................... 764,221 764,938
----------------- ------------------
Commitments and contingencies
Minority interest - Common OP Units and other .................... 48,070 54,397other.............................. 47,559 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, $.01 par value
50,000,000 shares authorized; 20,876,07021,126,329 and 22,813,35721,064,785
shares issued and outstanding for 2001 and 2000, and 1999, respectively 209 229respectively......... 211 210
Paid-in capital ............................................... 233,389 275,664capital......................................................... 237,592 235,681
Deferred compensation ......................................... (4,669) (6,326)compensation................................................... (5,444) (5,969)
Employee notes ................................................ (4,366) (4,540)notes.......................................................... (4,132) (4,205)
Distributions in excess of accumulated earnings ............... (53,309) (53,626)
----------- -----------earnings......................... (54,382) (57,622)
----------------- -------------
Total stockholders' equity .................................. 171,254 211,401
----------- -----------equity............................................ 173,845 168,095
----------------- -------------
Total liabilities and stockholders' equity ....................equity.............................. $ 1,097,7811,110,625 $ 1,160,338
=========== ===========1,104,304
================= =============
The accompanying notes are an integral part of the financial statements.
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MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED MARCH 31, 2001 AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
QUARTERS ENDED NINE MONTHS ENDED
------------------------- ---------------------------
SEPTEMBER 30, SEPTEMBER 30,MARCH 31, MARCH 31,
2001 2000
1999 2000 1999
--------- -------- ---------- --------------------------- ------------------
REVENUES
Base rental income .................................income.................................................... $ 47,21849,013 $ 45,601 $ 141,776 $ 135,64647,309
RV base rental income .............................. 560 1,728 5,435 6,841income................................................. 1,850 3,699
Utility and other income ........................... 4,973 4,747 15,701 15,595income.............................................. 6,432 5,698
Equity in income of affiliates ..................... 857 909 1,649 1,165affiliates........................................ 23 150
Interest income .................................... 267 552 731 1,127
--------- --------- --------- ---------income....................................................... 214 292
----------------- ------------------
Total revenues ................................ 53,875 53,537 165,292 160,374
--------- --------- --------- ---------revenues.................................................... 57,532 57,148
----------------- ------------------
EXPENSES
Property operating and maintenance ................. 14,653 14,424 44,471 43,173maintenance.................................... 15,993 15,407
Real estate taxes .................................. 4,119 4,186 12,807 12,560taxes..................................................... 4,601 4,325
Property management ................................ 2,072 2,078 6,631 6,194management................................................... 2,248 2,388
General and administrative ......................... 1,346 1,408 5,006 4,567administrative............................................ 1,655 1,826
Interest and related amortization .................. 13,169 13,965 39,654 40,830amortization..................................... 13,406 13,332
Depreciation on corporate assets ................... 291 252 839 732assets...................................... 304 271
Depreciation on real estate assets and other costs . 8,510 8,807 25,934 25,351
--------- --------- --------- ---------costs.................... 8,679 8,856
----------------- ------------------
Total expenses ................................ 44,160 45,120 135,342 133,407
--------- --------- --------- ---------expenses.................................................... 46,886 46,405
----------------- ------------------
Income from operations ....................... 9,715 8,417 29,950 26,967operations................................................ 10,646 10,743
Gain on sale of Properties and other ...............other.................................. 8,093 ---
--- 12,053 ---
--------- --------- --------- -------------------------- ------------------
Income before allocation to Minority Interests
and extraordinary loss .................... 9,715 8,147 42,003 26,967Interests........................ 18,739 10,743
(Income) allocated to Common OP Units .............. (1,451) (1,509) (6,822) (4,862)Units................................. (3,282) (1,599)
(Income) allocated to Perpetual Preferred OP Units .Units.................... (2,813) (31) (8,439) (31)
--------- --------- --------- ---------
Income before extraordinary loss on early
extinguishment of debt .................... 5,451 6,877 26,742 22,074
Extraordinary loss on early extinguishment of debt
(net of $264 allocated to minority interests) . --- --- 1,041 ---
--------- --------- --------- ---------(2,813)
----------------- ------------------
NET INCOME ...................................INCOME...................................................... $ 5,45112,644 $ 6,877 $ 25,701 $ 22,074
========= ========= ========= =========
Income per share before extraordinary loss - basic . $ 0.26 $ 0.27 $ 1.23 $ .85
========= ========= ========= =========
Income per share before extraordinary loss - diluted $ 0.25 $ 0.27 $ 1.21 $ .84
========= ========= ========= =========6,331
================= ==================
Net income per Common Share - basic ................basic................................... $ 0.26.61 $ 0.27 $ 1.18 $ .85
========= ========= ========= =========.28
================= ==================
Net income per Common Share - diluted ..............diluted................................. $ 0.25.59 $ 0.27 $ 1.16 $ .84
========= ========= ========= =========.28
================= ==================
Distributions declared per Common Share ............outstanding................... $ 0.4150.445 $ 0.3875 $ 1.245 $ 1.1625
========= ========= ========= =========.415
================= ==================
Weighted average Common Shares outstanding - basic ...................... 21,166 25,613 21,775 25,846
========= ========= ========= =========basic.................... 20,793 22,297
================= ==================
Weighted average Common Shares outstanding - diluted (see Note 2) ....... 27,077 31,586 27,706 31,915
========= ========= ========= =========..... 26,771 28,242
================= ==================
The accompanying notes are an integral part of the financial statements.
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MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHSQUARTERS ENDED SEPTEMBER 30,MARCH 31, 2001 AND 2000 AND 1999
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 30, SEPTEMBER 30,MARCH 31, MARCH 31,
2001 2000
1999
--------- -------------------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .........................................................income............................................................ $ 25,70112,644 $ 22,0746,331
Adjustments to reconcile net income to
cash provided by operating activities:
Income allocated to Minority Interests ......................... 14,997 4,893Interests............................ 6,095 4,412
Gain on sale of Properties and other ........................... (12,053)other.............................. (8,093) ---
Depreciation and amortization expense .......................... 26,526 26,556expense............................. 9,254 8,500
Equity in income of affiliates ................................. (1,649) (1,165)and joint ventures................. (613) (150)
Amortization of deferred compensation and other ................ 1,657 1,238other................... 525 500
Decrease (increase) in rents receivable ........................ 268 (552)
(Increase) decreasereceivable...................................... (102) (133)
Increase in prepaid expenses and other assets ....... (3,298) 1,613assets..................... (2,840) (1,217)
Increase in accounts payable and accrued expenses .............. 7,275 6,988expenses................. 1,193 2,649
Increase in rents received in advance and security deposits .... 185 1,577
--------- ---------deposits....... 3,258 3,590
----------------- ----------------
Net cash provided by operating activities .......................... 59,609 63,222
--------- ---------activities............................. 21,321 24,482
----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Contributions and advances to affiliates ........................... (5,174) (1,911)affiliates........................................... (1,045) (2,672)
Collection of notes receivable ..................................... 987 11,524receivable........................................ 18 1,060
Investment in joint ventures ....................................... (197) (1,997)
Collectionnet of escrow proceeds, net ................................. 10,500 ---distributions received............ 85 (72)
Proceeds from disposition of assets ................................ 44,329 ---rental Properties and other assets....... 16,864 4,133
Acquisition of rental properties ................................... (3,481) (29,305)Properties...................................... (16,825) (2,524)
Improvements:
Improvements - corporate ....................................... (357) (471)corporate.......................................... (146) (16)
Improvements - rental properties ............................... (5,366) (6,520)properties.................................. (996) (864)
Site development costs ......................................... (4,250) (2,665)
--------- ---------costs............................................ (1,514) (70)
----------------- ----------------
Net cash used in (provided by) investing activities ................ 36,991 (31,345)
--------- ---------activities................................. (3,559) (1,025)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from stock options and employee stock purchase plan ... 2,501 2,866
Net proceeds from issuance ofplan...... 2,403 769
Distributions to Common Stockholders, Common OP Unitholders and
Perpetual Preferred OP units ................... --- 121,890
Distributions to common stockholders and minority interests ........ (42,503) (25,354)Unitholders................................ (13,824) (13,792)
Repurchase of Common Stock ........................................ (50,711) (26,772)and OP Units............................... --- (11,296)
Collection of principal payments on employee notes ................. 174 79
Proceeds from linenotes.................... 73 38
Line of credit and refinancing mortgage notes payable 199,953 41,584
Repayments on line of credit and refinancing mortgage notes payable (204,156) (133,896)credit:
Proceeds.......................................................... 18,000 12,500
Repayments........................................................ (23,000) (22,000)
Refinancing - net proceeds............................................ --- 15,750
Principal payments.................................................... (1,046) (1,092)
Debt issuance costs ................................................ (2,257) (846)
--------- ---------costs................................................... --- (384)
----------------- ----------------
Net cash used in financing activities .............................. (96,999) (20,449)
--------- ---------activities................................. (17,394) (19,507)
----------------- ----------------
Net (decrease) increase in cash and cash equivalents .................... (399) 11,428equivalents.................................. 368 3,950
Cash and cash equivalents, beginning of period ..........................period............................. 2,847 6,676
13,657
--------- -------------------------- ----------------
Cash and cash equivalents, end of period ................................period................................... $ 6,2773,215 $ 25,085
========= =========10,626
================= ================
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest ................................interest................................... $ 39,73913,339 $ 39,932
========= =========13,245
================= ================
The accompanying notes are an integral part of the financial statements.
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MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DEFINITION OF TERMS:
Capitalized terms used but not defined herein are as defined in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999 (the
"1999 Form 10-K").2000.
PRESENTATION:
These unaudited Consolidated Financial Statements of Manufactured Home
Communities, Inc., a Maryland corporation, and its subsidiaries (collectively,
the "Company"), have been prepared pursuant to the Securities and Exchange
Commission ("SEC") rules and regulations and should be read in conjunction with
the financial statements and notes thereto included in the 1999Company's 2000 Annual
Report on Form 10-K.10-K (the "2000 Form 10-K"). The following Notes to Consolidated
Financial Statements highlight significant changes to the Notes included in the
19992000 Form 10-K and present interim disclosures as required by the SEC. The
accompanying Consolidated Financial Statements reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the interim
financial statements. All such adjustments are of a normal and recurring nature.
Certain reclassifications have been made to the prior periods' financial
statements in order to conform with current period presentation.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
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.
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information" establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. SFAS No. 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The adoption of
SFAS No. 131 did not affect the results of operations or financial position of
the Company. The Company has one reportable segment, which is the operation of
manufactured home communities.
NOTE 2 - EARNINGS PER COMMON SHARE
Earnings per common share isare based on the weighted average number of common
shares outstanding during each period. In 1997, the Company adopted SFASStatement of Financial Accounting
Standards No. 128, "Earnings Per Share". ("SFAS No. 128 replaces128") defines the calculation
of primarybasic and fully diluted earnings per share. Basic and fully diluted earnings
per share with basicare based on the weighted average shares outstanding during each
period and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. The conversion of Operating PartnershipOP Units ("OP Units") has been
excluded from the basic earnings per share calculation. The conversion of an OP
Unit to a share of common stock will havehas no material effect on earnings per common
share since the allocation of earnings to an OP Unit is
equivalent to the allocation of earnings to a share of common stock.share.
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MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - EARNINGS PER COMMON SHARE (CONTINUED)
The following table sets forth the computation of basic and diluted
earnings per share for the quarters ended March 31, 2001 and nine months ended September 30, 2000 and
1999 (amounts in
thousands):
QUARTERS ENDED NINE MONTHS ENDED
---------------------- ------------------------
SEPTEMBER 30, SEPTEMBER 30,MARCH 31, MARCH 31,
2001 2000
1999 2000 1999
-------- --------- ---------- ---------------------------- -----------------
NUMERATOR:
Numerator for basic earnings per share -
Net income...........................................income.......................................... $ 5,45112,644 $ 6,877 $ 25,701 $ 22,0746,331
Effect of dilutive securities:
Income allocated to Common OP Units
(net of extraordinary loss on early extinguishment
of debt incurred in the second quarter of 2000) ... 1,451 1,509 6,558 4,862
------- ------- -------- ---------Units................. 3,282 1,599
----------------- -----------------
Numerator for diluted earnings per share-
income available to common shareholders
after assumed conversions.......................... $ 6,90215,926 $ 8,386 $ 32,259 $ 26,936
======= ======= ======== =========7,930
================= =================
DENOMINATOR:
Denominator for basic earnings per share -
Weighted average Common Stock outstanding............ 21,166 25,613 21,775 25,846outstanding........... 20,793 22,297
Effect of dilutive securities:
Weighted average Common OP Units..................... 5,583 5,647 5,606 5,725Units.................... 5,506 5,637
Employee stock options................................ 328 326 325 344
------- -------- -------- ---------472 308
----------------- -----------------
Denominator for diluted earnings per share-
adjusted weighted average shares and
assumed conversions................................ 27,077 31,586 27,706 31,915
======= ======== ======== =========26,771 28,242
================= =================
NOTE 3 - COMMON STOCK AND RELATED TRANSACTIONS
On April 14, 2000, July 14, 2000 and October 13, 2000,16, 2001, the Company paid a $.415$.445 per share distribution for the
quartersquarter ended March 31, 2000, June 30,
2000 and September 30, 2000, respectively,2001 to stockholders of record on March 31, 2000, June 30, 20002001.
NOTE 4 - REAL ESTATE
On January 3, 2001, the Company acquired two Florida communities, totaling
730 sites, for an aggregate purchase price of approximately $16.3 million.
Golden Lakes is a 422-site community in Plant City, near Tampa, Florida and
September 29, 2000, respectively.
In accordanceincludes approximately 23 acres for expansion. Chain O' Lakes is a 308-site
community in Grand Island, near Orlando, Florida, and includes a marina with the Common Stock repurchase plan approved by50
boat docks. The acquisition was funded with a borrowing under the Company's Boardline
of Directors,credit.
On February 13, 2001, the Company repurchased 500,000 sharescompleted the disposition of Common
Stock during the
quarter ended September 30, 2000. Additionally,following seven communities, totaling 1,281 sites, in Kansas, Missouri and
Oklahoma for a total sale price of approximately $19.1 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
Included in the sales price are proceeds from the sale by Realty Systems, Inc.,
an affiliate of the Company, repurchased 670,000 shares of Common Stock in a privately negotiated transaction
approved by the Company's Board of Directors. Altogether, the Company has
repurchased 1,070,000 shares during the quarter ended September 30, 2000inventory and 2,065,100 shares during the nine months ended September 30, 2000.notes receivable totaling $1.7
million. The Company has repurchased approximately 6.5recorded a gain of $8.1 million shares sinceon the plan was approved.
The Common Stock repurchase plan allows forsale of these
Properties. Proceeds from the repurchasesale were used to reduce the amounts outstanding
on the line of an additional
500,000 shares during the quarter ending December 31, 2000.credit.
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MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - REAL ESTATE In March 2000, in accordance with SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets(CONTINUED)
Certain costs, including legal costs, relative to Be Disposed of",
MHC Acquisition One LLC, a consolidated subsidiary ofefforts by the Company recorded an
impairment loss onto
effectively change the DeAnza Santa Cruz wateruse and wastewater service company
business. Recent negotiations for the saleoperations of the business as well as
management's estimates indicated that the undiscounted future cash flows from
the business would be less than the carrying value of the business and its
related assets. The Company recorded an asset impairment loss of $701,000 (or
$.02 per fully diluted share) which is included in other income on the
accompanying statements of operations. 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 and facilities
known as FFEC-Six in a cash sale. Net proceeds from the sale of approximately
$4.2 million were used to pay down the Company's line of credit and a gain on
the sale of $719,000 (or $.02 per fully diluted share) wasseveral properties are currently
recorded in other income onassets. These costs, to the accompanying statements of operations.
In April 2000,extent these efforts are
successful, will be capitalized and included in the California Superior Court approved a settlement
agreement (the "Settlement")net investment in connection withreal
estate for the dissolution proceeding of
Ellenburg Capital Corporation and its affiliated partnerships. The Company had
previously purchased 37 properties (the "Ellenburg Properties") in connection
withappropriate properties. To the dissolution proceeding. As part of 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 of $19.0 million in a non-cash transaction. The Company
recorded a $9.1 million gain on the sale ofextent these properties. Also as part of
the Settlement, the Company received the return of $13.5 million previously held
in escrow in connection with the purchase of the Ellenburg Properties and
recorded $3.0 million of interest income related toefforts are not
successful, these funds. Proceeds from
the Settlement were used to pay down the Company's line of credit. See Note 8
for further discussion of the Settlement.costs will be expensed.
The Company is actively seeking to acquire additional manufactured home
communities and currently is engaged in negotiations relating to the possible
acquisition of a number of manufactured home 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's due diligence review.
NOTE 5 - NOTES RECEIVABLE
At September 30, 2000As of both March 31, 2001 and December 31, 1999,2000, the Company had
approximately $3.3 million and $4.3$5.0 million in notes receivable, respectively. On January 10,
2000, $1.1 million in purchase money notes receivable were repaid to the
Company.receivable. The Company has a $3.3approximately
$2.1 million loan receivable outstanding,in loans maturing on June 1, 2003, which bearsbear interest at the rate
of approximately 8.5%8.4%, isand are collateralized by the property known as Trails
WestWest. The Company has approximately $2.9 million in notes which bear interest at
a rate of prime plus 0.5% and maturesmature on June 1, 2003.
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MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2011. The notes are
collateralized with a combination of Common OP Units and partnership interest in
Voyager and other joint ventures.
NOTE 6 - LONG-TERM BORROWINGS
As of September 30, 2000March 31, 2001 and December 31, 1999,2000, the Company had outstanding
mortgage indebtedness of approximately $557.6$555.5 million and $513.2$556.6 million,
respectively, encumbering 73 and 72 of the Company's Properties, respectively.Properties. As of September 30, 2000March 31, 2001
and December 31, 1999,2000, the carrying value of such Properties was approximately
$633.7$632 million and $638$631 million, respectively.
On June 30, 2000, the Company completed $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 as discussed below. The proceeds of the
financing were used to repay $60 million of mortgage debt secured by the seven
Properties, to repay amounts outstanding under the Company's line of credit and
for working capital purposes. The Company recorded a $1.3 million charge in
connection with the early repayment of the $60 million of mortgage debt.
The outstanding mortgage indebtedness consists of:
- - A $265.0 million mortgage note (the "$265 Million Mortgage") collateralized
by 29 Properties beneficially owned by MHC Financing Limited Partnership.
The $265 Million Mortgage has a maturity date of January 2, 2028 and pays
interest at a rate of 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 recorded net of a hedge of $3.0 million which is being
amortized into interest expense over the life of the loan.
- - A $66.7$66.3 million mortgage note (the "College Heights Mortgage")
collateralized by 18 Properties owned in a joint venture formed by the
Company and Wolverine Investors, LLC. The College Heights Mortgage bears
interest at a rate of 7.19%, per annum, amortizes beginning July 1, 1999
over 30 years and matures July 1, 2008.
- - A $94.0$93.6 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 $23.1$22.8 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.
8
9
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - LONG-TERM BORROWINGS (CONTINUED)
- - A $15.7 million mortgage note (the "Date Palm Mortgage") collateralized by
one Property beneficially owned by MHC Date Palm, L.L.C. The Date Palm
Mortgage bears interest at a rate of 7.96%, amortizes beginning August 1,
2000 over 30 years and matures July 1, 2010.
- - Approximately $95.2$92.1 million of mortgage debt on 18 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 7.25%7.21% to 9.05%8.87%. Included in this debt are two
mortgages which were entered into on February 24, 2000, with combined
principal of $14.6 million at an interest rate of approximately 8.3%,
maturing on March 24, 2010. In addition, the Company has a
$2.4 million loan recorded to account for a direct financing lease entered
into in May 1997.
9
10
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - LONG-TERM BORROWINGS (CONTINUED)
On August 9, 2000, theThe Company amended itshas a $150 million unsecured line of credit with a bankgroup of
banks (the "Credit Agreement") bearing interest at the London Interbank Offered
Rate ("LIBOR") plus 1.125%. Among other things, the amendment lowered the total
facility under the Credit Agreement to $150 million and extended the maturity to, maturing on August 9, 2003. The Company pays a
quarterly fee on the average unused amount of such credit equal to 0.15%to0.15% of such
amount. As of September 30,March 31, 2001 and December 31, 2000, $40.9the Company had $54.9
million wasand $59.9 million, respectively, outstanding under the Credit
Agreement.
The Company has a $100 million unsecured term loan (the "Term Loan") with a
group of banks with interest only payable monthly at a rate of LIBOR plus 1.0%.
The Term Loan maturity has been extended tomatures on April 3, 2002.
The Company has approximately $3.2 million of installment notes payable,
secured by a letter of credit, each with an interest rate of 6.5%, maturing
September 1, 2002. Approximately $1.9 million of the notes pay principal
annually and interest quarterly and the remaining $1.3 million of the notes pay
interest only quarterly.
In July 1995, the Company entered into an interest rate swap agreement (the
"1998 Swap") fixing LIBOR on $100 million of the Company's floating rate debt at
6.4% for the period 1998 through 2003. The value of the 1998 Swap was impacted
by changes in the market rate of interest. The Company accounted for the 1998
Swap as a hedge. Payments and receipts under the 1998 Swap were accounted for as
an adjustment to interest expense. On January 10, 2000, the Company terminated
the 1998 Swap and received $1.0 million of proceeds which is being amortized as
an adjustment to interest expense through March 2003.
NOTE 7 - STOCK OPTIONS
Pursuant to the Amended and Restated 1992 Stock Option and Stock Award Plan as discussed in Note 14 to the 19992000 Form
10-K, certain officers, directors, employees and consultants have been offered
the opportunity to acquire shares of common stock of the Company through stock
options ("Options"). During the nine
monthsquarter ended September 30, 2000,March 31, 2001, Options for 83,86994,154
shares of common stock were exercised.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
DEANZA SANTA CRUZ MOBILE ESTATES
The residents of DeAnza Santa Cruz Mobile Estates, a Propertyproperty located in
Santa Cruz, California (the "City") previously brought several actions opposing
certain fees and charges in connection with water service at the Property. The
trial of the ongoing utility charge dispute with the residents of this Property
concluded on January 22, 1999. This summary provides the history and reasoning
underlying the Company's defense of the residents' claims and explains the
Company's decision to continue to defend its position, which the Company
believes is fair and accurate.
DeAnza Santa Cruz Mobile Estates is a 198 site198-site community overlooking the
Pacific Ocean. It is subject to the City's rent control ordinance which limits
annual rent increases to 75% of CPI. The Company purchased this Property in
August 1994 from certain unaffiliated DeAnza entities ("DeAnza"). Prior to the
Company's purchase in 1994, DeAnza made the decision to submeter and separately
bill tenants at the Property for both water and sewer in 1993 in the face of the
City's rapidly rising utility costs.
109
1110
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - 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, not looking to submit to
jurisdiction of 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. ThisDeAnza and the Company interpreted the statute providesas
providing that in a submetered mobilehomemobile 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 parkProperty 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. Their reliance on CPUC Section
2705.5 made both legal and practical sense in that residents paid only what they
would pay if they lived in a residential neighborhood within the city of Santa
CruzCity and
permitted DeAnza to recoup part of the expenses of operating a submetered system
through the readiness to serve charge.
Over a period of 18 months from 1993 into May of 1995, a series of
complaints were filed by the HOA and Herbert Rossman, a resident, against
DeAnza, and later, the Company. DeAnza and the Company demurred to each of these
complaints on the grounds that the CPUC had exclusive jurisdiction over the
setting of water rates and that residents under rent control had to first
exhaust their administrative remedies before proceeding in a civil action. At
one point, the case was dismissed (with leave to amend) on the basis that
jurisdiction was with the CPUC and, at another point, Mr. Rossman was dismissed
from the case because he had not exhausted his administrative remedies.
On June 29, 1995, a hearing was held before a Santa Cruz rent control
officer on thebilling and submetering ofissues 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.
1110
1211
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company requested that the City and the HOA agree to a further stay
pending appeal to the court of appeals,appeal, but they refused and the appealsappeal 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 appeals.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 basedcost-based rates for water usage. The Company believed it was obligated to take
this action because of its consistent reliance on CPUC Section 2705.5 as a safe
harbor from CPUC jurisdiction. That is, when the Company could no longer charge
for water as the local serving utility would charge, it was no longer exempt
from the CPUC's jurisdiction and control under CPUC Section 2705.5.
On March 20, 1997, the court of appealsappeal 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 court of appealsappeal further agreed
with the Company that the city'sCity'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 basedcost-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."
The CPUC has issued a tentive opinion in the OII stating its belief
that legislation is necessary to clarify the issue
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 appealsappeal 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.
1211
1312
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Not only did the trial court not consider the Company's motion to dismiss,
the trial court refused to allow evidence of the OII or the Company's CPUC
approval to go before the jury. Notwithstanding the Company's strenuous
objections, the judge also allowed evidence of the Company's and DeAnza's
litigation tactics to be used as evidence of bad faith and oppressive actions
(including evidence of the application to the CPUC requesting a $22.00 readiness
to serve charge). The Company's motion for a mistrial based upon these
evidentiary rulings was denied. On January 22, 1999, the jury returned a verdict
awarding $6.0 million of punitive damages against the Company and DeAnza. The
Company had previously agreed to indemnify DeAnza on the matter.
The Company has bonded the judgment pending appeal in accordance with
California procedural rules, which require a bond equal to 150% of the amount of
the judgment. Post-judgment interest will accrue at the statutory rate of 10.0%
per annum.
On April 19, 1999, the trial court denied all of the Company's and DeAnza's
post-trial motions for judgement notwithstanding the verdict, new trial and
remittitur. The trial court also awarded $700,000 of attorneys' fees to
plaintiffs. The Company has appealed the jury verdict and attorneys' fees award
(which also accrues interest at the statutory rate of 10.0% per annum) and thisthe
appeal has been fully briefed.briefed by both parties. The Company is awaiting
notice fromscheduling of oral argument on the appeal.
In two related appeals, the Company had argued that the trial court's
ability to enter an award of attorneys' fees in favor of the HOA and to take
certain other actions was preempted by the exercise of exclusive jurisdiction by
the CPUC over the issue of how to set rates for water in a submetered mobile
home park. During 2000, the California court of appeal setting oralrejected the Company's
preemption argument with respect to these prior rulings in favor of plaintiffs,
one of which had awarded plaintiffs approximately $100,000 of attorneys' fees.
The California Supreme Court declined to accept the jury verdict appeal.case for review and the
Company paid the judgment, including post-judgment interest thereon, and settled
the matter for approximately $200,000 late in 2000.
The jury verdict appeal also raises a similar jurisdictional argument as
well as several other arguments for reversal or reduction of the punitive damage
award or for a new trial. An important distinction between the appellate ruling
in 2000 and the preemption issue as it is presented on appeal in the jury
verdict case is that the preemption argument rejected was "retroactive" while
the preemption issue remaining on appeal is prospective. One of the other
arguments raised by the Company in the jury verdict appeal is that punitive
damages are not available in a case brought under Section 798.41 of the
California Mobilehome Residency Law ("MRL") since the MRL contains its own
penalty provisions. The court of appeal granted the
Company's request for judicial notice of the legislative history of the
applicable MRL sections, which indicates to the Company that the court of appeal
is receptive to this argument. Although no assurances can be given, the Company believes
the appeal will be successful.
In two previously disclosed related appeals challengingSubsequently, in December 2000 the resultHOA and certain individual residents of
the earlier litigation and an attorney's fee award of approximately $100,000 toProperty filed a complaint in the plaintiffs, the court of appeal in July 2000 rejected the Company's arguments
that the CPUC had exclusive jurisdiction over the issue of water rates in
submetered moblehome parks. The Company's request that the SupremeSuperior Court of California, to review this matter was denied andCounty of
Santa Cruz (No. CV 139825) against the Company, paidcertain affiliates of the
attorney's
fees awarded,Company and certain employees of the Company. The new lawsuit seeks damages,
including interest atpunitive 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 statutory rate thereon and appellate
fees,Company to
certain residents in an amount of approximately $185,000.
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
On September 29, 1995,2000. The Company believes that the United States Environmental Protection Agency
("USEPA") issued its Findings of Violations and Order for Complianceresidents who
received rent increase notices with respect to rent increases above those
permitted by the National Pollution Discharge Elimination System ("NPDES") Permit
governinglocal rent control ordinance were not covered by the operationordinance
either because they did not comply with the provisions of the onsite waste water treatment plant at oneordinance or
because they are exempted by state law. On December 29, 2000, the Superior Court
of the
Properties. On October 6, 1995, the USEPA issued its FindingsCalifornia, County of Violation and
Order for Compliance with respect to the NPDES Permit governing the operation of
the onsite wastewater treatment plant at another of the Properties.Santa Cruz enjoined such rent increases. The Company
and the USEPA have reached agreement on a resolution ofintends to vigorously defend the matter, in which the
operation of the remaining waste water treatment plant will be subjectis scheduled to a
consent decree that will provide for fines and penaltiestrial in the eventfall
of future
violations and the Company will pay a fine. The Company does not believe the
impact of the settlement will be material and the Company believes it has
established adequate reserves for any amounts that may be paid.
ELLENBURG COMMUNITIES
The Company and certain other parties entered into a Settlement which was
filed with the Court in February 2000. In April 2000, the Court approved the
Settlement which resolved substantially all of the litigation and appeals
involving the Ellenburg Properties and the Settlement closed on May 22, 2000
(see also Note 4).2001.
12
13 14
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
ELLENBURG COMMUNITIES
The Company and certain other parties entered into a settlement agreement,
which was approved by the 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.
In connection with the EllenbergEllenburg Acquisition, on September 8, 1999,
Ellenburg Fund 20 ("Fund 20") filed a cross complaint in the Ellenburg
dissolution proceeding against the Company and certain of its affiliates
alleging causes of action for fraud and other claims in connection with the
Ellenburg acquisition. The Company subsequently successfully had the cross
complaint against the Company and its affiliates dismissed with prejudice by the
California Superior Court. However, Fund 20 has appealed. This appeal was not
resolved by the Settlement. The Company believes Fund 20's allegations are
without merit and will vigorously defend itself.
CANDLELIGHT PROPERTIES, L.L.C.L.L.C
In 1996, 1997 and 1998, the Lending Partnership made a loanloans to Candlelight
Properties, L.L.C. ("Borrower") in the aggregate principal amount of $8,050,000.$8,050,000
(collectively, the "Loan". The loanLoan is secured by a mortgage on Candlelight
Village ("Candlelight"), a Property in Columbus, Indiana, and is guaranteed by
Ronald E. Farren ("Farren"), the 99% owner of Borrower. The Company accounts for
the loanLoan as an investment in real estate and, accordingly, Candlelight's results
of operations are consolidated with the Company's for financial reporting
purposes. Concurrently with the funding of the loan,Loan, Borrower granted the
Operating Partnership the option to acquire Candlelight upon the maturity of the
loan.Loan. The Operating Partnership notified Borrower that it was exercising its
option to acquire Candlelight in March 1999, and the loanLoan subsequently matured
on May 3, 1999. However, Borrower failed to repay the loanLoan and refused to convey
Candlelight to the Operating Partnership.
Borrower filed suit in the SuperiorCircuit Court of Bartholomew County, Indiana
("Court") on May 5, 1999, seeking a declaratory judgment on the validity of the
exercise of the option. The Lending Partnership filed suit in the Court the next
day, seeking to foreclose its mortgage, and the suits were consolidated
(collectively, the "State Court Litigation") by the Court. The Court issued an
Order on December 1, 1999, finding, among other things, that the Operating
Partnership had validly exercised the option. Both parties filed motions to
correct errors in the Order, and on May 15, 2000, the Court issued judgments
against Borrower and Farren and in favor of the Operating Partnership in the
option case and the Lending Partnership in the foreclosure case. Borrower and
Farren have appealed both judgments, and the courtCourt has stayed the judgments pending
such appeals. The Operating Partnership and the Lending Partnership intend to
continue vigorously pursuing this matter and believe that, while no assurance
can be given, such efforts will be successful.
On May 3, 2000, Hanover Group, Inc. ("Hanover") and Farren filed suit
against the Company and certain executive and senior officers of the Company in
the United States District Court for the Southern District of Indiana, Indianapolis
Division. The complaint alleges violations of securities laws and fraud arising
from the loan transaction being litigated in the State Court Litigation and
seeks damages, including treble damages. The Company believes that the complaint
is related to rulings made by the Court and is without merit. The Company has
filed a motion for judgment on the pleadings (which has been fully briefed), and
will continue to vigorously defend itself and the officers of the Company.
13
14
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
On May 24, 2000, Hanover and Farren filed suit against the Operating
Partnership in the Superior Court of Marion County, Indiana. The complaint seeks
declaratory relief and specific performance with respect to the Operating
Partnership's alleged obligation to reconvey to Hanover the Operating
Partnership's 1% ownership interest in Borrower. The Company believes that the
complaint is related to rulings made by the Court and is without merit. The
parties have agreed to a stay in this proceeding pending the outcome of the
appeals in the State Court Litigation.
The Company is involved in various other legal proceedings arising in the
ordinary course of business. AllManagement believes that all proceedings herein
described or referred to, taken together, are not expected to have a material
adverse impact on the Company.
14
15
MANUFACTURED HOME COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following is a discussion of the interim results of operations,
financial condition and liquidity and capital resources of the Company for the
three months and nine months ended September 30, 2000March 31, 2001 compared to the corresponding period in 1999.2000.
It should be read in conjunction with the Consolidated Financial Statements and
Notes thereto included herein and the 19992000 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
COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 2000 TO THE QUARTER ENDED
SEPTEMBER 30, 1999
Since December 31, 1998,PROPERTY ACQUISITIONS, JOINT VENTURES AND DISPOSITIONS
The following chart lists the gross investment in real estate has decreased
from $1,237 million to $1,213 million. The total number of sites ownedProperties acquired or controlled has decreased from 53,391 as of December 31, 1998 to 51,437 as of
September 30,sold since January 1,
2000. These changes reflect the following property acquisitions
and dispositions (the sale of FFEC-Six had no effect on the number of sites
owned or controlled):
(i) The Meadows - acquired on April 1, 1999
(ii) Coquina Crossing - acquired on July 23, 1999
(iii) FFEC-Six (water and wastewater service company) - sold on
February 29, 2000
(iv) Mesa Regal RV Resort - sold on May 19, 2000
(v) Naples Estates - sold on May 19, 2000
(vi) Mon Dak - sold on May 19, 2000 The Company defines its core manufactured home community portfolio ("Core
Portfolio") as manufactured home propertiesProperties owned as of the beginning ofthroughout both periods of
comparison. Excluded from the Core Portfolio are any Properties acquired or sold
during the aforementioned
acquisitions and dispositionsperiod and also theany recreational vehicle ("RV") propertiesProperties which,
together, are referred to as the "Non-Core" Properties.
The following table summarizes certain weighted average statistics for the
quarters ended September 30, 2000 and 1999.
CORE PORTFOLIO TOTAL PORTFOLIO
----------------------- --------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
--------- --------- ---------- ------------PROPERTY TRANSACTION DATE SITES
-------- ---------------- -----
Total sites 45,888 45,807 46,718 47,073
Occupied sites 43,438 43,148 44,093 44,251
Occupancy % 94.7% 94.2% 94.4% 94.0%
Monthly base rent per site $357.85 $344.44 $356.95 $343.50TOTAL SITES AS OF JANUARY 1, 2000............................................ 54,002
ACQUISITIONS:
Golden Lakes.......................................... January 3, 2001 422
Chain O'Lakes......................................... January 3, 2001 308
EXPANSION SITE DEVELOPMENT:
Sites added in 2000................................... 108
Sites added in 2001................................... 71
DISPOSITIONS:
FFEC-Six (water and wastewater service company)....... February 29, 2000 ---
Mesa Regal RV Resort.................................. May 22, 2000 (2,005)
Naples Estates........................................ May 22, 2000 (484)
Mon Dak............................................... May 22, 2000 (219)
Dellwood Estates...................................... February 13, 2001 (136)
Briarwood............................................. February 13, 2001 (166)
Bonner Springs........................................ February 13, 2001 (211)
Carriage Park......................................... February 13, 2001 (143)
North Star............................................ February 13, 2001 (219)
Quivira Hills......................................... February 13, 2001 (142)
Rockwood.............................................. February 13, 2001 (264)
-------------
TOTAL SITES AS OF MARCH 31, 2001................................................. 50,922
=============
15
16
MANUFACTURED HOME COMMUNITIES, INC.
RESULTS OF OPERATIONS (CONTINUED)
Base rental income ($47.2 million) increased $1.6COMPARISON OF THE QUARTER ENDED MARCH 31, 2001 TO THE QUARTER ENDED MARCH 31,
2000
Since December 31, 1999, the gross investment in real estate has decreased
from $1,264 million to $1,225 million. The total number of sites owned or
3.5%. Forcontrolled has decreased from 54,002 as of December 31, 1999 to 50,922 as of
March 31, 2001.
The following table summarizes certain financial and statistical data for
the Core Portfolio baseand the Total Portfolio for the quarter ended March 31, 2001
and 2000.
CORE PORTFOLIO TOTAL PORTFOLIO
----------------------------------------------- -----------------------------------------------
INCREASE/ % INCREASE/ %
(dollars in thousands) 2001 2000 (DECREASE) CHANGE 2001 2000 (DECREASE) CHANGE
----------- ----------- ------------ ---------- ----------- ----------- ------------ ---------
Base rental income............. $ 48,128 $ 45,957 $ 2,171 4.7% $ 49,013 $ 47,309 $ 1,704 3.6%
Utility and other income....... 5,522 4,690 832 17.7% 8,282 9,397 (1,115) (11.9%)
Equity in income of affiliates. --- --- --- --- 23 150 (127) (84.7%)
Interest income................ --- --- --- --- 214 292 (78) (26.7%)
----------- ----------- ------------ ---------- ----------- ----------- ------------ ---------
Total revenues.............. 53,650 50,647 3,003 5.9% 57,532 57,148 384 0.7%
Property operating and
Maintenance................. 14,894 13,567 1,327 9.8% 15,993 15,407 586 3.8%
Real estate taxes.............. 4,427 4,141 286 6.9% 4,601 4,325 276 6.4%
Property management............ 2,138 2,139 (1) 0.0% 2,248 2,388 (140) 5.9%
General and administrative..... --- --- --- --- 1,655 1,826 (171) (9.4%)
----------- ----------- ------------ ---------- ----------- ----------- ------------ ---------
Total operating expenses.... 21,459 19,847 1,612 8.1% 24,497 23,946 551 2.3%
----------- ----------- ------------ ---------- ----------- ----------- ------------ ---------
Income from operations before
interest, depreciation and
amortization expenses....... 32,191 30,800 1,391 4.5% 33,035 33,202 (167) 0.5%
Interest and related
amortization ............... --- --- --- --- 13,406 13,332 74 (0.6%)
Depreciation on corporate
assets...................... --- --- --- --- 304 271 33 12.2%
Property depreciation
and other................... 8,019 7,977 42 0.5% 8,679 8,856 (177) (2.0%)
----------- ----------- ------------ ---------- ----------- ----------- ------------ ---------
Income from operations (1).. 24,172 22,823 1,349 5.9% 10,646 10,743 (97) 0.9%
=========== =========== ============ ========== =========== =========== ============ =========
Site and Occupancy Information (2):
Average total sites............ 45,469 45,362 107 0.2% 46,626 47,289 (663) (1.4%)
Average occupied sites......... 43,151 42,813 338 0.8% 44,216 44,595 (379) 0.8%
Occupancy %.................... 94.9% 94.4% 0.5% 0.5% 94.8% 94.3% 0.5% 0.5%
Monthly base rent per site..... $371.78 $357.81 $13.97 3.9% $369.49 $353.62 $15.87 4.5%
Total sites
as of March 31,............. 45,524 45,372 152 0.3% 46,254 47,299 (1,045) (2.2%)
Total occupied sites
as of March 31,............. 43,121 42,812 309 0.7% 43,795 44,587 (792) (1.8%)
(1) Income from operations for the Core Portfolio does not include an
allocation of income ($46.6 million) increased approximately $2.0
millionfrom affiliates, interest income, corporate general
and administrative expense, interest expense and related amortization or
4.6%, primarily due to increased base rental rates.depreciation on corporate assets.
(2) Site and occupancy information does not include the five Properties owned
through joint ventures or the three RV properties.
16
17
MANUFACTURED HOME COMMUNITIES, INC.
RESULTS OF OPERATIONS (CONTINUED)
Revenues
The remaining
$430,000 decrease4.7% increase in base rental income reflects an increase of $146,000
attributable to the Properties acquired in 1999 and a decrease of $577,000
related to the Properties sold in 2000.
Monthly base rent per site for the total portfolio increased 3.9%,
reflectingCore Portfolio reflects a
3.9% increase in monthly base rent per site coupled with a 0.8% increase in
average occupied sites. The 3.6% increase in base rental income for the Total
Portfolio reflects the increase for the Core Portfolio and slightly higher monthly base rents for the Properties acquired in 1999.
Weighted average occupied sites for the total portfolio decreased by 158
sites resulting in a 0.4%acquisition and
disposition of Non-Core Properties. The increase in occupancy, due to the disposition of Mesa
Regal RV Resort, Naples Estates and Mon Dak. Core Portfolio occupancy increased
0.5% reflecting an increase in weighted average occupied sites of 290 sites.
RV base rental income ($560,000) decreased $1.2 million or 67.6% primarily
due to the sale of Mesa Regal RV Resort.
Utilityutility and other income ($4.9 million) increased $226,000 or 4.8%. Withinfor
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 ($4.6 million) increased $598,000is due primarily due to higher utility income - an increase which is reflected in
higher utility expense for the quarter for the Core Portfolio. This increase is
offset by a $372,000 decrease attributable
to the net effectdisposition of properties soldcertain Properties in 2000.
InterestFebruary 2001.
The decrease in interest income ($267,000) decreased $285,000 or 51.6%,is primarily due to the repayment of
certain notes receivable and a decrease in interest earned onfewer short-term investments. Short-term
investments had average balances for the quarters ended September 30,March 31, 2001 and 2000 and 1999
of approximately $1.2$2.3 million and $1.6 million,$2.5, respectively, which earned interest
income at an effective rate of 6.8%5.3% and 5.3%5.6% per annum, respectively.
As of September 30, 2000, the Company had
cash and cash equivalents and short-term investments of $6.3 million.
PropertyOperating Expenses
The increase in property operating and maintenance expenses ($14.7 million) increased
$229,000 or 1.6% reflecting a $708,000 decrease attributable to the Properties
sold in 2000 and a $132,000 increase attributable to Properties acquired in
1999. Expenses atexpense for the Core
Portfolio ($13.8 million) increased $813,000 or 6.2%.
Property operatingis due primarily to increases in utility expenses generally passed
through and included in utility income. Expenses for the Core Portfolio also
reflect increases in repairs and maintenance expense, payroll and insurance
expenses represented 27.2% of total revenuesand other expenses, partially offset by decreased payroll and property
general and administrative. The increase in 2000 and 26.9% in 1999.
Real estate taxes ($4.1 million) decreased $67,000 or 1.6%, which was
primarily attributable to the Non-Core Properties. Core Portfolio real estate taxtaxes is
generally due to higher property assessments on certain Properties. The increase
in Total Portfolio property operating and maintenance expense ($3.9 million) increased $16,000 or 0.4%. Realand real estate
taxes represented 7.6%is also impacted by acquisition and disposition of total revenues in 2000 and 7.8% in 1999.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, remained stable.
General and administrative expenses ($2.1 million) decreased $6,000 or 0.3%. The
decrease was primarily due to management staffing changesthe timing
of payments for certain public company costs and partially offset
by incremental management costs. Property management expenses represented 3.8%
of total revenues in 2000decreased professional fees and
3.9% in 1999.
General and administrative expense ("G&A") ($1.3 million) decreased $63,000
or 4.5%. G&A represented 2.5% of total revenues in 2000 and 2.6% in 1999.
16
17
MANUFACTURED HOME COMMUNITIES, INC.
RESULTS OF OPERATIONS (CONTINUED)office expense.
Interest and related amortization ($13.2 million) decreased $796,000 or
5.7%. The decrease wasincreased due to higher loan cost
amortization, partially offset by lower weighted average outstanding debt
balances during the period, partially offset by a slightly increased effective interest
rate.period. The weighted average outstanding debt balances for
the quarters ended September 30,March 31, 2001 and 2000 and 1999 were $690.3$725.1 million and $761.3$727.0
million, respectively. The effective interest rates were 7.5%rate was 7.4% per annum for both
quarters ended March 31, 2001 and 7.3%,2000, respectively.
Interest and related amortization represented 24.4% of total revenues in 2000
and 26.1% in 1999.
Depreciation on corporate assets ($291,000) increased $39,000 or 15.5%. The
increase was due to fixed asset purchasesadditions
related to computer software upgrades.
Depreciation on corporate assets represented 0.5% of total revenues in both 2000information and 1999.communication systems. Depreciation on real estate
assets and other costs ($8.5 million) decreased $297,000 or 3.4% as a result ofdue primarily to the disposition of Properties in 2000.
Depreciation on real estate assets and other costs represented 15.8% of total
revenues in 2000 and 16.4% in 1999.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2000 TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1999
The following table summarizes certain weighted average statistics for the
nine months ended September 30, 2000 and 1999.
CORE PORTFOLIO TOTAL PORTFOLIO
--------------------- --------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
-------- -------- -------- -------
Total sites 45,855 45,810 47,043 46,789
Occupied sites 43,267 43,077 44,262 43,992
Occupancy % 94.4% 94.0% 94.1% 94.0%
Monthly base rent per site $357.11 $343.57 $355.90 $343.62
Base rental income ($141.8 million) increased $6.1 million or 4.5%. For the
Core Portfolio, base rental income ($139 million) increased approximately $5.9
million or 4.4%, due primarily to increased base rental rates. The remaining
$272,000 increase in base rental income reflects an increase of $1.0 million
attributable to the Properties acquired in 1999 and a decrease of $737,000
related to the Properties sold in 2000.
Monthly base rent per site for the total portfolio increased 3.6%,
primarily due to increased monthly base rent per site for the Core Portfolio.
Weighted average occupied sites for the total portfolio decreased by 270
sites creating a 0.1% increase in occupancy. Core Portfolio occupancy increased
0.4% reflecting an increase in weighted average occupied sites of 190 sites.
RV base rental income ($5.4 million) decreased $1.4 million or 20.5%
primarily due to the sale of Mesa Regal RV Resort.Non-Core
Properties.
17
18
MANUFACTURED HOME COMMUNITIES, INC.
RESULTS OF OPERATIONS (CONTINUED)
UtilityLIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
As of March 31, 2001, the Company had $3.2 million in cash and cash
equivalents and $95.1 million available on its line of credit. The Company
expects to meet its short-term liquidity requirements, including its
distributions, generally through its working capital, net cash provided by
operating activities and availability under the existing line of credit. The
Company expects to meet certain long-term liquidity requirements such as
scheduled debt maturities, property acquisitions and capital improvements by
long-term collateralized and uncollateralized borrowings including borrowings
under its existing line of credit and the issuance of debt securities or
additional equity securities in the Company, in addition to working capital.
On April 16, 2001, the Company paid a $.445 per share distribution for the
quarter ended March 31, 2001, to stockholders of record on March 30, 2001. 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 on March 30, 2001.
MORTGAGES AND CREDIT FACILITIES
Throughout the quarter the Company borrowed $18.0 million on its line of
credit and paid down $23.0 million on the line of credit. The line of credit
bears interest at a rate of LIBOR plus 1.125%.
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 income ($15.7 million) increased $107,000 or 0.7%,
primarily attributable torestrictions.
ACQUISITIONS, DISPOSITIONS AND INVESTMENTS
On January 3, 2001, the Core Portfolio. WithinCompany acquired two Florida communities, totaling
730 sites, for an aggregate purchase price of approximately $16.3 million.
Golden Lakes is a 422-site community in Plant City, near Tampa, Florida and
includes approximately 23 acres for expansion. Chain O' Lakes is a 308-site
community in Grand Island, near Orlando, Florida, and includes a marina with 50
boat docks. The acquisition was funded with a borrowing under the Core Portfolio, utilityCompany's line
of credit.
On February 13, 2001, the Company completed the disposition of seven
communities totaling 1,281 sites, in Kansas, Missouri and Oklahoma for a total
sale price of approximately $19.1 million and a gain of $8.1 million was
recorded in other income ($13.5 million) increased $400,000 primarily due to increased
real estate pass through and other income. Other income includes a gain on the accompanying statement of operations. Included
in the sales price are proceeds from the sale by Realty Systems, Inc., an
affiliate of FFEC-Sixthe Company, of $719,000, partially offset by an impairment lossinventory and notes receivable totaling $1.7
million. Proceeds from the sale were used to fund the repayment on the DeAnza Santa Cruz waterline of
credit.
CAPITAL IMPROVEMENTS
Capital expenditures for improvements are identified by the Company as
recurring capital expenditures ("Recurring CapEx"), site development costs and
wastewater service company of $701,000 as discussed
in Note 4 to the Consolidated Financial Statements.
Interest income ($731,000) decreased $396,000 or 35.1%, primarily due to
the repayment of certain notes receivable and a decrease in interest earned on
short-term investments. Short-term investments had average balancescorporate headquarters costs. Recurring CapEx was approximately $1.0 million for
the nine
monthsquarter ended September 30, 2000 and 1999 ofMarch 31, 2001. Site development costs were approximately $1.5
million and $3.1
million, respectively, which earned interest income at an effective rate of 5.9%
and 4.6% per annum, respectively.
Property operating and maintenance expenses ($44.5 million) increased $1.3
million or 3.0% reflecting a $1.2 million decrease attributable to the
Properties sold in 2000 and a $687,000 increase attributable to Properties
acquired in 1999. Expenses at the Core Portfolio ($40.5 million) increased $1.9
million or 4.9%. Property operating and maintenance expenses represented 26.9%
of total revenues in both 2000 and 1999.
Real estate taxes ($12.8 million) increased $246,000 or 2.0%, which was
primarily attributable to the Core Portfolio. Core Portfolio real estate tax
expense ($12.2 million) increased $209,000 or 1.7%. Real estate taxes
represented 7.8% of total revenues in both 2000 and 1999.
Property management expenses ($6.6 million) increased $438,000 or 7.1%. The
increase was primarily due to management staffing changes and incremental
management costs related to the addition of Properties acquired in 1999 and
1998. Property management expenses represented 4.0% of total revenues in 2000
and 3.9% in 1999.
General and administrative expense ("G&A") ($5.0 million) increased
$439,000 or 9.6%. The increase was primarily due to timing of certain public
company costs, legal costs related to an effort to obtain an IRS ruling
regarding income from RV Properties and increased payroll. G&A represented 3.0%
of total revenues in 2000 and 2.8% in 1999.
Interest and related amortization ($39.7 million) decreased $1.2 million or
2.9%. The decrease was due to lower weighted average outstanding debt balances
during the period, partially offset by a slightly increased effective interest
rate. The weighted average outstanding debt balances for the nine monthsquarter ended September 30, 2000March 31, 2001, and 1999 were $720.0 million and $750.6 million,
respectively. The effective interest rates were 7.2% and 7.2%, respectively.
Interest and related amortization represented 24.0% of total revenues in 2000
and 25.5% in 1999.
Depreciation on corporate assets ($839,000) increased $107,000 or 14.6%.
The increase was duerepresent costs to fixed asset purchases related to computer software
upgrades. Depreciation on corporate assets represented 0.5% of total revenues in
both 2000 and 1999.
Depreciation on real estate assets and other costs ($25.9 million)
increased $583,000 or 2.3% as a resultdevelop
expansion sites at certain of the addition of the Properties
purchased in 1999. Depreciation on real estate assets and other costs
represented 15.7% of total revenues in both 2000 and 15.8% in 1999.Company's Properties.
18
19
MANUFACTURED HOME COMMUNITIES, INC.
LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased(CONTINUED)
INFLATION
Substantially all of the leases at the Properties allow for monthly or
annual rent increases which provide the Company with the opportunity to achieve
increases, where justified by $399,000 when comparedthe market, as each lease matures. Such types of
leases generally minimize the risk of inflation to December
31, 1999.
Net cash provided by operating activities decreased $3.6 million from $63.2
million for the nine months ended September 30, 1999 to $59.6 million for the
nine months ended September 30, 2000. This decrease reflects an extraordinary
loss on early retirement of debt of $1.3 million, a gain of $12.0 million on the
sale of Properties and other, increased prepaid expenses and other non-cash
items, and a $4.8 million decrease in funds from operationsCompany.
FUNDS FROM OPERATIONS
Funds From Operations ("FFO"), as
discussed below.
FFO was redefined by the National Association of
Real Estate Investment Trusts ("NAREIT") in October 1999, effective January 1,
2000, as net income (computed in accordance with generally accepted accounting principles ["GAAP"])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
REITs.REIT's computations. Funds available for distribution ("FAD") is defined as FFO
less non-revenue producing capital expenditures and amortization payments on
mortgage loan principal. The Company believes that FFO and FAD are useful to
investors as a measure of the performance of an equity REIT because, along with
cash flows from operating activities, financing activities and investing
activities, they provide investors an understanding of the ability of the
Company to incur and service debt and to make capital expenditures. FFO and FAD
in and of themselves do not represent cash generated from operating activities
in accordance with GAAP and therefore should not be considered an alternative to
net income as an indication of the Company's performance or to net cash flows
from operating activities as determined by GAAP as a measure of liquidity and
are not necessarily indicative of cash available to fund cash needs.
19
20
MANUFACTURED HOME COMMUNITIES, INC.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The following table presents a calculation of FFO and FAD for the quarters
ended March 31, 2001 and nine months ended September 30, 2000 and 1999 (amounts in thousands):
QUARTERS ENDED NINE MONTHS ENDED
----------------------- ----------------------
SEPTEMBER 30, SEPTEMBER 30,2001 2000
1999 2000 1999
---------- --------- --------- ----------------------- --------------
COMPUTATION OF FUNDS FROM OPERATIONS:
Income before extraordinary loss on early
extinguishment of debt ....................Net Income.................................................. $ 5,45112,644 $ 6,877 $ 26,742 $ 22,0746,331
Income allocated to Common OP Units ........ 1,451 1,509 6,822 4,862
Gain on sale of Properties and other ....... --- --- (12,053) ---Units......................... 3,282 1,599
Depreciation on real estate assets and other costs ............................... 8,510 8,807 25,934 25,351
-------- -------- -------- --------costs.......... 8,679 8,856
Gain on sale of property and other........................ (8,093) ---
-------------- --------------
Funds from operations ........................operations..................................... $ 15,41216,512 $ 17,193 $ 47,445 $ 52,287
======== ======== ======== ========16,786
============== ==============
Weighted average Common SharesStock outstanding - diluted ............. 27,077 31,586 27,706 31,915
======== ======== ======== ========diluted......... 26,771 28,242
============== ==============
COMPUTATION OF FUNDS AVAILABLE FOR DISTRIBUTION:
Funds from operations ........................operations....................................... $ 15,41216,512 $ 17,193 $ 47,445 $ 52,28716,786
Non-revenue producing improvements -
rental properties .................. (2,470) (2,901) (5,366) (6,519)
-------- -------- -------- --------to real estate........... (996) (864)
-------------- --------------
Funds available for distribution ...........distribution.......................... $ 12,94215,516 $ 14,292 $ 42,079 $ 45,768
======== ======== ======== ========15,922
============== ==============
Weighted average Common SharesStock outstanding - diluted ............. 27,077 31,586 27,706 31,915
======== ======== ======== ========diluted......... 26,771 28,242
============== ==============
Net cash provided by (used in) investing activities increased $68.3 million
from $(31.3) million for the nine months ended September 30, 1999 to $36.9
million for the nine months ended September 30, 2000 primarily due to the
Settlement regarding the Ellenburg Properties (see Note 4 and Note 8 to the
Consolidated Financial Statements) whereby the Company received total cash
proceeds of $53.5 million, the sale of the FFEC-Six water and wastewater service
company and the acquisition of Properties in 1999, partially offset by the
repayment of notes receivable in 1999 and increased contributions to affiliates
in 2000.
Capital expenditures for improvements were approximately $9.9 million for
the nine months ended September 30, 2000 compared to $9.7 million for the nine
months ended September 30, 1999. Of the $9.9 million, approximately $5.4 million
represented improvements to existing sites. The Company anticipates spending
approximately $2.3 million on improvements to existing sites during the
remainder of 2000. The Company believes these improvements are necessary in
order to increase and/or maintain occupancy levels and maintain competitive
market rents for new and renewing residents. The remaining $4.5 million
represented $4.2 million in costs to develop expansion sites at certain of the
Company's Properties and $357,000 of other corporate headquarters costs. The
Company is currently developing an additional 10 sites which should be available
for occupancy in 2000.
Net cash used in financing activities increased $76.6 million from $20.4
million for the nine months ended September 30, 1999 to $96.9 million for the
nine months ended September 30, 2000, primarily due to the timing of
distributions to Common Stockholders and Common OP Unitholders and net
repayments on the line of credit with proceeds from the Settlement.19
20 21
MANUFACTURED HOME COMMUNITIES, INC.
LIQUIDITYITEM 3. QUANTITATIVE AND CAPITAL RESOURCES (CONTINUED)
Distributions to Common Stockholders and Common OP Unitholders increased
approximately $17.1 million due to the timingQUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's earnings are affected by changes in interest rates, as a
portion of the fourth quarter 1999
dividend payment. On April 14, 2000, July 14, 2000Company's outstanding indebtedness is at variable rates based on
LIBOR. The Company's $150 million line of credit ($54.9 million outstanding at
March 31, 2001) bears interest at LIBOR plus 1.125% and October 13, 2000, the Company paid a $.415 per share distributionCompany's $100
million Term Loan bears interest at LIBOR plus 1.0%. If LIBOR
increased/decreased by 1.0% during for the quartersquarter ended March 31, 2000, June 30, 2000 and September 30, 2000, respectively, to stockholders of
record2001,
interest expense would have increased/decreased by approximately $409,000 based
on March 31, 2000, June 30, 2000 and September 29, 2000, respectively.
Return of capital on a GAAP basis was $0.135 per share, $0.00 per share, and
$.0155 per share for the first, second and third quarters of 2000, respectively.
The Company expects to meet its short-term liquidity requirements,
including its distributions, generally through its working capital, net cash
provided by operating activities and availabilitycombined average balance outstanding under the existing line of
credit. The Company expects to meet certain long-term liquidity requirements
such as scheduled debt maturities, property acquisitions and capital
improvements by long-term collateralized and uncollateralized borrowings
including borrowings under its existingCompany's line of credit
and Term Loan during the issuance of debt
securities or additional equity securities in the Company, in addition to
working capital.period.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and
Hedging Activities", which is required to be adopted in years beginning after
June 15, 1999.. 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 has not yet determined
the date at which it will adopt SFAS No. 133.adopted
SFAS No. 133 will requireon 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. The
Company has not yet determined what the effect ofthat SFAS No. 133 will becurrently has no significant effect on
the earnings and financial position of the Company, when implemented.Company.
20
21 22
MANUFACTURED HOME COMMUNITIES, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(see Note 8 of the Consolidated Financial Statements contained herein)
ITEM 5. OTHER INFORMATION
On May 9, 2000, the Board of Directors of the Company appointed Thomas P.
Heneghan as the Company's President and Chief Operating Officer. Mr. Heneghan,
36, has served for the last five years as the Company's Chief Financial Officer.
Gary Powell, the Company's Executive Vice President of Property Operations
became President and Chief Executive Officer of the Company's sales and
marketing affiliate, Realty Systems Inc. In addition, the Board of Directors of
the Company appointed John M. Zoeller as Vice President and Chief Financial
Officer of the Company. Mr. Zoeller, 39, has over 18 years of accounting
experience including 12 years with various affiliates of Equity Group
Investments. Mr. Zoeller, a CPA, holds a BS in Accounting from the University of
Illinois, Champaign - Urbana.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27 Financial Data ScheduleNone.
(b) Reports on Form 8-K:
None.
2221
2322
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
MANUFACTURED HOME COMMUNITIES, INC.
BY: /s/ John M. Zoeller
---------------------------------------------------------------
John M. Zoeller
Vice President, Treasurer and
Chief Financial Officer
BY: /s/ Mark Howell
---------------------------------------------------------------
Mark Howell
Principal Accounting Officer and
Assistant Treasurer
DATE: November 10, 2000
23May 11, 2001
22