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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
or
[ ] 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 Identification No.)
incorporation or organization)
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)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 Par Value The New York Stock Exchange
(Title of Class) (Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates was
approximately $537.3 million as of March 1, 2001 based upon the closing price of
$28.00 on such date using beneficial ownership of stock rules adopted pursuant
to Section 13 of the Securities Exchange Act of 1934 to exclude voting stock
owned by Directors and Officers, some of whom may not be held to be affiliates
upon judicial determination.
At March 1, 2000, 21,177,709 shares of the Registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III incorporates by reference the Registrant's Proxy Statement relating to
the Annual Meeting of Stockholders to be held May 8, 2001.
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MANUFACTURED HOME COMMUNITIES, INC.
TABLE OF CONTENTS
PART I. Page
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Item 1. Business ............................................................................... 3
Item 2. Properties ............................................................................. 7
Item 3. Legal Proceedings ...................................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders .................................... 15
PART II.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters .............. 16
Item 6. Selected Financial Data and Operating Information ...................................... 17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .. 19
Item 7A. Quantitative and Qualitative Disclosure About Market Risk .............................. 27
Item 8. Financial Statements and Supplementary Data ............................................ 27
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ... 27
PART III.
Item 10. Directors and Executive Officers of the Registrant ..................................... 27
Item 11. Executive Compensation ................................................................. 27
Item 12. Security Ownership of Certain Beneficial Owners and Management ......................... 27
Item 13. Certain Relationships and Related Transactions ......................................... 27
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ........................ 28
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PART I
ITEM 1. BUSINESS
THE COMPANY
GENERAL
Manufactured Home Communities, Inc. (together with its consolidated
subsidiaries, the "Company") is a fully integrated company which owns and
operates manufactured home communities ("Communities"). Communities are
residential developments designed and improved for the placement of detached,
single-family manufactured homes which are produced off-site and installed
within the Community. The owner of each home leases the site on which it is
located. Modern Communities are similar to typical residential subdivisions
containing centralized entrances, paved streets, curbs and gutters and parkways.
In addition, these Communities often provide a clubhouse for social activities
and recreation and other amenities, which may include swimming pools,
shuffleboard courts, tennis courts, laundry facilities and cable television
service. Utilities are provided or arranged for by the owner of the Community.
Some Communities provide water and sewer service through public or private
utilities, while others provide these services to residents from on-site
facilities.
Each Community is generally designed to attract and is marketed to one of
two types of residents - 1) retirees and empty nesters or 2) families and
first-time homeowners. The Company believes both types of Communities are
attractive investments and focuses on owning Communities in or near large
metropolitan markets and retirement destinations.
The Company was formed to continue the property operations, business
objectives and acquisition strategies of an entity that has owned and operated
Communities since 1969. As of December 31, 2000, the Company owned or had an
ownership interest in a portfolio of 154 Communities and recreational vehicle
("RV") resorts (the "Properties") located throughout the United States
containing 51,452 residential sites. The Properties are located in 26 states
(with the number of Properties in each state shown parenthetically) - Florida
(47), California (25), Arizona (17), Michigan (11), Colorado (10), Delaware (7),
Nevada (5), Indiana (4), Oregon (3), Kansas (3), Missouri (3), Illinois (2),
Iowa (2), New York (2), Utah (2), Pennsylvania (1), Maryland (1), Minnesota (1),
Montana (1), New Mexico (1), Ohio (1), Oklahoma (1), Texas (1), Virginia (1),
West Virginia (1), and Washington (1). As of December 31, 2000, the Company also
owned a commercial building located in California.
The Company has approximately 800 full-time employees dedicated to carrying
out the Company's operating philosophy and strategies of value enhancement and
service to residents. The Company typically utilizes a one or two-person
management team (who reside at the Properties) for the on-site management of
each of the Properties. Typically, clerical and maintenance workers are employed
to assist these individuals in the management and care of the Properties. Direct
supervision of on-site management is the responsibility of the Company's
regional vice presidents and regional managers. These individuals have
significant experience in addressing the needs of residents and in finding or
creating innovative approaches to maximize value and increase cash flow from
property operations. Complementing this field management staff are approximately
55 corporate employees who assist on-site management in all property functions.
FORMATION OF THE COMPANY
The Company, formed in March 1993, is a Maryland corporation which has
elected to be taxed as a real estate investment trust ("REIT"). The Company
generally will not be subject to Federal income tax to the extent it distributes
its REIT taxable income to its stockholders. REITs are subject to a number of
organizational and operational requirements. If the Company fails to qualify as
a REIT, its income is taxable at regular corporate rates. Even if the Company
qualifies for taxation as a REIT, the Company is subject to certain state and
local taxes on its income and property and Federal income and excise taxes on
its undistributed income.
The operations of the Company are conducted through certain entities which
are owned or controlled by the Company. MHC Operating Limited Partnership (the
"Operating Partnership") is the entity through which the Company conducts
substantially all of its operations. Sub-partnerships of the Operating
Partnership were created to: (i) facilitate mortgage financing (the "Financing
Partnerships"); (ii) facilitate the Company's ability to provide financing to
the owners of Communities ("Lending Partnership"); (iii) own the management
operations of the Company ("Management Partnerships"); and (iv) own the assets
and operations of certain utility companies which service the Properties ("MHC
Systems"). The financial results of the Operating Partnership and
sub-partnerships (together, the "Subsidiaries") are consolidated in the
Company's consolidated financial statements.
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In addition, since certain activities, if performed by the Company, may not
be qualifying REIT activities under the Internal Revenue Code of 1986, as
amended (the "Code"), the Company has invested in the non-voting preferred stock
of various corporations which engage in such activities. Realty Systems, Inc.
("RSI") is a preferred stock subsidiary of the Company that, doing business as
Carefree Sales, is engaged in the business of purchasing, selling, leasing and
financing manufactured homes that are located or will be located in Properties
owned and managed by the Company. Carefree Sales also provides brokerage
services to residents at such Properties. Typically residents move from a
Community but do not relocate their homes. Carefree Sales may provide brokerage
services, in competition with other local brokers, by seeking buyers for the
homes. Carefree Sales also leases homes to prospective residents with the
expectation that the tenant eventually will purchase the home. LP Management
Corp. leases from the Operating Partnership certain real property within or
adjacent to certain of the Properties consisting of golf courses, pro shops,
restaurants and recreational vehicle areas. The Company believes that the
activities of RSI and LP Management Corp. (collectively, "Affiliates") benefit
the Company by maintaining and enhancing occupancy at the Properties. The
Company accounts for its investment in and advances to Affiliates using the
equity method of accounting.
BUSINESS OBJECTIVES AND OPERATING STRATEGIES
The Company seeks to maximize both current income and long-term growth in
income. The Company focuses on Communities that have strong cash flow and
expects to hold such Properties for long-term investment and capital
appreciation. In determining cash flow potential, the Company evaluates the
Community's ability to attract and retain high quality residents who take pride
in their Community and in their home. These business objectives and their
implementation are determined by the Company's Board of Directors and may be
changed at any time. The Company's investment and operating approach includes:
- Providing consistently high levels of services and amenities in
attractive surroundings to foster a strong sense of community and
pride of home ownership;
- Efficiently managing the Properties to increase operating margins by
controlling expenses, increasing occupancy and maintaining competitive
market rents;
- Increasing income and property values by continuing the strategic
expansion and, where appropriate, renovation of the Properties;
- Utilizing management information systems to evaluate potential
acquisitions, identify and track competing properties and monitor
tenant satisfaction; and
- Selectively acquiring Communities that have potential for long-term
cash flow growth and to create property concentrations in and around
major metropolitan areas and retirement destinations to capitalize on
operating synergies and incremental efficiencies.
The Company is committed to enhancing its reputation as the most respected
brand name in the manufactured home community business. Its strategy is to own
and operate the highest quality Communities in major metropolitan areas and
retirement destinations across the United States. The focus is on creating an
attractive residential environment for homeowners by providing a
well-maintained, comfortable Community with a variety of organized recreational
and social activities and superior amenities. In addition, the Company regularly
surveys rental rates of competing properties and conducts satisfaction surveys
of residents to determine the factors residents consider most important in
choosing a manufactured home community.
FUTURE ACQUISITIONS
The Company acquired or gained a controlling interest in eighty-eight
Properties during 1997 through 1999, more than doubling its portfolio. The
Company believes that opportunities for property acquisitions are still
available and in general consolidation within the industry will continue (see -
Industry - The Manufactured Home Community Industry - Industry Consolidation).
The Company believes that transactions occurring in the private marketplace are
at valuations significantly in excess of the Company's current public market
valuation. As a result, during 1999 and 2000 the Company accelerated its stock
repurchase program. The Company's board of directors continues to review the
conditions under which the Company will repurchase its stock. These conditions
include, but are not limited to, market price, balance sheet flexibility, other
opportunities and capital requirements. (For more information on the Company's
stock repurchase program see Note 4 to the accompanying financial statements.)
Increasing acceptability of and demand for manufactured homes and continued
constraints on development of new manufactured home communities continues to add
to their attractiveness as an investment. The Company believes it has a
competitive advantage in the acquisition of new Communities due to its
experienced management, significant presence in major real estate markets and
substantial capital resources. The Company is actively seeking to acquire
additional Communities and currently is engaged in various stages of
negotiations relating to the possible acquisition of a number of Communities.
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The Company anticipates that newly acquired properties will be located in
the United States. The Company utilizes market information systems to identify
and evaluate acquisition opportunities, including a market database to review
the primary economic indicators of the various locations in which the Company
expects to expand its operations. Acquisitions will be financed from the most
appropriate sources of capital, which may include undistributed funds from
operations, issuance of additional equity securities, sales of investments,
collateralized and uncollateralized borrowings and issuance of debt securities.
In addition, the Company may cause the Operating Partnership to issue units of
limited partnership interest ("OP Units") to finance acquisitions. The Company
believes that an ownership structure which includes the Operating Partnership
will permit the Company to acquire additional Communities in transactions that
may defer all or a portion of the sellers' tax consequences.
When evaluating potential acquisitions, the Company will consider such
factors as: (i) the replacement cost of the property; (ii) the geographic area
and type of property; (iii) the location, construction quality, condition and
design of the property; (iv) the current and projected cash flow of the property
and the ability to increase cash flow; (v) the potential for capital
appreciation of the property; (vi) the terms of tenant leases, including the
potential for rent increases; (vii) the potential for economic growth and the
tax and regulatory environment of the community in which the property is
located; (viii) the potential for expansion of the physical layout of the
property and/or the number of sites; (ix) the occupancy and demand by residents
for properties of a similar type in the vicinity and the residents profile; (x)
the prospects for liquidity through sale, financing or refinancing of the
property; and (xi) competition from existing Communities and the potential for
the construction of new communities in the area. The Company expects to purchase
Communities with physical and market characteristics similar to the Properties
in its current portfolio.
PROPERTY EXPANSIONS
Several of the Company's Properties have available land for expanding the
number of sites available to be leased to residents. Development of these sites
("Expansion Sites") is predicated by local market conditions and permitted by
zoning and other applicable laws. When justified, development of Expansion Sites
allows the Company to leverage existing facilities and amenities to increase the
income generated from the Properties. Where appropriate, facilities and
amenities may be upgraded or added to certain Properties in order to make those
Properties more attractive in their markets. The Company's acquisition
philosophy has included the desire to own Properties with potential Expansion
Site development, and the Company has been successful in acquiring a number of
such Properties. Several examples of these Properties include the 1994
acquisition of Bulow Village with potential development of approximately 750
Expansion Sites, the 1997 acquisition of Golf Vista Estates with potential
development of approximately 180 Expansion Sites and the acquisition in 1999 of
Coquina Crossing with potential development of approximately 480 Expansion
Sites.
Of the Company's 154 Properties, nine may be expanded consistent with
existing zoning regulations. In 2001, the Company expects to develop an
additional 353 Expansion Sites within five of these Properties. As of December
31, 2000, the Company had approximately 1,202 Expansion Sites available for
occupancy in 22 of the Properties. The Company filled 317 Expansion Sites in
2000 and expects to fill an additional 250 to 300 Expansion Sites in 2000.
LEASES
The typical lease entered into between the tenant and the Company for the
rental of a site requires a security deposit and is for a month-to-month or
year-to-year term, renewable upon the consent of both parties or, in some
instances, as provided by statute. These leases are cancelable, depending on
state law, for non-payment of rent, violation of community rules and regulations
or other specified defaults. Non-cancelable long-term leases, with remaining
terms ranging up to ten years, are in effect at certain sites within eight of
the Properties. These leases are subject to rental rate increases based on the
Consumer Price Index ("CPI"), in some instances taking into consideration
certain floors and ceilings and allowing for pass-throughs of certain items such
as real estate taxes, utility expenses and capital expenditures. Generally,
market rate adjustments are made on an annual basis.
REGULATIONS AND INSURANCE
General. Communities are subject to various laws, ordinances and
regulations, including regulations relating to recreational facilities such as
swimming pools, clubhouses and other common areas. The Company believes that
each Property has the necessary permits and approvals to operate.
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Rent Control Legislation. State and local rent control laws, principally in
California and Florida, limit the Company's ability to increase rents and to
recover increases in operating expenses and the costs of capital improvements at
certain Properties. Enactment of such laws has been considered from time to time
in other jurisdictions. The Company presently expects to continue to maintain
manufactured home communities, and may purchase additional properties, in
markets that are either subject to rent control or in which rent-limiting
legislation exists or may be enacted. For example, Florida has enacted a law
that generally provides that rental increases must be reasonable. Also, certain
jurisdictions in California in which the Company owns Properties limit rent
increases to changes in the CPI or some percentage thereof.
Insurance. Management believes that the Properties are covered by adequate
fire, flood, property, earthquake and business interruption insurance (where
appropriate) provided by reputable companies and with commercially reasonable
deductibles and limits. The Company believes its insurance coverage is adequate
based on the Company's assessment of the risks to be insured, the probability of
loss and the relative cost of available coverage. The Company has obtained title
insurance insuring fee title to the Properties in an aggregate amount which the
Company believes to be adequate.
INDUSTRY
THE MANUFACTURED HOME COMMUNITY INDUSTRY
The Company believes that modern manufactured home communities, such as the
Properties, provide an opportunity for increased cash flows and appreciation in
value. These may be achieved through increases in occupancy rates and rents, as
well as expense controls, expansion of existing Properties and opportunistic
acquisitions, for the following industry specific reasons:
- Barriers to Entry: The Company believes that the supply of new
Communities will be constrained due to barriers to entry into the
industry. The most significant barrier has been the difficulty in
securing zoning from local authorities. This has been the result of
(i) the public's historically poor perception of the industry, and
(ii) the fact that Communities generate less tax revenue because the
homes are treated as personal property (a benefit to the home owner)
rather than real property. Another factor that creates substantial
barriers to entry is the length of time between investment in the
Community's development and the attainment of stabilized occupancy and
the generation of revenues. The initial development of the
infrastructure may take up to two or three years. Once the Community
is ready for occupancy, it may be difficult to attract residents to an
empty Community. Substantial occupancy levels may take several years
to achieve.
- Industry Consolidation: According to an industry analyst's
manufactured home community industry report, there are approximately
50,000 Communities in the United States and approximately 6.5% or
3,250 of the Communities have more than 200 sites and would be
considered "investment-grade" Properties. The five public REITs that
own Communities own approximately 532 or about 16% of the
"investment-grade" Communities. In addition, based on a report
prepared by one analyst, the top 150 owners of Communities own
approximately 69% of the "investment-grade" assets. The Company
believes that this relatively high degree of fragmentation in the
industry provides the Company, as a national organization with
experienced management and substantial financial resources, the
opportunity to purchase additional Communities.
- Stable Tenant Base: The Company believes that Communities tend to
achieve and maintain a stable rate of occupancy due to the following
factors: (i) residents own their own homes, (ii) Communities tend to
foster a sense of community as a result of amenities such as club
houses, recreational and social activities and (iii) since moving a
manufactured home from one Community to another involves substantial
cost and effort, residents often sell their home in-place (similar to
site-built residential housing) with no interruption of rental
payments.
MANUFACTURED HOUSING
Based on the current growth in the number of individuals living in
manufactured homes, the Company believes that manufactured homes are
increasingly viewed by the public as an attractive and economical form of
housing. According to the industry's trade association, nearly one in four new
single family homes sold in the United States today is factory-built.
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The Company believes that the growing popularity of manufactured housing is
primarily the result of the following factors:
- Importance of Home Ownership. According to the Fannie Mae ("FNMA")
1999 National Housing Survey renters' desire to own a home is stronger
now than at any time in the 1990's. Security and permanence are
thought to be non-financial reasons to own a home. The commitment to
home ownership is tempered by an awareness of the high cost of owning
a home. The affordability of manufactured housing allows many
individuals to achieve this goal without jeopardizing their financial
security.
- Affordability. For a significant number of persons, manufactured
housing represents the only means of achieving home ownership. In
addition, the total cost of housing in a manufactured home community
(home cost, site rent and related occupancy costs) is competitive with
and often lower than the total cost of alternative housing, such as
apartments and condominiums and generally substantially lower than
stick built residential alternatives.
- Lifestyle Choice. As the average age of the United States population
has increased, manufactured housing has become an increasingly popular
housing alternative for retirement and "empty-nest" living. According
to FNMA, the surviving baby-boom generation - the 80 million people
born between 1945 and 1964 - will constitute 18% of the U.S.
population within the next 30 years and more than 32 million will
reach age 55 within the next ten years. Among those people who are
nearing retirement (age 40 to 54), approximately 33% plan on moving
upon retirement. The Company believes that manufactured housing is
especially attractive to such individuals when located within a
Community that offers an appealing amenity package, close proximity to
local services, social activities, low maintenance and a secure
environment.
- Construction Quality. Since 1976, all manufactured housing has been
required to meet stringent Federal standards, resulting in significant
increases in the quality of the industry's product. The Department of
Housing and Urban Development's standards for manufactured housing
construction quality are the only Federally regulated standards
governing housing quality of any type in the United States.
Manufactured homes produced since 1976 have received a "red and
silver" government seal certifying that they were built in compliance
with the Federal code. The code regulates manufactured home design and
construction, strength and durability, fire resistance and energy
efficiency, and the installation and performance of heating, plumbing,
air conditioning, thermal and electrical systems. In newer homes, top
grade lumber and dry wall materials are common. Also, manufacturers
are required to follow the same fire codes as builders of site-built
structures.
- Comparability to Site-Built Homes. The manufactured housing industry
has experienced a recent trend towards multi-section homes. Many
modern manufactured homes are longer (up to 80 feet compared to 50
feet in the 1960s) and wider than earlier models. Many homes have
vaulted ceilings, fireplaces and as many as four bedrooms and closely
resemble single family ranch style site-built homes.
ITEM 2. PROPERTIES
The Company believes that the Properties provide attractive amenities and
common facilities that create a comfortable and attractive Community for the
residents, with most offering a clubhouse, a swimming pool, laundry facilities
and cable television service. Many also offer additional amenities such as
sauna/whirlpool spas, golf courses, tennis, shuffleboard and basketball courts
and exercise rooms. Since resident own their homes, it is their responsibility
to maintain their homes and the surrounding area. It is management's role to
insure that residents comply with Community policies and to provide maintenance
of the common areas, facilities and amenities. The Company holds periodic
meetings of its property management personnel for training and implementation of
the Company's strategies. The Properties historically have had and the Company
believes they will continue to have low turnover and high occupancy rates.
The distribution of the Properties throughout the United States reflects the
Company's belief that geographic diversification helps insulate the portfolio
from regional economic influences. The Company intends to target new
acquisitions in or near markets where the Properties are located and will also
consider acquisitions of properties outside such markets. The Company's five
largest markets of Properties owned are Florida (47 Properties), California (25
Properties), Arizona (17 Properties), Michigan (11 Properties) and Colorado (10
Properties). These markets accounted for 35%, 17%, 9%, 4%, and 9%, respectively,
of the Company's total revenues for the year ended December 31, 2000. The
Company also has Properties located in the following markets: Northeast,
Northwest, Midwest, and Nevada/Utah/New Mexico. The Company's largest Property,
Bay Indies, located in Venice, Florida accounted for 3% of the Company's total
revenues for the year ended December 31, 2000.
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The following tables set forth certain information relating to the
Properties owned by the Company as of December 31, 2000, categorized by the
Company's major markets. "Core Portfolio" represents an analysis of Properties
owned throughout both years of comparison. The table excludes the following RV
resort Properties (3,197 sites) at which rents and occupancy vary based on
seasonality: Sherwood Forest RV (Kissimmee, Florida); Southern Palms (Eustis,
Florida); and Fun & Sun (San Benito, Texas). The table excludes five Properties
(1,521 sites) in which the Company has a non-controlling joint venture interest
and accounts for using the equity method of accounting.
NUMBER MONTHLY MONTHLY
OF SITES OCCUPANCY OCCUPANCY BASE RENT BASE RENT
LOCATION AS OF AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/00 12/31/00 12/31/99 12/31/00 12/31/99
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FLORIDA
NORTHERN, CENTRAL & EASTERN:
Arrowhead Lantana FL 602 95.7% 95.5% $405 $388
Brittany Estates Tallahassee FL 299 93.6% 97.7% $248 $233
Bulow Village Flagler Beach FL 276 97.8% (c) 89.9% (c) $244 $238
Carriage Cove Daytona Beach FL 418 98.3% 96.9% $370 $335
Colonies of Margate Margate FL 819 96.3% 96.1% $418 $410
Coquina Crossing St Augustine FL (a) 273 86.8% (c) 75.2% (c) $281 $276
Country Side North Vero Beach FL 646 95.5% (c) 93.5% (c) $298 $283
Fernwood Deland FL 92 95.7% 95.7% $244 $227
Heritage Village Vero Beach FL 436 97.2% 97.7% $308 $291
Holiday Village FL Vero Beach FL 128 79.7% 82.0% $281 $268
Indian Oaks Rockledge FL 211 94.8% (c) 90.5% (c) $240 $236
Lakewood Village Melbourne FL 348 95.7% 94.8% $345 $331
The Landings Port Orange FL 433 89.4% (c) 89.1% (c) $293 $287
Mid-Florida Lakes Leesburg FL 1,226 93.2% (c) 95.4% (c) $313 $305
Oak Bend Ocala FL 262 84.4% (c) 82.1% (c) $239 $226
Pickwick Port Orange FL 432 94.9% 95.1% $296 $287
Sherwood Forest Kissimmee FL 769 94.7% (c) 89.1% (c) $319 $286
Spanish Oaks Ocala FL 459 93.7% 95.9% $297 $282
The Meadows, FL Palm Beach Gardens FL (a) 380 81.1% (c) 78.7% (c) $332 $318
TAMPA/NAPLES:
Bay Indies Venice FL 1,309 99.9% 99.8% $314 $304
Bay Lake Estates Nokomis FL 228 98.2% 99.6% $354 $348
Boulevard Estates Clearwater FL 297 89.6% 89.6% $279 $282
Buccaneer N. Ft. Myers FL 971 99.3% 99.4% $317 $304
Chalet Village Tampa FL 60 90.0% 88.5% $306 $302
Country Meadows Plant City FL 736 98.8% 98.5% $277 $267
Country Place New Port Richey FL 515 90.9% (c) 82.5% (c) $230 $222
Down Yonder Largo FL 361 98.9% 98.6% $351 $343
East Bay Oaks Largo FL 328 97.0% 99.1% $351 $341
Eldorado Village Largo FL 227 96.9% 96.0% $356 $343
Friendly Village of Clearwater FL 236 84.7% 85.6% $293 $282
Kapok
Hillcrest Clearwater FL 279 80.3% 83.2% $326 $320
Holiday Ranch Largo FL 150 94.0% 94.0% $333 $315
Lake Fairways N. Ft. Myers FL 896 99.4% 99.7% $352 $339
Lake Haven Dunedin FL 379 97.6% 95.8% $394 $363
Pine Lakes N. Ft. Myers FL 584 99.8% 100.0% $421 $410
Satellite Clearwater FL 87 90.8% 93.3% $253 $243
Sunset Oaks Plant City FL 168 64.9% (c) 56.3% (c) $231 $217
The Heritage N. Ft. Myers FL 455 79.6% (c) 76.7% (c) $290 $282
Windmill Manor Bradenton FL 292 96.2% 95.9% $363 $351
Windmill Village - Ft. N. Ft. Myers FL 491 98.6% 98.6% $297 $291
Myers
Windmill Village North Sarasota FL 471 99.8% 99.8% $320 $310
Windmill Village South Sarasota FL 306 100.0% 100.0% $321 $310
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TOTAL FLORIDA MARKET 18,335 94.7% 93.9% $321 $311
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FLORIDA MARKET - CORE PORTFOLIO 17,682 95.1% 94.5% $333 $312
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NUMBER MONTHLY MONTHLY
OF SITES OCCUPANCY OCCUPANCY BASE RENT BASE RENT
LOCATION AS OF AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/00 12/31/00 12/31/99 12/31/00 12/31/99
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CALIFORNIA
NORTHERN
CALIFORNIA:
California Hawaiian San Jose CA 419 98.1% (c) 99.3% (c) $600 $580
Colony Park Ceres CA 186 76.9% 71.5% $345 $325
Concord Cascade Pacheco CA 283 98.9% 99.6% $521 $507
Contempo Marin San Rafael CA 396 98.7% 98.7% $631 $613
Coralwood Modesto CA 194 92.8% 92.3% $403 $393
Four Seasons Fresno CA 242 71.5% 68.6% $244 $242
Laguna Lake San Luis Obispo CA 290 99.7% 100.0% $328 $292
Monte del Lago Castroville CA 314 99.4% (c) 99.7% (c) $485 $456
Quail Meadows Riverbank CA 146 98.6% 92.5% $340 $330
Royal Oaks Visalia CA 149 83.2% 80.5% $253 $247
DeAnza Santa Cruz Santa Cruz CA 198 100.0% 100.0% $514 $491
Sea Oaks Los Osos CA 138 100.0% 100.0% $344 $335
Sunshadow San Jose CA 121 100.0% 100.0% $583 $561
Westwinds (4 San Jose CA 723 99.9% 99.3% $615 $570
properties)
SOUTHERN
CALIFORNIA:
Date Palm Country Club Cathedral City CA 538 93.9% 91.4% $631 $594
Lamplighter Spring Valley CA 270 99.6% 99.6% $535 $508
Meadowbrook Santee CA 332 99.4% 99.1% $604 $560
Rancho Mesa El Cajon CA 158 99.4% 94.9% $510 $502
Rancho Valley El Cajon CA 140 99.3% 98.6% $517 $494
Royal Holiday Hemet CA (a) 179 72.6% 75.0% $257 $252
Santiago Estates Sylmar CA 299 94.6% 92.7% $591 $564
------ ------ ------ ------ ------
TOTAL CALIFORNIA MARKET 5,715 94.9% 94.3% $509 $491
------ ------ ------ ------ ------
CALIFORNIA MARKET - CORE PORTFOLIO 5,536 95.7% 94.9% $517 $479
------ ------ ------ ------ ------
ARIZONA
Apollo Village Phoenix AZ 237 92.8% (c) 92.4% (c) $356 $337
Brentwood Manor Mesa AZ 274 94.9% 96.4% $431 $417
Carefree Manor Phoenix AZ 127 99.2% 98.4% $303 $277
Casa del Sol #1 Peoria AZ 246 94.7% 94.3% $407 $394
Casa del Sol #2 Glendale AZ 239 97.9% 97.9% $438 $423
Casa del Sol #3 Glendale AZ 238 96.2% 97.1% $420 $403
Central Park Phoenix AZ 293 96.9% 95.9% $373 $355
Desert Skies Phoenix AZ 164 97.0% 97.0% $299 $278
Fairview Manor Tucson AZ 235 92.8% 95.3% $311 $291
Hacienda de Valencia Mesa AZ 365 94.2% 93.4% $361 $344
Palm Shadows Glendale AZ 294 94.9% 94.9% $336 $326
Sedona Shadows Sedona AZ 200 88.0% 88.0% $306 $293
Sunrise Heights Phoenix AZ 199 95.5% 98.0% $347 $327
The Mark Mesa AZ 410 95.9% 97.3% $361 $338
The Meadows Tempe AZ 391 98.0% 96.7% $416 $399
Whispering Palms Phoenix AZ 116 99.1% 100.0% $263 $247
------ ------ ------ ------ ------
TOTAL ARIZONA MARKET 4,028 95.4% 95.7% $367 $350
------ ------ ------ ------ ------
ARIZONA MARKET - CORE PORTFOLIO 4,028 95.4% 95.7% $367 $350
------ ------ ------ ------ ------
9
10
NUMBER MONTHLY MONTHLY
OF SITES OCCUPANCY OCCUPANCY BASE RENT BASE RENT
LOCATION AS OF AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/00 12/31/00 12/31/99 12/31/00 12/31/99
-------- ----------- -------- -------- -------- -------- --------
MICHIGAN
Americana Estate Kalamazoo MI 162 93.2% 97.5% $262 $254
Appletree Walker MI 239 96.7% 96.2% $290 $276
Brighton Village Brighton MI 197 99.0% 97.0% $330 $326
College Heights Auburn Hills MI 162 98.1% 92.6% $317 $332
Creekside Wyoming MI 165 97.6% 98.8% $356 $344
Groveland Manor Holly MI 186 91.4% 93.0% $320 $317
Hillcrest Acres Kalamazoo MI 150 96.0% 98.0% $289 $283
Metro Romulus MI 227 98.7% 96.0% $328 $300
Riverview Estates Bay City MI 197 78.2% 76.8% $230 $233
South Lyon Woods South Lyon MI 211 98.1% 98.1% $417 $401
Willow Run Ypsilianti MI 185 91.4% 89.2% $272 $281
----- ---- ---- ---- ----
TOTAL MICHIGAN MARKET 2,081 94.4% 93.9% $315 $306
----- ---- ---- ---- ----
MICHIGAN MARKET - CORE PORTFOLIO 2,081 94.4% 93.9% $315 $306
----- ---- ---- ---- ----
COLORADO
Bear Creek Sheridan CO 124 100.0% 100.0% $385 $366
Cimarron Broomfield CO 327 99.1% 98.8% $391 $368
Golden Terrace Golden CO 264 99.2% 98.5% $431 $414
Golden Terrace South Golden CO 80 100.0% 96.3% $407 $381
Golden Terrace West Golden CO 316 100.0% 96.2% $424 $408
Hillcrest Village Aurora CO 602 96.3% 96.0% $422 $400
Holiday Hills Denver CO 734 97.1% 95.0% $412 $390
Holiday Village Co. Springs CO 240 96.3% 98.8% $403 $384
Pueblo Grande Pueblo CO 252 96.8% 94.4% $265 $253
Woodland Hills Denver CO 434 98.6% 97.9% $390 $375
----- ---- ---- ---- ----
TOTAL COLORADO MARKET 3,373 97.9% 96.7% $399 $380
----- ---- ---- ---- ----
COLORADO MARKET - CORE PORTFOLIO 3,373 97.9% 96.7% $399 $380
----- ---- ---- ---- ----
NORTHEAST
Aspen Rehoboth DE 199 100.0% 98.0% $250 $228
Camelot Acres Rehoboth DE 319 100.0% 99.4% $380 $363
Mariners Cove Millsboro DE 375 88.5% (c) 85.6% (c) $356 $336
McNicol Rehoboth DE 93 97.8% 100.0% $248 $240
Sweetbriar Rehoboth DE 142 100.0% 99.3% $208 $189
Waterford Bear DE 731 96.9% (c) 93.8% (c) $379 $360
Whispering Pines Lewes DE 392 96.9% 93.6% $258 $245
Pheasant Ridge Mt. Airy MD 101 99.0% 99.0% $424 $407
Brook Gardens Lackawanna NY 424 97.2% 97.7% $423 $400
Greenwood Manorville NY 474 97.3% (c) 92.0% (c) $366 $361
Green Acres Breinigsville PA 595 97.3% 98.8% $408 $386
Meadows of Chantilly Chantilly VA 500 92.0% 83.0% $493 $483
Independence Hill Morgantown WV 203 90.1% 87.2% $204 $194
----- ---- ---- ---- ----
TOTAL NORTHEAST MARKET 4,548 96.0% 93.5% $365 $ 339
----- ---- ---- ---- ----
NORTHEAST MARKET - CORE PORTFOLIO 4,548 96.0% 93.5% $365 $339
----- ---- ---- ---- ----
10
11
NUMBER MONTHLY MONTHLY
OF SITES OCCUPANCY OCCUPANCY BASE RENT BASE RENT
LOCATION AS OF AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/00 12/31/00 12/31/99 12/31/00 12/31/99
-------- ----------- -------- -------- -------- -------- --------
MIDWEST
Five Seasons Cedar Rapids IA 390 79.7% (c) 81.5% (c) $240 $240
Holiday Village, IA Sioux City IA 519 87.7% 92.1% $241 $228
Golf Vista Monee IL 319 90.6% (c) 77.1% (c) $344 $319
Willow Lake Estates Elgin IL 617 97.4% 96.3% $583 $546
Burns Harbor Estates Chesterton IN 227 89.0% 93.4% $287 $282
Candlelight Village Columbus IN 585 99.5% 99.1% $207 $195
Oak Tree Village Portage IN 379 93.1% 94.5% $283 $267
Windsong Indianapolis IN 268 91.4% 97.0% $267 $257
Bonner Springs Bonner Springs KS 211 91.9% 93.4% $216 $202
Carriage Park Kansas City KS 143 76.9% (d) 74.1% (d) $208 $196
Quivira Hills Kansas City KS 142 86.6% 82.4% $245 $226
Camelot Burnsville MN 302 99.3% 99.7% $241 $239
Briarwood Brookline MO 166 90.4% 92.2% $195 $175
Dellwood Estates Warrensburg MO 136 81.6% 86.0% $168 $156
North Star Kansas City MO 219 96.3% 95.9% $261 $244
Royal Village Toledo OH 233 89.3% 92.3% $268 $258
Rockwood Tulsa OK 264 98.5% 98.5% $230 $218
----- ---- ---- ---- ----
TOTAL MIDWEST MARKET 5,120 91.9% 92.2% $287 $282
----- ---- ---- ---- ----
MIDWEST MARKET - CORE PORTFOLIO 5,120 91.9% 92.2% $287 $282
----- ---- ---- ---- ----
NEVADA, UTAH, NEW MEXICO
Del Rey Albuquerque NM 407 90.9% 83.8% $316 $350
Bonanza Las Vegas NV 353 81.6% 91.8% $440 $441
Boulder Cascade Las Vegas NV 299 89.3% 93.3% $457 $443
Cabana Las Vegas NV 263 98.9% 99.6% $415 $392
Flamingo West Las Vegas NV 258 80.2% (c) 100.0% (c) $406 $403
Villa Borega Las Vegas NV 293 95.9% 98.3% $451 $443
All Seasons Salt Lake City UT 121 97.5% 97.5% $315 $292
Westwood Village Farr West UT 314 95.2% (c) 98.7% (c) $230 $218
----- ---- ---- ---- ----
TOTAL NEVADA, UTAH, NEW MEXICO MARKET 2,308 90.6% 94.0% $384 $376
----- ---- ---- ---- ----
NEVADA, UTAH, NEW MEXICO MARKET - CORE PORTFOLIO 2,308 90.6% 94.0% $384 $376
----- ---- ---- ---- ----
NORTHWEST
Casa Village Billings MT 491 98.0% 97.0% $272 $262
Falcon Wood Village Eugene OR 183 98.4% 99.5% $345 $329
Quail Hollow Fairview OR 138 98.6% 99.3% $409 $408
Shadowbrook Clackamas OR 156 99.4% 100.0% $429 $417
Kloshe Illahee Federal Way WA 258 99.2% 99.6% $454 $433
----- ---- ---- ---- ----
TOTAL NORTHWEST MARKET 1,226 98.5% 98.4% $356 $345
----- ---- ---- ---- ----
NORTHWEST MARKET - CORE PORTFOLIO 1,226 98.5% 98.4% $356 $345
----- ---- ---- ---- ----
GRAND TOTAL ALL MARKETS 46,734 94.7% 94.2% $356 $343
====== ==== ==== ==== ====
GRAND TOTAL ALL MARKETS - CORE PORTFOLIO 45,902 94.9% (e) 94.2% (e) $357 $344
====== ==== ==== ==== ====
(a) Represents a Property that is not part of the Core Portfolio.
(c) The process of filling Expansion Sites at these Properties is ongoing. A
decrease in occupancy may reflect development of additional Expansion
Sites.
(d) Carriage Park suffered damage to approximately 85 homes in 1993 due to
flooding; the process of re-leasing these sites is ongoing.
(e) Changes in total portfolio occupancy include the impact of acquisitions and
expansion programs and are therefore not comparable.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations.
11
12
ITEM 3. LEGAL PROCEEDINGS
DEANZA SANTA CRUZ MOBILE ESTATES
The residents of DeAnza Santa Cruz Mobile Estates, a property located in
Santa Cruz, California (the "City") previously brought several actions opposing
certain fees and charges in connection with water service at the Property. The
trial of the ongoing utility charge dispute with the residents of this Property
concluded on January 22, 1999. This summary provides the history and reasoning
underlying the Company's defense of the residents' claims and explains the
Company's decision to continue to defend its position, which the Company
believes is fair and accurate.
DeAnza Santa Cruz Mobile Estates is a 198 site community overlooking the
Pacific Ocean. It is subject to the City's rent control ordinance which limits
annual rent increases to 75% of CPI. The Company purchased this Property in
August 1994 from certain unaffiliated DeAnza entities ("DeAnza"). Prior to the
Company's purchase in 1994, DeAnza made the decision to submeter and separately
bill tenants at the Property for both water and sewer in 1993 in the face of the
City's rapidly rising utility costs.
Under California Civil Code Section 798.41, DeAnza was required to reduce
rent by an amount equal to the average cost of usage over the preceding 12
months. This was done. With respect to water, 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. DeAnza and the Company interpreted the statute as
providing that in a submetered mobile home park, the property owner is not
subject to regulation and control of the CPUC so long as the users are charged
what they would be charged by the utility company if users received their water
directly from the utility company. In Santa Cruz, customers receiving their
water directly from the city's water utility were charged a certain lifeline
rate for the first 400 ccfs of water and a greater rate for usage over 400 ccfs
of water, a readiness to serve charge of $7.80 per month and tax on the total.
In reliance on CPUC Section 2705.5, DeAnza implemented its billings on this
schedule notwithstanding that it did not receive the discount for the first 400
ccfs of water because it was a commercial and not a residential customer.
A dispute with the residents ensued over the readiness to serve charge and
tax thereon. The residents argued that California Civil Code Section 798.41
required that the Property owner could only pass through its actual costs of
water (and that the excess charges over the amount of the rent rollback were an
improper rent increase) and that CPUC Section 2705.5 was not applicable. DeAnza
unbundled the utility charges from rent consistent with California Civil Code
Section 798.41 and it has generally been undisputed that the rent rollback was
accurately calculated.
In August 1994, when the Company acquired the Property, the Company
reviewed the respective legal positions of the Santa Cruz Homeowners Association
("HOA") and DeAnza and concurred with DeAnza. 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 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 billing and submetering issues related to both water and sewer. The
Company and DeAnza prevailed on all issues related to sewer and the rent
rollback related to water, but the hearing officer determined that the Company
could only pass through its actual cost of water, i.e., a prorated readiness to
serve charge and tax thereon. The hearing officer did not deal with the subsidy
being given to residents through the quantity charge and ordered a rebate in a
fixed amount per resident. The Company and DeAnza requested reconsideration on
this issue, among others, which reconsideration was denied by the hearing
officer.
The Company then took a writ of mandate (an appeal from an administrative
order) to the Superior Court and, pending this appeal, the residents, the
Company and the City agreed to stay the effect of the hearing officer's decision
until the Court rendered judgment.
In July 1996, the Superior Court affirmed the hearing officer's decision
without addressing concerns about the failure to take the subsidy on the
quantity charge into account.
12
13
The Company requested that the City and the HOA agree to a further stay
pending appeal to the court of appeal, but they refused and the appeal court
denied the Company's request for a stay in late November 1996. Therefore, on
January 1, 1997, the Company reduced its water charges at this Property to
reflect a pass-through of only the readiness to serve charge and tax at the
master meter (approximately $0.73) and to eliminate the subsidy on the water
charges. On their March 1, 1997 rent billings, residents were credited for
amounts previously "overcharged" for readiness to serve charge and tax. The
amount of the rebate given by the Company and DeAnza was $36,400. In calculating
the rebate, the Company and DeAnza took into account the previous subsidy on
water usage although this issue had not yet been decided by the court of appeal.
The Company and DeAnza felt legally safe in so doing based on language in the
hearing officer's decision that actual costs could be passed through.
On March 12, 1997, the Company also filed an application with the CPUC to
dedicate the water system at this Property to public use and have the CPUC set
cost-based rates for water usage. The Company believed it was obligated to take
this action because of its consistent reliance on CPUC Section 2705.5 as a safe
harbor from CPUC jurisdiction. That is, when the Company could no longer charge
for water as the local serving utility would charge, it was no longer exempt
from the CPUC's jurisdiction and control under CPUC Section 2705.5.
On March 20, 1997, the court of appeal issued the writ of mandate requested
by the Company on the grounds that the hearing officer had improperly calculated
the amount of the rebate (meaning the Company had correctly calculated the rent
credits), but also ruling that the hearing officer was correct when he found
that the readiness to serve charge and tax thereon as charged by DeAnza and the
Company were an inappropriate rent increase. The court of appeal further agreed
with the Company that the City's hearing officer did not have the authority
under California Civil Code Section 798.41 to establish rates that could be
charged in the future.
Following this decision, the CPUC granted the Company its certificate of
convenience and necessity on December 17, 1998 and approved cost-based rates and
charges for water that exceed what residents were paying under the Company's
reliance on CPUC Section 2705.5. Concurrently, the CPUC also issued an Order
Instituting Investigation ("OII") confirming its exclusive jurisdiction over the
issue of water rates in a submetered system and commencing an investigation into
the confusion and turmoil over billings in submetered properties. Specifically,
the OII states: "The Commission has exclusive and primary jurisdiction over the
establishment of rates for water and sewer services provided by private
entities."
Specifically, the CPUC ruling regarding the Company's application stated:
"The ultimate question of what fees and charges may or may not be assessed,
beyond external supplier pass-through charges, for in-park facilities when a
mobile home park does not adhere to the provisions of CPUC Section 2705.5, must
be decided by the Commission."
After the court of appeal decision, the HOA brought all of its members back
into the underlying civil action for the purpose of determining damages,
including punitive damages, against the Company. The trial was continued from
July 1998 to January 1999 to give the CPUC time to act on the Company's
application. Notwithstanding the action taken by the CPUC in issuing the OII in
December 1998, the trial court denied the Company's motion to dismiss on
jurisdictional grounds and trial commenced before a jury on January 11, 1999.
Not only did the trial court not consider the Company's motion to dismiss,
the trial court refused to allow evidence of the OII or the Company's CPUC
approval to go before the jury. Notwithstanding the Company's strenuous
objections, the judge also allowed evidence of the Company's and DeAnza's
litigation tactics to be used as evidence of bad faith and oppressive actions
(including evidence of the application to the CPUC requesting a $22.00 readiness
to serve charge). The Company's motion for a mistrial based upon these
evidentiary rulings was denied. On January 22, 1999, the jury returned a verdict
awarding $6.0 million of punitive damages against the Company and DeAnza. The
Company had previously agreed to indemnify DeAnza on the matter.
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 the
appeal has been fully briefed by both parties. The Company is awaiting notice of
scheduling of oral argument on the appeal.
13
14
In two related appeals, the Company had argued that the trial court's
ability to enter an award of attorneys' fees in favor of the HOA and to take
certain other actions was preempted by the exercise of exclusive jurisdiction by
the CPUC over the issue of how to set rates for water in a submetered mobile
home park. During 2000, the California court of appeal rejected the Company's
preemption argument with respect to these prior rulings in favor of plaintiffs,
one of which had awarded plaintiffs approximately $100,000 of attorneys' fees.
The California Supreme Court declined to accept the case for review and the
Company paid the judgment, including post-judgment interest thereon, and settled
the matter for approximately $200,000 late in 2000.
The jury verdict appeal also 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. Although no assurances can be given, the Company believes
the appeal will be successful.
Subsequently, in December 2000 the HOA and certain individual residents of
the Property filed a complaint in the Superior Court of California, County of
Santa Cruz (No. CV 139825) against the Company, certain affiliates of the
Company and certain employees of the Company. The new lawsuit seeks damages,
including punitive damages, for intentional infliction of emotional distress,
unfair business practices, and unlawful retaliation purportedly arising from
allegedly retaliatory rent increases which were noticed by the Company to
certain residents in September 2000. The Company believes that the residents who
received rent increase notices with respect to rent increases above those
permitted by the local rent control ordinance were not covered by the ordinance
either because they did not comply with the provisions of the ordinance or
because they are exempted by state law. On December 29, 2000, the Superior Court
of California, County of Santa Cruz enjoined such rent increases. The Company
intends to vigorously defend the matter, which may go to trial in the summer of
2001.
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 (see Note 5).
In connection with the Ellenburg Acquisition, on September 8, 1999,
Ellenburg Fund 20 ("Fund 20") filed a cross complaint in the Ellenburg
dissolution proceeding against the Company and certain of its affiliates
alleging causes of action for fraud and other claims in connection with the
Ellenburg acquisition. The Company subsequently successfully had the cross
complaint against the Company and its affiliates dismissed with prejudice by the
California Superior Court. However, Fund 20 has appealed. 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
In 1996, 1997 and 1998, the Lending Partnership made loans to Candlelight
Properties, L.L.C. ("Borrower") in the aggregate principal amount of $8,050,000
(collectively, the "Loan". The Loan 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 Loan 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, Borrower granted the
Operating Partnership the option to acquire Candlelight upon the maturity of the
Loan. The Operating Partnership notified Borrower that it was exercising its
option to acquire Candlelight in March 1999, and the Loan subsequently matured
on May 3, 1999. However, Borrower failed to repay the Loan and refused to convey
Candlelight to the Operating Partnership.
Borrower filed suit in the Circuit Court of Bartholomew County, Indiana
("Court") on May 5, 1999, seeking declaratory judgment on the validity of the
exercise of the option. The Lending Partnership filed suit in the Court the next
day, seeking to foreclose its mortgage, and the suits were consolidated
(collectively, the "State Court Litigation") by the Court. The Court issued an
Order on December 1, 1999, finding, among other things, 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 appealed both judgments, and the Court 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.
14
15
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 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.
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. Management believes that all proceedings herein
described or referred to, taken together, are not expected to have a material
adverse impact on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The following table sets forth for the period indicated, the high and low
sales prices for the Company's common stock as reported by the New York Stock
Exchange under the trading symbol MHC.
Distributions Return of Capital
Close High Low Made GAAP Basis (a)
----- ---- --- ---- --------------
2000
1st Quarter $23.1250 $25.7500 $22.2500 $.4150 $.14
2nd Quarter 23.9375 25.7500 23.0625 .4150 .00
3rd Quarter 25.0000 25.2500 23.5000 .4150 .17
4th Quarter 29.0000 29.1250 24.3125 .4150 .12
1999
1st Quarter $24.0000 $25.5000 $21.8125 $.3875 $.08
2nd Quarter 26.0000 27.0000 22.3750 .3875 .12
3rd Quarter 23.3750 26.0625 23.0000 .3875 .12
4th Quarter 24.3125 24.5000 22.5625 .3875 .15
(a) Represents distributions per share in excess of net income per share-basic
on a GAAP basis and is not the same as return of capital on a tax basis.
The number of beneficial holders of the Company's common stock at December 31,
2000 was approximately 5,500.
16
17
ITEM 6. SELECTED FINANCIAL AND OPERATING INFORMATION
The following table sets forth selected financial and operating information
on a historical basis for the Company. The following information should be read
in conjunction with all of the financial statements and notes thereto included
elsewhere in this Form 10-K. The historical operating data for the years ended
December 31, 2000, 1999, 1998, 1997 and 1996 have been derived from the
historical Financial Statements of the Company audited by Ernst & Young LLP,
independent auditors.
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(Amounts in thousands, except for per share and property data)
OPERATING DATA: (1) YEARS ENDED DECEMBER 31,
----------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
REVENUES
Base rental income................................... $189,481 $181,672 $165,340 $108,984 $93,109
RV base rental income................................ 7,414 9,526 7,153 --- ---
Utility and other income............................. 20,366 20,096 18,219 11,785 8,821
Equity in income of affiliates....................... 2,408 2,065 1,070 800 853
Interest income...................................... 1,009 1,669 3,048 1,941 2,420
-------- -------- -------- -------- -------
Total revenues.................................... 220,678 215,028 194,830 123,510 105,203
-------- -------- -------- -------- -------
EXPENSES
Property operating and maintenance................... 59,199 58,038 53,064 32,343 28,399
Real estate taxes.................................... 16,888 16,460 14,470 8,352 7,947
Property management.................................. 8,690 8,337 7,108 5,079 4,338
General and administrative........................... 6,423 6,092 5,411 4,559 4,062
Interest and related amortization.................... 53,280 53,775 49,693 21,753 17,782
Depreciation on corporate assets..................... 1,139 1,005 995 590 488
Depreciation on real estate assets and other costs... 34,411 34,486 28,426 17,365 15,244
-------- -------- -------- -------- -------
Total expenses.................................... 180,030 178,193 159,167 90,041 78,260
-------- -------- -------- -------- -------
Income from operations............................... 40,648 36,835 35,663 33,469 26,943
Gain on sale of property and other................... 12,053 --- --- --- ---
-------- -------- -------- -------- -------
Income before allocation to minority interests and
extraordinary loss on early extinguishment of debt 52,701 36,835 35,663 33,469 26,943
(Income) allocated to Common OP Units................ (8,463) (6,219) (6,733) (4,373) (2,671)
(Income) allocated to Perpetual Preferred OP Units... (11,252) (2,844) --- --- ---
-------- -------- -------- -------- -------
Income before extraordinary loss on early
extinguishment of debt............................ 32,986 27,772 28,930 29,096 24,272
Extraordinary loss on early extinguishment
of debt (net of $264 and $105 allocated to
minority interests)............................... (1,041) --- --- (451) ---
-------- -------- -------- -------- -------
NET INCOME........................................ $31,945 $27,772 $28,930 $28,645 $24,272
======= ======= ======= ======= =======
Net income per Common Share before extraordinary item
- basic ............................................. $1.54 $1.10 $1.13 $1.18 $0.98
======= ======= ======= ======= =======
Net income per Common Share before extraordinary item
- diluted............................................ $1.51 $1.09 $1.12 $1.16 $0.98
======= ======= ======= ======= =======
Net income per Common Share - basic.................. $1.49 $1.10 $1.13 $1.16 $0.98
======= ======= ======= ======= =======
Net income per Common Share - diluted................ $1.46 $1.09 $1.12 $1.15 $0.98
======= ======= ======= ======= =======
Dividend declared per Common Share................... $1.66 $1.55 $1.45 $1.32 $1.22
======= ======= ======= ======= =======
Weighted average Common Shares outstanding - basic... 21,469 25,224 25,626 24,689 24,693
Weighted average Common OP Units outstanding......... 5,592 5,704 5,955 3,749 2,715
Weighted average Common Shares outstanding - diluted. 27,408 31,252 31,962 28,762 27,546
17
18
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(continued)
(Amounts in thousands, except for per share and property data)
BALANCE SHEET DATA: (1) AS OF DECEMBER 31,
----------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Real estate, before accumulated depreciation (2)..... $1,218,176 $1,264,343 $1,237,431 $936,318 $597,650
Total assets......................................... 1,104,304 1,160,338 1,176,841 864,365 567,874
Total mortgages and loans............................ 764,938 725,264 750,849 495,172 254,982
Minority interests................................... 171,271 179,397 70,468 67,453 28,640
Stockholders' equity................................. 168,095 211,401 310,441 280,575 257,952
OTHER DATA:
Funds from operations (3)............................ $63,807 $68,477 $64,089 $50,834 $42,187
Net cash flow:
Operating activities.............................. $68,001 $72,580 $71,977 $54,581 $49,660
Investing activities.............................. $23,102 $(37,868) $(262,762) $(239,445) $(60,954)
Financing activities.............................. $(94,932) $(41,693) $203,533 $185,449 $10,858
Total Properties (at end of period) (4).............. 154 157 154 121 69
Total sites (at end of period)....................... 51,452 54,007 53,391 44,108 27,356
Total sites (weighted average) (5)................... 46,964 46,914 43,932 29,323 26,621
(1) See the Consolidated Financial Statements of the Company included
elsewhere herein.
(2) The Company believes that the book value of the Properties, which
reflects the historical costs of such real estate assets less
accumulated depreciation, is less than the current market value of the
Properties.
(3) The Company generally considers Funds From Operations ("FFO") to be an
appropriate measure of the performance of an equity Real Estate
Investment Trust ("REIT"). FFO was redefined by the National
Association of Real Estate Investment Trusts ("NAREIT") in October
1999, effective January 1, 2000, as net income (computed in accordance
with generally accepted accounting principles ["GAAP"]), before
allocation to minority interests, excluding gains (or losses) from
sales of property, plus real estate depreciation and after adjustments
for unconsolidated partnerships and joint ventures. For purposes of
presenting FFO, the revised definition of FFO has been given
retroactive treatment. The Company believes that FFO is helpful to
investors as a measure of the performance of an equity REIT because,
along with cash flows from operating activities, financing activities
and investing activities, it provides investors an understanding of the
ability of the Company to incur and service debt and to make capital
expenditures. The Company computes FFO in accordance with the NAREIT
definition which may differ from the methodology for calculating FFO
utilized by other equity REITs and, accordingly, may not be comparable
to such other REITs computations. FFO in and of itself does not
represent cash generated from operating activities in accordance with
GAAP and therefore should not be considered an alternative to net
income as an indication of the Company's performance or to net cash
flows from operating activities as determined by GAAP as a measure of
liquidity and is not necessarily indicative of cash available to fund
cash needs.
(4) During the year ended December 31, 1996, four Properties were acquired;
net operating income attributable to such Properties was approximately
$1.8 million, which included approximately $371,000 of depreciation and
amortization expense. During the year ended December 31, 1997, 39
Properties were acquired; net operating income attributable to such
Properties was approximately $3.8 million, which included approximately
$1.7 million of depreciation and amortization expense. During the year
ended December 31, 1998, 41 Properties were acquired; net operating
income attributable to such Properties was approximately $7.6 million,
which included approximately $3.9 million of depreciation and
amortization expense. During the year ended December 31, 1999, two
Properties were acquired; net operating income attributable to such
Properties was approximately $87,000, which included approximately
$104,000 of depreciation expense. During the year ended December 31,
2000, three Properties and a water and wastewater treatment company
were sold; net operating income attributable to such Properties was
approximately $1.6 million, which included approximately $623,000 of
depreciation expense.
(5) Excludes recreational vehicle sites and sites held through
unconsolidated joint ventures.
18
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the historical Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Form 10-K. The following discussion may
contain certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 which reflect management's current
views with respect to future events and financial performance. Such
forward-looking statements are subject to certain risks and uncertainties,
including, but not limited to, the effects of future events on the Company's
financial performance; the adverse impact of external factors such as inflation
and consumer confidence; and the risks associated with real estate ownership.
RESULTS OF OPERATIONS
PROPERTY ACQUISITIONS, JOINT VENTURES AND DISPOSITIONS
The following chart lists the Properties acquired or sold since January 1,
1998. The Company defines its core manufactured home community portfolio ("Core
Portfolio") as manufactured home Properties owned throughout both periods of
comparison. Excluded from the Core Portfolio are any Properties acquired or sold
during the period and also any recreational vehicle ("RV") Properties which,
together, are referred to as the "Non-Core" Properties.
PROPERTY TRANSACTION DATE SITES
-------- ---------------- -----
TOTAL SITES AS OF JANUARY 1, 1998 ............................................... 32,569
ACQUISITIONS:
The Ellenburg Communities (37 Properties) .............Throughout 1998 14,498
Quail Meadows .........................................January 8, 1998 146
Sherwood Forest RV Resort .............................April 30, 1998 512
Casa Del Sol Resort III ...............................May 14, 1998 238
The College Heights Communities (18 Properties) .......June 4, 1998 3,573
Sunset Oaks ...........................................August 13, 1998 167
The Meadows ...........................................April 1, 1999 380
Coquina Crossing ......................................July 23, 1999 270
UNCONSOLIDATED JOINT VENTURES:
Lakeshore Communities and Affiliates (3 properties) ...1998 and 1999 633
Plantation ............................................March 18, 1998 385
Trails West............................................March 18, 1998 503
EXPANSION SITE DEVELOPMENT:
Sites added in 1998.................................... 120
Sites added in 1999.................................... ---
Sites added in 2000.................................... 108
DISPOSITIONS:
Garden West Office Plaza ..............................October 26, 1999 ---
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 (161)
------
TOTAL SITES AS OF DECEMBER 31, 2000................................................... 51,452
======
19
20
COMPARISON OF YEAR ENDED DECEMBER 31, 2000 TO YEAR ENDED DECEMBER 31, 1999
Since December 31, 1998, the gross investment in real estate decreased from
$1,237 million to $1,218 million as of December 31, 2000, due primarily to the
aforementioned acquisitions and dispositions of Properties during the period.
The total number of sites owned or controlled decreased from 53,391 as of
December 31, 1998 to 51,452 as of December 31, 2000.
The following table summarizes certain financial and statistical data for
the Core Portfolio and the Total Portfolio for the years ended December 31, 2000
and 1999.
CORE PORTFOLIO TOTAL PORTFOLIO
INCREASE/ % INCREASE/ %
(dollars in thousands) 2000 1999 (DECREASE) CHANGE 2000 1999 (DECREASE) CHANGE
- ---------------------- ---- ---- ---------- ------ ---- ---- ---------- ------
Base rental income............... $186,148 $178,095 $8,053 4.5% $189,481 $181,672 $7,809 4.3%
Utility and other income......... 17,986 17,436 550 3.2% 27,780 29,622 (1,842) (6.2%)
Equity in income of affiliates... --- --- --- -- 2,408 2,065 343 16.6%
Interest income.................. --- --- --- -- 1,009 1,669 (660) (39.5%)
-------- -------- ------ ----- -------- -------- ------ ------
Total revenues.............. 204,134 195,531 8,603 4.4% 220,678 215,028 5,650 2.6%
Property operating and
maintenance................. 54,358 52,096 2,262 4.3% 59,199 58,038 1,161 2.0%
Real estate taxes................ 16,186 15,811 375 2.4% 16,888 16,460 428 2.6%
Property management.............. 8,194 7,725 469 6.1% 8,690 8,337 353 4.2%
General and administrative....... --- --- --- -- 6,423 6,092 331 5.4%
-------- -------- ------ ----- -------- -------- ------ ------
Total operating expenses.... 78,738 75,632 3,106 4.1% 91,200 88,927 2,273 2.6%
-------- -------- ------ ----- -------- -------- ------ ------
Income from operations before
interest, depreciation and
amortization expenses....... 125,396 119,899 5,497 4.6% 129,478 126,101 3,377 2.7%
Interest and related amortization --- --- --- -- 53,280 53,775 (495) (0.9%)
Depreciation on corporate assets. --- --- --- -- 1,139 1,005 134 13.3%
Property depreciation and other.. 31,366 30,912 454 1.5% 34,411 34,486 (75) (0.2%)
-------- -------- ------ ----- -------- -------- ------ ------
Income from operations(1)... 94,030 88,987 5,043 5.7% 40,648 36,835 3,813 10.4%
======== ======== ====== ===== ======== ======== ====== ======
Site and Occupancy Information(2):
Average total sites.............. 45,894 45,810 84 0.2% 46,964 46,914 50 0.1%
Average occupied sites........... 43,410 43,138 272 0.6% 44,325 44,110 215 0.5%
Occupancy %...................... 94.6% 94.2% 0.4% 0.4% 94.4% 94.0% 0.4% 0.4%
Monthly base rent per site....... $357.35 $344.04 $13.31 3.9% $356.24 $343.22 $13.02 3.8%
Total sites
as of December 31,.......... 45,902 45,808 94 0.2% 46,734 47,284 (550) (1.2%)
Total occupied sites
as of December 31,.......... 43,595 43,289 306 0.7% 44,270 44,555 (285) (0.6%)
(1) Income from operations for the Core Portfolio does not include an
allocation of income from affiliates, interest income, corporate general
and administrative expense, interest expense and related amortization or
depreciation on corporate assets.
(2) Site and occupancy information does not include the five Properties owned
through joint ventures or the three RV properties.
20
21
Revenues
The 4.5% increase in base rental income for the Core Portfolio reflects a
3.9% increase in monthly base rent per site coupled with a 0.6% increase in
average occupied sites. The 4.3% increase in base rental income for the Total
Portfolio reflects a 3.8% increase in monthly base rent per site coupled with a
0.5% increase in average occupied sites and also reflects acquisition and
disposition of Non-Core Properties. The increase in utility and other income for
the Core Portfolio is due primarily to increases in pass through items such as
utilities and real estate taxes - which resulted from higher expenses for these
items. The decrease in Total Portfolio utility and other income is due primarily
to the sale of Mesa Regal RV resort and other changes in the Non-Core
Properties. Also included in other income is a gain on the sale of the FFEC-Six
water and wastewater treatment company of $719,000, partially offset by an
impairment loss on the DeAnza Santa Cruz water and wastewater service company of
$701,000.
The decrease in interest income is primarily due to the repayment of
certain notes receivable and fewer short-term investments. Short-term
investments had average balances for the years ended December 31, 2000 and 1999
of approximately $1.5 million and $2.8 million, respectively, which earned
interest income at an effective rate of 6.0% and 6.3% per annum, respectively.
Operating Expenses
The increase in property operating and maintenance expense for the Core
Portfolio is due primarily to increases in utility expenses generally passed
through and included in utility income. Expenses for the Core Portfolio also
reflect increases in repairs and maintenance expense, payroll and property
general and administrative expenses partially offset by decreased insurance and
other expenses. Core Portfolio real estate taxes increased 2.4% generally due to
higher property assessments on certain Properties. The increase in Total
Portfolio property operating and maintenance expense and real estate taxes is
also impacted by acquisition and disposition of Non-Core Properties. Property
management expense for the Core Portfolio, which reflects costs of managing the
properties and is estimated based on a percentage of Property revenues,
increased 6.1%.
General and administrative expenses increased primarily due to increased
payroll resulting from salary increases and increased public company related
expenses.
Interest and related amortization decreased due to lower weighted average
outstanding debt balances during the period. The weighted average outstanding
debt balances for the years ended December 31, 2000 and 1999 were $707.5 million
and $738.1 million, respectively. The effective interest rate was 7.4% and 7.2%
per annum for the years ended December 31, 2000 and 1999, respectively.
Depreciation on corporate assets increased due to fixed asset additions
related to information and communication systems. Depreciation on real estate
assets and other costs decreased due primarily to the acquisition and
disposition of Non-Core Properties.
21
22
COMPARISON OF YEAR ENDED DECEMBER 31, 1999 TO YEAR ENDED DECEMBER 31, 1998
Since December 31, 1997, the gross investment in real estate increased from
$936 million to $1,264 million as of December 31, 1999 due primarily to the
aforementioned acquisitions and dispositions of Properties during the period.
The total number of sites owned or controlled has increased from 44,108 as of
December 31, 1997 to 54,007 as of December 31, 1999.
The following table summarizes certain financial and statistical data for
the Core Portfolio and the Total Portfolio for the years ended December 31, 1999
and 1998.
CORE PORTFOLIO TOTAL PORTFOLIO
-------------- ---------------
INCREASE/ % INCREASE/ %
(dollars in thousands) 1999 1998 (DECREASE) CHANGE 1999 1998 (DECREASE) CHANGE
- ---------------------- ---- ---- ---------- ------ ---- ---- ---------- ------
Base rental income............... $131,064 $126,246 $4,818 3.8% $181,672 $165,340 $16,332 9.9%
Utility and other income......... 14,885 14,420 465 3.2% 29,622 25,372 4,250 16.8%
Equity in income of affiliates... --- --- --- --- 2,065 1,070 995 93.0%
Interest income.................. --- --- --- --- 1,669 3,048 (1,379) (45.2%)
-------- -------- ------ ---- -------- -------- ------- ----
Total revenues.............. 145,949 140,666 5,283 3.8% 215,028 194,830 20,198 10.4%
Property operating and
maintenance................. 38,281 37,852 429 1.1% 58,038 53,064 4,974 9.4%
Real estate taxes................ 11,201 10,533 668 6.3% 16,460 14,470 1,990 13.8%
Property management.............. 5,764 5,252 512 9.7% 8,337 7,108 1,229 17.3%
General and administrative....... --- --- --- --- 6,092 5,411 681 12.6%
-------- -------- ------ ---- -------- -------- ------- ----
Total operating expenses.... 55,246 53,637 1,609 3.0% 88,927 80,053 8,874 11.1%
-------- -------- ------ ---- -------- -------- ------- ----
Income from operations before
interest, depreciation and
amortization expenses....... 90,703 87,029 3,674 4.2% 126,101 114,777 11,324 9.9%
Interest and related amortization --- --- --- --- 53,775 49,693 4,082 8.2%
Depreciation on corporate assets --- --- --- --- 1,005 995 10 1.0%
Property depreciation and other 20,667 19,917 750 3.8% 34,486 28,426 6,060 21.3%
-------- -------- ------ ---- -------- -------- ------- ---
Income from operations (1).. 70,036 67,112 2,924 4.4% 36,835 35,663 1,172 3.3%
======== ======== ====== ==== ======== ======== ======= ===
Site and Occupancy Information (2):
Average total sites............ 32,393 32,358 35 0.1% 46,914 43,932 2,982 6.8%
Average occupied sites......... 30,708 30,652 56 0.2% 44,110 41,420 2,690 6.5%
Occupancy %.................... 94.8% 94.7% 0.1% 0.1% 94.0% 94.3% (0.3%) (0.3%)
Monthly base rent per site..... $356.06 $343.23 $12.83 3.7% $343.22 $332.65 $10.57 3.2%
Total sites
as of December 31,.......... 32,395 32,384 11 0.0% 47,284 46,446 838 1.8%
Total occupied sites
as of December 31,.......... 30,789 30,673 116 0.4% 44,555 43,707 848 1.9%
(1) Income from operations for the Core Portfolio does not include an
allocation of income from affiliates, interest income, corporate general
and administrative expense, interest expense and related amortization or
depreciation on corporate assets.
(2) Site and occupancy information does not include the five Properties owned
through joint ventures or the four RV properties.
22
23
Revenues
The 3.8% increase in base rental income for the Core Portfolio reflects a
3.7% increase in monthly base rent per site coupled with a 0.2% increase in
average occupied sites. The 9.9% increase in base rental income for the Total
Portfolio reflects a 3.2% increase in monthly base rent per site coupled with a
6.5% increase in average occupied sites and also reflects acquisition and
disposition of Non-Core Properties. The increase in utility and other income for
the Core Portfolio is due primarily to increases in pass through items such as
utilities and real estate taxes - which resulted from higher expenses for these
items. The increase in Total Portfolio utility and other income is due primarily
to RV income related to the purchase of three RV resorts during 1998 and other
changes in the Non-Core Properties.
The decrease in interest income is primarily due to the conversion of some
notes receivable to fee simple interests in The Meadows and certain Ellenburg
Communities. Short-term investments had average balances for the years ended
December 31, 1999 and 1998 of approximately $2.8 million and $6.9 million,
respectively, which earned interest income at an effective rate of 6.3% and 5.4%
per annum, respectively.
Operating Expenses
The increase in property operating and maintenance expense for the Core
Portfolio reflects increases in repairs and maintenance expense, payroll expense
and increases in utility expenses passed through and included in utility income.
These increases are partially offset by decreased property general and
administrative, insurance and other expenses. Core Portfolio real estate taxes
increased 6.3% generally due to higher property assessments on certain
Properties. The increase in Total Portfolio property operating and maintenance
expense and real estate taxes is also impacted by the acquisition and
disposition of Non-Core Properties. Property management expense for the Core
Portfolio, which reflects costs of managing the properties and is estimated
based on a percentage of Property revenues, increased 9.7%. The increase was
primarily due to the addition of senior management personnel in the areas of
operations, human resources and accounting and the incremental expenses related
to management of Properties acquired in 1998 and 1999.
General and administrative expenses increased primarily due to increased
payroll resulting from salary increases and increased public company related
expenses.
Interest and related amortization increased due to higher weighted average
outstanding debt balances during the period. The weighted average outstanding
debt balances for the years ended December 31, 1999 and 1998 were $738.1 million
and $696.0 million, respectively. The effective interest rate was 7.2% per annum
for both years ended December 31, 1999 and 1998.
Depreciation on corporate assets increased due to fixed asset additions
related to information and communication systems. Depreciation on real estate
assets and other costs increased due to fixed asset additions of Properties
acquired in 1999 and 1998.
23
24
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
As of December 31, 2000, the Company had $2.8 million in cash and cash
equivalents and $90.1 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.
In order to qualify as a REIT for federal income tax purposes, the Company
must distribute 95% or more of its taxable income (excluding capital gains). The
following distributions have been declared and / or paid to common stockholders
and minority interests since January 1, 1998.
DISTRIBUTION FOR THE QUARTER SHAREHOLDER RECORD
AMOUNT PER SHARE ENDING DATE PAYMENT DATE
---------------- ------ ---- ------------
$0.3625 March 31, 1998 March 27, 1998 April 10, 1998
$0.3625 June 30, 1998 June 26, 1998 July 10, 1998
$0.3625 September 30, 1998 September 25, 1998 October 9, 1998
$0.3625 December 31, 1998 December 16, 1998 December 30, 1998
- -------------------------------------------------------------------------------------------------------
$0.3875 March 31, 1999 March 26, 1999 April 9, 1999
$0.3875 June 30, 1999 June 25, 1999 July 9, 1999
$0.3875 September 30, 1999 September 24, 1999 October 8, 1999
$0.3875 December 31, 1999 December 31, 1999 January 14, 2000
- -------------------------------------------------------------------------------------------------------
$0.4150 March 31, 2000 March 31, 2000 April 14, 2000
$0.4150 June 30, 2000 June 30, 2000 July 14, 2000
$0.4150 September 30, 2000 September 29, 2000 October 13, 2000
$0.4150 December 31, 2000 December 29, 2000 January 12, 2001
The Operating Partnership paid distributions of 9.0% per annum on the $125
million of Series D Cumulative Redeemable Perpetual Preferred Units ("Preferred
Units"). Distributions on the Preferred Units were paid quarterly on the last
calendar day of each quarter beginning December 31, 1999. The Company expects to
continue to make regular quarterly distributions and has set its 2001
distribution to common stockholders at $1.78 per share per annum.
MORTGAGES AND CREDIT FACILITIES
On February 24, 2000, the Company entered into mortgage agreements
collateralizing two Properties for a total of $14.6 million. The mortgage notes
mature on March 1, 2010, amortize beginning March 1, 2000 over 30 years and bear
interest at a rate of approximately 8.3% per annum.
On June 30, 2000, the Company obtained $110 million in debt financing
consisting of two mortgage notes - one for $94.3 million and one for $15.7
million - secured by seven Properties. The proceeds of the financing were used
to repay $60 million of mortgage debt secured by the seven Properties, to repay
amounts outstanding under the Company's line of credit and for working capital
purposes. The Company recorded a $1.0 million extraordinary loss (net of
$264,000 allocated to Minority Interests) in connection with the early repayment
of the $60 million of mortgage debt.
On April 3, 2000, the Company extended to April 3, 2002 the maturity of its
$100 million unsecured term loan (the "Term Loan") with a group of banks with
interest only payable monthly at a rate of the London Interbank Offered Rate
("LIBOR") plus 1.0%.
On August 9, 2000, the Company amended its unsecured line of credit with a
bank (the "Credit Agreement") bearing interest at LIBOR plus 1.125%. Among other
things, the amendment lowered the total facility under the Credit Agreement to
$150 million and extended the maturity to August 9, 2003. The Company pays a
quarterly fee on the average unused amount of such credit equal to 0.15% of such
amount.
24
25
Certain of the Company's mortgage and credit agreements contain covenants
and restrictions including restrictions as to the ratio of secured or unsecured
debt versus encumbered or unencumbered assets, the ratio of fixed
charges-to-earnings before interest, taxes, depreciation and amortization
("EBITDA"), limitations on certain holdings and other restrictions.
ACQUISITIONS, DISPOSITIONS AND INVESTMENTS
On January 6, 1998, the Company funded a $12.3 million loan (the "Meadows
Loan") to Meadows Preservation, Inc. The Meadows Loan was collateralized by The
Meadows manufactured home community located in Palm Beach Gardens, Florida. On
April 1, 1999, the Company effectively exchanged the Meadows Loan for an equity
and debt interest in the partnership that owns The Meadows. The Company
consolidates The Meadows and the related results of operations.
On July 23, 1999, the Company acquired Coquina Crossing, located in St.
Augustine, Florida, for a purchase price of approximately $10.4 million. The
acquisition was funded with a borrowing under the Company's line of credit.
Coquina Crossing is a 748-site senior community with 269 developed sites and
zoned expansion potential for 479 sites. In addition, Realty Systems, Inc.
("RSI"), an affiliate of the Company, purchased the model home inventory at the
community for approximately $1.1 million.
On February 29, 2000, MHC Systems, Inc., a consolidated subsidiary of the
Company, disposed of the water and wastewater service company and facilities
known as FFEC-Six in a cash sale. Net proceeds from the sale of approximately
$4.2 million were used to pay down the Company's line of credit and a gain on
the sale of $719,000 (or $.02 per fully diluted share) was recorded in other
income on the accompanying statement of operations.
In April 2000, the California Superior Court approved a settlement
agreement (the "Settlement") in connection with the dissolution proceeding of
ECC and its affiliated partnerships. As part of the Settlement, the Company
received $13.5 million previously held in escrow in connection with the purchase
of the Ellenburg Communities and recorded $3.0 million of interest income
related to these funds. In connection with the Settlement, the Company sold
three communities - Mesa Regal RV Resort, Mon Dak and Naples Estates - for an
aggregate sales price of $59.0 million, including cash proceeds of $40.0 million
and assumption of debt by the purchaser of $19.0 million. The Company recorded a
$9.1 million gain on the sale of these Properties. Proceeds from the Settlement
and property sales were used to pay down the Company's line of credit.
On December 28, 2000, the Company, through its joint venture with Meadows
Management Company, acquired a 50% economic interest in Voyager RV Resort, a
1,576 site RV resort in Tucson, Arizona, for total consideration of $8.0
million. The Company's investment included cash of $3.0 million, its 50%
interest in land held through the joint venture valued at $2.0 million and notes
receivable from the principals of Meadows Management Company totaling $3.0
million.
CAPITAL IMPROVEMENTS
Capital expenditures for improvements are identified by the Company as
recurring capital expenditures ("Recurring CapEx"), site development costs and
corporate headquarters costs. Recurring CapEx was approximately $7.9 million and
$8.7 million for the years ended December 31, 2000 and 1999, respectively. Of
these expenditures, the Company believes that approximately $6.5 million or $130
per site for 2000 and $6.3 million or $122 per site for 1999 are non-revenue
producing improvements which are necessary in order to increase and/or maintain
occupancy levels and maintain competitive market rents for new and renewing
residents. Site development costs were approximately $7.9 million and $4.9
million for the years ended December 31, 2000 and 1999, respectively, and
represent costs to develop expansion sites at certain of the Company's
Properties.
EQUITY TRANSACTIONS
On March 26, 1999, the Operating Partnership repurchased and cancelled
200,000 OP Units from a limited partner of the Operating Partnership.
On September 30, 1999, the Operating Partnership completed a $125 million
private placement of 9.0% Series D Cumulative Perpetual Preferred Units ("POP
Units") to two institutional investors. The POP Units, which are callable by the
Company after five years, have no stated maturity or mandatory redemption. Net
proceeds from the offering of $121 million were used to repay amounts
outstanding under the Company's line of credit facility and for other corporate
purposes.
25
26
In March 1997, the Company's Board of Directors approved a common stock
repurchase plan whereby the Company was authorized to repurchase and retire
shares of its common stock. Under the plan, the Company repurchased
approximately 2.2 million shares of Common Stock at an average price of $24.06
per share during the year ended December 31, 2000 and 4.1 million shares of
Common Stock at an average price of $23.40 per share during the year ended
December 31, 1999, using proceeds from borrowings on the line of credit.
INFLATION
Substantially all of the leases at the Properties allow for monthly or
annual rent increases which provide the Company with the opportunity to achieve
increases, where justified by the market, as each lease matures. Such types of
leases generally minimize the risk of inflation to the Company.
FUNDS FROM OPERATIONS
FFO was redefined by NAREIT in October 1999, effective January 1, 2000, as
net income (computed in accordance with GAAP), before allocation to minority
interests, excluding gains (or losses) from sales of property, plus real estate
depreciation and after adjustments for unconsolidated partnerships and joint
ventures. The Company computes FFO in accordance with the NAREIT definition,
which may differ from the methodology for calculating FFO utilized by other
equity REITs and, accordingly, may not be comparable to such other REIT's
computations. Funds available for distribution ("FAD") is defined as FFO less
non-revenue producing capital expenditures and amortization payments on mortgage
loan principal. The Company believes that FFO and FAD are useful to investors as
a measure of the performance of an equity REIT because, along with cash flows
from operating activities, financing activities and investing activities, they
provide investors an understanding of the ability of the Company to incur and
service debt and to make capital expenditures. FFO and FAD in and of themselves
do not represent cash generated from operating activities in accordance with
GAAP and therefore should not be considered an alternative to net income as an
indication of the Company's performance or to net cash flows from operating
activities as determined by GAAP as a measure of liquidity and are not
necessarily indicative of cash available to fund cash needs.
The following table presents a calculation of FFO and FAD for the years
ended December 31, 2000, 1999 and 1998 (amounts in thousands):
2000 1999 1998
---- ---- ----
COMPUTATION OF FUNDS FROM OPERATIONS:
Income before extraordinary loss on early
extinguishment of debt ............................ $ 32,986 $ 27,772 $ 28,930
Income allocated to Common OP Units .................. 8,463 6,219 6,733
Depreciation on real estate assets and other costs ... 34,411 34,486 28,426
Gain on sale of Properties and other ................. (12,053) -- --
-------- -------- --------
Funds from operations ............................. $ 63,807 $ 68,477 $ 64,089
======== ======== ========
Weighted average Common Stock outstanding - diluted .. 27,408 31,252 31,962
======== ======== ========
COMPUTATION OF FUNDS AVAILABLE FOR DISTRIBUTION:
Funds from operations ................................ $ 63,807 $ 68,477 $ 64,089
Non-revenue producing improvements to real estate .... (7,855) (8,656) (8,005)
-------- -------- --------
Funds available for distribution .................. $ 55,952 $ 59,821 $ 56,084
======== ======== ========
Weighted average Common Stock outstanding - diluted .. 27,408 31,252 31,962
======== ======== ========
26
27
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The Company's earnings are affected by changes in interest rates, as a
portion of the Company's outstanding indebtedness is at variable rates based on
LIBOR. The Company's $150 million line of credit ($59.9 million outstanding at
December 31, 2000) bears interest at LIBOR plus 1.125% and the Company's $100
million Term Loan bears interest at LIBOR plus 1.0%. If LIBOR
increased/decreased by 1.0% during 2000, interest expense would have
increased/decreased by approximately $1.7 million based on the combined average
balance outstanding under the Company's line of credit and Term Loan for the
year ended December 31, 2000.
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 cost of the 1998 Swap consisted only
of legal costs that were deemed immaterial. The value of the 1998 Swap was
impacted by changes in the market rate of interest. Had the 1998 Swap been
entered into on December 31, 1999, the applicable LIBOR swap rate would have
been approximately 6.57%. Each 0.01% increase or decrease in the applicable swap
rate for the 1998 Swap increases or decreases the value of the 1998 Swap versus
its current value by approximately $28,000. The Company accounted for the 1998
Swap as a hedge. Payments and receipts under the 1998 Swap were accounted for as
an adjustment to interest expense. On January 10, 2000, the Company unwound the
1998 Swap and received $1.0 million of proceeds which is amortized into interest
expense through March 2003.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and
Hedging Activities". SFAS No. 133 permits early adoption as of the beginning of
any fiscal quarter after its issuance. In June 1999, the FASB issued Statement
No. 137 which deferred the effective date of SFAS No. 133 to all fiscal quarters
for fiscal years beginning after June 15, 2000. The Company will adopt SFAS No.
133 on January 1, 2001. SFAS No. 133 will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
Company has determined that the effect of SFAS No. 133 on the earnings and
financial position of the Company will not be significant when implemented.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Combined Financial Statements on page F-1 of this Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10, 11, 12, 13.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, EXECUTIVE
COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 10, Item 11, Item 12, and Item 13
will be contained in a definitive proxy statement which the
Registrant anticipates will be filed no later than April 28, 2001,
and thus this Part has been omitted in accordance with General
Instruction G(3) to Form 10-K.
27
28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)
(1&2) See Index to Financial Statements and Schedules on page F-1 of
this Form 10-K.
(3) Exhibits:
2(a) Admission Agreement between Equity Financial and
Management Co., Manufactured Home Communities, Inc.
and MHC Operating Partnership
3.1(a) Articles of Incorporation of Manufactured Home
Communities, Inc.
3.2(a) Articles of Amendment and Restatement of Manufactured
Home Communities, Inc.
3.3(g) Amended Bylaws of Manufactured Home Communities, Inc.
4 Not applicable
9 Not applicable
10.1(a) Amended and Restated Agreement of Limited Partnership
of MHC Operating Limited Partnership
10.2(a) Agreement of Limited Partnership of MHC Financing
Limited Partnership
10.3(a) Agreement of Limited Partnership of MHC Management
Limited Partnership
10.4(a) Property Management and Leasing Agreement between MHC
Financing Limited Partnership and MHC Management
Limited Partnership
10.5(a) Property Management and Leasing Agreement between MHC
Operating Limited Partnership and MHC Management
Limited Partnership
10.6(a) Services Agreement between Realty Systems, Inc. and
MHC Management Limited Partnership
10.7(a) Rate Protection Agreement
10.8(a) Revolving Credit Note made by Realty Systems, Inc. to
Equity Financial and Management Co.
10.9(a) Assignment to MHC Operating Limited Partnership of
Revolving Credit Note made by Realty Systems, Inc. to
Equity Financial and Management Co.
10.10(a) Stock Option Plan
10.11A(a) Indenture of Mortgage, Deed of Trust, Security
Agreement, Financing Statement, Fixture Filing and
Assignment of Rents
10.11B(a) Promissory Note
10.11C(a) Assignment of Loan Documents
10.11D(a) Assignment of Leases, Rents and Security Deposits
10.11E(a) Swap Agreement Pledge and Security Agreement
10.11F(a) Cash Collateral Account Security, Pledge and
Assignment Agreement
10.11G(a) Assignment of Property Management and Leasing
Agreement
10.11H(a) Trust Agreement
10.12(a) Form of Noncompetition Agreement
10.13(a) Form of Noncompetition Agreement
10.13A(a) Form of Noncompetition Agreement
10.14(a) General Electric Credit Corporation Commitment Letter
10.15(a) Administrative Services Agreement between Realty
Systems, Inc. and Equity Group Investments, Inc.
10.16(a) Registration Rights and Lock-Up Agreement with the
Company (the Original Owners, EF&M, Directors,
Officers and Employees)
10.17(a) Administrative Services Agreement between the Company
and Equity Group Investments, Inc.
10.18(a) Form of Subscription Agreement between the Company
and certain officers and other individuals dated
March 3, 1993
10.19(a) Form of Secured Promissory Note payable to the
Company by certain officers dated March 3, 1993
10.20(a) Form of Pledge Agreement between the Company and
certain officers dated March 3, 1993
10.21(a) Loan and Security Agreement between Realty Systems,
Inc. and MHC Operating Limited Partnership
10.22(a) Equity and Registration Rights Agreement with the
Company (the GM Trusts)
10.23(b) Agreement of Limited Partnership of MHC Lending
Limited Partnership
10.23(c) Agreement of Limited Partnership of MHC-Bay Indies
Financing Limited Partnership
10.24(c) Agreement of Limited Partnership of MHC-De Anza
Financing Limited Partnership
10.25(c) Agreement of Limited Partnership of MHC-DAG
Management Limited Partnership
10.26(d) Amendment No. 2 to MHC Operating Limited Partnership
Amended and Restated Partnership Agreement dated
February 15, 1996
10.27(d) Form of Subscription Agreement between the Company
and certain members of management of the Company
dated January 2, 1996
28
29
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
10.28(d) Form of Secured Promissory Note payable to the
Company by certain members of management of the
Company dated January 2, 1996
10.29(d) Form of Pledge Agreement between the Company and
certain members of management of the Company dated
January 2, 1996
10.30(e) Second Amended and Restated MHC Operating Limited
Partnership Agreement of Limited Partnership, dated
as of March 15, 1996
10.31(f) Agreement of Limited Partnership of MHC Financing
Limited Partnership Two
10.32(g) $265,000,000 Mortgage Note dated December 12,1997
10.33(g) Second Amended and Restated Credit Agreement
(Revolving Facility) between the Company, MHC
Operating Limited Partnership, and certain lenders
and agents, dated April 28, 1998
10.34(g) First Amendment to Second Amended and Restated Credit
Agreement (Revolving Facility) between the Company,
MHC Operating Limited Partnership, and certain
lenders and agents, dated December 18, 1998
10.35(h) Second Amendment to Second Amended and Restated
Credit Agreement (Revolving Facility) between the
Company, MHC Operating Limited Partnership, and
certain lenders and agents, dated August 9, 2000
10.36(g) Amended and Restated Credit Agreement (Term Loan)
between the Company, MHC Operating Limited
Partnership, and certain lenders and agent, dated
April 28, 1998
10.36(h) First Amendment to Amended and Restated Credit
Agreement (Term Loan) between the Company, MHC
Operating Limited Partnership, and certain lenders
and agent, dated November 21, 2000
10.36(g) Letter Agreement between the Company and Bank of
America National Trust and Savings Association
confirming the $100 million swap transaction, dated
July 11, 1995
10.39(h) $110,000,000 Amended, Restated and Consolidated
Promissory Note dated June 28, 2000
10.40(h) $15,750,000 Promissory Note Secured by Leasehold Deed
of Trust dated July 13, 2000
11 Not applicable
12(h) Computation of Ratio of Earnings to Fixed Charges
13 Not applicable
16 Not applicable
18 Not applicable
21(h) Subsidiaries of the registrant
22 Not applicable
23(h) Consent of Independent Auditors
24.1(h) Power of Attorney for John F. Podjasek, Jr. dated
March 7, 2001
24.2(h) Power of Attorney for Michael A. Torres dated March
23, 2001
24.3(h) Power of Attorney for Thomas E. Dobrowski dated March
6, 2001
24.4(h) Power of Attorney for Gary Waterman dated March 14,
2001
24.5(h) Power of Attorney for Donald S. Chisholm dated March
2, 2001
24.6(h) Power of Attorney for Louis H. Masotti dated March 5,
2001
27 Not applicable
28 Not applicable
(a) Included as an exhibit to the Company's Form S-11
Registration Statement, File No. 33-55994, and incorporated
herein by reference.
(b) Included as an exhibit to the Company's Report on Form 10-K
dated December 31, 1993, and incorporated herein by
reference.
(c) Included as an exhibit to the Company's Report on Form 10-K
dated December 31, 1994, and incorporated herein by
reference.
(d) Included as an exhibit to the Company's Report on Form 10-Q
for the quarter ended March 31, 1996, and incorporated
herein by reference.
(e) Included as an exhibit to the Company's Report on Form 10-Q
for the quarter ended June 30, 1996, and incorporated herein
by reference.
(f) Included as an exhibit to the Company's Report on Form 10-K
dated December 31, 1997, and incorporated herein by
reference.
(g) Included as an exhibit to the Company's Form S-3
Registration Statement, File No. 333-90813, and incorporated
herein by reference.
(h) Filed herewith.
29
30
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
(b) Reports on Form 8-K:
None.
(c) Exhibits:
See Item 14 (a)(3) above.
(d) Financial Statement Schedules:
See Index to Financial Statements attached hereto on page F-1 of
this Form 10-K.
30
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MANUFACTURED HOME COMMUNITIES, INC.,
a Maryland corporation
Date: March 23, 2001 By: /s/ Howard Walker
-------------------- --------------------------------
Howard Walker
Chief Executive Officer
Date: March 23, 2001 By: /s/ John Zoeller
--------------------- --------------------------------
John Zoeller
Vice President, Treasurer
and Chief Financial Officer
Date: March 23, 2001 By: /s/ Mark Howell
--------------------- --------------------------------
Mark Howell
Principal Accounting Officer
31
32
MANUFACTURED HOME COMMUNITIES, INC. - SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Howard Walker Chief Executive Officer
- ----------------------------------------
Howard Walker *Attorney-in-Fact March 23, 2001
Vice President, Treasurer
/s/ John Zoeller and Chief Financial Officer
- ----------------------------------------
John Zoeller *Attorney-in-Fact March 23, 2001
/s/ Samuel Zell Chairman of the Board
- ----------------------------------------
Samuel Zell March 23, 2001
/s/ Sheli Z. Rosenberg Director
- ----------------------------------------
Sheli Z. Rosenberg March 23, 2001
/s/ David A. Helfand Director
- ----------------------------------------
David A. Helfand March 23, 2001
*Donald S. Chisholm Director
- ----------------------------------------
Donald S. Chisholm March 23, 2001
*Thomas E. Dobrowski Director
- ----------------------------------------
Thomas E. Dobrowski March 23, 2001
*Louis H. Masotti Director
- ----------------------------------------
Louis H. Masotti March 23, 2001
*John F. Podjasek, Jr. Director
- ----------------------------------------
John F. Podjasek, Jr. March 23, 2001
*Michael A. Torres Director
- ----------------------------------------
Michael A. Torres March 23, 2001
*Gary L. Waterman Director
- ----------------------------------------
Gary L. Waterman March 23, 2001
32
33
INDEX TO FINANCIAL STATEMENTS
MANUFACTURED HOME COMMUNITIES, INC.
PAGE
----
Report of Independent Auditors ............................................................. F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999 ............................... F-3
Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 . F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 2000, 1999 and 1998 ....................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 . F-6
Notes to Consolidated Financial Statements ................................................. F-7
Schedule II - Valuation and Qualifying Accounts ............................................ S-1
Schedule III - Real Estate and Accumulated Depreciation .................................... S-2
Certain schedules have been omitted as they are not applicable to the
Company
F-1
34
Report of Independent Auditors
To the Board of Directors of
Manufactured Home Communities, Inc.
We have audited the accompanying consolidated balance sheets of
Manufactured Home Communities, Inc. as of December 31, 2000 and 1999, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
2000. We have also audited the related financial statement schedules listed in
the accompanying index. These financial statements and schedules are the
responsibility of the management of Manufactured Home Communities, Inc. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Manufactured
Home Communities, Inc. at December 31, 2000 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Chicago, Illinois
January 25, 2001, except for Note 18
as to which the date is February 13, 2001
F-2
35
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
2000 1999
---- ----
ASSETS
Investment in real estate:
Land ........................................................... $ 271,822 $ 285,337
Land improvements .............................................. 839,725 876,923
Buildings and other depreciable property ....................... 106,629 102,083
----------- -----------
1,218,176 1,264,343
Accumulated depreciation ....................................... (181,580) (150,757)
----------- -----------
Net investment in real estate ................................ 1,036,596 1,113,586
Cash and cash equivalents ......................................... 2,847 6,676
Notes receivable .................................................. 4,984 4,284
Investment in and advances to affiliates .......................... 21,215 11,689
Investment in joint ventures ...................................... 13,267 9,501
Rents receivable .................................................. 1,440 1,338
Deferred financing costs, net ..................................... 6,344 5,042
Prepaid expenses and other assets ................................. 17,611 8,222
----------- -----------
Total assets ................................................... $ 1,104,304 $ 1,160,338
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable ......................................... $ 556,578 $ 513,172
Unsecured term loan ............................................ 100,000 100,000
Unsecured line of credit ....................................... 59,900 107,900
Other notes payable ............................................ 3,206 4,192
Accounts payable and accrued expenses .......................... 23,822 20,780
Accrued interest payable ....................................... 5,116 5,612
Rents received in advance and security deposits ................ 5,184 6,831
Distributions payable .......................................... 11,100 11,020
Due to affiliates .............................................. 32 33
----------- -----------
Total liabilities ............................................ 764,938 769,540
----------- -----------
Commitments and contingencies
Minority Interest - Common OP Units and other ..................... 46,271 54,397
Minority Interest - Perpetual Preferred OP Units .................. 125,000 125,000
Stockholders' equity:
Preferred stock, $.01 par value
10,000,000 shares authorized; none issued .................... -- --
Common Stock, $.01 par value
50,000,000 shares authorized; 21,064,785 and 22,813,357
shares issued and outstanding for 2000 and 1999, respectively 210 229
Paid-in capital ................................................ 235,681 275,664
Deferred compensation .......................................... (5,969) (6,326)
Employee notes ................................................. (4,205) (4,540)
Distributions in excess of accumulated earnings ................ (57,622) (53,626)
----------- -----------
Total stockholders' equity ................................... 168,095 211,401
----------- -----------
Total liabilities and stockholders' equity ..................... $ 1,104,304 $ 1,160,338
=========== ===========
The accompanying notes are an integral part of the financial statements
F-3
36
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
2000 1999 1998
---- ---- ----
REVENUES
Base rental income ............................................ $ 189,481 $ 181,672 $ 165,340
RV base rental income ......................................... 7,414 9,526 7,153
Utility and other income ...................................... 20,366 20,096 18,219
Equity in income of affiliates ................................ 2,408 2,065 1,070
Interest income ............................................... 1,009 1,669 3,048
--------- --------- ---------
Total revenues ............................................. 220,678 215,028 194,830
--------- --------- ---------
EXPENSES
Property operating and maintenance ............................ 59,199 58,038 53,064
Real estate taxes ............................................. 16,888 16,460 14,470
Property management ........................................... 8,690 8,337 7,108
General and administrative .................................... 5,955 5,550 4,668
General and administrative - affiliates ....................... 468 542 743
Interest and related amortization ............................. 53,280 53,775 49,693
Depreciation on corporate assets .............................. 1,139 1,005 995
Depreciation on real estate assets and other costs ............ 34,411 34,486 28,426
--------- --------- ---------
Total expenses ............................................. 180,030 178,193 159,167
--------- --------- ---------
Income from operations ........................................ 40,648 36,835 35,663
Gain on sale of Properties and other .......................... 12,053 -- --
--------- --------- ---------
Income before allocation to Minority Interests
and extraordinary loss on early extinguishment of debt 52,701 36,835 35,663
(Income) allocated to Common OP Units ......................... (8,463) (6,219) (6,733)
(Income) allocated to Perpetual Preferred OP Units ............ (11,252) (2,844) --
--------- --------- ---------
Income before extraordinary loss on early
extinguishment of debt ..................................... 32,986 27,772 28,930
Extraordinary loss on early extinguishment
of debt (net of $264 allocated to Minority Interests) ..... 1,041 -- --
--------- --------- ---------
NET INCOME ................................................. $ 31,945 $ 27,772 $ 28,930
========= ========= =========
Net income per Common Share before extraordinary item - basic . $ 1.54 $ 1.10 $ 1.13
========= ========= =========
Net income per Common Share before extraordinary item - diluted $ 1.51 $ 1.09 $ 1.12
========= ========= =========
Net income per Common Share - basic ........................... $ 1.49 $ 1.10 $ 1.13
========= ========= =========
Net income per Common Share - diluted ......................... $ 1.46 $ 1.09 $ 1.12
========= ========= =========
Weighted average Common Shares outstanding - basic ............ 21,469 25,224 25,626
========= ========= =========
Weighted average Common Shares outstanding - diluted (Note 3) . 27,408 31,252 31,962
========= ========= =========
Distributions declared per Common Share outstanding ........... $ 1.66 $ 1.55 $ 1.45
========= ========= =========
Tax status of distributions paid during the year:
Ordinary income ............................................ $ 1.32 $ 1.16 $ 1.14
========= ========= =========
Capital gain ............................................... $ -- $ -- $ --
========= ========= =========
Return of capital .......................................... $ 0.31 $ -- $ 0.31
========= ========= =========
The accompanying notes are an integral part of the financial statements
F-4
37
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS)
2000 1999 1998
---- ---- ----
PREFERRED STOCK, $.01 PAR VALUE ................................... $ -- $ -- $ --
========= ========= =========
COMMON STOCK, $.01 PAR VALUE
Balance, beginning of year ........................................ $ 229 $ 262 $ 248
Issuance of Common Stock through restricted stock grants ...... 1 1 2
Exercise of options ........................................... 1 1 1
(Repurchase) issuance of Common Stock ......................... (21) (35) 11
--------- --------- ---------
Balance, end of year .............................................. $ 210 $ 229 $ 262
========= ========= =========
PAID - IN CAPITAL
Balance, beginning of year ........................................ $ 275,664 $ 364,603 $ 321,915
Issuance of Common Stock for employee notes ................... -- -- 129
Conversion of OP Units to Common Stock ........................ 494 1,525 1,100
Issuance of Common Stock through exercise of options .......... 2,719 2,034 2,372
Issuance of Common Stock through restricted stock grants ...... 3,310 1,507 6,118
Issuance of Common Stock through employee stock purchase plan . 1,435 1,195 940
(Repurchase) issuance of Common Stock ......................... (53,112) (98,160) 24,613
Adjustment for Common OP Unitholders
in the Operating Partnership ................................ 5,171 2,960 7,416
--------- --------- ---------
Balance, end of year .............................................. $ 235,681 $ 275,664 $ 364,603
========= ========= =========
DEFERRED COMPENSATION
Balance, beginning of year ........................................ $ (6,326) $ (7,442) $ (2,885)
Issuance of Common Stock through restricted stock grants ...... (3,311) (536) (5,692)
Recognition of deferred compensation expense .................. 3,668 1,652 1,135
--------- --------- ---------
Balance, end of year .............................................. $ (5,969) $ (6,326) $ (7,442)
========= ========= =========
EMPLOYEE NOTES
Balance, beginning of year ........................................ $ (4,540) $ (4,654) $ (4,967)
Notes received for issuance of Common Stock ................... -- -- (129)
Principal payments ............................................ 335 114 442
--------- --------- ---------
Balance, end of year .............................................. $ (4,205) $ (4,540) $ (4,654)
========= ========= =========
DISTRIBUTIONS IN EXCESS OF ACCUMULATED EARNINGS
Balance, beginning of year ........................................ $ (53,626) $ (42,328) $ (33,736)
Net income .................................................... 31,945 27,772 28,930
Distributions ................................................. (35,941) (39,070) (37,522)
--------- --------- ---------
Balance, end of year .............................................. $ (57,622) $ (53,626) $ (42,328)
========= ========= =========
The accompanying notes are an integral part of the financial statements
F-5
38
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS)
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................................ $ 31,945 $ 27,772 $ 28,930
Adjustments to reconcile net income to
cash provided by operating activities:
Income allocated to minority interests ........................... 19,451 9,063 6,733
Gain on sale of Properties and other ............................. (12,053) -- --
Depreciation and amortization expense ............................ 36,511 33,871 29,680
Equity in income of affiliates and joint ventures ................ (2,928) (2,065) (1,070)
Amortization of deferred compensation and other .................. 3,668 2,623 1,563
(Decrease) increase in rents receivable .......................... (102) (667) 116
(Increase) in prepaid expenses and other assets .................. (9,389) (844) (3,359)
Increase in accounts payable and accrued expenses ................ 2,545 2,491 5,188
(Decrease) increase in rents received in advance
and security deposits........................................ (1,647) 336 4,196
--------- --------- ---------
Net cash provided by operating activities ............................. 68,001 72,580 71,977
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Collection of escrow proceeds on acquisition .......................... -- -- 14,295
(Contributions to) distributions from Affiliates ...................... (7,250) (1,959) 399
Collections (funding) of notes receivable ............................. (700) 11,426 (14,563)
Investment in joint ventures .......................................... (3,758) (2,279) (7,584)
Proceeds from dispositions of assets .................................. 46,490 -- --
Return of escrow (funding) for acquisition of rental properties - net . 4,581 (30,640) (241,076)
Improvements:
Improvements - corporate ........................................... (498) (878) (1,487)
Improvements - rental properties ................................... (7,855) (8,656) (8,005)
Site development costs ............................................. (7,908) (4,882) (4,741)
--------- --------- ---------
Net cash provided by (used in) investing activities ................... 23,102 (37,868) (262,762)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from stock options and employee stock purchase plan ...... 4,142 3,229 3,313
Net proceeds from issuance of Perpetual Preferred OP Units ............ -- 121,890 --
Distributions to Common Stockholders, Common OP Unitholders
and Perpetual Preferred OP Unitholders ............................. (56,298) (40,445) (46,491)
(Repurchase) issuance of Common Stock and OP Units .................... (54,595) (99,847) 24,623
Collection of principal payments on employee notes .................... 335 114 442
Line of credit:
Proceeds ........................................................... 103,900 113,400 159,000
Repayments ......................................................... (151,900) (150,500) (39,000)
Refinancing - net proceeds ............................................ 65,998 16,248 107,847
Principal payments .................................................... (4,249) (4,733) (4,298)
Debt issuance costs ................................................... (2,265) (1,049) (1,903)
--------- --------- ---------
Net cash (used in) provided by financing activities ................... (94,932) (41,693) 203,533
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents ...................... (3,829) (6,981) 12,748
Cash and cash equivalents, beginning of year .............................. 6,676 13,657 909
--------- --------- ---------
Cash and cash equivalents, end of year .................................... $ 2,847 $ 6,676 $ 13,657
========= ========= =========
SUPPLEMENTAL INFORMATION
Cash paid during the year for interest .................................... $ 52,947 $ 52,323 $ 45,674
========= ========= =========
The accompanying notes are an integral part of the financial statements
F-6
39
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION OF THE COMPANY AND BASIS OF PRESENTATION
Manufactured Home Communities, Inc. (together with its consolidated
subsidiaries, the "Company"), formed in March 1993, is a Maryland corporation
which has elected to be taxed as a real estate investment trust ("REIT"). The
Company owns or has a controlling interest in 154 manufactured home communities
(the "Properties") located in 26 states, consisting of 51,452 sites. The Company
generally will not be subject to Federal income tax to the extent it distributes
its REIT taxable income to its stockholders.
The operations of the Company are conducted through certain entities that
are owned or controlled by the Company. MHC Operating Limited Partnership (the
"Operating Partnership") is the entity through which the Company conducts
substantially all of its operations. The Company contributed the proceeds from
its initial public offering to the Operating Partnership for a general
partnership interest. The limited partners of the Operating Partnership (the
"Common OP Unitholders") receive an allocation of net income which is based on
their respective ownership percentage of the Operating Partnership which is
shown on the Consolidated Financial Statements as Minority Interest - Common OP
Units. As of December 31, 2000, the Minority Interests - Common OP Units
represented 5,514,330 units of limited partnership interest ("OP Units") which
are convertible into an equivalent number of shares of the Company's stock. The
issuance of additional shares of common stock or common OP Units changes the
respective ownership of the Operating Partnership for both the Minority
Interests and the Company.
Sub-partnerships of the Operating Partnership were created to (i)
facilitate mortgage financing (the "Financing Partnerships"); (ii) facilitate
the Company's ability to provide financing to owners of communities ("Lending
Partnership"); (iii) own the management operations of the Company ("Management
Partnerships"); and (iv) own the assets and operations of certain utility
companies which service the Company's properties ("MHC Systems").
The accompanying financial statements represent the consolidated financial
information of the Company and its subsidiaries. Due to the Company's ability as
general partner to control either through ownership or by contract the Operating
Partnership, the Financing Partnerships, the Lending Partnership, the Management
Partnerships and MHC Systems, each such subsidiary has been consolidated with
the Company for financial reporting purposes.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131") requires
certain disclosures of selected information about operating segments in the
annual financial statements and related disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS No. 131 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. The Company has concentrations of Properties within the following
states: Florida (45 Properties), California (25 Properties), Arizona (17
Properties), Michigan (11 Properties) and Colorado (10 Properties). These
concentrations of Properties accounted for 35%, 17%, 9%, 4%, and 9%,
respectively, of the Company's total revenues for the year ended December 31,
2000. The Company also has Properties located in the following areas of the
United States: Northeast, Northwest, Midwest, and Nevada/Utah/New Mexico. The
Company's largest Property, Bay Indies, located in Venice, Florida, accounted
for 3% of the Company's total revenues for the year ended December 31, 2000. The
distribution of the Properties throughout the United States reflects the
Company's belief that geographic diversification helps insulate the portfolio
from regional economic influences. The Company intends to target new
acquisitions in or near markets where the Properties are located and will also
consider acquisitions of properties outside such markets.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
F-7
40
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b)Real Estate
Real estate is recorded at cost less accumulated depreciation. The
Company evaluates rental properties for impairment when conditions exist
which may indicate that it is probable that the sum of expected future cash
flows (undiscounted) from a property is less than its carrying value. Upon
determination that a permanent impairment has occurred, rental properties
are reduced to fair value. During the year ended December 31, 2000, MHC
Acquisition One L.L.C., a consolidated subsidiary of the Company, recorded
an impairment loss on the DeAnza Santa Cruz water and wastewater service
company business (see Notes 5 and 17). For the year ended December 31,
1999, permanent impairment conditions did not exist at any of the Company's
Properties.
Depreciation is computed on the straight-line basis over the estimated
useful lives of the assets. The Company uses a 30-year estimated life for
buildings acquired and structural and land improvements, a
ten-to-fifteen-year estimated life for building upgrades and a
three-to-seven-year estimated life for furniture, fixtures and equipment.
Expenditures for ordinary maintenance and repairs are expensed to
operations as incurred and significant renovations and improvements that
improve the asset and extend the useful life of the asset are capitalized
over their estimated useful life. Initial direct leasing costs are expensed
as incurred. Total depreciation expense was $35.6 million, $35.5 million
and $29.4 million for the years ended December 31, 2000, 1999 and 1998,
respectively.
(c)Cash and Cash Equivalents
The Company considers all demand and money market accounts and
certificates of deposit with a maturity when purchased of three months or
less to be cash equivalents.
(d)Notes Receivable
Notes receivable generally are stated at their outstanding unpaid
principal balances net of any deferred fees or costs on originated loans,
or unamortized discounts or premiums. Interest income is accrued on the
unpaid principal balance. Discounts or premiums are amortized to income
using the interest method.
(e)Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" requires disclosures about the fair
value of financial instruments whether or not such instruments are
recognized in the balance sheet. The Company's financial instruments
include short-term investments, notes receivable, accounts receivable,
accounts payable, other accrued expenses, mortgage notes payable and
interest rate hedge arrangements. The fair values of all financial
instruments, including notes receivable, were not materially different from
their carrying values at December 31, 2000 and 1999.
(f)Deferred Financing Costs
Deferred financing costs include fees and costs incurred to obtain
long-term financing. The costs are being amortized over the terms of the
respective loans on a level yield basis. Unamortized deferred financing
fees are written-off when debt is retired before the maturity date.
Accumulated amortization for such costs was $1.9 million and $1.8 million
at December 31, 2000 and 1999, respectively.
(g) Revenue Recognition
Rental income attributable to leases is recorded when earned from
tenants.
F-8
41
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h)Minority Interests
Net income is allocated to Common OP Unitholders based on their
respective ownership percentage of the Operating Partnership. An ownership
percentage is represented by dividing the number of Common OP Units held by
the Common OP Unitholders (5,514,330 and 5,633,183 at December 31, 2000 and
1999, respectively) by OP Units and common stock outstanding. Issuance of
additional shares of common stock or common OP Units changes the percentage
ownership of both the Minority Interests and the Company. Due in part to
the exchange rights (which provide for the conversion of Common OP Units
into Common Stock on a one-for-one basis), such transactions and the
proceeds therefrom are treated as capital transactions and result in an
allocation between stockholders' equity and Minority Interests to account
for the change in the respective percentage ownership of the underlying
equity of the Operating Partnership.
On September 30, 1999, the Operating Partnership completed a $125
million private placement of 9.0% Series D Cumulative Perpetual Preferred
Units ("POP Units") with two institutional investors. The POP Units, which
are callable by the Company after five years, have no stated maturity or
mandatory redemption, have no voting rights and are not convertible into OP
Units or Common Stock. Income is allocated to the POP Units at a preferred
rate per annum of 9.0% on the original capital contribution of $125
million. Costs related to the placement of $3.1 million were recorded as a
reduction to additional paid-in capital.
(i)Income Taxes
Due to the structure of the Company as a REIT, the results of
operations contain no provision for Federal income taxes. However, the
Company may be subject to certain state and local income, excise or
franchise taxes. The Company paid state and local taxes of approximately
$78,000, $85,000 and $78,000 during the years ended December 31, 2000, 1999
and 1998. As of December 31, 2000, net investment in real estate and notes
receivable had a federal tax basis of approximately $742 million and $24
million, respectively.
(j)Reclassifications
Certain 1999 and 1998 amounts have been reclassified to conform to the
2000 financial presentation. Such reclassifications have no effect on the
operations or equity as originally presented.
(k)Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments
and Hedging Activities". SFAS No. 133 permits early adoption as of the
beginning of any fiscal quarter after its issuance. In June 1999, the FASB
issued Statement No. 137 which deferred the effective date of SFAS No. 133
to all fiscal quarters for fiscal years beginning after June 15, 2000. The
Company will adopt SFAS No. 133 on January 1, 2001. SFAS No. 133 will
require the Company to recognize all derivatives on the balance sheet at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities or firm
commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The Company has determined
that the effect of SFAS No. 133 on the earnings and financial position of
the Company will not be significant when implemented.
F-9
42
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - EARNINGS PER COMMON SHARE
Earnings per common share are based on the weighted average number of common
shares outstanding during each year. Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS No. 128") defines the calculation of basic
and fully diluted earnings per share. Basic and fully diluted earnings per share
are based on the weighted average shares outstanding during each year and basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. The conversion of OP Units has been excluded from the
basic earnings per share calculation. The conversion of an OP Unit to a share of
common stock has no material effect on earnings per common share.
The following table sets forth the computation of basic and diluted
earnings per share (amounts in thousands):
2000 1999 1998
---- ---- ----
NUMERATOR:
Numerator for basic earnings per share -
Net income ................................ $31,945 $27,772 $28,930
Effect of dilutive securities:
Income allocated to Common OP Units
(net of extraordinary loss on early
extinguishment of debt) ................... 8,199 6,219 6,733
------- ------- -------
Numerator for diluted earnings per share -
income available to Common Stockholders
after assumed conversions ................. $40,144 $33,991 $35,663
======= ======= =======
DENOMINATOR:
Denominator for basic earnings per share -
Weighted average Common Stock outstanding . 21,469 25,224 25,626
Effect of dilutive securities:
Weighted average Common OP Units .......... 5,592 5,704 5,955
Employee stock options .................... 347 324 381
------- ------- -------
Denominator for diluted earnings per share -
adjusted weighted average Common Stock
outstanding after assumed conversions ..... 27,408 31,252 31,962
======= ======= =======
NOTE 4 - COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS
The following table presents the changes in the Company's outstanding
common stock for the years ended December 31, 2000, 1999 and 1998 (excluding OP
Units of 5,514,330, 5,633,183 and 5,976,820 outstanding at December 31, 2000,
1999 and 1998, respectively):
2000 1999 1998
---- ---- ----
Shares outstanding at January 1, ................................ 22,813,357 26,417,029 24,771,180
Common Stock purchased by key employees of the Company ..... -- -- 5,000
Common Stock issued through conversion of OP Units ......... 59,190 143,637 99,552
Common Stock issued through exercise of Options ............ 138,029 126,565 141,403
Common Stock issued through stock grants ................... 92,070 95,666 328,831
Common Stock issued through Employee Stock Purchase Plan ... 68,739 59,060 44,804
Common Stock issued through Unit Trust Offering ............ -- -- 1,048,059
Common Stock repurchased and retired ....................... (2,106,600) (4,028,600) (21,800)
---------- ---------- -------
Shares outstanding at December 31, .............................. 21,064,785 22,813,357 26,417,029
========== ========== ==========
As of December 31, 2000, the Company's percentage ownership of the
Operating Partnership was approximately 79%. The remaining 21% is owned by the
Common OP Unitholders.
F-10
43
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS (CONTINUED)
In March 1997, the Company's Board of Directors approved a common stock
repurchase plan whereby the Company was authorized to repurchase and retire
shares of its common stock. Under the plan, the Company repurchased
approximately 2.2 million shares of Common Stock at an average price of $24.06
per share during the year ended December 31, 2000, 4.1 million shares of Common
Stock at an average price of $23.40 per share during the year ended December 31,
1999 and 21,800 shares of Common Stock at an average price of $23.48 per share
during the year ended December 31, 1998 using proceeds from borrowings on the
line of credit.
During 1998, the Company, as general partner of the Operating Partnership,
approved the admission of new limited partners (the "1998 Acquisition Partners")
to the Operating Partnership in connection with certain acquisitions of real
estate and investments in joint ventures (see Notes 5 and 6). The 1998
Acquisition Partners received 342,438 OP Units, which are exchangeable on a
one-for-one basis for shares of the Company's common stock.
On April 23, 1998, the Company completed an offering of 1,048,059 shares of
common stock (the "Unit Trust Offering") and sold the shares to Merrill Lynch,
Pierce, Fenner & Smith Incorporated (the "Underwriter"). The offering price per
share was $25.4375, the closing price for shares of the Company's common stock
on April 23, 1998, resulting in gross offering proceeds of approximately $26.7
million. Net of the Underwriter's discount and offering expenses, the Company
received approximately $25 million. The Underwriter deposited the shares of
common stock with the trustee of the Equity Investor Fund Cohen & Steers Realty
Majors Portfolio, a unit investment trust (the "Trust"), in exchange for units
in the Trust.
On March 26, 1999, the Operating Partnership repurchased and cancelled
200,000 OP Units from a limited partner of the Operating Partnership. During the
year ended December 31, 2000, the Operating Partnership repurchased and
cancelled approximately 60,000 OP Units from various holders.
On September 30, 1999, the Operating Partnership completed a $125 million
private placement of 9.0% Series D Cumulative Perpetual Preferred Units ("POP
Units") with two institutional investors. The POP Units, which are callable by
the Company after five years, have no stated maturity or mandatory redemption.
Net proceeds from the offering of $121 million were used to repay amounts
outstanding under the Company's line of credit facility and for other corporate
purposes.
The following distributions have been declared and / or paid to common
stockholders and minority interests since January 1, 1998.
DISTRIBUTION FOR THE QUARTER SHAREHOLDER RECORD
AMOUNT PER SHARE ENDING DATE PAYMENT DATE
---------------- ------ ---- ------------
$0.3625 March 31, 1998 March 27, 1998 April 10, 1998
$0.3625 June 30, 1998 June 26, 1998 July 10, 1998
$0.3625 September 30, 1998 September 25, 1998 October 9, 1998
$0.3625 December 31, 1998 December 16, 1998 December 30, 1998
- -------------------------------------------------------------------------------------------------------
$0.3875 March 31, 1999 March 26, 1999 April 9, 1999
$0.3875 June 30, 1999 June 25, 1999 July 9, 1999
$0.3875 September 30, 1999 September 24, 1999 October 8, 1999
$0.3875 December 31, 1999 December 31, 1999 January 14, 2000
- -------------------------------------------------------------------------------------------------------
$0.4150 March 31, 2000 March 31, 2000 April 14, 2000
$0.4150 June 30, 2000 June 30, 2000 July 14, 2000
$0.4150 September 30, 2000 September 29, 2000 October 13, 2000
$0.4150 December 31, 2000 December 29, 2000 January 12, 2001
- -------------------------------------------------------------------------------------------------------
The Operating Partnership paid distributions of 9.0% per annum on the $125
million of POP Units. Distributions on the POP Units were paid quarterly on the
last calendar day of each quarter beginning December 31, 1999.
F-11
44
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS (CONTINUED)
The Company adopted, effective July 1, 1997, the 1997 Non-Qualified
Employee Stock Purchase Plan ("ESPP"). Pursuant to the ESPP, certain employees
and directors of the Company may each annually acquire up to $250,000 of common
stock of the Company. The aggregate number of shares of common stock available
under the ESPP shall not exceed 1,000,000, subject to adjustment by the Board of
Directors. The common stock may be purchased monthly at a price equal to 85% of
the lesser of: (a) the closing price for a share of Common Stock on the last day
of such month; and (b) the greater of: (i) the closing price for a share of
Common Stock on the first day of such month, and (ii) the average closing price
for a share of Common Stock for all the business days in the month. Shares of
Common Stock issued through the ESPP for the years ended December 31, 2000, 1999
and 1998 were 68,739, 59,060 and 44,804, respectively.
NOTE 5 - INVESTMENT IN REAL ESTATE
Land improvements consist primarily of improvements such as grading,
landscaping and infrastructure items such as streets, sidewalks or water mains.
Depreciable property consists of permanent buildings in the Properties such as
clubhouses, laundry facilities, maintenance storage facilities, and furniture,
fixtures and equipment.
On September 4, 1997, the Company entered into a portfolio purchase
agreement (as amended by a supplemental agreement on December 17, 1997) to
acquire 37 manufactured home communities (the "Ellenburg Communities") from
partnerships having Ellenburg Capital Corporation ("ECC") as the general
partner, for a purchase price in excess of $300 million. During 1997 and 1998,
the Company closed on the acquisition of thirty-one of the Ellenburg Communities
for an aggregate purchase price of approximately $278 million and gained control
of an additional five Ellenburg Communities with acquisition advances of
approximately $57 million to the partnerships which owned such Ellenburg
Communities. All fundings related to the acquisition were funded by the Company
with borrowings under the Company's line of credit, term bank facilities,
assumed debt and the issuance of Common OP Units.
During 1998, the Company received approximately $14.3 million, including
approximately $365,000 of interest income, which was being held subject to the
completion of due diligence procedures on the Ellenburg Communities. The $14.3
million was initially recorded as a liability until 1999 when a settlement of
certain related issues was substantially complete and accordingly, in a non-cash
transaction, relieved the liability and adjusted the purchase price of the
Ellenburg Communities.
In April 2000, the California Superior Court approved a settlement
agreement (the "Settlement") in connection with the dissolution proceeding of
ECC and its affiliated partnerships. As part of the Settlement, the Company
received $13.5 million previously held in escrow in connection with the purchase
of the Ellenburg Communities and recorded $3.0 million of interest income
related to these funds. In connection with the Settlement, the Company sold
three communities - Mesa Regal RV Resort, Mon Dak and Naples Estates - for an
aggregate sales price of $59.0 million, including cash proceeds of $40.0 million
and assumption of debt by the purchaser of $19.0 million. The Company recorded a
$9.1 million gain on the sale of these Properties. Proceeds from the Settlement
and property sales were used to pay down the Company's line of credit. See Note
17 for further discussion of the Settlement.
On January 8, 1998, the Company acquired Quail Meadows, located in
Riverbank, California, for a purchase price of approximately $4.7 million. The
acquisition was funded with a borrowing under the Company's line of credit.
Quail Meadows consists of approximately 146 developed sites.
On April 30, 1998, the Company acquired Sherwood Forest RV Resort, located
adjacent to one of the Ellenburg Communities in Kissimmee, Florida, for a
purchase price of approximately $7.0 million. The acquisition was funded with a
borrowing under the Company's line of credit. Sherwood Forest RV Resort consists
of approximately 512 developed sites and a 33 acre expansion parcel.
On May 14, 1998, the Company acquired Casa Del Sol Resort III, located
adjacent to one of the Company's Properties in Peoria, Arizona, for a purchase
price of approximately $9.8 million. The acquisition was funded with a borrowing
under the Company's line of credit. Casa Del Sol Resort III consists of 238
developed sites.
F-12
45
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INVESTMENT IN REAL ESTATE (CONTINUED)
On June 4, 1998, the Company entered into a joint venture agreement with
Wolverine Investors L.L.C. to acquire eighteen manufactured home communities
(the "College Heights Communities"). The aggregate purchase price for the
College Heights Communities was approximately $89 million. The Company
contributed approximately $19 million to the joint venture, Wolverine Investors
L.L.C. contributed approximately $2.0 million to the joint venture and the
remainder of the acquisition was funded with a borrowing from a financial
institution of approximately $68 million. The Company's $19 million contribution
to the joint venture was funded with a borrowing under the Company's line of
credit. Due to the Company's ability to control the joint venture through its
approximate 95% interest, the College Heights Communities and related operations
have been consolidated for financial reporting purposes.
On August 13, 1998, the Company acquired Sunset Oaks, located in Plant
City, Florida, adjacent to one of the Company's existing Properties, for a
purchase price of approximately $3.6 million. The acquisition was funded with a
borrowing under the Company's line of credit. Sunset Oaks consists of 168
developed sites.
On July 23, 1999, the Company acquired Coquina Crossing, located in St.
Augustine, Florida, for a purchase price of approximately $10.4 million. The
acquisition was funded with a borrowing under the Company's line of credit.
Coquina Crossing is a 748-site senior community with 269 developed sites and
zoned expansion potential for 479 sites. In addition, RSI, an affiliate of the
Company, purchased the model home inventory at the community for approximately
$1.1 million.
In March 2000, in accordance with SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of",
MHC Acquisition One L.L.C., a consolidated subsidiary of the Company, recorded
an impairment loss on the DeAnza Santa Cruz water and wastewater service company
business. Recent negotiations for the sale of the business as well as
management's estimates indicated that the undiscounted future cash flows from
the business would be less than the carrying value of the business and its
related assets. The Company recorded an asset impairment loss of $701,000 (or
$0.03 per fully diluted share) which is included 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 facilities known
as FFEC-Six in a cash sale. Net proceeds from the sale of approximately $4.2
million were used to pay down the Company's line of credit and a gain on the
sale of $719,000 (or $0.03 per fully diluted share) was recorded in other income
on the accompanying statements of operations.
The acquisitions have been accounted for utilizing the purchase method of
accounting and, accordingly, the results of operations of acquired assets are
included in the statement of operations from the dates of acquisition. The
Company acquired all of the Properties from unaffiliated third parties.
The Company is actively seeking to acquire additional communities and
currently is engaged in negotiations relating to the possible acquisition of a
number of communities. At any time these negotiations are at varying stages
which may include contracts outstanding to acquire certain manufactured home
communities which are subject to satisfactory completion of the Company's due
diligence review.
NOTE 6 - INVESTMENT IN JOINT VENTURE
On March 18, 1998, the Company joined Plantation Company, L.L.C. and Trails
Associates, L.L.C., two 50% joint venture investments with the principals of
Meadows Management Company, to own two manufactured home communities known as
"Plantation on the Lake" and "Trails West", for approximately $6.5 million.
Plantation on the Lake is located in Riverside, California and consists of 385
developed sites and 122 expansion sites. Trails West is located in Tucson,
Arizona and consists of 488 developed sites. The Company's investments were
funded with a $3.9 million borrowing under the Company's line of credit and with
the issuance of approximately $2.6 million in OP Units. During the year ended
December 31, 2000, the Company recorded approximately $7,000 of net income from
joint ventures and received approximately $230,000 in cash flow distributions.
F-13
46
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INVESTMENT IN JOINT VENTURE (CONTINUED)
On December 28, 2000, the Company, through a joint venture with the
principals of Meadows Management Company (the "Voyager Joint Venture"), acquired
a 50% economic interest in Voyager RV Resort, a 1,576 site RV resort in Tucson,
Arizona, for total consideration of $8.0 million. Voyager RV Resort is adjacent
to Trails West. The Company's investment included cash of $3.0 million, its 50%
interest in land held through the joint venture valued at $2.0 million and notes
receivable from the principals of Meadows Management Company totaling $3.0
million.
Due to the Company's inability to control the joint ventures, the Company
accounts for its investment in the joint ventures on the equity method. During
the year ended December 31, 2000, the Company recorded approximately $7,000 of
Net Income from joint ventures and received approximately $230,000 in cash flow
distributions.
NOTE 7 - INVESTMENT IN AND ADVANCES TO AFFILIATES
Investment in and advances to affiliates consists principally of preferred
stock of RSI and LP Management Corp. (collectively "Affiliates") and advances
under a line of credit between the Company and RSI. The Company accounts for the
investment in and advances to Affiliates using the equity method of accounting.
Following is unaudited financial information for the Affiliates for the
years ended December 31, 2000 and 1999 (amounts in thousands):
2000 1999
---- ----
Assets $ 34,200 $ 23,201
Liabilities, net of amounts due
to the Company (12,985) (11,512)
-------- --------
Net investment in Affiliates $ 21,215 $ 11,689
======== ========
Home sales $ 42,645 $ 34,662
Cost of sales (29,819) (27,029)
Other revenues and expenses, net (10,418) (5,568)
-------- --------
Equity in income of Affiliates $ 2,408 $ 2,065
======== ========
NOTE 8 - NOTES RECEIVABLE
At December 31, 2000 and 1999, the Company had approximately $5.0 million
and $4.3 million in notes receivable, respectively.
On January 6, 1998, the Company funded a $12.3 million loan (the "Meadows
Loan") to Meadows Preservation, Inc. The Meadows Loan was collateralized by The
Meadows manufactured home community located in Palm Beach Gardens, Florida, bore
interest at the lesser of 9% or the cash flow of the Property and matured on
April 30, 1999, as amended. On April 1, 1999, the Company effectively exchanged
The Meadows Loan for an equity interest in the partnership that owns The
Meadows. The Company accounts for The Meadows as an acquisition and consolidates
the Property and related results of operations.
On May 12, 1998, the Company entered into an agreement to loan $5.9 million
to Trails Associates, L.L.C. (the "Trails West Loan") for development of the
Property known as Trails West. Subsequently, the Company had funded $3.2 million
under the Trails West Loan. However, pursuant to the aforementioned Voyager
Joint Venture transaction much of the land under development by Trails
Associates, L.L.C. was contributed to the Voyager Joint Venture and $1.2 million
of the Trails West Loan was repaid. The balance of $1.9 million on the Trails
West Loan is collateralized by the Property known as Trails West, bears interest
at the rate of approximately 8.5%, requires monthly interest payments and
matures on June 1, 2003.
F-14
47
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - NOTES RECEIVABLE (CONTINUED)
On December 28, 2000, the Company, in connection with the Voyager Joint
Venture, entered into an agreement to loan $3.0 million to certain principals of
Meadows Management Company. The notes are collateralized with a combination of
Common OP Units and partnership interests in this and other joint ventures. The
notes bear interest at Prime plus 0.5%, require quarterly interest payments and
mature on December 31, 2011.
NOTE 9 - EMPLOYEE NOTES RECEIVABLE
In December 1992, certain directors, officers and other individuals each
entered into subscription agreements with the Company to acquire 440,000 shares
of the Company's common stock at $7.25 per share. The Company received from
these individuals notes (the "1993 Employee Notes") in exchange for their
shares. The 1993 Employee Notes accrue interest at 6.77%, mature on March 2,
2003, and are recourse against the employees in the event the pledged shares are
insufficient to repay the obligations.
On January 2, 1996, certain members of management of the Company entered
into subscription agreements with the Company to acquire a total of 270,000
shares of the Company's common stock at $17.375 per share, the market price on
that date. The Company received from these individuals notes (the "1996 Employee
Notes") in exchange for their shares. The 1996 Employee Notes accrue interest at
5.91%, mature on January 2, 2005, and are recourse against the employees in the
event the pledged shares are insufficient to repay the obligations.
On March 23, 1998, a member of management of the Company entered into a
subscription agreement with the Company to acquire a total of 5,000 shares of
the Company's common stock at $25.75 per share, the market price on that date.
The Company received from this individual a note in exchange for his shares. The
note accrued interest at 5.97%, matured on March 23, 2008, and is recourse
against the employee in the event the pledged shares are insufficient to repay
the obligation. In January, 2000, the individual returned the shares of common
stock and the note was cancelled.
NOTE 10 - LONG-TERM BORROWINGS
As of December 31, 2000 and December 31, 1999, the Company had outstanding
mortgage indebtedness of approximately $556.6 million and $513.2 million,
respectively, encumbering 73 and 72 of the Company's Properties, respectively.
As of December 31, 2000 and December 31, 1999, the carrying value of such
Properties was approximately $631 million and $638 million, respectively.
On February 24, 2000, the Company entered into mortgage agreements
collateralizing two Properties for a total of $14.6 million. The mortgage notes
mature on March 1, 2010, amortize beginning March 1, 2000 over 30 years and bear
interest at a rate of approximately 8.3% per annum.
On June 30, 2000, the Company obtained $110 million in debt financing
consisting of two mortgage notes - one for $94.3 million and one for $15.7
million - secured by seven Properties 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 7.015%. There is no principal amortization until February 1,
2008, after which principal and interest are to be paid from available cash
flow and the interest rate will be reset at a rate equal to the then
10-year U.S. Treasury obligations plus 2.0%. The $265 Million Mortgage is
presented net of a settled hedge of $3.0 million (net of accumulated
amortization of $110,000) which is being amortized into interest expense
over the life of the loan.
- - A $66.5 million mortgage note (the "College Heights Mortgage")
collateralized by the 18 College Heights Communities. The College Heights
Mortgage bears interest at a rate of 7.19%, amortizes beginning July 1,
1999 over 30 years and matures July 1, 2008.
F-15
48
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - LONG-TERM BORROWINGS (CONTINUED)
- - A $93.8 million mortgage note (the "DeAnza Mortgage") collateralized by 6
Properties beneficially owned by MHC-DeAnza Financing Limited Partnership.
The DeAnza Mortgage bears interest at a rate of 7.82%, amortizes beginning
August 1, 2000 over 30 years and matures July 1, 2010.
- - A $22.9 million mortgage note (the "Bay Indies Mortgage") collateralized by
one Property beneficially owned by MHC-Bay Indies Financing Limited
Partnership. The Bay Indies Mortgage bears interest at a rate of 7.48%,
amortizes beginning August 1, 1994 over 27.5 years and matures July 1,
2004.
- - A $15.7 million mortgage note (the "Date Palm Mortgage") collateralized by
one Property beneficially owned by MHC Date Palm, L.L.C. The Date Palm
Mortgage bears interest at a rate of 7.96%, amortizes beginning August 1,
2000 over 30 years and matures July 1, 2010.
- - Approximately $94.8 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 7.15% to 8.92%. Included in this debt, the
Company has a $2.4 million loan recorded to account for a direct financing
lease entered into in May 1997.
On August 9, 2000, the Company amended its unsecured line of credit with a
bank (the "Credit Agreement") bearing interest at the London Interbank Offered
Rate ("LIBOR") plus 1.125%. Among other things, the amendment lowered the total
facility under the Credit Agreement to $150 million and extended the maturity to
August 9, 2003. The Company pays a quarterly fee on the average unused amount of
such credit equal to 0.15% of such amount. As of December 31, 2000, $59.9
million was 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 to 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.
Aggregate payments of principal on long-term borrowings for each of the
next five years and thereafter are as follows (amounts in thousands):
YEAR AMOUNT
---- ------
2001 $ 14,921
2002 105,667
2003 73,360
2004 32,677
2005 3,227
Thereafter 489,832
---------
Total $ 719,684
=========
F-16
49
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - LEASE AGREEMENTS
The leases entered into between the tenant and the Company for the rental
of a site are month-to-month or for a period of one to ten years, renewable upon
the consent of the parties or, in some instances, as provided by statute.
Noncancelable long-term leases, with remaining terms up to eleven years, are in
effect at certain sites within nineteen of the Properties. Rental rate increases
at these Properties are primarily a function of increases in the Consumer Price
Index taking into consideration certain floors and ceilings. Additionally,
periodic market rate adjustments are made as deemed necessary. Future minimum
rents are scheduled to be received under noncancelable tenant leases at December
31, 2000 as follows (amounts in thousands):
YEAR AMOUNT
---- ------
2001 $ 37,389
2002 20,016
2003 8,213
2004 4,272
2005 4,393
Thereafter 23,921
--------
Total $ 98,204
========
NOTE 12 - GROUND LEASES
The Company leases land under noncancellable operating leases at certain of
the Properties expiring in various years from 2022 to 2031 with terms which
require twelve equal payments per year plus additional rents calculated as a
percent of gross revenues. For the years ended December 31, 2000, 1999 and 1998,
ground lease rent was $1.6 million. Minimum future rental payments under the
ground leases are $1.6 million for each of the next five years and $29.5 million
thereafter.
NOTE 13 - TRANSACTIONS WITH RELATED PARTIES
Equity Group Investments, Inc. ("EGI"), an entity controlled by Mr. Samuel
Zell, Chairman of the Board of Directors, and certain of its affiliates have
provided services such as administrative support, investor relations, corporate
secretarial, real estate tax evaluation services, market consulting and research
services, and computer and support services. Fees paid to EGI and its affiliates
amounted to approximately $26,000, $74,000 and $104,000 for the years ended
December 31, 2000, 1999 and 1998, respectively. There were no significant
amounts due to these affiliates as of December 31, 2000 and 1999, respectively.
Certain related entities, owned by persons affiliated with Mr. Zell, have
provided services to the Company. These entities include, but are not limited
to, Rosenberg & Liebentritt, P.C. which provided legal services including
property acquisition services in 1999 and 1998; The Riverside Agency, Inc. which
provided insurance brokerage services and Equity Office Properties Trust which
provided office space to the Company. Fees paid to these entities amounted to
approximately $442,000, $473,000 and $850,000 for the years December 31, 2000,
1999 and 1998, respectively. Amounts due to these affiliates were approximately
$32,000 and $33,000 as of December 31, 2000 and 1999, respectively. Of the
amounts charged by these affiliates during the years ended December 31, 2000,
1999 and 1998, approximately $0, $12,000 and $175,000, respectively, were
capitalized.
Related party agreements or fee arrangements are generally for a term of
one year and approved by independent members of the Board of Directors.
F-17
50
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK OPTION PLAN AND STOCK GRANTS
A Stock Option Plan (the "Plan") was adopted by the Company in December
1992. Pursuant to the Plan, certain officers, directors, employees and
consultants of the Company may be offered the opportunity to acquire shares of
common stock through the grant of stock options ("Options"), including
non-qualified stock options and, for key employees, incentive stock options
within the meaning of Section 422 of the Code. The Compensation Committee will
determine the vesting schedule, if any, of each Option and the term, which term
shall not exceed ten years from the date of grant. As to the Options that have
been granted through December 31, 2000, generally, one-third are exercisable one
year after the initial grant, one-third are exercisable two years following the
date such Options were granted and the remaining one-third are exercisable three
years following the date such Options were granted. The Plan allows for 10,000
Options to be granted annually to each director. The common stock with respect
to which the Options may be granted during any calendar year to any grantee
shall not exceed 250,000 shares. In addition, the Plan provides for the granting
of stock appreciation rights ("SARs") and restricted stock grants ("Stock
Grants"). A maximum of 4,000,000 shares of common stock was available for grant
under the Plan as of December 31, 2000.
In 2000, 1999 and 1998, the Company issued 19,181, 14,666 and 18,238 shares
related to Stock Grants, respectively, which represented a portion of certain
employee bonuses. The fair market value of these Stock Grants of approximately
$525,000, $352,000 and $445,000 at the date of grant was recorded as
compensation expense by the Company in 2000, 1999and 1998, respectively.
In 1998, the Company awarded 233,500 Stock Grants to certain members of
senior management of the Company. These Stock Grants vest over five years, but
may be restricted for a period of up to ten years depending upon certain
performance benchmarks tied to increases in funds from operations being met. The
fair market value of these Stock Grants of approximately $5.7 million as of the
date of grant was treated in 1998 as deferred compensation. The Company
amortized approximately $593,000 and $569,000 related to these Stock Grants in
2000 and 1999, respectively, and Stock Grants totaling approximately 12,000
shares valued at $295,000 were cancelled.
In 1999, the Company awarded 65,000 Stock Grants to certain members of
senior management of the Company. These Stock Grants vest over three years with
one-half vesting in 1999. The fair market value of these Stock Grants of
approximately $1.5 million as of the date of grant was treated in 1999 as
deferred compensation. The Company amortized approximately $385,000 and $770,000
related to these Stock Grants in 2000 and 1999, respectively.
In 2000, the Company awarded 69,750 Stock Grants to certain members of
senior management of the Company. These Stock Grants vest over three years with
one-half vesting in 2000. The fair market value of these Stock Grants of
approximately $1.9 million as of the date of grant was treated in 2000 as
deferred compensation. The Company amortized approximately $955,000 related to
these Stock Grants in 2000.
In 1999, the Plan was amended to provide a Stock Grant of 2,000 shares
vesting over three years in lieu of the 10,000 Options granted after the
amendment to each director, if the director so elects. The Company recognized
approximately $134,000 and $129,000 of expense and recorded approximately
$267,000 and $257,000 of deferred compensation in 2000 and 1999, respectively,
related to 16,000 Stock Grants in both 2000 and 1999.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its Options and Stock Grants because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123")
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's Options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized. Additionally, the amount
recognized as expense for the Stock Grants during any given year of the
performance period is dependent on certain performance benchmarks being met.
F-18
51
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its Options and Stock Grants under the fair value method of that
Statement. The fair value for the Options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 2000, 1999 and 1998, respectively: risk-free interest rates of
5.5%, 6.3% and 5.7%; dividend yields of 6.3%, 6.3% and 5.8%; volatility factors
of the expected market price of the Company's common stock of .20, .21 and .23;
and a weighted-average expected life of the Options of 5 years. The fair value
of the Stock Grants granted in 2000, 1999 and 1998 has been estimated at
approximately 30% below the calculated fair market value on the date of grant
because these Stock Grants may remain restricted even after they become fully
vested.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's Options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of the Company's Options. In addition, the existing
models are not representative of the effects on reported net income for future
years.
For purposes of pro forma disclosures, the estimated fair value of the
Options is amortized to expense over the Options' vesting period and the
estimated fair value of the Stock Grants is amortized to expense over the same
period. The pro forma effect of SFAS No. 123 on the Company's net income for the
years ended December 31, 2000, 1999 and 1998 was ($134,000) ($0 per share),
($138,000) ($0 per share) and $225,000 ($0.01 per share), respectively.
A summary of the Company's stock option activity, and related information
for the years ended December 31, 2000, 1999 and 1998 follows:
Shares Subject Weighted Average
to Options Share Exercise Price Per Share
---------------- ------------------------
Balance at December 31, 1997 1,690,493 $19.91
Options granted 378,986 22.04
Options exercised (141,403) 18.07
Options canceled (28,697) 24.09
--------- ------
Balance at December 31, 1998 1,899,379 21.08
Options granted 313,400 23.91
Options exercised (126,565) 19.25
Options canceled (66,767) 24.08
--------- ------
Balance at December 31, 1999 2,019,447 $21.72
Options granted 440,077 25.94
Options exercised (250,092) 23.17
Options canceled (101,227) 24.33
--------- ------
Balance at December 31, 2000 2,108,205 $22.30
========= ======
As of December 31, 2000, 1999 and 1998, 416,603 shares, 747,258 shares and
1,075,091 shares remained available for grant, respectively, and 1,562,074
shares, 1,426,072 shares and 1,269,982 shares were exercisable, respectively.
Exercise prices for Options outstanding as of December 31, 2000 ranged from
$12.875 to $26.750, with the substantial majority of the exercise prices
exceeding $17.25. The remaining weighted-average contractual life of those
Options was 6.3 years.
NOTE 15 - PREFERRED STOCK
The Company's Board of Directors is authorized under the Company's charter,
without further stockholder approval, to issue, from time to time, in one or
more series, 10,000,000 shares of $.01 par value preferred stock (the "Preferred
Stock"), with specific rights, preferences and other attributes as the Board may
determine, which may include preferences, powers and rights that are senior to
the rights of holders of the Company's common stock. However, under certain
circumstances, the issuance of preferred stock may require stockholder approval
pursuant to the rules and regulations of the New York Stock Exchange. As of
December 31, 2000 and 1999, no Preferred Stock was issued by the Company.
F-19
52
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - SAVINGS PLAN
The Company has a qualified retirement plan, with a salary deferral feature
designed to qualify under Section 401 of the Code (the "401(k) Plan"), to cover
its employees and those of its Subsidiaries, if any. The 401(k) Plan permits
eligible employees of the Company and those of any Subsidiary to defer up to 16%
of their eligible compensation on a pre-tax basis subject to certain maximum
amounts. In addition, the Company will match dollar-for-dollar the participant's
contribution up to 4% of the participant's eligible compensation.
In addition, amounts contributed by the Company will vest, on a prorated
basis, according to the participant's vesting schedule. After five years of
employment with the Company, the participants will be 100% vested for all
amounts contributed by the Company. Additionally, a discretionary profit sharing
component of the 401(k) Plan provides for a contribution to be made annually for
each participant in an amount, if any, as determined by the Company. All
employee contributions are 100% vested. The Company's contribution to the 401(k)
Plan was approximately $315,000, $385,000 and $256,000, for the years ended
December 31, 2000, 1999 and 1998, respectively. The Company's anticipated plan
contribution for the profit sharing component of the 401(k) Plan is
approximately $85,000 for the year ended December 31, 2000.
NOTE 17 - COMMITMENTS AND CONTINGENCIES
DEANZA SANTA CRUZ MOBILE ESTATES
The residents of DeAnza Santa Cruz Mobile Estates, a property located in
Santa Cruz, California (the "City") previously brought several actions opposing
certain fees and charges in connection with water service at the Property. The
trial of the ongoing utility charge dispute with the residents of this Property
concluded on January 22, 1999. This summary provides the history and reasoning
underlying the Company's defense of the residents' claims and explains the
Company's decision to continue to defend its position, which the Company
believes is fair and accurate.
DeAnza Santa Cruz Mobile Estates is a 198-site community overlooking the
Pacific Ocean. It is subject to the City's rent control ordinance which limits
annual rent increases to 75% of CPI. The Company purchased this Property in
August 1994 from certain unaffiliated DeAnza entities ("DeAnza"). Prior to the
Company's purchase in 1994, DeAnza made the decision to submeter and separately
bill tenants at the Property for both water and sewer in 1993 in the face of the
City's rapidly rising utility costs.
Under California Civil Code Section 798.41, DeAnza was required to reduce
rent by an amount equal to the average cost of usage over the preceding 12
months. This was done. With respect to water, 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. DeAnza and the Company interpreted the statute as
providing that in a submetered mobile home park, the property owner is not
subject to regulation and control of the CPUC so long as the users are charged
what they would be charged by the utility company if users received their water
directly from the utility company. In Santa Cruz, customers receiving their
water directly from the city's water utility were charged a certain lifeline
rate for the first 400 ccfs of water and a greater rate for usage over 400 ccfs
of water, a readiness to serve charge of $7.80 per month and tax on the total.
In reliance on CPUC Section 2705.5, DeAnza implemented its billings on this
schedule notwithstanding that it did not receive the discount for the first 400
ccfs of water because it was a commercial and not a residential customer.
A dispute with the residents ensued over the readiness to serve charge and
tax thereon. The residents argued that California Civil Code Section 798.41
required that the Property owner could only pass through its actual costs of
water (and that the excess charges over the amount of the rent rollback were an
improper rent increase) and that CPUC Section 2705.5 was not applicable. DeAnza
unbundled the utility charges from rent consistent with California Civil Code
Section 798.41 and it has generally been undisputed that the rent rollback was
accurately calculated.
In August 1994, when the Company acquired the Property, the Company
reviewed the respective legal positions of the Santa Cruz Homeowners Association
("HOA") and DeAnza and concurred with DeAnza. 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 and
permitted DeAnza to recoup part of the expenses of operating a submetered system
through the readiness to serve charge.
F-20
53
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Over a period of 18 months from 1993 into May of 1995, a series of
complaints were filed by the HOA and Herbert Rossman, a resident, against
DeAnza, and later, the Company. DeAnza and the Company demurred to each of these
complaints on the grounds that the CPUC had exclusive jurisdiction over the
setting of water rates and that residents under rent control had to first
exhaust their administrative remedies before proceeding in a civil action. At
one point, the case was dismissed (with leave to amend) on the basis that
jurisdiction was with the CPUC and, at another point, Mr. Rossman was dismissed
from the case because he had not exhausted his administrative remedies.
On June 29, 1995, a hearing was held before a Santa Cruz rent control
officer on billing and submetering issues related to both water and sewer. The
Company and DeAnza prevailed on all issues related to sewer and the rent
rollback related to water, but the hearing officer determined that the Company
could only pass through its actual cost of water, i.e., a prorated readiness to
serve charge and tax thereon. The hearing officer did not deal with the subsidy
being given to residents through the quantity charge and ordered a rebate in a
fixed amount per resident. The Company and DeAnza requested reconsideration on
this issue, among others, which reconsideration was denied by the hearing
officer.
The Company then took a writ of mandate (an appeal from an administrative
order) to the Superior Court and, pending this appeal, the residents, the
Company and the City agreed to stay the effect of the hearing officer's decision
until the Court rendered judgment.
In July 1996, the Superior Court affirmed the hearing officer's decision
without addressing concerns about the failure to take the subsidy on the
quantity charge into account.
The Company requested that the City and the HOA agree to a further stay
pending appeal to the court of appeal, but they refused and the appeal court
denied the Company's request for a stay in late November 1996. Therefore, on
January 1, 1997, the Company reduced its water charges at this Property to
reflect a pass-through of only the readiness to serve charge and tax at the
master meter (approximately $0.73) and to eliminate the subsidy on the water
charges. On their March 1, 1997 rent billings, residents were credited for
amounts previously "overcharged" for readiness to serve charge and tax. The
amount of the rebate given by the Company and DeAnza was $36,400. In calculating
the rebate, the Company and DeAnza took into account the previous subsidy on
water usage although this issue had not yet been decided by the court of appeal.
The Company and DeAnza felt legally safe in so doing based on language in the
hearing officer's decision that actual costs could be passed through.
On March 12, 1997, the Company also filed an application with the CPUC to
dedicate the water system at this Property to public use and have the CPUC set
cost-based rates for water usage. The Company believed it was obligated to take
this action because of its consistent reliance on CPUC Section 2705.5 as a safe
harbor from CPUC jurisdiction. That is, when the Company could no longer charge
for water as the local serving utility would charge, it was no longer exempt
from the CPUC's jurisdiction and control under CPUC Section 2705.5.
On March 20, 1997, the court of appeal issued the writ of mandate requested
by the Company on the grounds that the hearing officer had improperly calculated
the amount of the rebate (meaning the Company had correctly calculated the rent
credits), but also ruling that the hearing officer was correct when he found
that the readiness to serve charge and tax thereon as charged by DeAnza and the
Company were an inappropriate rent increase. The court of appeal further agreed
with the Company that the City's hearing officer did not have the authority
under California Civil Code Section 798.41 to establish rates that could be
charged in the future.
Following this decision, the CPUC granted the Company its certificate of
convenience and necessity on December 17, 1998 and approved cost-based rates and
charges for water that exceed what residents were paying under the Company's
reliance on CPUC Section 2705.5. Concurrently, the CPUC also issued an Order
Instituting Investigation ("OII") confirming its exclusive jurisdiction over the
issue of water rates in a submetered system and commencing an investigation into
the confusion and turmoil over billings in submetered properties. Specifically,
the OII states: "The Commission has exclusive and primary jurisdiction over the
establishment of rates for water and sewer services provided by private
entities."
Specifically, the CPUC ruling regarding the Company's application stated:
"The ultimate question of what fees and charges may or may not be assessed,
beyond external supplier pass-through charges, for in-park facilities when a
mobile home park does not adhere to the provisions of CPUC Section 2705.5, must
be decided by the Commission."
F-21
54
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
After the court of appeal decision, the HOA brought all of its members back
into the underlying civil action for the purpose of determining damages,
including punitive damages, against the Company. The trial was continued from
July 1998 to January 1999 to give the CPUC time to act on the Company's
application. Notwithstanding the action taken by the CPUC in issuing the OII in
December 1998, the trial court denied the Company's motion to dismiss on
jurisdictional grounds and trial commenced before a jury on January 11, 1999.
Not only did the trial court not consider the Company's motion to dismiss,
the trial court refused to allow evidence of the OII or the Company's CPUC
approval to go before the jury. Notwithstanding the Company's strenuous
objections, the judge also allowed evidence of the Company's and DeAnza's
litigation tactics to be used as evidence of bad faith and oppressive actions
(including evidence of the application to the CPUC requesting a $22.00 readiness
to serve charge). The Company's motion for a mistrial based upon these
evidentiary rulings was denied. On January 22, 1999, the jury returned a verdict
awarding $6.0 million of punitive damages against the Company and DeAnza. The
Company had previously agreed to indemnify DeAnza on the matter.
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 the
appeal has been fully briefed by both parties. The Company is awaiting notice of
scheduling 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 rejected the Company's
preemption argument with respect to these prior rulings in favor of plaintiffs,
one of which had awarded plaintiffs approximately $100,000 of attorneys' fees.
The California Supreme Court declined to accept the case for review and the
Company paid the judgment, including post-judgment interest thereon, and settled
the matter for approximately $200,000 late in 2000.
The jury verdict appeal also 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. Although no assurances can be given, the Company believes
the appeal will be successful.
Subsequently, in December 2000 the HOA and certain individual residents of
the Property filed a complaint in the Superior Court of California, County of
Santa Cruz (No. CV 139825) against the Company, certain affiliates of the
Company and certain employees of the Company. The new lawsuit seeks damages,
including punitive damages, for intentional infliction of emotional distress,
unfair business practices, and unlawful retaliation purportedly arising from
allegedly retaliatory rent increases which were noticed by the Company to
certain residents in September 2000. The Company believes that the residents who
received rent increase notices with respect to rent increases above those
permitted by the local rent control ordinance were not covered by the ordinance
either because they did not comply with the provisions of the ordinance or
because they are exempted by state law. On December 29, 2000, the Superior Court
of California, County of Santa Cruz enjoined such rent increases. The Company
intends to vigorously defend the matter, which may go to trial in the summer of
2001.
F-22
55
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 (see Note 5).
In connection with the Ellenburg Acquisition, on September 8, 1999,
Ellenburg Fund 20 ("Fund 20") filed a cross complaint in the Ellenburg
dissolution proceeding against the Company and certain of its affiliates
alleging causes of action for fraud and other claims in connection with the
Ellenburg acquisition. The Company subsequently successfully had the cross
complaint against the Company and its affiliates dismissed with prejudice by the
California Superior Court. However, Fund 20 has appealed. 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
In 1996, 1997 and 1998, the Lending Partnership made loans to Candlelight
Properties, L.L.C. ("Borrower") in the aggregate principal amount of $8,050,000
(collectively, the "Loan". The Loan 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 Loan 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, Borrower granted the
Operating Partnership the option to acquire Candlelight upon the maturity of the
Loan. The Operating Partnership notified Borrower that it was exercising its
option to acquire Candlelight in March 1999, and the Loan subsequently matured
on May 3, 1999. However, Borrower failed to repay the Loan and refused to convey
Candlelight to the Operating Partnership.
Borrower filed suit in the Circuit Court of Bartholomew County, Indiana
("Court") on May 5, 1999, seeking declaratory judgment on the validity of the
exercise of the option. The Lending Partnership filed suit in the Court the next
day, seeking to foreclose its mortgage, and the suits were consolidated
(collectively, the "State Court Litigation") by the Court. The Court issued an
Order on December 1, 1999, finding, among other things, 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 appealed both judgments, and the Court 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 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.
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. Management believes that all proceedings herein
described or referred to, taken together, are not expected to have a material
adverse impact on the Company.
F-23
56
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUBSEQUENT EVENTS
On January 3, 2001, the Company acquired two Florida communities, totaling
729 sites, for an aggregate purchase price of approximately $16.3 million.
Golden Lakes is a 421-site community in Plant City, near Tampa, Florida and
includes approximately 23 acres for expansion. Chain O' Lakes is a 308-site
community in Grand Island, near Orlando, Florida, and includes a marina with 50
boat docks.
On February 13, 2001, the Company closed the sale of seven communities,
totaling 1,282 sites, in Kansas, Missouri and Oklahoma for a total sale price of
approximately $19.1 million.
F-24
57
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is unaudited quarterly data for 2000, 1999 and 1998 (amounts
in thousands, except for per share amounts):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
2000 3/31 6/30 9/30 12/31
---- ---- ---- ---- -----
Total Revenues............................................. $57,148 $54,271 $53,875 $55,384
Income before allocation to Minority Interests and
extraordinary loss on early extinguishment of debt..... $10,743 $21,547 $9,715 $10,696
Net income available to common shareholders................ $6,331 $13,921 $5,451 $6,244
Weighted average Common Shares outstanding - Basic......... 22,297 21,871 21,166 20,559
Weighted average Common Shares outstanding - Diluted....... 28,242 27,809 27,077 26,520
Net income per Common Share outstanding - Basic............ $0.28 $0.64 $0.26 $0.30
Net income per Common Share outstanding - Diluted.......... $0.28 $0.63 $0.25 $0.30
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1999 3/31 6/30 9/30 12/31
---- ---- ---- ---- -----
Total Revenues............................................. $54,390 $52,446 $53,537 $54,654
Income before allocation to Minority Interests............. $10,078 $8,477 $8,417 $7,056
Net income available to common shareholders................ $8,234 $6,968 $6,877 $5,693
Weighted average Common Shares outstanding - Basic......... 26,157 25,773 25,613 23,381
Weighted average Common Shares outstanding - Diluted....... 32,340 31,829 31,586 29,281
Net income per Common Share outstanding - Basic............ $0.31 $0.27 $0.27 $0.24
Net income per Common Share outstanding - Diluted.......... $0.31 $0.27 $0.27 $0.24
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1998 3/31 6/30 9/30 12/31
---- ---- ---- ---- -----
Total Revenues............................................. $44,872 $47,894 $50,809 $51,254
Income before allocation to Minority Interests............. $9,586 $9,066 $8,440 $8,570
Net income available to common shareholders................ $7,765 $7,343 $6,837 $6,984
Weighted average Common Shares outstanding - Basic......... 24,805 25,659 25,988 26,033
Weighted average Common Shares outstanding - Diluted....... 31,095 32,095 32,339 32,382
Net income per Common Share outstanding - Basic............ $0.31 $0.29 $0.26 $0.27
Net income per Common Share outstanding - Diluted.......... $0.31 $0.28 $0.26 $0.26
F-25
58
SCHEDULE II
MANUFACTURED HOME COMMUNITIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 2000
ADDITIONS
---------
BALANCE AT CHARGED BALANCE AT
BEGINNING CHARGED TO TO OTHER END OF
OF PERIOD INCOME ACCOUNTS DEDUCTIONS(1) PERIOD
--------- ------ -------- ------------- ------
For the year ended December 31, 1998:
Allowance for doubtful accounts......... $250,000 $167,774 $ -- ($167,774) $250,000
For the year ended December 31, 1999:
Allowance for doubtful accounts......... $250,000 $413,573 $ -- ($363,573) $300,000
For the year ended December 31, 2000:
Allowance for doubtful accounts......... $300,000 $322,574 $ -- ($322,574) $300,000
(1) Deductions represent tenant receivables deemed uncollectible.
S-1
59
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
------- --------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
----------- -------- ------------ ---- -------- ---- --------
Apollo Village Phoenix AZ 0 932 3,219 0 363
Brentwood Manor Mesa AZ 4,701 1,998 6,024 0 240
Carefree Manor Phoenix AZ 0 706 3,040 0 85
Casa del Sol #1 Peoria AZ 6,783 2,215 6,467 0 193
Casa del Sol #2 Glendale AZ 6,917 2,104 6,283 0 133
Casa del Sol #3 Glendale AZ 0 2,450 7,452 0 67
Central Park Phoenix AZ 7,182 1,612 3,784 0 387
Desert Skies Phoenix AZ 0 792 3,126 0 42
Fairview Manor Tucson AZ 0 1,674 5,100 0 426
Hacienda De Valencia Mesa AZ 8,417 833 2,701 0 753
Palm Shadows Glendale AZ 3,208 1,400 4,218 0 288
Sedona Shadows Sedona AZ 2,666 1,096 3,431 0 180
Sunrise Heights Phoenix AZ 0 1,000 3,016 0 235
The Mark Mesa AZ 0 1,354 4,660 6 615
The Meadows Tempe AZ 9,256 2,613 7,887 0 388
Whispering Palms Phoenix AZ 0 670 2,141 0 60
California Hawaiian San Jose CA 17,968 5,825 17,755 0 776
Colony Park Ceres CA 0 890 2,837 0 42
Concord Cascade Pacheco CA 10,377 985 3,016 0 540
Contempo Marin San Rafael CA 16,142 4,788 16,379 0 1,353
Coralwood Modesto CA 0 0 5,047 0 110
Date Palm Country Club Cathedral City CA 15,717 4,138 14,064 (23) 1,316
Four Seasons Fresno CA 0 756 2,348 0 90
Laguna Lake San Luis Obispo CA 5,669 2,845 6,520 0 49
Lamplighter Spring Valley CA 9,389 633 2,201 0 436
Meadowbrook Santee CA 0 4,345 13,139 0 232
Monte del Lago Castroville CA 8,300 3,150 9,469 0 484
Quail Meadows Riverbank CA 0 1,155 3,469 0 137
Nicholson Plaza San Jose CA 0 0 4,512 0 (3)
Rancho Mesa El Cajon CA 0 2,130 6,389 0 39
Rancho Valley El Cajon CA 4,643 685 1,902 0 367
Royal Holiday Hemet CA 0 778 2,643 0 140
Royal Oaks Visalia CA 0 602 1,921 0 88
DeAnza Santa Cruz Santa Cruz CA 5,629 2,103 7,201 0 (418)
Santiago Estates Sylmar CA 0 3,562 10,767 0 146
Sea Oaks Los Osos CA 0 871 2,703 0 105
Gross Amount Carried
at Close of
Period 12/31/00
---------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
----------- -------- ---- -------- ----- ------------ -----------
Apollo Village Phoenix AZ 932 3,582 4,514 (749) 1994
Brentwood Manor Mesa AZ 1,998 6,264 8,262 (1,626) 1993
Carefree Manor Phoenix AZ 706 3,125 3,831 (312) 1998
Casa del Sol #1 Peoria AZ 2,215 6,660 8,875 (741) 1996
Casa del Sol #2 Glendale AZ 2,104 6,416 8,520 (696) 1996
Casa del Sol #3 Glendale AZ 2,450 7,519 9,969 (649) 1998
Central Park Phoenix AZ 1,612 4,171 5,783 (2,281) 1983
Desert Skies Phoenix AZ 792 3,168 3,960 (310) 1998
Fairview Manor Tucson AZ 1,674 5,526 7,200 (519) 1998
Hacienda De Valencia Mesa AZ 833 3,454 4,287 (1,787) 1984
Palm Shadows Glendale AZ 1,400 4,506 5,906 (1,155) 1993
Sedona Shadows Sedona AZ 1,096 3,611 4,707 (415) 1997
Sunrise Heights Phoenix AZ 1,000 3,251 4,251 (744) 1994
The Mark Mesa AZ 1,360 5,275 6,635 (1,086) 1994
The Meadows Tempe AZ 2,613 8,275 10,888 (1,911) 1994
Whispering Palms Phoenix AZ 670 2,201 2,871 (218) 1998
California Hawaiian San Jose CA 5,825 18,531 24,356 (2,254) 1997
Colony Park Ceres CA 890 2,879 3,769 (277) 1998
Concord Cascade Pacheco CA 985 3,556 4,541 (1,878) 1983
Contempo Marin San Rafael CA 4,788 17,732 22,520 (3,668) 1994
Coralwood Modesto CA 0 5,157 5,157 (577) 1997
Date Palm Country Club Cathedral City CA 4,115 15,380 19,495 (3,191) 1994
Four Seasons Fresno CA 756 2,438 3,194 (278) 1997
Laguna Lake San Luis Obispo CA 2,845 6,569 9,414 (762) 1998
Lamplighter Spring Valley CA 633 2,637 3,270 (1,403) 1983
Meadowbrook Santee CA 4,345 13,371 17,716 (1,217) 1998
Monte del Lago Castroville CA 3,150 9,953 13,103 (1,113) 1997
Quail Meadows Riverbank CA 1,155 3,606 4,761 (329) 1998
Nicholson Plaza San Jose CA 0 4,509 4,509 (504) 1997
Rancho Mesa El Cajon CA 2,130 6,428 8,558 (600) 1998
Rancho Valley El Cajon CA 685 2,269 2,954 (1,231) 1983
Royal Holiday Hemet CA 778 2,783 3,561 58 1998
Royal Oaks Visalia CA 602 2,009 2,611 (223) 1997
DeAnza Santa Cruz Santa Cruz CA 2,103 6,783 8,886 (1,402) 1994
Santiago Estates Sylmar CA 3,562 10,913 14,475 (867) 1998
Sea Oaks Los Osos CA 871 2,808 3,679 (310) 1997
S-2
60
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
------- --------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
----------- -------- ------------ ---- -------- ---- --------
Sunshadow San Jose CA 0 0 5,707 0 73
Westwinds (4 properties) San Jose CA 0 0 17,616 0 3,946
Bear Creek Sheridan CO 0 1,100 3,359 0 69
Cimarron Broomfield CO 8,083 863 2,790 0 410
Golden Terrace Golden CO 8,038 826 2,415 0 306
Golden Terrace South Golden CO 2,400 750 2,265 0 341
Golden Terrace West Golden CO 9,733 1,694 5,065 0 723
Hillcrest Village Aurora CO 15,470 1,912 5,202 289 1,744
Holiday Hills Denver CO 19,429 2,159 7,780 0 2,695
Holiday Village CO Co. Springs CO 6,261 567 1,759 0 425
Pueblo Grande Pueblo CO 3,475 241 1,069 0 287
Woodland Hills Denver CO 0 1,928 4,408 0 2,060
Aspen Rehoboth DE 0 1,148 3,460 0 114
Camelot Acres Rehoboth DE 7,000 1,778 5,423 0 218
Mariners Cove Millsboro DE 0 990 2,971 0 2,738
McNicol Rehoboth DE 0 563 1,710 0 37
Sweetbriar Rehoboth DE 0 498 1,527 0 95
Waterford Bear DE 0 5,250 16,202 0 271
Whispering Pines Lewes DE 0 1,536 4,609 0 638
Arrowhead Lantana FL 0 5,325 15,420 0 535
Bay Indies Venice FL 23,000 10,483 3,390 0 29,290
Bay Lake Estates Nokomis FL 4,691 990 3,304 0 (24)
Buccaneer N. Ft. Myers FL 19,702 4,207 14,410 0 668
Bulow Village Flagler Beach FL 1,220 3,637 949 0 3,266
Carriage Cove Daytona Beach FL 8,281 2,914 8,682 0 218
Colonies of Margate Margate FL 16,887 5,890 20,211 0 781
Coquina St Augustine FL 0 5,286 5,545 0 1,611
Country Meadows Plant City FL 0 4,514 13,542 0 575
Country Place New Port Richey FL 4,006 663 0 18 5,992
Country Side North Vero Beach FL 0 3,711 11,133 0 608
East Bay Oaks Largo FL 6,671 1,240 3,322 0 314
Eldorado Village Largo FL 4,574 778 0 0 2,607
Heritage Village Vero Beach FL 0 2,403 7,259 0 248
Hillcrest Clearwater FL 0 1,278 3,928 0 148
Holiday Ranch Largo FL 0 925 2,866 0 90
Holiday Village FL Vero Beach FL 0 350 1,374 0 88
Gross Amount Carried
at Close of
Period 12/31/00
---------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
----------- -------- ---- -------- ----- ------------ -----------
Sunshadow San Jose CA 0 5,780 5,780 (646) 1997
Westwinds (4 properties) San Jose CA 0 21,562 21,562 (2,142) 1997
Bear Creek Sheridan CO 1,100 3,428 4,528 (338) 1998
Cimarron Broomfield CO 863 3,200 4,063 (1,739) 1983
Golden Terrace Golden CO 826 2,721 3,547 (1,406) 1983
Golden Terrace South Golden CO 750 2,606 3,356 (301) 1997
Golden Terrace West Golden CO 1,694 5,788 7,482 (2,565) 1986
Hillcrest Village Aurora CO 2,201 6,946 9,147 (3,593) 1983
Holiday Hills Denver CO 2,159 10,475 12,634 (5,240) 1983
Holiday Village CO Co. Springs CO 567 2,184 2,751 (1,170) 1983
Pueblo Grande Pueblo CO 241 1,356 1,597 (724) 1983
Woodland Hills Denver CO 1,928 6,468 8,396 (1,517) 1994
Aspen Rehoboth DE 1,148 3,574 4,722 (366) 1998
Camelot Acres Rehoboth DE 527 2,569 3,096 (1,346) 1983
Mariners Cove Millsboro DE 990 5,709 6,699 (1,821) 1987
McNicol Rehoboth DE 563 1,747 2,310 (173) 1998
Sweetbriar Rehoboth DE 498 1,622 2,120 (154) 1998
Waterford Bear DE 5,250 16,473 21,723 (1,617) 1996
Whispering Pines Lewes DE 1,536 5,247 6,783 (2,034) 1998
Arrowhead Lantana FL 5,325 15,955 21,280 (1,724) 1997
Bay Indies Venice FL 10,483 32,680 43,163 (7,502) 1994
Bay Lake Estates Nokomis FL 990 3,280 4,270 (819) 1994
Buccaneer N. Ft. Myers FL 4,207 15,078 19,285 (3,181) 1994
Bulow Village Flagler Beach FL 3,637 4,215 7,852 (606) 1994
Carriage Cove Daytona Beach FL 2,914 8,900 11,814 (889) 1998
Colonies of Margate Margate FL 5,890 20,992 26,882 (4,450) 1994
Coquina St Augustine FL 5,286 7,156 12,442 (181) 1999
Country Meadows Plant City FL 4,514 14,117 18,631 (1,434) 1998
Country Place New Port Richey FL 681 5,992 6,673 (1,737) 1986
Country Side North Vero Beach FL 3,711 11,741 15,452 (1,180) 1998
East Bay Oaks Largo FL 1,240 3,636 4,876 (2,018) 1983
Eldorado Village Largo FL 778 2,607 3,385 (1,443) 1983
Heritage Village Vero Beach FL 2,403 7,507 9,910 (1,677) 1994
Hillcrest Clearwater FL 1,278 4,076 5,354 (395) 1998
Holiday Ranch Largo FL 925 2,956 3,881 (291) 1998
Holiday Village FL Vero Beach FL 350 1,462 1,812 (99) 1998
S-3
61
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
------- --------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
----------- -------- ------------ ---- -------- ---- --------
Indian Oaks Rockledge FL 1,658 1,089 3,376 0 536
Lake Fairways N. Ft. Myers FL 0 6,075 18,134 0 480
Lake Haven Dunedin FL 8,068 1,135 4,047 0 482
Lakewood Village Melbourne FL 0 1,863 5,627 0 263
Landings Port Orange FL 0 2,446 7,483 0 294
Mid-Florida Lakes Leesburg FL 25,330 5,997 20,635 0 2,184
Oak Bend Ocala FL 0 850 2,572 0 466
Pickwick Port Orange FL 6,374 2,803 8,497 0 173
Pine Lakes N. Ft. Myers FL 0 6,306 14,579 0 4,636
Sherwood Forest Kissimmee FL 10,012 4,852 14,596 0 1,852
Sherwood Forest RV Park Kissimmee FL 0 2,870 3,621 568 347
Southern Palms Eustis FL 0 2,169 6,492 0 325
Spanish Oaks Ocala FL 7,570 2,250 6,922 0 394
Sunset Oaks Plant City FL 0 1,111 2,513 (340) 120
The Heritage N. Ft. Myers FL 0 1,438 4,371 249 1,838
The Meadows, FL Palm Beach FL 6,246 3,229 9,870 0 (69)
Gardens
Windmill Manor Bradenton FL 4,285 2,153 6,842 0 126
Windmill Village - Ft. Myers N. Ft. Myers FL 9,402 1,417 5,440 0 827
Windmill Village North Sarasota FL 9,065 1,523 5,063 0 462
Windmill Village South Sarasota FL 5,561 1,106 3,162 0 223
Five Seasons Cedar Rapids IA 0 1,053 3,436 0 421
Holiday Village, IA Sioux City IA 0 313 3,744 0 319
Golf Vistas Monee IL 0 2,843 4,719 0 2,476
Willow Lake Estates Elgin IL 21,578 6,138 21,033 0 1,405
Burns Harbor Estates Chesterton IN 0 916 2,909 0 1,363
Candlelight Village Columbus IN 0 1,513 4,538 250 1,949
Oak Tree Village Portage IN 6,089 0 0 569 3,400
Windsong Indianapolis IN 0 1,482 4,480 0 104
Bonner Springs Bonner Springs KS 0 343 1,041 0 200
Carriage Park Kansas City KS 0 309 938 0 418
Quivira Hills Kansas City KS 0 376 1,139 0 184
Pheasant Ridge Mt. Airy MD 0 376 1,779 0 181
Creekside Wyoming MI 0 1,109 3,416 0 163
Camelot Burnsville MN 0 527 2,058 0 511
Briarwood Brookline MO 0 423 1,282 0 189
Dellwood Estates Warrensburg MO 0 300 912 0 110
Gross Amount Carried
at Close of
Period 12/31/00
---------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
----------- -------- ---- -------- ----- ------------ -----------
Indian Oaks Rockledge FL 1,089 3,912 5,001 (375) 1998
Lake Fairways N. Ft. Myers FL 6,075 18,614 24,689 (3,852) 1994
Lake Haven Dunedin FL 1,135 4,529 5,664 (2,470) 1983
Lakewood Village Melbourne FL 1,863 5,890 7,753 (1,320) 1994
Landings Port Orange FL 2,446 7,777 10,223 (788) 1998
Mid-Florida Lakes Leesburg FL 5,997 22,819 28,816 (4,677) 1994
Oak Bend Ocala FL 850 3,038 3,888 (731) 1993
Pickwick Port Orange FL 2,803 8,670 11,473 (860) 1998
Pine Lakes N. Ft. Myers FL 6,306 19,215 25,521 (3,839) 1994
Sherwood Forest Kissimmee FL 4,852 16,448 21,300 (1,462) 1998
Sherwood Forest RV Park Kissimmee FL 3,438 3,968 7,406 (342) 1998
Southern Palms Eustis FL 2,169 6,817 8,986 (406) 1998
Spanish Oaks Ocala FL 2,250 7,316 9,566 (1,734) 1993
Sunset Oaks Plant City FL 771 2,633 3,404 (194) 1998
The Heritage N. Ft. Myers FL 1,687 6,209 7,896 (1,415) 1993
The Meadows, FL Palm Beach FL 3,229 9,801 13,030 (477) 1999
Gardens
Windmill Manor Bradenton FL 2,153 6,968 9,121 (694) 1998
Windmill Village - Ft. Myers N. Ft. Myers FL 1,417 6,267 7,684 (3,319) 1983
Windmill Village North Sarasota FL 1,523 5,525 7,048 (3,025) 1983
Windmill Village South Sarasota FL 1,106 3,385 4,491 (1,900) 1983
Five Seasons Cedar Rapids IA 1,053 3,857 4,910 (412) 1998
Holiday Village, IA Sioux City IA 313 4,063 4,376 (1,914) 1986
Golf Vistas Monee IL 2,843 7,195 10,038 (642) 1997
Willow Lake Estates Elgin IL 6,138 22,438 28,576 (4,621) 1994
Burns Harbor Estates Chesterton IN 916 4,272 5,188 (1,015) 1993
Candlelight Village Columbus IN 1,763 6,487 8,250 (661) 1996
Oak Tree Village Portage IN 569 3,400 3,969 (1,092) 1987
Windsong Indianapolis IN 1,482 4,584 6,066 (401) 1998
Bonner Springs Bonner Springs KS 343 1,241 1,584 (448) 1989
Carriage Park Kansas City KS 309 1,356 1,665 (507) 1989
Quivira Hills Kansas City KS 376 1,323 1,699 (480) 1989
Pheasant Ridge Mt. Airy MD 376 1,960 2,336 (1,150) 1988
Creekside Wyoming MI 1,109 3,579 4,688 (351) 1998
Camelot Burnsville MN 1,778 5,641 7,419 (564) 1998
Briarwood Brookline MO 423 1,471 1,894 (545) 1989
Dellwood Estates Warrensburg MO 300 1,022 1,322 (378) 1989
S-4
62
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
------- --------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
----------- -------- ------------ ---- -------- ---- --------
North Star Kansas City MO 0 451 1,365 0 263
Casa Village Billings MT 8,037 1,011 3,109 181 1,654
Del Rey Albuquerque NM 0 1,926 5,800 0 534
Bonanza Las Vegas NV 9,984 908 2,643 0 542
Boulder Cascade Las Vegas NV 8,027 2,995 9,020 0 399
Cabana Las Vegas NV 0 2,648 7,989 0 136
Flamingo West Las Vegas NV 0 1,730 5,266 0 585
Villa Borega Las Vegas NV 7,598 2,896 8,774 0 124
Brook Gardens Lackawanna NY 0 3,828 11,045 0 311
Greenwood Manorville NY 0 3,667 11,361 0 539
Rockwood Tulsa OK 0 645 1,622 0 290
Falcon Wood Village Eugene OR 7 1,112 3,426 0 63
Quail Hollow Fairview OR 0 0 3,249 0 69
Shadowbrook Clackamas OR 0 1,197 3,693 0 68
Green Acres Breinigsville PA 16,007 2,680 7,479 0 1,992
Fun n Sun RV Park San Benito TX 0 2,533 7,572 0 567
All Seasons Salt Lake City UT 0 510 1,623 0 112
Westwood Village Farr West UT 0 1,346 4,179 0 845
Meadows of Chantilly Chantilly VA 0 5,430 16,440 0 1,321
Kloshe Illahee Federal Way WA 6,580 2,408 7,286 0 49
Independence Hill Morgantown WV 0 299 898 0 198
College Heights Consolidated (18 properties) Various 66,484 17,045 71,382 0 523
Management Business Chicago IL 0 0 436 0 6,703
-------- -------- -------- ------ --------
$555,847 $270,055 $824,426 $1,767 $121,928
======== ======== ======== ====== ========
Gross Amount Carried
at Close of
Period 12/31/00
---------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
----------- -------- ---- -------- ----- ------------ -----------
North Star Kansas City MO 451 1,628 2,079 (601) 1989
Casa Village Billings MT 1,192 4,763 5,955 (2,173) 1983
Del Rey Albuquerque NM 1,926 6,334 8,260 (1,646) 1993
Bonanza Las Vegas NV 908 3,185 4,093 (1,668) 1983
Boulder Cascade Las Vegas NV 2,995 9,419 12,414 (846) 1998
Cabana Las Vegas NV 2,648 8,125 10,773 (1,791) 1994
Flamingo West Las Vegas NV 1,730 5,851 7,581 (1,207) 1994
Villa Borega Las Vegas NV 2,896 8,898 11,794 (1,006) 1997
Brook Gardens Lackawanna NY 3,828 11,356 15,184 (1,169) 1998
Greenwood Manorville NY 3,667 11,900 15,567 (1,130) 1998
Rockwood Tulsa OK 645 1,912 2,557 (1,022) 1983
Falcon Wood Village Eugene OR 1,112 3,489 4,601 (389) 1997
Quail Hollow Fairview OR 0 3,318 3,318 (372) 1997
Shadowbrook Clackamas OR 1,197 3,761 4,958 (438) 1997
Green Acres Breinigsville PA 2,680 9,471 12,151 (3,673) 1988
Fun n Sun RV Park San Benito TX 2,533 8,139 10,672 (841) 1998
All Seasons Salt Lake City UT 510 1,735 2,245 (204) 1997
Westwood Village Farr West UT 1,346 5,024 6,370 (547) 1997
Meadows of Chantilly Chantilly VA 5,430 17,761 23,191 (4,045) 1994
Kloshe Illahee Federal Way WA 2,408 7,335 9,743 (821) 1997
Independence Hill Morgantown WV 299 1,096 1,395 (403) 1990
College Heights Consolidated (18 properties) Various 17,045 71,905 88,950 (5,904) 1998
Management Business Chicago IL 0 7,139 7,139 (4,880)
-------- -------- ---------- ---------
$271,822 $946,354 $1,218,176 ($181,580)
======== ======== ========== =========
NOTES:
(1) For depreciable property, the Company uses a 30-year estimated life for
buildings acquired and structural and land improvements, a ten-to-fifteen
year estimated life for building upgrades and a three-to-seven year
estimated life for furniture and fixtures.
(2) The schedule excludes five Properties in which the Company has a
non-controlling joint venture interest and accounts for using the equity
method of accounting.
(3) The balance of furniture and fixtures included in the total amounts was
approximately $12.2 million as of December 31, 2000.
(4) The aggregate cost of land and depreciable property for Federal income tax
purposes was approximately $1.1 billion, as of December 31, 2000.
(5) All Properties were acquired, except for Country Place Village, which was
constructed.
S-5
63
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
The changes in total real estate for the years ended December 31,
2000, 1999 and 1998 were as follows:
2000 1999 1998
---- ---- ----
Balance, beginning of year ...... $ 1,264,343 $ 1,237,431 $ 936,318
Acquisitions (1) ............ (4,581) 12,496 286,880
Improvements ................ 16,261 16,700 14,566
Dispositions (2) and other .. (57,847) (2,284) (333)
----------- ----------- -----------
Balance, end of year ............ $ 1,218,176 $ 1,264,343 $ 1,237,431
=========== =========== ===========
(1) Acquisitions for the year ended December 31, 2000 include return of escrow
proceeds.
(2) Dispositions includes the non-cash assumption of $19.0 million of debt by
the purchaser of a Property.
The changes in accumulated depreciation for the years ended December
31, 2000, 1999 and 1998 were as follows:
2000 1999 1998
---- ---- ----
Balance, beginning of year .. $ 150,757 $ 118,021 $ 89,208
Depreciation expense .... 35,548 35,020 29,146
Dispositions and other .. (4,725) (2,284) (333)
--------- --------- ---------
Balance, end of year ........ $ 181,580 $ 150,757 $ 118,021
========= ========= =========
S-6