FORM 10-Q

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

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

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

COMMISSION FILE NUMBER: 1-11718

MANUFACTURED HOME COMMUNITIES, INC.
(Exact name of registrant as specified in its Charter)

MARYLAND 36-3857664
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

TWO NORTH RIVERSIDE PLAZA, SUITE 800, CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip Code)

(312) 279-1400
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

21,480,025 shares of Common Stock as of October 31, 2001.

MANUFACTURED HOME COMMUNITIES, INC.

TABLE OF CONTENTS

PART I - FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

<Caption>
Page
----

Consolidated Balance Sheets as of September 30, 2001 (unaudited) and December 31, 2000.....................3

Consolidated Statements of Operations for the quarters and nine months ended September 30, 2001
and 2000 (unaudited).......................................................................................4

Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 (unaudited)....5

Notes to Consolidated Financial Statements.................................................................6

ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................................15

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.........................................23

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings..................................................................................24

ITEM 6. Exhibits and Reports on Form 8-K...................................................................24

MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

SEPTEMBER 30,
2001 DECEMBER 31,
(UNAUDITED) 2000
------------- ------------

ASSETS
Investment in real estate:
Land .......................................................... $ 273,559 $ 271,822
Land improvements ............................................. 853,064 839,725
Buildings and other depreciable property ...................... 110,754 106,629
----------- -----------
1,237,377 1,218,176
Accumulated depreciation ...................................... (203,710) (181,580)
----------- -----------
Net investment in real estate ............................... 1,033,667 1,036,596
Cash and cash equivalents ........................................ 5,065 2,847
Notes receivable ................................................. 1,506 4,984
Investment in and advances to affiliates ......................... 28,001 21,215
Investment in joint ventures ..................................... 12,006 13,267
Rents receivable ................................................. 1,647 1,440
Deferred financing costs, net .................................... 6,104 6,344
Prepaid expenses and other assets ................................ 20,917 17,611
----------- -----------
Total assets .................................................. $ 1,108,913 $ 1,104,304
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable ........................................ $ 591,334 $ 556,578
Unsecured term loan ........................................... 100,000 100,000
Unsecured line of credit ...................................... 19,250 59,900
Other notes payable ........................................... 2,236 3,206
Accounts payable and accrued expenses ......................... 28,329 23,822
Accrued interest payable ...................................... 4,363 5,116
Rents received in advance and security deposits ............... 7,296 5,184
Distributions payable ......................................... 11,997 11,100
Due to affiliates ............................................. 32 32
----------- -----------
Total liabilities ........................................... 764,837 764,938
----------- -----------

Commitments and contingencies

Minority interest - Common OP Units and other .................... 46,153 46,271
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; 21,414,103 and 21,064,785
shares issued and outstanding for 2001 and 2000, respectively 213 210
Paid-in capital ............................................... 242,090 235,681
Deferred compensation ......................................... (4,394) (5,969)
Employee notes ................................................ (3,890) (4,205)
Distributions in excess of accumulated earnings ............... (61,096) (57,622)
----------- -----------
Total stockholders' equity .................................. 172,923 168,095
----------- -----------

Total liabilities and stockholders' equity .................... $ 1,108,913 $ 1,104,304
=========== ===========

The accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

QUARTERS ENDED NINE MONTHS ENDED
---------------------------- ---------------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
2001 2000 2001 2000
--------- --------- --------- ---------

REVENUES
Base rental income .................................... $ 48,992 $ 47,218 $ 146,776 $ 141,776
RV base rental income ................................. 722 560 3,207 5,435
Utility and other income .............................. 4,976 4,973 17,392 15,701
Equity in income of affiliates ........................ 682 857 1,359 1,649
Interest income ....................................... 164 267 552 731
--------- --------- --------- ---------
Total revenues ................................... 55,536 53,875 169,286 165,292
--------- --------- --------- ---------

EXPENSES
Property operating and maintenance .................... 15,434 14,653 46,778 44,471
Real estate taxes ..................................... 4,185 4,119 13,216 12,807
Property management ................................... 2,221 2,072 6,735 6,631
General and administrative ............................ 1,557 1,346 5,070 5,006
Interest and related amortization ..................... 12,610 13,169 38,920 39,654
Depreciation on corporate assets ...................... 332 291 945 839
Depreciation on real estate assets and other costs .... 8,729 8,510 25,996 25,934
--------- --------- --------- ---------
Total expenses ................................... 45,068 44,160 137,660 135,342
--------- --------- --------- ---------

Income from operations ........................... 10,468 9,715 31,626 29,950

Gain on sale of Properties and other .................. --- --- 8,093 12,053
--------- --------- --------- ---------
Income before allocation to Minority Interests
and extraordinary loss ....................... 10,468 9,715 39,719 42,003

(Income) allocated to Common OP Units ................. (1,558) (1,451) (6,404) (6,822)
(Income) allocated to Perpetual Preferred OP Units .... (2,813) (2,813) (8,439) (8,439)
--------- --------- --------- ---------
Income before extraordinary loss on early
extinguishment of debt ....................... 6,097 5,451 24,876 26,742

Extraordinary loss on early extinguishment of debt
(net of $264 allocated to minority interests) .... --- --- --- 1,041
--------- --------- --------- ---------

NET INCOME ...................................... $ 6,097 $ 5,451 $ 24,876 $ 25,701
========= ========= ========= =========

Income per share before extraordinary loss - basic .... $ .29 $ .26 $ 1.19 $ 1.23
========= ========= ========= =========
Income per share before extraordinary loss - diluted... $ .28 $ .25 $ 1.16 $ 1.21
========= ========= ========= =========
Net income per Common Share - basic ................... $ .29 $ .26 $ 1.19 $ 1.18
========= ========= ========= =========
Net income per Common Share - diluted ................. $ .28 $ .25 $ 1.16 $ 1.16
========= ========= ========= =========

Distributions declared per Common Share ............... $ 0.4450 $ 0.4150 $ 1.335 $ 1.245
========= ========= ========= =========

Weighted average Common Shares
outstanding - basic ......................... 21,108 21,166 20,958 21,775
========= ========= ========= =========
Weighted average Common Shares
outstanding - diluted (see Note 2) .......... 27,071 27,077 26,914 27,706
========= ========= ========= =========

The accompanying notes are an integral part of the financial statements.

4
v

MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(AMOUNTS IN THOUSANDS)
(UNAUDITED)

SEPTEMBER 30, SEPTEMBER 30,
2001 2000
------------- -------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................... $ 24,876 $ 25,701
Adjustments to reconcile net income to
cash provided by operating activities:
Income allocated to Minority Interests ..................... 14,843 14,997
Gain on sale of Properties and other ....................... (8,093) (12,053)
Depreciation and amortization expense ...................... 27,764 26,894
Equity in income of affiliates and joint ventures .......... (2,216) (2,037)
Amortization of deferred compensation and other ............ 1,575 1,657
(Increase) decrease in rents receivable .................... (207) 268
Increase in prepaid expenses and other assets .............. (3,306) (3,298)
Increase in accounts payable and accrued expenses .......... 3,753 7,275
Increase in rents received in advance and security deposits 2,113 185
--------- ---------
Net cash provided by operating activities ...................... 61,102 59,589
--------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Contributions to affiliates .................................... (5,526) (5,174)
Collection of notes receivable ................................. 3,478 987
Investment in joint ventures net of distributions received ..... 1,589 (177)
Proceeds from disposition of rental Properties and other assets 16,864 44,329
Collection of escrow proceeds, net ............................. --- 10,500
Acquisition of rental Properties ............................... (16,879) (3,481)
Improvements:
Improvements - corporate ................................... (635) (357)
Improvements - rental Properties ........................... (8,526) (5,366)
Site development costs ..................................... (6,114) (4,250)
--------- ---------
Net cash (used in) provided by investing activities ............ (15,749) 37,011
--------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from stock options and employee stock purchase plan 7,339 2,501
Distributions to Common Stockholders, Common OP Unitholders and
Perpetual Preferred OP Unitholders ......................... (43,309) (42,503)
Repurchase of Common Stock and OP Units ........................ (33) (50,711)
Collection of principal payments on employee notes ............. 315 174
Line of credit:
Proceeds ................................................... 46,000 76,300
Repayments ................................................. (86,650) (143,300)
Refinancing - net proceeds ..................................... 37,870 67,352
Principal payments ............................................. (4,084) (4,555)
Debt issuance costs ............................................ (583) (2,257)
--------- ---------
Net cash used in financing activities .......................... (43,135) (96,999)
--------- ---------

Net increase (decrease) in cash and cash equivalents ................ 2,218 (399)
Cash and cash equivalents, beginning of period ...................... 2,847 6,676
--------- ---------
Cash and cash equivalents, end of period ............................ $ 5,065 $ 6,277
========= =========

SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest ............................ $ 39,011 $ 39,739
========= =========

The accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.

DEFINITION OF TERMS:

Capitalized terms used but not defined herein are as defined in the
Company's Annual Report on Form 10-K (the "2000 Form 10-K") for the year ended
December 31, 2000.

PRESENTATION:

These unaudited Consolidated Financial Statements of Manufactured Home
Communities, Inc., a Maryland corporation, and its subsidiaries (collectively,
the "Company"), have been prepared pursuant to the Securities and Exchange
Commission ("SEC") rules and regulations and should be read in conjunction with
the financial statements and notes thereto included in the 2000 Form 10-K. The
following Notes to Consolidated Financial Statements highlight significant
changes to the Notes included in the 2000 Form 10-K and present interim
disclosures as required by the SEC. The accompanying Consolidated Financial
Statements reflect, in the opinion of management, all adjustments necessary for
a fair presentation of the interim financial statements. All such adjustments
are of a normal and recurring nature. Certain reclassifications have been made
to the prior periods' financial statements in order to conform with current
period presentation.

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131") requires
certain disclosures of selected information about operating segments in the
annual financial statements and related disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS No. 131, in June
1998, did not affect the results of operations or financial position of the
Company. The Company manages operations on a property by property basis. Since
each property has similar economic and operational characteristics, the Company
has one reportable segment, which is the operation of manufactured home
communities.

NOTE 2 - EARNINGS PER COMMON SHARE

Earnings per common share are based on the weighted average number of common
shares outstanding during each period. 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
period 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 accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.

NOTE 2 - EARNINGS PER COMMON SHARE (CONTINUED)

The following table sets forth the computation of basic and diluted earnings
per share for the quarters and nine months ended September 30, 2001 and 2000
(amounts in thousands):

QUARTERS ENDED NINE MONTHS ENDED
------------------------ -------------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
2001 2000 2001 2000
--------- --------- --------- ---------

NUMERATOR:
Numerator for basic earnings per share -
Net income ................................. $ 6,097 $ 5,451 $24,876 $25,701
Effect of dilutive securities:
Income allocated to Common OP Units
(net of extraordinary loss of $264 in 2000) 1,558 1,451 6,404 6,558
------- ------- ------- -------
Numerator for diluted earnings per share -
income available to common shareholders
after assumed conversions .................. $ 7,655 $ 6,902 $31,280 $32,259
======= ======= ======= =======

DENOMINATOR:
Denominator for basic earnings per share -
Weighted average Common Stock outstanding .. 21,108 21,166 20,958 21,775
Effect of dilutive securities:
Weighted average Common OP Units ........... 5,440 5,583 5,475 5,606
Employee stock options ..................... 523 328 481 325
------- ------- ------- -------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions ......................... 27,071 27,077 26,914 27,706
======= ======= ======= =======

NOTE 3 - COMMON STOCK AND RELATED TRANSACTIONS

On April 13, 2001, July 13, 2001, and October 12, 2001, the Company paid a
$.445 per share distribution for the quarters ended March 31, 2001, June 30,
2001 and September 30, 2001, to stockholders of record on March 30, 2001, June
29, 2001, and September 28, 2001 respectively.

NOTE 4 - REAL ESTATE

On January 3, 2001, the Company acquired two Florida communities, totaling
730 sites, for an aggregate purchase price of approximately $16.3 million.
Golden Lakes is a 422-site community in Plant City, near Tampa, Florida and
includes approximately 23 acres for expansion. Chain O' Lakes is a 308-site
community in Grand Island, near Orlando, Florida, and includes a marina with 50
boat docks. The acquisition was funded with a borrowing under the Company's line
of credit.

On February 13, 2001, the Company completed the disposition of the
following seven communities, totaling 1,281 sites, in Kansas, Missouri and
Oklahoma, for a total sale price of approximately $19.1 million:

Dellwood Estates.........136 sites
Briarwood................166 sites
Bonner Springs...........211 sites
Carriage Park............143 sites
North Star...............219 sites
Quivira Hills............142 sites
Rockwood.................264 sites

The accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.

NOTE 4 - REAL ESTATE (CONTINUED)

Included in the sales price are proceeds from the sale by Realty Systems,
Inc., an affiliate of the Company, of inventory and notes receivable totaling
$1.7 million. The Company recorded a gain of $8.1 million on the sale of these
Properties. Proceeds from the sale were used to reduce the amounts outstanding
on the Company's line of credit.

Certain costs, including legal costs, relative to efforts by the Company to
effectively change the use and operations of several Properties are currently
recorded in other assets. These costs, to the extent these efforts are
successful, are capitalized to the extent of the established value of the
revised project and included in the net investment in real estate for the
appropriate Properties. To the extent these efforts are not successful, these
costs will be expensed.

Effective June 30, 2001, the Company terminated its lease to a third-party
operator for the campground and RV resort facilities at the Property known as
Bulow Plantation in Flagler Beach, Florida, and assumed operation of these
facilities directly. Beginning July 1, 2001, the Company no longer records
lease income from Bulow RV Resort, however, the results of operations for the
Bulow RV Resort are included in the Company's results of operations.

The Company is actively seeking to acquire additional manufactured home
communities and currently is engaged in negotiations relating to the possible
acquisition of a number of properties. At any time these negotiations are at
varying stages which may include contracts outstanding to acquire certain
manufactured home communities which are subject to satisfactory completion of
the Company's due diligence review.

NOTE 5 - NOTES RECEIVABLE

As of September 30, 2001 and December 31, 2000, the Company held
approximately $1.5 million and $5.0 million in notes receivable, respectively.
The Company has $167,000 in loans maturing on June 1, 2003, which bear interest
at the rate of approximately 6.0%, per annum and are collateralized by the
property known as Trails West. The Company holds approximately $1.3 million in
notes which bear interest at a rate of prime plus 0.5% and mature on December
31, 2011. The notes are collateralized with a combination of Common OP Units and
partnership interests in the Voyager joint venture and other joint ventures.

NOTE 6 - LONG-TERM BORROWINGS

As of September 30, 2001 and December 31, 2000, the Company had outstanding
mortgage indebtedness of approximately $591.3 million and $556.6 million,
respectively, encumbering 77 and 73 of the Company's Properties, respectively.
As of September 30, 2001 and December 31, 2000, the carrying value of such
Properties was approximately $672 million and $631 million, respectively.

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 bears interest at a rate of 7.015% per annum. There is no
principal amortization until February 1, 2008, after which principal and
interest are to be paid from available cash flow and the interest rate will
be reset at a rate equal to the then 10-year U.S. Treasury obligations plus
2.0%. The $265 Million Mortgage is recorded net of a hedge of $3.0 million
which is being amortized into interest expense over the life of the loan.

The accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.

NOTE 6 - LONG-TERM BORROWINGS (CONTINUED)

- - A $66.0 million mortgage note (the "College Heights Mortgage")
collateralized by 18 Properties owned in a joint venture formed by the
Company and Wolverine Investors, LLC. The College Heights Mortgage bears
interest at a rate of 7.19% per annum, amortizes beginning July 1, 1999
over 30 years and matures July 1, 2008.

- - A $93.3 million mortgage note (the "DeAnza Mortgage") collateralized
by 6 Properties beneficially owned by MHC-DeAnza Financing Limited
Partnership. The DeAnza Mortgage bears interest at a rate of 7.82% per
annum, amortizes beginning August 1, 2000 over 30 years and matures July 1,
2010.

- - A $22.6 million mortgage note (the "Bay Indies Mortgage")
collateralized by one Property beneficially owned by MHC-Bay Indies
Financing Limited Partnership. The Bay Indies Mortgage bears interest at a
rate of 7.48% per annum, amortizes beginning August 1, 1994 over 27.5 years
and matures July 1, 2004.

- - A $15.6 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.

- - A $50.0 million mortgage note (the "Stagecoach Mortgage")
collateralized by 7 Properties beneficially owned by MHC Stagecoach, L.L.C.
The Stagecoach Mortgage bears interest at a rate of 6.98% per annum,
amortizes beginning October 1, 2001 over 10 years and matures August 31,
2011.

- - Approximately $78.8 million of mortgage debt on 15 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 7.21% to 8.87% per annum. In addition, the
Company has a $2.4 million loan recorded to account for a direct financing
lease entered into in May 1997.

The Company has a $150 million unsecured line of credit with a group of
banks (the "Credit Agreement") bearing interest at the London Interbank Offered
Rate ("LIBOR") plus 1.125%, maturing on 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 September 30, 2001 and December 31, 2000, the Company had $19.3
million and $59.9 million, respectively, outstanding under the Credit Agreement.

The Company has a $100 million unsecured term loan (the "Term Loan") with a
group of banks with interest only payable monthly at a rate of LIBOR plus 1.0%.
The Term Loan matures on April 3, 2002.

The Company has approximately $2.2 million of installment notes payable,
secured by a letter of credit, each with an interest rate of 6.5% per annum,
maturing September 1, 2002. Approximately $900,000 of the notes pay principal
annually and interest quarterly and the remaining $1.3 million of the notes pay
interest only quarterly.

The accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.

NOTE 7 - STOCK OPTIONS

Pursuant to the Stock Option Plan as discussed in Note 14 to the 2000 Form
10-K, certain officers, directors, employees and consultants have been offered
the opportunity to acquire shares of common stock of the Company through stock
options ("Options"). During the nine months ended September 30, 2001, Options
for 291,064 shares of common stock were exercised.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

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.

The accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.

NOTE 8 - 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 City rent control officer on
billing and submetering issues related to both water and sewer. The Company and
DeAnza prevailed on all issues related to sewer and the rent rollback related to
water, but the hearing officer determined that the Company could only pass
through its actual cost of water, i.e., a prorated readiness to serve charge and
tax thereon. The hearing officer did not deal with the subsidy being given to
residents through the quantity charge and ordered a rebate in a fixed amount per
resident. The Company and DeAnza requested reconsideration on this issue, among
others, which reconsideration was denied by the hearing officer.

The Company then took a writ of mandate (an appeal from an administrative
order) to the Superior Court and, pending this appeal, the residents, the
Company and the City agreed to stay the effect of the hearing officer's decision
until the Superior 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.

The accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.

NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

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
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 accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.

NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

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 is scheduled to go to trial in
January 2002.

Ellenburg Communities

The Company and certain other parties entered into a settlement agreement,
which was approved by the court in April 2000. The settlement resolved
substantially all of the litigation and appeals involving the Ellenburg
Properties, and transactions arising out of the settlement closed on May 22,
2000.

In connection with the 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

On September 20, 2001, the parties entered into a Settlement Agreement
providing a cash payment of $10.8 million to the Lending Partnership and
dismissal with prejudice of all litigation among the parties and their
affiliates, among other terms. The closing under the Settlement Agreement
occurred on October 5, 2001. The Company will reflect the Settlement Agreement
as a disposition of property.

Other

The Company is involved in various other legal proceedings arising in the
ordinary course of business. Management believes that all proceedings herein
described or referred to, taken together, are not expected to have a material
adverse impact on the Company.

The accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.

NOTE 9- SUBSEQUENT EVENTS

On October 29, 2001, the Company entered into an interest rate swap
agreement, fixing LIBOR on $100 million of the Company's floating rate debt at
approximately 3.6% for the period 2001 through 2004. The terms of the swap
require monthly settlement payments on the same rates interest payments are due
on the debt. In accordance with FAS 133, the interest rate swap and the related
debt will be reflected at market value. The Company believes the swap is a
perfectly effective hedge and there will be no effect on the net income as a
result of the mark-to-market adjustment.

The accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

OVERVIEW

The following is a discussion of the interim results of operations,
financial condition and liquidity and capital resources of the Company for the
quarter and nine months ended September 30, 2001 compared to the corresponding
periods in 2000. It should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included herein and the 2000 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,
2000. 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, 2001 ...................... 54,002

ACQUISITIONS:
Golden Lakes ...................................... January 3, 2001 421
Chain O'Lakes ..................................... January 3, 2001 309
Bulow RV Resort ................................... July 1, 2001 352

EXPANSION SITE DEVELOPMENT:
Sites added in 2000 ............................... 108
Sites added in 2001 ............................... 129

DISPOSITIONS:
FFEC-Six (water and wastewater service company).... February 29, 2000 ---
Mesa Regal RV Resort .............................. May 22, 2000 (2,005)
Naples Estates .................................... May 22, 2000 (484)
Mon Dak ........................................... May 22, 2000 (219)
Dellwood Estates .................................. February 13, 2001 (136)
Briarwood ......................................... February 13, 2001 (166)
Bonner Springs .................................... February 13, 2001 (211)
Carriage Park ..................................... February 13, 2001 (143)
North Star ........................................ February 13, 2001 (219)
Quivira Hills ..................................... February 13, 2001 (142)
Rockwood .......................................... February 13, 2001 (264)

------
TOTAL SITES AS OF SEPTEMBER 30, 2001 ................................................ 51,332
======

The accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.

RESULTS OF OPERATIONS (CONTINUED)

COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 2001 TO THE QUARTER ENDED
SEPTEMBER 30, 2000

Since December 31, 1999, the gross investment in real estate has decreased
from $1,264 million to $1,237 million as of September 30, 2001. The total number
of sites owned or controlled has decreased from 54,002 as of December 31, 1999
to 51,332 as of September 30, 2001.

The following table summarizes certain financial and statistical data for
the Core Portfolio and the Total Portfolio for the quarters ended September 30,
2001 and 2000.

CORE PORTFOLIO TOTAL PORTFOLIO
-------------------------------------- ---------------------------------------
INCREASE/ % INCREASE/ %
(dollars in thousands) 2001 2000 (DECREASE) CHANGE 2001 2000 (DECREASE) CHANGE
---- ---- ---------- ------ ---- ---- ---------- ------

Base rental income .................. $48,488 $46,443 $ 2,045 4.4% $48,992 $47,218 $ 1,774 3.8%
Utility and other income ............ 4,850 4,821 29 0.6% 5,698 5,533 165 (3.0%)
Equity in income of affiliates ...... --- --- --- --- 682 857 (175) (20.4%)
Interest income ..................... --- --- --- --- 164 267 (103) (38.6%)
------- ------- ------- --- ------- ------- ------- -----
Total revenues ................. 53,338 51,264 2,074 4.0% 55,536 53,875 1,661 3.1%

Property operating and
maintenance .................... 14,540 13,989 551 3.9% 15,434 14,653 781 5.3%
Real estate taxes ................... 4,078 4,011 67 1.7% 4,185 4,119 66 1.6%
Property management ................. 2,172 2,018 154 7.6% 2,221 2,072 149 7.2%
General and administrative .......... --- --- --- --- 1,557 1,346 211 15.7%
------- ------- ------- --- ------- ------- ------- -----
Total operating expenses ....... 20,790 20,018 772 3.9% 23,397 22,190 1,207 5.4%
------- ------- ------- --- ------- ------- ------- -----
Income from operations before
interest, depreciation and
amortization expenses .......... 32,548 31,246 1,302 4.2% 32,139 31,685 454 1.4%

Interest and related amortization ... --- --- --- --- 12,610 13,169 (559) (4.2%)
Depreciation on corporate assets .... --- --- --- --- 332 291 41 14.1%
Property depreciation and other ..... 8,069 8,009 60 0.7% 8,729 8,510 219 2.6%
------- ------- ------- --- ------- ------- ------- -----
income from operations (1) ..... 24,479 23,237 1,242 5.3% 10,468 9,715 753 7.8%
======= ======= ======= === ======= ======= ======= =====

Site and Occupancy Information (2):

Average total sites ................. 45,581 45,437 144 0.3% 46,313 46,718 (405) (0.9%)
Average occupied sites .............. 42,909 42,927 (18) (0.0%) 43,563 44,094 (531) (1.2%)
Occupancy % ......................... 94.1% 94.5% (0.4%) (0.4%) 94.1% 94.4% (0.3%) (0.3%)
Monthly base rent per site .......... $376.67 $360.64 $ 16.03 4.4% $374.87 $356.95 $ 17.92 5.0%

Total sites
as of September 30, ............ 45,581 45,565 16 0.0% 46,313 46,297 16 0.0%
Total occupied sites
as of September 30, ............ 42,909 42,943 (34) (0.1%) 43,563 43,605 (42) (0.1%)

(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 RV sites or the
manufactured housing sites at the five Properties owned through joint
ventures.

The accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.

RESULTS OF OPERATIONS (CONTINUED)

Revenues

The 4.4% increase in base rental income for the Core Portfolio reflects a
4.4% increase in monthly base rent per site coupled with no change in average
occupied sites. The 3.8% increase in base rental income for the Total Portfolio
reflects the increase for the Core Portfolio and the acquisition and disposition
of Non-Core Properties. The increase in utility and other income for the Core
Portfolio is due primarily to increases in pass through items such as utilities
and real estate taxes - which resulted from higher expenses for these items. The
increase in utility and other income for the Total Portfolio reflects the
increase for the Core Portfolio and the acquisition and disposition of Non-Core
Properties.

Interest income decreased due to lower notes receivable balances and lower
weighted average interest rates during the period. Short-term investments had
average balances for the quarters ended September 30, 2001 and 2000 of
approximately $2.2 million and $1.2 million, respectively, which earned interest
income at an effective rate of 3.5% and 6.8% 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 insurance
expenses and other expenses. 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. The increase in property management
expense for the Core Portfolio, which reflects costs of managing the Properties
and is estimated based on a percentage of Property revenues, is due primarily to
management staffing changes.

General and administrative expenses increased primarily due to the timing
of payments for certain public company costs.

Interest and related amortization decreased due to lower weighted average
interest rates during the period. The weighted average outstanding debt balances
for the quarters ended September 30, 2001 and 2000 were $703.3 million and
$690.3 million, respectively. The effective interest rate was 6.7% and 7.5% per
annum for the quarters ended September 30, 2001 and 2000, respectively.

Depreciation on corporate assets increased slightly due to fixed asset
additions related to information and communication systems. Depreciation on real
estate assets and other costs increased due primarily to the acquisition of
Non-Core Properties.

The accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2001 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2000

The following table summarizes certain financial and statistical data for
the Core Portfolio and the Total Portfolio for the nine months ended September
30, 2001 and 2000.

CORE PORTFOLIO TOTAL PORTFOLIO
---------------------------------------- -----------------------------------------
INCREASE/ % INCREASE/ %
(dollars in thousands) 2001 2000 (DECREASE) CHANGE 2001 2000 (DECREASE) CHANGE
---- ---- ---------- ------ ---- ---- ---------- ------

Base rental income ................ $144,869 $138,488 $ 6,381 4.6% $146,776 $141,776 $ 5,000 3.5%
Utility and other income .......... 15,779 14,006 1,773 12.7% 20,599 21,136 (537) (2.5%)
Equity in income of affiliates .... --- --- --- --- 1,359 1,649 (290) (17.6%)
Interest income ................... --- --- --- --- 552 731 (179) (24.5%)
-------- -------- -------- ---- -------- -------- -------- -----
Total revenues ............... 160,648 152,494 8,154 5.3% 169,286 165,292 3,994 2.4%

Property operating and
maintenance .................. 43,889 40,736 3,153 7.7% 46,778 44,471 2,307 5.2%
Real estate taxes ................. 12,768 12,362 406 3.3% 13,216 12,807 409 3.2%
Property management ............... 6,514 6,227 287 4.6% 6,735 6,631 104 1.6%
General and administrative ........ --- --- --- --- 5,070 5,006 64 1.3%
-------- -------- -------- ---- -------- -------- -------- -----
Total operating expenses ..... 63,171 59,325 3,846 6.5% 71,799 68,915 2,884 4.2%
-------- -------- -------- ---- -------- -------- -------- -----
Income from operations before
interest, depreciation and
amortization expenses ........ 97,477 93,169 4,308 4.6% 97,487 96,377 1,110 1.2%

Interest and related amortization . --- --- --- --- 38,920 39,654 (734) (1.9%)
Depreciation on corporate assets .. --- --- --- --- 945 839 106 12.6%
Property depreciation and other ... 24,071 23,906 165 0.7% 25,996 25,934 62 0.2%
-------- -------- -------- ---- -------- -------- -------- -----
income from operations (1) ... 73,406 69,263 4,143 6.0% 31,626 29,950 1,676 5.6%
======== ======== ======== ==== ======== ======== ======== =====

Site and Occupancy Information (2):

Average total sites ............... 45,538 45,403 135 0.3% 46,412 47,043 (631) (1.3%)
Average occupied sites ............ 43,001 42,855 146 0.3% 43,795 44,362 (567) (1.3%)
Occupancy % ....................... 94.4% 94.4% 0.0% 0.0% 94.4% 94.3% 0.1% 0.1%
Monthly base rent per site ........ $ 374.33 $ 359.06 $ 15.27 4.3% $ 372.38 $ 355.10 $ 17.28 4.9%

(2) Site and occupancy information does not include RV sites or the
manufactured housing sites at the five Properties owned through joint
ventures.

The accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.

RESULTS OF OPERATIONS (CONTINUED)

Revenues

The 4.6% increase in base rental income for the Core Portfolio reflects a
4.3% increase in monthly base rent per site coupled with a 0.3% increase in
average occupied sites. The 3.5% increase in base rental income for the Total
Portfolio reflects the increase for the Core Portfolio and the acquisition and
disposition of Non-Core Properties. The increase in utility and other income for
the Core Portfolio is due primarily to increases in pass through items such as
utilities and real estate taxes - which resulted from higher expenses for these
items. The decrease in utility and other income for the Total Portfolio reflects
the disposition of Non-Core Properties partially offset by the increase for the
Core Portfolio.

Interest income decreased due to lower weighted average interest rates.
Short-term investments had average balances for the nine months ended September
30, 2001 and 2000 of approximately $2.0 million and $1.5 million, respectively,
which earned interest income at an effective rate of 4.3% and 5.9% 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 insurance
expenses and other expenses. The increase in Core Portfolio real estate taxes is
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. The increase is due primarily to management payroll and staffing
changes.

General and administrative expenses increased primarily due to timing of
certain public company related costs.

Interest and related amortization decreased due to lower weighted average
interest rates during the period and lower weighted average outstanding debt
balances. The weighted average outstanding debt balances for the nine months
ended September 30, 2001 and 2000 were $714.5 million and $720.0 million,
respectively. The effective interest rate was 7.1% and 7.2% per annum for the
nine months ended September 30, 2001 and 2000, respectively.

The accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

As of September 30, 2001, the Company had $5.1 million in cash and cash
equivalents and $130.8 million available on its line of credit. The Company
expects to meet its short-term liquidity requirements, including its
distributions, generally through its working capital, net cash provided by
operating activities and availability under the existing line of credit. The
Company expects to meet certain long-term liquidity requirements such as
scheduled debt maturities, property acquisitions and capital improvements by
long-term collateralized and uncollateralized borrowings including borrowings
under its existing line of credit and the issuance of debt securities or
additional equity securities in the Company, in addition to working capital.

On April 13, 2001, July 13, 2001, and October 12, 2001, the Company paid a
$.445 per share distribution for the quarters ended March 31, 2001, June 30,
2001, and September 30, 2001, to stockholders of record on March 30, 2001, June
29, 2001, and September 28, 2001, respectively. The Operating Partnership paid
distributions of 9.0% per annum on the $125 million of Series D Cumulative
Redeemable Perpetual Preferred Units ("Preferred Units"). Distributions on the
Preferred Units were paid on March 30, 2001, June 29, 2001, and September 28,
2001.

MORTGAGES AND CREDIT FACILITIES

During the nine months ended September 30, 2001 the Company borrowed $46.0
million on its line of credit and paid down $86.7 million on the line of credit.
The line of credit bears interest at a rate of LIBOR plus 1.125%.

In July of 2001, the Company paid off three maturing mortgages in the
amount of $12.1 million. The payoffs were funded with borrowings on the line of
credit.

On August 3, 2001, the Company entered into a $50.0 million mortgage note
(the "Stagecoach Mortgage") collateralized by 7 Properties beneficially owned by
MHC Stagecoach, L.L.C. The Stagecoach Mortgage bears interest at a rate of 6.98%
per annum, amortizes beginning October 1, 2001 over 10 years and matures August
31, 2011. Proceeds from the financing were used to reduce borrowings on the line
of credit by $37.9 million.

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,
limitations on certain holdings and other restrictions.

ACQUISITIONS, DISPOSITIONS AND INVESTMENTS

On January 3, 2001, the Company acquired two Florida Properties, totaling
730 sites, for an aggregate purchase price of approximately $16.3 million.
Golden Lakes is a 422-site community in Plant City, near Tampa, Florida, and
includes approximately 23 acres for expansion. Chain O' Lakes is a 308-site
community in Grand Island, near Orlando, Florida, and includes a marina with 50
boat docks. The acquisition was funded with a borrowing under the Company's line
of credit.

The accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

On February 13, 2001, the Company completed the disposition of seven
Properties, totaling 1,281 sites, in Kansas, Missouri and Oklahoma, for a total
sale price of approximately $19.1 million. A gain of $8.1 million was recorded
in other income on the accompanying consolidated statements of operations.
Included in the sales price are proceeds from the sale by Realty Systems, Inc.,
an affiliate of the Company, of inventory and notes receivable totaling $1.7
million. Proceeds from the sale were used to reduce the amount outstanding on
the Company's line of credit.

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 $8.5 million for
the nine months ended September 30, 2001. Site development costs were
approximately $6.1 million for the nine months ended September 30, 2001, and
represent costs to develop expansion sites at certain of the Company's
Properties.

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

Funds from operations ("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 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 accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.

The following table presents a calculation of FFO and FAD for the quarters
and nine months ended September 30, 2001 and 2000 (amounts in thousands):

QUARTERS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
2001 2000 2001 2000
-------- -------- -------- --------

COMPUTATION OF FUNDS FROM OPERATIONS:
Income before extraordinary loss on early
extinguishment of debt.................................... $ 6,097 $ 5,451 $ 24,876 $ 26,742
Income allocated to Common OP Units ...................... 1,558 1,451 6,404 6,822
Depreciation on real estate assets and other costs ....... 8,729 8,510 25,996 25,934
Gain on sale of property and other ....................... --- --- (8,093) (12,053)
-------- -------- -------- --------
Funds from operations.................................. $ 16,384 $ 15,412 $ 49,183 $ 47,445
======== ======== ======== ========

Weighted average Common Stock outstanding - diluted ...... 27,071 27,077 26,914 27,706
======== ======== ======== ========

COMPUTATION OF FUNDS AVAILABLE FOR DISTRIBUTION:
Funds from operations..................................... $ 16,384 $ 15,412 $ 49,183 $ 47,445
Non-revenue producing improvements to real estate ........ (4,240) (2,470) (8,526) (5,366)
-------- -------- -------- --------
Funds available for distribution....................... $ 12,144 $ 12,942 $ 40,657 $ 42,079
======== ======== ======== ========

Weighted average Common Stock outstanding - diluted ...... 27,071 27,077 26,914 27,706
======== ======== ======== ========

The accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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 ($19.3 million outstanding at
September 30, 2001) 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 the quarter ended September 30, 2001,
interest expense for the quarter would have increased/decreased by approximately
$343,000 based on the combined average balance outstanding under the Company's
line of credit and Term Loan during the period.

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 adopted SFAS No. 133
effective January 1, 2001. SFAS No. 133 requires the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
Company has determined that SFAS No. 133 currently has no significant effect on
the earnings and financial position of the Company.

The accompanying notes are an integral part of the financial statements.

MANUFACTURED HOME COMMUNITIES, INC.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

(see Note 8 of the Consolidated Financial Statements contained herein)

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits:

None.

(b) Reports on Form 8-K:

None.

The accompanying notes are an integral part of the financial statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.

MANUFACTURED HOME COMMUNITIES, INC.

BY: /s/ John M. Zoeller
-------------------
John M. Zoeller
Vice President, Treasurer and
Chief Financial Officer

BY: /s/ Mark Howell
---------------
Mark Howell
Principal Accounting Officer and
Assistant Treasurer

DATE: November 13, 2001

The accompanying notes are an integral part of the financial statements.