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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, 2003
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 incorporation or organization) (I.R.S. Employer Identification No.)
TWO NORTH RIVERSIDE PLAZA, SUITE 800, CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip Code)
(312) 279-1400
(Registrant's telephone number, including area code)
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 whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates was
approximately $665.2 million as of February 27, 2004 based upon the closing
price of $33.31 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 5, 2004, 22,869,603 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 on May 4, 2004.
MANUFACTURED HOME COMMUNITIES, INC.
TABLE OF CONTENTS
Page
----
PART I.
Item 1. Business................................................................................................3
Item 2. Properties..............................................................................................9
Item 3. Legal Proceedings......................................................................................14
Item 4. Submission of Matters to a Vote of Security Holders....................................................17
PART II.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters..............................18
Item 6. Selected Financial Data................................................................................19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................22
Item 7A. Quantitative and Qualitative Disclosure About Market Risk..............................................33
Item 8. Financial Statements and Supplementary Data............................................................33
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................33
Item 9A. Controls and Procedures................................................................................33
PART III.
Item 10. Directors and Executive Officers of the Registrant.....................................................34
Item 11. Executive Compensation.................................................................................34
Item 12. Security Ownership of Certain Beneficial Owners and Management.........................................34
Item 13. Certain Relationships and Related Transactions.........................................................34
Item 14. Principal Accountant Fees and Services.................................................................34
PART IV.
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................35
2
PART I
ITEM 1. BUSINESS
THE COMPANY
GENERAL
Manufactured Home Communities, Inc., together with MHC Operating Limited
Partnership (the "Operating Partnership") and other consolidated subsidiaries
("Subsidiaries"), are referred to herein as the "Company", "MHC", "we", "us",
and "our". The Company is a fully integrated company that owns and operates
manufactured home communities ("Communities") and park model communities
("Resorts") (collectively known as "Properties"). The Company was formed to
continue the property operations, business objectives and acquisition strategies
of an entity that had owned and operated Communities since 1969. As of December
31, 2003, we owned or had an ownership interest in a portfolio of 142
Communities and Resorts located throughout the United States containing 51,715
residential sites. These Properties are located in 19 states (with the number of
Properties in each state shown parenthetically) - Florida (52), California (25),
Arizona (21), Colorado (10), Delaware (7), Nevada (5), Oregon (4), Indiana (3),
Illinois (2), Iowa (2), New York (1), Texas (2), Utah (2), Pennsylvania (1),
Montana (1), New Mexico (1), Michigan (1), Virginia (1), and Washington (1).
Communities are residential developments designed and improved for the
placement of detached, single-family manufactured homes that are produced
off-site and installed and set on residential sites ("Site Set") within the
Community. The owner of each home leases the site on which it is located. Modern
Communities are similar to typical residential subdivisions, containing
centralized entrances, paved streets, curbs and gutters and parkways. In
addition, these Communities often provide a clubhouse for social activities and
recreation and other amenities, which may include swimming pools, shuffleboard
courts, tennis courts, laundry facilities and cable television service. In some
cases, utilities are provided or arranged for by the owner of the Community;
otherwise, the resident contracts for the utility directly. Some Communities
provide water and sewer service through municipal or regulated utilities, while
others provide these services to residents from on-site facilities. Each
Community is generally designed to attract, and is marketed to, one of two types
of residents - 1) retirees and empty-nesters or 2) families and first-time
homeowners. We believe both types of Communities are attractive investments and
focus on owning Communities in or near large metropolitan markets and retirement
destinations.
Resorts are similar to Communities in their overall design and the
amenities they provide. Our Resorts typically include sites designed to
accommodate Site Set homes, park model homes, luxury motor-coaches and a variety
of recreational vehicles. A park model, sometimes referred to as a vacation
cottage, is a factory built detached single-family structure generally with
approximately 400 square feet. Owners often add sunrooms, porches and/or decks
after the home is placed on site. Our Resorts are marketed to attract residents
seeking a second home or vacation home as well as those seeking a long-term or
full season recreational vehicle site. A majority of our Resort residents own
homes in the Resort and/or lease the site annually or for a full season.
We have approximately 1,000 full-time employees dedicated to carrying out
our operating philosophy and strategies of value enhancement and service to
residents. The operations of each Property are coordinated by an on-site team of
employees that typically includes a manager or two-person management team,
clerical and maintenance workers, each of whom work to provide maintenance and
care of the Properties. Direct supervision of on-site management is the
responsibility of our regional vice presidents and regional and district
managers. These individuals have significant experience in addressing the needs
of residents and in finding or creating innovative approaches to maximize value
and increase cash flow from property operations. Complementing this field
management staff are approximately 60 corporate employees who assist on-site
management in all property functions.
FORMATION OF THE COMPANY
We believe that we have qualified for taxation as a real estate investment
trust ("REIT") for federal income tax purposes since our taxable year ended
December 31, 1993. We plan to continue to meet the requirements for taxation as
a REIT. Many of these requirements, however, are highly technical and complex.
We cannot, therefore, guarantee that we have qualified or will qualify in the
future as a REIT. The determination that we are a REIT requires an analysis of
various factual matters that may not be totally within our control and we cannot
provide any assurance that the Internal Revenue Service ("IRS") will agree with
our analysis. For example, to qualify as a REIT, at least 95% of our gross
income must come from sources that are itemized in the REIT tax laws. We are
also required to distribute to stockholders at least 90% of our REIT taxable
income excluding capital gains. The fact that we hold our assets through MHC
Operating Limited Partnership and its subsidiaries further complicates the
application of the REIT requirements. Even a technical or inadvertent mistake
could jeopardize our REIT status. Furthermore, Congress and the IRS might make
changes to the tax laws and regulations, and the
3
courts might issue new rulings that make it more difficult, or impossible, for
us to remain qualified as a REIT. We do not believe, however, that any pending
or proposed tax law changes would jeopardize our REIT status.
If we fail to qualify as a REIT, we would be subject to federal income tax
at regular corporate rates. Also, unless the IRS granted us relief under certain
statutory provisions, we would remain disqualified as a REIT for four years
following the year we first failed to qualify. Even if the Company qualifies for
taxation as a REIT, the Company is subject to certain state and local taxes on
its income and property and Federal income and excise taxes on its undistributed
income.
The operations of the Company are conducted primarily through the Operating
Partnership. The Company contributed the proceeds from its initial public
offering and subsequent offerings to the Operating Partnership for a general
partnership interest. The financial results of the Operating Partnership and the
Subsidiaries are consolidated in the Company's consolidated financial
statements. In addition, since certain activities, if performed by the Company,
may not be qualifying REIT activities under the Internal Revenue Code of 1986,
as amended (the "Code"), the Company has formed taxable REIT subsidiaries as
defined in the Code to engage in such activities. Realty Systems, Inc. ("RSI")
is a wholly owned subsidiary of the Company that, doing business as Carefree
Sales, is engaged in the business of purchasing, selling and leasing
manufactured homes that are located or will be located in Properties owned and
managed by the Company. Carefree Sales also provides brokerage services to
residents at such Properties. Typically, residents move from a Community but do
not relocate their homes. Carefree Sales may provide brokerage services, in
competition with other local brokers, by seeking buyers for the homes. Carefree
Sales also leases inventory homes to prospective residents with the expectation
that the tenant eventually will purchase the home. Subsidiaries of RSI lease
from the Operating Partnership certain real property within or adjacent to
certain Properties consisting of golf courses, pro shops, stores and
restaurants.
BUSINESS OBJECTIVES AND OPERATING STRATEGIES
Our strategy seeks to maximize both current income and long-term growth in
income. We focus on Properties that have strong cash flow and we expect to hold
such Properties for long-term investment and capital appreciation. In
determining cash flow potential, we evaluate our ability to attract and retain
high quality residents in our Properties who take pride in their Property and in
their home. These business objectives and their implementation are determined by
our Board of Directors and may be changed at any time. Our investment and
operating approach includes:
o Providing consistently high levels of services and amenities in
attractive surroundings to foster a strong sense of community and
pride of home ownership;
o Efficiently managing the Properties to increase operating margins by
controlling expenses, increasing occupancy and maintaining competitive
market rents;
o Increasing income and property values by continuing the strategic
expansion and, where appropriate, renovation of the Properties;
o Utilizing management information systems to evaluate potential
acquisitions, identify and track competing properties and monitor
resident satisfaction; and
o Selectively acquiring Properties 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.
We are committed to enhancing our reputation as the most respected brand
name in the industry. Our strategy is to own and operate the highest quality
Properties in sought-after locations near both urban areas and retirement
destinations across the United States. The focus is on creating an attractive
residential environment for homeowners by providing a well-maintained,
comfortable Property with a variety of organized recreational and social
activities and superior amenities. In addition, we regularly conduct evaluations
of the cost of housing in the marketplaces in which our Properties are located
and survey rental rates of competing Communities and Resorts. From time to time
we also conduct satisfaction surveys of our residents to determine the factors
they consider most important in choosing a Property.
4
FUTURE ACQUISITIONS
Over the last eight years our portfolio of Properties has grown by 73
Properties. We continually review the Properties in our portfolio to ensure that
they fit our business objectives. Over the last four years, through the
acquisition or sale of 50 Properties, we have redeployed capital to markets we
believe have greater long-term potential. We believe that opportunities for
Property acquisitions are still available and in general consolidation within
the industry will continue (see - The Industry - Industry Consolidation).
Increasing acceptability of and demand for Site Set homes and vacation cottages
and continued constraints on development of new Properties continue to add to
their attractiveness as an investment. We believe we have a competitive
advantage in the acquisition of additional Properties due to our experienced
management, significant presence in major real estate markets and substantial
capital resources. We are actively seeking to acquire additional Communities and
Resorts and are engaged in various stages of negotiations relating to the
possible acquisition of a number of Properties.
We anticipate that newly acquired Properties will be located in the United
States. We utilize market information systems to identify and evaluate
acquisition opportunities, including a market database to review the primary
economic indicators of the various locations in which we expect to expand our
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
Operating Partnership may issue units of limited partnership interest ("OP
Units") to finance acquisitions. We believe that an ownership structure which
includes the Operating Partnership will permit us to acquire additional
Communities and Resorts in transactions that may defer all or a portion of the
sellers' tax consequences.
When evaluating potential acquisitions, we will consider such factors as:
o the replacement cost of the Property,
o the geographic area and type of Property,
o the location, construction quality, condition and design of the
Property,
o the current and projected cash flow of the Property and the ability to
increase cash flow,
o the potential for capital appreciation of the Property,
o the terms of tenant leases, including the potential for rent
increases,
o the potential for economic growth and the tax and regulatory
environment of the community in which the Property is located,
o the potential for expansion of the physical layout of the Property and
the number of sites,
o the occupancy and demand by residents for Properties of a similar type
in the vicinity and the residents' profile,
o the prospects for liquidity through sale, financing or refinancing of
the Property, and
o the competition from existing Properties and the potential for the
construction of new Properties in the area.
We expect to purchase Properties with physical and market characteristics
similar to the Properties in our current portfolio. When investing capital we
consider all potential uses of the capital including returning capital to our
stockholders. As a result, during 1999 and 2000 we implemented our stock
repurchase program, and our Board of Directors continues to review the
conditions under which we will repurchase our stock. These conditions include,
but are not limited to, market price, balance sheet flexibility, other
opportunities and capital requirements.
PROPERTY EXPANSIONS
Several of our 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 us 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 to make those Properties more
attractive in their markets. Our acquisition philosophy has included the desire
to own Properties with potential Expansion Site development, and we have been
successful in acquiring a number of such Properties. Several examples of these
Properties include the 1993 acquisition of The Heritage with potential
development of approximately 288 Expansion Sites, the 1994 acquisition of Bulow
Plantation with potential development of approximately 725 Expansion Sites, the
1997 acquisition of Golf Vista Estates with potential development of
approximately 88 Expansion Sites, the 1999 acquisition of Coquina Crossing with
potential development of approximately 393 Expansion Sites, and the 2001
acquisitions of Grand Island and The Lakes at Countrywood with combined
potential development of 224 Expansion Sites.
Of our 142 Properties, ten may be expanded consistent with existing zoning
regulations. In 2004, we expect to develop an additional 205 Expansion Sites
within three of these Properties. As of December 31, 2003, we had approximately
713 Expansion Sites available for occupancy in 22 of the Properties. We filled
136 Expansion Sites in 2003 and expect to fill an additional 150 to 200
Expansion Sites in 2004.
5
LEASES
At our Communities, a typical lease entered into between the resident and
the Company for the rental of a site is for a month-to-month or year-to-year
term, renewable upon the consent of both parties or, in some instances, as
provided by statute. These leases are cancelable, depending on applicable law,
for non-payment of rent, violation of 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 25 of the
Communities. Some of these leases are subject to rental rate increases based on
the Consumer Price Index ("CPI"), in some instances taking into consideration
certain floors and ceilings and allowing for pass-throughs of certain items such
as real estate taxes, utility expenses and capital expenditures. Generally,
market rate adjustments are made on an annual basis.
REGULATIONS AND INSURANCE
General. Our Properties are subject to various laws, ordinances and
regulations, including regulations relating to recreational facilities such as
swimming pools, clubhouses and other common areas. We believe that each Property
has the necessary permits and approvals to operate.
Rent Control Legislation. At certain of our Communities, state and local
rent control laws, principally in California, limit our ability to increase
rents and to recover increases in operating expenses and the costs of capital
improvements. Enactment of such laws has been considered from time to time in
other jurisdictions. We presently expect to continue to maintain Communities,
and may purchase additional Communities, in markets that are either subject to
rent control or in which rent-limiting legislation exists or may be enacted. For
example, Florida has enacted a law that generally provides that rental increases
must be reasonable. Also, certain jurisdictions in California in which we own
Communities limit rent increases to changes in the CPI or some percentage
thereof. As part of our effort to realize the value of our Properties subject to
restrictive regulation, we have initiated lawsuits against several
municipalities imposing such regulation in an attempt to balance the interests
of our shareholders with the interests of our residents
Insurance. We believe that the Properties are covered by adequate fire,
flood, property, earthquake and business interruption insurance (where
appropriate) provided by reputable companies and with commercially reasonable
deductibles and limits. Due to the lack of available commercially reasonable
coverage, we are self-insured for terrorist incidents, except at certain
Properties where terrorist insurance coverage is required by debt covenants. We
believe our insurance coverage is adequate based on our assessment of the risks
to be insured, the probability of loss and the relative cost of available
coverage. We have obtained title insurance insuring title to the Properties in
an aggregate amount which we believe to be adequate.
INDUSTRY
THE INDUSTRY
We believe that modern Properties similar to ours provide an opportunity
for increased cash flows and appreciation in value. These may be achieved
through increases in occupancy rates and rents, as well as expense controls,
expansion of existing Properties and opportunistic acquisitions, for the
following industry-specific reasons:
o Barriers to Entry: We believe that the supply of new Properties 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
Properties 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 a Property'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 Property is ready for occupancy, it may be
difficult to attract customers to an empty Property. Substantial
occupancy levels may take several years to achieve.
o Industry Consolidation: According to an industry analyst's industry
report, there are approximately 50,000 Communities in the United
States, and approximately 6.5% or 3,250 of the Communities have more
than 200 sites and would be considered "investment-grade" properties.
The four public REITs that own Communities own approximately 328 or
about 10% 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. We believe
that this relatively high degree of fragmentation in the industry
provides us, as a national organization with experienced management
and substantial financial resources, the opportunity to purchase
additional Communities.
6
o Stable Tenant Base: We believe that Properties tend to achieve and
maintain a stable rate of occupancy due to the following factors: (i)
residents own their own homes, (ii) Properties tend to foster a sense
of community as a result of amenities such as clubhouses, recreational
and social activities and (iii) since moving a Site Set home or
vacation cottage from one Property 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.
SITE SET HOUSING AND VACATION COTTAGES
Based on the current growth in the number of individuals living in Site Set
homes and vacation cottages, we believe that these homes are increasingly viewed
by the public as an attractive and economical form of housing.
We believe that the growing popularity of these homes is primarily the
result of the following factors:
o Importance of Home Ownership. According to the Fannie Mae 2001
National Housing Survey ("FNMA Survey"), renters' desire to own a home
continues to be a top priority.
o Affordability. For a significant number of people, these homes
represent the only means of achieving home ownership. In addition, the
total cost of housing in a Property (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.
o Lifestyle Choice. As the average age of the United States population
has increased, this housing choice has become an increasingly popular
housing alternative for retirement and "empty-nest" living. According
to the FNMA Survey, the 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 people
will reach age 55 within the next ten years. Among those individuals
who are nearing retirement (age 40 to 54), approximately 33% plan on
moving upon retirement. We believe that this housing choice is
especially attractive to such individuals when located within a
Property that offers an appealing amenity package, close proximity to
local services, social activities, low maintenance and a secure
environment.
o Construction Quality. Since 1976, all Site Set housing has been
required to meet stringent Federal standards, resulting in significant
increases in the quality of the industry's product. The Department of
Housing and Urban Development's standards for Site Set housing
construction quality are the only Federally regulated standards
governing housing quality of any type in the United States. Site Set
homes produced since 1976 have received a "red and silver" government
seal certifying that they were built in compliance with the Federal
code. The code regulates Site Set home design and construction,
strength and durability, fire resistance and energy efficiency, and
the installation and performance of heating, plumbing, air
conditioning, thermal and electrical systems. In newer homes, top
grade lumber and dry wall materials are common. Also, manufacturers
are required to follow the same fire codes as builders of site-built
structures. In addition, although vacation cottages do not come under
the same regulation, many of the manufacturers of Site Set homes also
produce vacation cottages with many of the same quality standards.
o Comparability to Site-Built Homes. The Site Set housing industry has
experienced a trend towards multi-section homes. Many modern Site Set
homes are longer (up to 80 feet, compared to 50 feet in the 1960's)
and wider than earlier models. Many such homes have vaulted ceilings,
fireplaces and as many as four bedrooms, and closely resemble single
family ranch style site-built homes.
o Second home demographics. Over the past ten years there has been a
significant increase in the second home market. According to a
November 2002 study by the National Association of Realtors ("NAR"),
sales of second homes have risen almost 36% in ten years. Six percent
of all home sales each year are second homes. The NAR study found that
48% of people who own a second home own either a cabin, cottage or
manufactured home. According to the US Census Bureau, there were 9.2
million homes held by owners in addition to their primary residence.
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AVAILABLE INFORMATION
We file reports electronically with the Securities and Exchange Commission.
The public may read and copy any materials we file with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, NW., Washington, DC 20549. The public
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains
reports, proxy information and statements, and other information regarding
issuers that file electronically with the SEC at http://www.sec.gov. We maintain
an Internet site with information about the Company and hyperlinks to our
filings with the SEC at http://www.mhchomes.com. Requests for copies of our
filings with the SEC and other investor inquiries should be directed to:
Investor Relations Department
Manufactured Home Communities, Inc.
Two North Riverside Plaza
Chicago, Illinois 60606
Phone: 1-800-247-5279
e-mail: [email protected]
8
ITEM 2. PROPERTIES
Our Properties provide attractive amenities and common facilities that
create a comfortable and attractive home for our residents, with most offering a
clubhouse, a swimming pool, laundry facilities and cable television service.
Many also offer additional amenities such as sauna/whirlpool spas, golf courses,
tennis, shuffleboard and basketball courts and exercise rooms. Since residents
in our Properties own their homes, it is their responsibility to maintain their
homes and the surrounding area. It is our role to ensure that residents comply
with our Property policies and to provide maintenance of the common areas,
facilities and amenities. We hold periodic meetings with our Property management
personnel for training and implementation of our strategies. The Properties
historically have had, and we believe they will continue to have, low turnover
and high occupancy rates.
The distribution of our Properties throughout the United States reflects
our belief that geographic diversification helps insulate the portfolio from
regional economic influences. We intend to target new acquisitions in or near
markets where our Properties are located and will also consider acquisitions of
Properties outside such markets. The following table identifies our five largest
markets and provides information regarding our Properties, including Communities
owned in joint ventures.
PERCENT OF TOTAL
NUMBER OF PERCENT OF PROPERTY OPERATING
MAJOR MARKET PROPERTIES TOTAL SITES TOTAL SITES REVENUES
- ------------ ---------- ----------- ----------- ------------------
Florida 52 23,366 45.3% 40.8%
California 25 6,229 12.0% 20.1%
Arizona 21 5,930 11.5% 8.5%
Colorado 10 3,452 6.7% 8.2%
Delaware 7 2,238 4.3% 4.1%
Other 27 10,500 20.2% 18.3%
- ------------ ---------- ----------- ----------- ------------------
Total 142 51,715 100.0% 100.0%
============ ========== =========== =========== ==================
Our largest Property, Bay Indies, located in Venice, Florida, accounted for
approximately 3.0% of our total revenues for the year ended December 31, 2003.
The following table lists our Resort Properties and those Communities in
which we have a non-controlling joint venture interest:
NUMBER
OF SITES
LOCATION AS OF
PROPERTY CITY, STATE 12/31/03
- ----------------- -------------------- --------
RESORT PROPERTIES
Mt Hood Welches OR 436
Fun & Sun San Benito TX 1,435
Southern Palms Eustis FL 950
Sherwood Forest Kissimmee FL 512
Bulow Flagler Beach FL 352
Tropic Winds Harlingen TX 531
Countryside Apache Junction AZ 560
Golden Sun Apache Junction AZ 329
Breezy Hill Pompano Beach FL 762
Highland Wood Pompano Beach FL 148
Date Palm Cathedral City CA 140
Toby's Arcadia FL 379
Araby Acres Yuma AZ 337
Foothill Yuma AZ 180
-----
TOTAL RESORT PROPERTY SITES 7,051
-----
COMMUNITIES OWNED IN JOINT VENTURES
Trails West Tucson AZ 503
Plantation Calimesa CA 385
Manatee Bradenton FL 290
Home Hallandale FL 136
Villa del Sol Sarasota FL 207
Voyager Tuscon AZ ---
Preferred Interests in College Heights ---
-----
TOTAL SITES OWNED IN JOINT VENTURES 1,521
-----
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The following table sets forth certain information relating to the
Communities we owned as of December 31, 2003, categorized by our major markets.
We define our core Community portfolio ("Core Portfolio") as Communities owned
throughout both periods of comparison. Excluded from the Core Portfolio are any
Communities acquired or sold during the period, any Resort Properties and any
Communities owned through joint ventures which, together, are referred to as the
"Non-Core" Properties. The following table excludes Resort Properties and any
Communities owned through Joint Ventures.
NUMBER MONTHLY MONTHLY
OF SITES OCCUPANCY OCCUPANCY BASE RENT BASE RENT
LOCATION AS OF AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/03 12/31/03 12/31/02 12/31/03 12/31/02
- ---------------------- ------------------------ -------- --------- --------- --------- ---------
FLORIDA
EAST COAST:
Bulow Plantation Flagler Beach FL 276 97.8%(b) 97.5%(b) $329 $322
Carriage Cove Daytona Beach FL 418 94.3% 95.7% $393 $387
Coquina Crossing St Augustine FL 361 97.2%(b) 84.5%(b) $341 $324
Coral Cay Margate FL 819 89.4% 91.5% $455 $435
Countryside Vero Beach FL 646 98.0%(b) 96.6%(b) $341 $324
Heritage Village Vero Beach FL 436 94.3% 96.1% $368 $354
Holiday Village Vero Beach FL 128 68.8% 72.7% $313 $307
Holiday Village Ormond Beach FL(a) 301 88.0% 87.4% $339 $313
Indian Oaks Rockledge FL 208 99.5%(b) 98.1%(b) $274 $260
Lakewood Village Melbourne FL 349 92.8% 92.8% $394 $387
Lighthouse Pointe Port Orange FL 433 89.1%(b) 89.1%(b) $332 $324
Maralago Cay Lantana FL 602 92.7% 94.5% $441 $437
Pickwick Port Orange FL 432 99.8% 98.6% $348 $335
The Meadows Palm Beach Gardens FL 380 85.5%(b) 85.3%(b) $386 $373
CENTRAL:
Grand Island Grand Island FL 307 68.7%(b) 71.7%(b) $312 $291
Mid-Florida Lakes Leesburg FL 1,226 84.4%(b) 88.6%(b) $379 $339
Oak Bend Ocala FL 262 87.4%(b) 88.2%(b) $306 $292
Sherwood Forest Kissimmee FL 754 96.0%(b) 96.9%(b) $355 $345
Villas at Spanish Oaks Ocala FL 459 87.1% 91.5% $334 $317
GULF COAST (TAMPA/NAPLES):
Bay Indies Venice FL 1,309 96.3% 98.2% $388 $345
Bay Lake Estates Nokomis FL 228 94.7% 95.6% $427 $416
Buccaneer N. Ft. Myers FL 971 98.1% 98.5% $368 $348
Country Place New Port Richey FL 515 99.6%(b) 99.4%(b) $278 $272
Down Yonder Largo FL 362 98.6% 99.2% $403 $388
East Bay Oaks Largo FL 328 94.2% 96.0% $395 $391
Eldorado Village Largo FL 227 91.6% 94.3% $402 $391
Glen Ellen Clearwater FL(a) 106 85.8% 76.9% $328 $322
Hacienda Village New Port Richey FL(a) 505 96.6% 95.0% $320 $305
Harbor View New Port Richey FL(a) 471 98.9% 98.9% $223 $220
Hillcrest Clearwater FL 279 79.6% 83.9% $358 $346
Holiday Ranch Largo FL 150 88.7% 92.7% $370 $353
Lake Fairways N. Ft. Myers FL 896 99.6% 99.2% $389 $376
Lake Haven Dunedin FL 379 83.6% 89.7% $414 $399
Lakes at Countrywood Plant City FL 423 93.4%(b) 94.8%(b) $263 $256
Meadows at Countrywood Plant City FL 737 98.4% 99.1% $305 $293
Oaks at Countrywood Plant City FL 168 72.0%(b) 70.8%(b) $275 $266
Pine Lakes N. Ft. Myers FL 584 100.0% 99.3% $465 $458
Silk Oak Clearwater FL(a) 180 87.2% 93.3% $367 $358
The Heritage N. Ft. Myers FL 455 91.2%(b) 87.3%(b) $334 $319
Windmill Manor Bradenton FL 292 93.8% 94.9% $382 $370
Windmill Village N. Ft. Myers FL 491 95.5% 96.3% $329 $323
Winds of St. Armands No Sarasota FL 471 95.8% 98.1% $373 $346
Winds of St. Armands So Sarasota FL 306 99.7% 99.7% $386 $364
------ ------ ----- ----- ----
TOTAL FLORIDA MARKET 19,630 93.2% 93.9% $362 $346
------ ------ ----- ----- ----
FLORIDA MARKET - CORE PORTFOLIO 18,067 93.1% 94.0% $368 $352
------ ------ ----- ---- ----
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 12/31/03 12/31/03 12/31/02 12/31/03 12/31/02
- ---------------------- ------------------------ -------- --------- --------- --------- ---------
CALIFORNIA
NORTHERN CALIFORNIA:
California Hawaiian San Jose CA 418 98.1% 97.6% $698 $675
Colony Park Ceres CA 186 93.0% 89.8% $386 $375
Concord Cascade Pacheco CA 283 99.3% 98.9% $566 $560
Contempo Marin San Rafael CA 396 98.7% 98.7% $651 $646
Coralwood Modesto CA 194 99.0% 99.0% $457 $438
Four Seasons Fresno CA 242 76.9% 75.6% $277 $267
Laguna Lake San Luis Obispo CA 290 99.7% 99.7% $378 $368
Monte del Lago Castroville CA 310 97.7%(b) 97.7%(b) $584 $560
Quail Meadows Riverbank CA 146 100.0% 100.0% $414 $390
Royal Oaks Visalia CA 149 81.9% 81.9% $299 $290
DeAnza Santa Cruz Santa Cruz CA 198 98.5% 99.0% $572 $558
Sea Oaks Los Osos CA 125 96.8% 97.6% $423 $418
Sunshadow San Jose CA 121 100.0% 100.0% $662 $651
Westwinds (4 Properties) San Jose CA 723 98.5% 99.2% $752 $719
SOUTHERN CALIFORNIA:
Date Palm Country Club Cathedral City CA 538 94.2% 94.1% $720 $679
Lamplighter Spring Valley CA 270 98.5% 99.3% $713 $642
Meadowbrook Santee CA 338 97.6% 100.0% $636 $627
Rancho Mesa El Cajon CA 158 99.4% 99.4% $619 $567
Rancho Valley El Cajon CA 140 100.0% 100.0% $708 $627
Royal Holiday Hemet CA 179 64.2% 67.0% $306 $285
Santiago Estates Sylmar CA 300 98.7% 96.3% $678 $646
----- ------ ------ ---- ----
TOTAL CALIFORNIA MARKET 5,704 95.6% 95.8% $598 $574
----- ------ ------ ---- ----
CALIFORNIA MARKET - CORE PORTFOLIO 5,704 95.6% 95.6% $598 $574
----- ------ ------ ---- ----
ARIZONA
Apollo Village Phoenix AZ 236 80.9%(b) 83.9%(b) $416 $401
The Highlands at Mesa AZ 273 85.3% 89.0% $498 $475
Brentwood
Carefree Manor Phoenix AZ 128 76.6% 92.2% $355 $342
Casa del Sol #1 Peoria AZ 245 77.6% 81.2% $479 $460
Casa del Sol #2 Glendale AZ 239 77.4% 86.6% $502 $472
Casa del Sol #3 Glendale AZ 236 85.6% 89.8% $500 $471
Central Park Phoenix AZ 293 88.1% 92.5% $426 $409
Desert Skies Phoenix AZ 164 91.5% 93.9% $353 $338
Fairview Manor Tucson AZ 235 82.6% 85.1% $358 $342
Hacienda de Valencia Mesa AZ 364 74.7% 79.4% $412 $395
Palm Shadows Glendale AZ 294 80.6% 87.1% $393 $372
Sedona Shadows Sedona AZ 198 93.4% 93.4% $391 $355
Sunrise Heights Phoenix AZ 199 79.9% 88.4% $409 $386
The Mark Mesa AZ 410 61.0% 74.9% $410 $392
The Meadows Tempe AZ 391 74.4% 85.2% $464 $455
Whispering Palms Phoenix AZ 116 90.5% 93.1% $316 $295
----- ------ ------ ---- ----
TOTAL ARIZONA MARKET 4,021 79.6% 85.9% $425 $406
----- ------ ------ ---- ----
ARIZONA MARKET - CORE PORTFOLIO 4,021 79.6% 85.9% $425 $406
----- ------ ------ ---- ----
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 12/31/03 12/31/03 12/31/02 12/31/03 12/31/02
- --------------------- ----------------------- -------- --------- ---------- --------- ---------
COLORADO
Bear Creek Sheridan CO 122 95.1% 97.6% $471 $446
Cimarron Broomfield CO 327 93.9% 97.6% $464 $445
Golden Terrace Golden CO 265 91.7% 96.6% $512 $492
Golden Terrace South Golden CO 160 85.0% 95.0% $503 $483
Golden Terrace West Golden CO 316 93.4% 96.5% $510 $490
Hillcrest Village Aurora CO 601 88.6% 91.7% $490 $472
Holiday Hills Denver CO 736 92.3% 92.3% $484 $466
Holiday Village Co. Springs CO 240 90.4% 92.9% $494 $446
Pueblo Grande Pueblo CO 251 94.4% 96.4% $311 $296
Woodland Hills Denver CO 434 88.0% 93.8% $456 $439
----- ----- ----- ---- ----
TOTAL COLORADO MARKET 3,452 87.7% 94.2% $472 $452
----- ----- ----- ---- ----
COLORADO MARKET - CORE PORTFOLIO 3,452 91.1% 94.2% $472 $452
----- ----- ----- ---- ----
NORTHEAST
Aspen Meadows Rehoboth DE 200 99.5% 100.0% $288 $277
Camelot Meadows Rehoboth DE 302 99.0% 100.0% $290 $272
Mariners Cove Millsboro DE 374 91.2%(b) 90.1%(b) $424 $399
McNicol Rehoboth DE 93 98.9% 100.0% $293 $278
Sweetbriar Rehoboth DE 146 94.5% 95.9% $246 $228
Waterford Bear DE 731 95.3%(b) 96.4%(b) $423 $410
Whispering Pines Lewes DE 392 87.2% 95.2% $315 $274
Pheasant Ridge Mt. Airy MD(a) --- --- 98.0%(d) --- $468(d)
Brook Gardens Lackawanna NY(a) --- --- 93.9%(d) --- $446(d)
Greenwood Village Manorville NY 512 99.2% 98.8% $428 $406
Green Acres Breinigsville PA 595 93.8% 94.8% $452 $438
Meadows of Chantilly Chantilly VA 500 88.8% 94.8% $604 $544
Independence Hill Morgantown WV(a) --- --- 87.2%(d) --- $221(d)
----- ----- ----- ---- ----
TOTAL NORTHEAST MARKET 3,845 94.1% 95.6% $412 $387
----- ----- ----- ---- ----
NORTHEAST MARKET - CORE PORTFOLIO 3,845 94.1% 96.1% $412 $387
----- ----- ----- ---- ----
12
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 12/31/03 12/31/03 12/31/02 12/31/03 12/31/02
- -------------------- --------------------- -------- --------- --------- --------- ---------
MIDWEST
Five Seasons Cedar Rapids IA 390 73.1%(b) 76.4%(b) $276 $264
Holiday Village Sioux City IA 519 65.7% 73.8% $252 $252
Golf Vista Estates Monee IL 411 95.9%(b) 88.1%(b) $441 $393
Willow Lake Estates Elgin IL 617 90.1% 94.2% $694 $660
Forest Oaks Chesterton IN 227 71.8% 76.2% $332 $330
Oak Tree Village Portage IN 361 86.7% 88.9% $342 $332
Windsong Indianapolis IN 268 57.8% 72.0% $320 $309
Creekside Wyoming MI 165 87.3% 93.3% $407 $382
------ ----- ----- ---- ----
TOTAL MIDWEST MARKET 2,958 79.5% 83.3% $423 $399
------ ----- ----- ---- ----
MIDWEST MARKET - CORE PORTFOLIO 2,958 79.5% 83.3% $423 $399
------ ----- ----- ---- ----
NEVADA, UTAH, NEW MEXICO
Del Rey Albuquerque NM 407 67.1% 76.7% $374 $341
Bonanza Las Vegas NV 353 68.0% 72.8% $484 $473
Boulder Cascade Las Vegas NV 299 76.9% 81.9% $446 $436
Cabana Las Vegas NV 263 93.5% 95.4% $447 $442
Flamingo West Las Vegas NV 258 94.6%(b) 88.8%(b) $461 $449
Villa Borega Las Vegas NV 293 82.9% 87.0% $454 $433
All Seasons Salt Lake City UT 121 93.4% 96.7% $370 $352
Westwood Village Farr West UT 314 95.2%(b) 95.2%(b) $280 $259
------ ----- ----- ---- ----
TOTAL NEVADA, UTAH, NEW MEXICO MARKET 2,308 81.8% 85.2% $413 $398
------ ----- ----- ---- ----
NEVADA, UTAH, NEW MEXICO MARKET - CORE PORTFOLIO 2,308 81.8% 85.2% $413 $396
------ ----- ----- ---- ----
NORTHWEST
Casa Village Billings MT 491 85.9% 88.0% $304 $294
Falcon Wood Village Eugene OR 183 90.7% 92.9% $403 $351
Quail Hollow Fairview OR 137 92.7% 93.4% $507 $500
Shadowbrook Clackamas OR 156 94.2% 96.8% $513 $494
Kloshe Illahee Federal Way WA 258 97.7% 99.6% $599 $513
------ ----- ----- ---- ----
TOTAL NORTHWEST MARKET 1,225 90.9% 92.9% $436 $402
------ ----- ----- ---- ----
NORTHWEST MARKET - CORE PORTFOLIO 1,225 90.9% 92.9% $436 $402
------ ----- ----- ---- ----
GRAND TOTAL ALL MARKETS 43,143 90.5% 92.4% $422 $403
====== ===== ===== ==== ====
GRAND TOTAL ALL MARKETS - CORE PORTFOLIO 41,580 90.4%(c) 92.4%(c) $427 $407
====== ===== ===== ==== ====
(a) Represents a Property that is not part of the Core Portfolio.
(b) The process of filling Expansion Sites at these Properties is ongoing. A
decrease in occupancy may reflect development of additional Expansion
Sites.
(c) Changes in total portfolio occupancy include the impact of acquisitions and
expansion programs and are therefore not comparable.
(d) Property sold in 2003.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations.
13
ITEM 3. LEGAL PROCEEDINGS
DEANZA SANTA CRUZ
The residents of DeAnza Santa Cruz Mobile Estates, a Property located in
Santa Cruz, California, brought several actions opposing fees and charges in
connection with water service at the Property. As a result of one action, the
Company rebated approximately $36,000 to the residents. The DeAnza Santa Cruz
Homeowners Association ("HOA") then proceeded to a jury trial alleging these
"overcharges" entitled them to an award of punitive damages. In January 1999, a
jury awarded the HOA $6.0 million in punitive damages. On December 21, 2001 the
California Court of Appeal for the Sixth District reversed the $6.0 million
punitive damage award, the related award of attorneys' fees, and, as a result,
all post-judgment interest thereon, on the basis that punitive damages are not
available as a remedy for a statutory violation of the California Mobilehome
Residency Law ("MRL"). The decision of the appellate court left the HOA, the
plaintiff in this matter, with the right to seek a new trial in which it must
prove its entitlement to either the statutory penalty and attorneys' fees
available under the MRL or punitive damages based on causes of action for fraud,
misrepresentation or other tort. In order to resolve this matter, the Company
accrued for and agreed to pay $201,000 to the HOA. This payment resolved the
punitive damage claim. The HOA's attorney has made a motion asking for an award
of attorneys' fees and costs in the amount of approximately $1.5 million as a
result of this resolution of the litigation. On April 2, 2003 the court awarded
attorney's fees to the HOA's attorney in the amount of $593,000 and court costs
of approximately $20,000. The Company has appealed this award and has not
accrued for the amount in its consolidated financial statements.
OTHER CALIFORNIA RENT CONTROL LITIGATION
As part of the Company's effort to realize the value of its Properties
subject to rent control, the Company has initiated lawsuits against several
municipalities in California. The Company's goal is to achieve a level of
regulatory fairness in California's rent control jurisdictions, and in
particular those jurisdictions that prohibit increasing rents to market upon
turnover. This regulatory feature, called vacancy control, allows tenants to
sell their homes for a premium representing the value of the future discounted
rent-controlled rents. In the Company's view, such regulation results in a
transfer of the value of the Company's shareholders' land, which would otherwise
be reflected in market rents, to tenants upon the sales of their homes in the
form of an inflated purchase price that cannot be attributed to the value of the
home being sold. As a result, in the Company's view, the Company loses the value
of its asset and the selling tenant leaves the Community with a windfall
premium. The Company has discovered through the litigation process that certain
municipalities considered condemning the Company's Communities at values well
below the value of the underlying land. In the Company's view, a failure to
articulate market rents for sites governed by restrictive rent control would put
the Company at risk for condemnation or eminent domain proceedings based on
artificially reduced rents. Such a physical taking, should it occur, could
represent substantial lost value to shareholders. The Company is cognizant of
the need for affordable housing in the jurisdictions, but asserts that
restrictive rent regulation with vacancy control does not promote this purpose
because the benefits of such regulation are fully capitalized into the prices of
the homes sold. The Company estimates that the annual rent subsidy to tenants in
these jurisdictions is approximately $15 million. In a more well-balanced
regulatory environment, the Company would receive market rents that would
eliminate the subsidy and homes would trade at or near their intrinsic value.
In connection with such efforts, the Company recently announced it has
entered into a settlement agreement with the City of Santa Cruz, California and
that, pursuant to the settlement agreement, the City amended its rent control
ordinance to exempt the Company's property from rent control as long as the
Company offers a long term lease which gives the Company the ability to increase
rents to market upon turnover and bases annual rent increases on the CPI. The
settlement agreement benefits the Company's shareholders by allowing them to
receive the value of their investment in this Community through vacancy
decontrol while preserving annual CPI based rent increases in this age
restricted Property.
The Company's efforts to achieve a balanced regulatory environment
incentivize tenant groups to file lawsuits against the Company seeking large
damage awards. The homeowners association at Contempo Marin ("CMHOA"), a 396
site Property in San Rafael, California, sued the Company in December 2000 over
a prior settlement agreement on a capital pass-through after the Company sued
the City of San Rafael in October 2000 alleging its rent control ordinance is
unconstitutional. In the Contempo Marin case, the CMHOA prevailed on a motion
for summary judgment on an issue that permits the Company to collect only $3.72
out of a monthly pass-through amount of $7.50 that the Company believes had been
agreed to by the CMHOA in a settlement agreement. The Company intends to
vigorously defend this matter, which has been stayed pending a related state
court appeal by the Company of an order dismissing its claims against the City
of San Rafael. The Company believes that such lawsuits will be a consequence of
the Company's efforts to change rent control since tenant groups actively desire
to preserve the premium value of their homes in addition to the discounted rents
provided by rent control. The Company has determined that its efforts to
rebalance the regulatory environment despite the risk of litigation from tenant
groups are necessary not only because of the $15 million annual subsidy to
tenants, but also because of the condemnation risk.
14
ELLENBURG COMMUNITIES
The Company and certain other parties entered into a settlement agreement
(the "Settlement"), which was approved by the Los Angeles County Superior Court
in April 2000. The Settlement resolved substantially all of the litigation and
appeals involving the Ellenburg Properties, and transactions arising out of the
Settlement closed on May 22, 2000. Only the appeal of one entity remained, the
outcome of which was not expected to materially affect the Company.
In connection with the Ellenburg Acquisition, on September 8, 1999,
Ellenburg Fund 20 ("Fund 20") filed a cross complaint in the Ellenburg
dissolution proceeding against the Company and certain of its affiliates
alleging causes of action for fraud and other claims in connection with the
Ellenburg Acquisition. The Company subsequently successfully had the cross
complaint against the Company and its affiliates dismissed with prejudice by the
California Superior Court. However, Fund 20 appealed. Although this appeal was
one not resolved by the Settlement, the California Court of Appeal dismissed
Fund 20's substantive appeals on March 13, 2003 as moot. Fund 20 petitioned the
California Supreme Court to review this decision which review was denied.
In October 2001, Fund 20 sued the Company and certain of its affiliates
again, this time in Alameda County, California making substantially the same
allegations. The Company obtained an injunction preventing the case from
proceeding until the Fund 20 appeal is decided and other related proceedings in
Arizona (from which the Company has already been dismissed with prejudice) are
concluded. The Company obtained a court order enjoining Fund 20 from proceeding
with its Alameda County action.
In February, 2004, the Company entered into a settlement agreement with
Fund 20 resolving all remaining matters at no cost to the Company and with
mutual releases.
COUNTRYSIDE AT VERO BEACH
The Company has received letters dated June 17, 2002 and August 26, 2002
from Indian River County ("County"), claiming that the Company currently owes
sewer impact fees in the amount of approximately $518,000 with respect to the
Property known as Countryside at Vero Beach, located in Vero Beach, Florida,
purportedly under the terms of an agreement between the County and a prior owner
of the Property. In response, the Company has advised the County that these fees
are no longer due and owing as a result of a 1996 settlement agreement between
the County and the prior owner of the Property, providing for the payment of
$150,000 to the County to discharge any further obligation for the payment of
impact or connection fees for sewer service at the Property. The Company paid
this settlement amount (with interest) to the County in connection with the
Company's acquisition of the Property. Accordingly, the Company believes that
the County's claims are without merit.
DELAWARE DECLARATORY JUDGMENT ACTION
In April 2002, the Company entered into a Stipulation and Consent Order to
Cease and Desist (the "Consent Order") with the State of Delaware (the "State").
The Consent Order resolved various issues raised by the State concerning the
terms of a new lease form used or proposed for use by the Company at certain of
its Properties in Delaware. Among other provisions, the Consent Order
contemplated that the Company would work with the State to develop and implement
a new lease form for use in Delaware. The Consent Order expressly provided that
nothing contained therein would preclude the Company from seeking declaratory
relief from a court as to the legality or enforceability of any provisions which
the Company might wish to incorporate in future leases.
Throughout the summer of 2002, the Company's Delaware legal counsel engaged
in dialogue with representatives of the State concerning various matters,
including the lease provisions to which the State had objected but which the
Company wished to incorporate in future leases. Through this process, it became
apparent that the parties could not reach agreement as to the legality or
enforceability of the proposed lease provisions, and that the Company would need
to seek declaratory relief from a court in order to resolve the matter, as
contemplated by the Consent Order. Accordingly, on August 29, 2002, the Company
filed a Petition for Declaratory Judgment and Other Relief (as amended, the
"Petition") in Sussex County, Delaware Superior Court (the "Court").
In response to the filing of the Petition, on October 1, 2002, the State
filed its Answer to Petition for Declaratory and Other Relief, and Counterclaims
for Civil Enforcement and Contempt (as amended, "Answer and Counterclaim") with
the Court. In the Answer and Counterclaim, the State sought, inter alia,
restitution, statutory penalties, investigative costs and attorneys' fees under
the Delaware Mobile Home Lots and Leases Act, the Consumer Fraud Act, the
Uniform Deceptive
15
Trade Practices Act and the Delaware Consumer Contracts law, and separately
sought a finding of contempt and related contempt penalties for alleged
violations of the Consent Order.
The Company filed a Motion to Dismiss Respondents' Counterclaims with the
Court on October 29, 2002, and the State filed a Motion for Summary Judgment
with the Court on November 15, 2002. On December 30, 2002, the Company filed a
First Amended Petition for Declaratory Judgment and Other Relief with the Court,
and on January 31, 2003, the State filed an Amended Answer and Counterclaim with
the Court.
On August 29, 2003, the Court issued its decision disposing of all pending
claims in the litigation except one. Specifically, the Court held, inter alia,
that (i) the Company may eliminate the rent cap formula from existing leases at
certain of its Delaware Properties as the leases come up for renewal, (ii)
certain lease provisions proposed by the Company may not be implemented or
enforced under applicable state law, (iii) the change in water supplier at one
of the Properties did not violate the leases at such Property, (iv) the Company
did not violate the Consent Order by filing the Petition, and (v) the Company
did not violate any state statutes as alleged by the State.
The August 29, 2003 decision left open the issue of whether the Company had
violated the Consent Order by continuing to use the disputed lease form (but not
enforce the provisions at issue) at one of its Properties following entry of the
Consent Order (the Company believed that it had no choice but to continue to use
this lease form until the State had approved a new form for use at the Property
as contemplated by the Consent Order). On October 3, 2003, the Court issued its
final order, finding that continued use of the disputed lease form, as to new
tenants but not as to renewal tenants, following entry of the Consent Order
constituted a violation thereof, and assessing a civil penalty in the amount of
$5,000.
On November 3, 2003, the State filed a Notice of Appeal with the Supreme
Court of the State of Delaware, appealing a portion of the Court's order denying
the State's Motion for Summary Judgment. The State's appeal is limited to the
single issue of whether the Company has the right to eliminate "rent cap"
provisions contained in certain existing leases upon automatic renewal of the
leases in accordance with Delaware law. The appeal has been fully briefed, and
oral argument in the matter is scheduled for March 16, 2004.
On November 14, 2003, the State filed a motion for Stay Pending Appeal with
the Court, and on December 3, 2003, the Company filed its response opposing the
motion. On December 16, 2003, the Court issued its order on the motion, holding
that the Company may proceed to issue notices of default to tenants who fail to
pay the full amount of their current rental obligations, but may not initiate
eviction proceedings against such tenants until April 1, 2004, and may not
enforce any such eviction order until the Supreme Court rules on the appeal.
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.
16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 13, 2003.
Stockholders holding 17,534,693 Common Shares (being the only class of shares
entitled to vote at the meeting), or 78.8% of the Company's issued and
outstanding Common Shares as of the record date for the meeting, attended the
meeting or were represented by proxy. The Company's shareholders voted on two
matters presented at the meeting and both received the requisite number of votes
to pass. The results of the stockholders' vote on each of the two matters were
as follows:
PROPOSAL 1 - Election of three directors to terms expiring in 2006.
TOTAL VOTE FOR TOTAL VOTE WITHHELD
EACH DIRECTOR* FROM EACH DIRECTOR*
Howard Walker 92.40% 7.60%
Donald S. Chisholm 99.73% .27%
Thomas E. Dobrowski 99.16% .84%
* This percentage represents the number of shares voting in this matter out
of the total number of shares voted at the meeting, not out of the total
shares outstanding. This matter required a plurality of votes cast for
approval.
PROPOSAL 2 - Approval of an amendment to the Company's Charter to eliminate the
current classification of the board (this matter required the affirmative vote
of two-thirds of all votes entitled to be cast on the proposal).
For 16,878,607 96.3%
Against 627,753 3.5%
Abstain 28,332 0.2%
Non-vote 1 0%
17
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
sale prices for the Company's common stock as reported by The New York Stock
Exchange under the trading symbol MHC.
Return of
Distributions Capital
Close High Low Declared GAAP Basis(a)
------ ------ ------ ------------- -------------
2003
1st Quarter $29.60 $30.86 $27.40 $ .4950 $.15
2nd Quarter 35.11 35.80 29.56 .4950 .16
3rd Quarter 39.18 39.80 35.11 .4950 .00
4th Quarter 37.65 41.92 36.70 8.0000(b) .00
2002
1st Quarter $33.00 $33.63 $30.65 $ .4750 $.15
2nd Quarter 35.10 35.66 32.50 .4750 .18
3rd Quarter 31.88 35.14 30.05 .4750 .17
4th Quarter 29.63 31.92 27.50 .4750 .00
(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.
(b) On December 12, 2003, we declared a one-time special distribution of $8.00
per share payable to stockholders of record on January 8, 2004. We used proceeds
from the $501 million borrowing in October, 2003 to pay the special distribution
on January 16, 2004. The special cash dividend will be reflected on
shareholders' 2004 1099-DIV to be issued in January 2005.
The number of beneficial holders of the Company's common stock at December 31,
2003 was approximately 5,049.
18
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, 2003, 2002, 2001, 2000, and 1999 have been derived from the
historical Financial Statements of the Company.
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(Amounts in thousands, except for per share and property data)
(1)YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
2003 2002 2001 2000 1999
--------- -------- -------- -------- --------
PROPERTY OPERATIONS:
Community base rental income .......................... $ 196,919 $194,640 $190,982 $185,023 $177,411
Resort base rental income ............................. 11,780 9,146 5,748 7,414 9,526
Utility and other income .............................. 20,150 19,684 20,381 19,357 19,549
--------- -------- -------- -------- --------
Property operating revenues ........................ 228,849 223,470 217,111 211,794 206,486
Property operating and maintenance .................... 64,996 62,843 60,807 57,973 56,895
Real estate taxes ..................................... 18,917 17,827 16,882 16,407 15,924
Property management ................................... 9,373 9,292 8,984 8,690 8,337
--------- -------- -------- -------- --------
Property operating expenses ........................ 93,286 89,962 86,673 83,070 81,156
--------- -------- -------- -------- --------
Income from property operations .................. 135,563 133,508 130,438 128,724 125,330
HOME SALES OPERATIONS:
Gross revenues from inventory home sales .............. 36,606 33,537 --- --- ---
Cost of inventory home sales .......................... (31,767) (27,183) --- --- ---
--------- -------- -------- -------- --------
Gross profit from inventory home sales ........... 4,839 6,354 --- --- ---
Brokered resale revenues, net ......................... 1,724 1,592 --- --- ---
Home selling expenses ................................. (7,360) (7,664) --- --- ---
Ancillary services revenues, net ...................... 216 522 --- --- ---
--------- -------- -------- -------- --------
Income from home sales operations ................ (581) 804 --- --- ---
OTHER INCOME AND EXPENSES:
Interest income ....................................... 1,695 967 639 1,009 1,669
Equity in income of affiliates ........................ --- --- 1,811 2,408 2,065
Other corporate income ................................ 2,065 1,277 1,353 670 280
General and administrative ............................ (8,060) (8,192) (6,687) (6,423) (6,092)
Interest and related amortization(2) .................. (58,402) (50,729) (51,305) (53,280) (53,775)
Loss on the extinguishment of debt .................... -- -- -- (1,041) --
Depreciation on corporate assets ...................... (1,240) (1,277) (1,243) (1,139) (1,005)
Depreciation on real estate assets and other costs .... (38,034) (35,552) (34,228) (33,713) (33,955)
Gain on sale of properties and other .................. --- --- 8,168 12,053
--------- -------- -------- -------- --------
Total other income and expenses .................. (101,976) (93,506) (81,492) (79,456) (90,813)
--------- -------- -------- -------- --------
MINORITY INTERESTS:
(Income) allocated to Common OP Units ................. (4,330) (5,848) (7,688) (7,968) (5,761)
(Income) allocated to Perpetual Preferred OP Units..... (11,252) (11,252) (11,252) (11,252) (2,844)
--------- --------- -------- -------- --------
Income from continuing operations ................ 17,424 23,706 30,006 30,048 25,912
DISCONTINUED OPERATIONS:
Discontinued Operations ............................... 908 2,803 2,598 2,392 2,318
Gain on sale of properties and other .................. 10,826 13,014 --- --- ---
Minority interests on discontinued operations ......... (2,144) (3,078) (521) (495) (458)
--------- -------- -------- -------- --------
Income from discontinued operations .............. 9,590 12,739 2,077 1,897 1,860
--------- -------- -------- -------- --------
NET INCOME AVAILABLE FOR COMMON SHARES ........... $ 27,014 $ 36,445 $ 32,083 $ 31,945 $ 27,772
========= ======== ======== ======== ========
19
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(continued)
(Amounts in thousands, except for per share and property data)
(1)AS OF DECEMBER 31,
----------------------------------------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
EARNINGS PER COMMON SHARE - BASIC:
Income from continuing operations ..................... $ .79 $ 1.10 $ 1.43 $ 1.40 $ 1.03
Income from discontinued operations ................... $ .43 $ .59 $ .10 $ .09 $ .07
Net income available for Common Shares ................ $ 1.22 $ 1.69 $ 1.53 $ 1.49 $ 1.10
EARNINGS PER COMMON SHARE - FULLY DILUTED:
Income from continuing operations ..................... $ .78 $ 1.07 $ 1.40 $ 1.37 $ 1.01
Income from discontinued operations ................... $ .42 $ .57 $ .09 $ .09 $ .08
Net income available for Common Shares ................ $ 1.20 $ 1.64 $ 1.49 $ 1.46 $ 1.09
Distributions declared per Common Shares
outstanding(2) ....................................... $ 9.485 $ 1.90 $ 1.78 $ 1.66 $ 1.55
Weighted average Common Shares outstanding - basic .... 22,077 21,617 21,036 21,469 25,224
Weighted average Common OP Units outstanding .......... 5,342 5,403 5,466 5,592 5,704
Weighted average Common Shares outstanding - fully
diluted .............................................. 28,002 27,632 27,010 27,408 31,252
BALANCE SHEET DATA:
Real estate, before accumulated depreciation(3) ....... $1,315,096 $1,296,007 $1,238,138 $1,218,176 $1,264,343
Total assets .......................................... 1,473,915 1,162,850 1,101,805 1,104,304 1,160,338
Total mortgages and loans(2) .......................... 1,076,296 760,233 708,857 719,684 725,264
Minority interests .................................... 126,716 168,501 171,147 171,271 179,397
Stockholders' equity(2) ............................... 5,798 177,619 175,150 168,095 211,401
OTHER DATA:
Funds from operations(4) .............................. $ 60,831 $ 68,393 $ 66,957 $ 63,807 $ 68,477
Net cash flow:
Operating activities ................................ $ 75,163 $ 80,176 $ 80,708 $ 68,001 $ 72,580
Investing activities ................................ $ (598) $ (72,973) $ (23,067) $ 23,102 $ (37,868)
Financing activities ................................ $ 243,905 $ (1,287) $ (59,134) $ (94,932) $ (41,693)
Total Properties (at end of period)(5) ................ 142 142 149 154 157
Total sites (at end of period) ........................ 51,715 51,582 50,663 51,304 53,846
Total sites (weighted average for the year)(6) ........ 43,134 42,962 46,243 46,964 46,914
(1) See the Consolidated Financial Statements of the Company included elsewhere
herein. Certain 2002, 2001, 2000, and 1999 amounts have been reclassified
to conform to the 2003 financial presentation. Such reclassifications have
no effect on the operations or equity as originally presented.
(2) On October 17, 2003, we closed 49 mortgage loans collateralized by 51
Properties (the "Recap") providing total proceeds of approximately $501
million at a weighted average interest rate of 5.84% and with a weighted
average maturity of approximately 9 years. Approximately $170 million of
the proceeds were used to repay amounts outstanding on the Company's line
of credit and term loan. Approximately $225 million was used to pay a
special distribution of $8.00 per share on January 16, 2004. The remaining
funds are being held in short-term investments and will be used for
investment purposes in 2004. The Recap resulted in increased interest and
amortization expense and the special distribution resulted in decreased
stockholder's equity.
(3) We believe that the book value of the Properties, which reflects the
historical costs of such real estate assets less accumulated depreciation,
is less than the current market value of the Properties.
(4) We generally consider Funds From Operations ("FFO") to be an appropriate
measure of the non-GAAP performance of an equity Real Estate Investment
Trust ("REIT"). FFO was redefined by the National Association of Real
Estate Investment Trusts ("NAREIT") in April 2002, as net income (computed
in accordance with generally accepted accounting principles ["GAAP"]),
before allocation to minority interests, excluding gains (or losses) from
sales of property, plus real estate depreciation and after adjustments for
unconsolidated partnerships and joint ventures. For purposes of presenting
FFO, the revised definition of FFO has been given retroactive treatment. We
believe that FFO is helpful to investors as a measure of the performance of
an equity REIT because, along with cash flows from operating activities,
financing activities and investing activities, it provides investors an
understanding of our ability to incur and service debt and to make capital
expenditures. We compute FFO in accordance with the NAREIT definition which
may differ from the methodology for calculating FFO utilized by other
equity REITs and, accordingly, may not be comparable to such other 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 our 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.
20
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(continued)
(5) During the year ended December 31, 1999, three Properties were acquired;
net operating income attributable to such Properties during 1999 was
approximately $87,000, which included approximately $104,000 of
depreciation expense. During the year ended December 31, 2000, three
Properties and a water and wastewater treatment company were sold; net
operating income attributable to such Properties during 2000 was
approximately $1.6 million, which included approximately $623,000 of
depreciation expense. During the year ended December 31, 2001, three
Properties were acquired, including one through the termination of a lease;
net operating income attributable to such Properties during 2001 was
approximately $1.3 million, which included approximately $396,000 of
depreciation expense. Also during the year ended December 31, 2001, eight
Properties were sold; net operating income attributable to such Properties
during 2001 was $1.0 million, which included approximately $235,000 of
depreciation expense. During the year ended December 31, 2002, eleven
Properties were acquired; net operating income attributable to such
Properties during 2002 was approximately $2.0 million, which included
approximately $809,000 of depreciation expense. Also during the year ended
December 31, 2002, eighteen Properties were sold; net operating income
attributable to such Properties during 2002 was $5.4 million, which
included approximately $1.2 million of depreciation expense. During the
year ended December 31, 2003, three Properties were acquired; net operating
loss attributable to such Properties during 2003 was approximately $25,000,
which included approximately $25,000 of depreciation expense. Also during
the year ended December 31, 2003, three Properties were sold; net operating
income attributable to such Properties during 2003 was $908,000, which
included approximately $135,000 of depreciation expense.
(6) Excludes Resort sites and sites in Properties owned through unconsolidated
joint ventures.
21
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.
PROPERTY ACQUISITIONS, JOINT VENTURES AND DISPOSITIONS
The following chart lists the Properties acquired and sold since January 1,
2002:
PROPERTY TRANSACTION DATE SITES
-------- ---------------- -----
TOTAL SITES AS OF JANUARY 1, 2002........................................... 50,663
ACQUISITIONS:
Mt. Hood Village...............................March 12, 2002 450
Harbor View Village............................July 10, 2002 471
Countryside....................................July 31, 2002 560
Golden Sun.....................................July 31, 2002 329
Breezy Hill....................................July 31, 2002 762
Highland Woods.................................August 14, 2002 148
Holiday Village................................July 31, 2002 301
Tropic Winds...................................August 7, 2002 531
Silk Oak Lodge.................................October 1, 2002 180
Hacienda Village...............................December 18, 2002 519
Glen Ellen.....................................December 31, 2002 117
Toby's.........................................December 3, 2003 379
Araby Acres....................................December 15, 2003 337
Foothill ......................................December 15, 2003 180
EXPANSION SITE DEVELOPMENT AND OTHER:
Sites added (reconfigured) in 2002............. 90
Sites added (reconfigured) in 2003............. (35)
DISPOSITIONS:
College Heights (17 Properties)................September 1, 2002 (3,220)
Camelot Acres..................................November 13, 2002 (319)
Independence Hill..............................June 6, 2003 (203)
Brook Gardens..................................June 6, 2003 (424)
Pheasant Ridge.................................June 30, 2003 (101)
------
TOTAL SITES AS OF DECEMBER 31, 2003......................................... 51,715
======
22
TRENDS
Occupancy in our Properties as well as our ability to increase rental rates
directly affect revenues. In 2003, occupancy in our Core Portfolio decreased
1.9%. Also during 2003, average monthly base rental rates for the Core Portfolio
increased approximately 5.1%. We project continued growth during 2004 in our
Core Portfolio performance. Core Portfolio base rental-rate growth is expected
to be approximately 4%. These projections would result in growth of
approximately 2.5% in Core Portfolio income from operations (also referred to as
net operating income or "NOI").
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States, which require us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and the related disclosures. We believe that
the following critical accounting policies, among others, affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
We periodically evaluate our long-lived assets, including our investments
in real estate, for impairment indicators. Our judgments regarding the existence
of impairment indicators are based on factors such as operational performance,
market conditions and legal factors. Future events could occur which would cause
us to conclude that impairment indicators exist and an impairment loss is
warranted.
Real estate is recorded at cost less accumulated depreciation. Depreciation
is computed on the straight-line basis over the estimated useful lives of the
assets. We use a 30-year estimated life for buildings acquired and structural
and land improvements, a ten-to-fifteen-year estimated life for building
upgrades and a three-to-seven-year estimated life for furniture, fixtures and
equipment. Expenditures for ordinary maintenance and repairs are expensed to
operations as incurred and significant renovations and improvements that improve
the asset and extend the useful life of the asset are capitalized over their
estimated useful life. However, the useful lives, salvage value, and customary
depreciation method used for land improvements and other significant assets may
significantly and materially overstate the depreciation of the underlying assets
and therefore understate the net income of the Company. In addition, the
Financial Accounting Standards Board ("FASB") is currently reviewing the methods
of depreciation and cost capitalization for all industries and in June 2001
issued FASB Exposure Draft, "Accounting in Interim and Annual Financial
Statements for Certain Costs and Activities Related to Property, Plant and
Equipment", the implementation of which, if issued, could also have a material
effect on the Company's results of operations.
The valuation of financial instruments under Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of Financial
Instruments" ("SFAS No. 107") and Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133") requires us to make estimates and judgments that affect the fair value
of the instruments. Where possible, we base the fair values of our financial
instruments, including our derivative instruments, on listed market prices and
third party quotes. Where these are not available, we base our estimates on
other factors relevant to the financial instrument.
Certain costs, primarily legal costs, relative to our efforts to
effectively change the use and operations of several Properties subject to rent
control (see Note 17) are currently classified in other assets. These costs, to
the extent these efforts are successful, are capitalized to the extent of the
established value of the revised project and included in the net investment in
real estate for the appropriate Properties (see Note 5). To the extent these
efforts are not successful, these costs will be expensed. In addition, we
capitalize certain costs, primarily legal costs, related to entering into lease
agreements which govern the terms under which we may enter into leases with
individual tenants and which are expensed over the term of the lease agreement.
In 2003, due to the successful settlement of litigation related to one Property,
DeAnza Santa Cruz, we reclassified approximately $5.3 million of these costs to
land improvements and will depreciate these costs over 30 years
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). The objective of FIN 46 is to provide
guidance on how to identify a variable interest entity ("VIE") and determine
when the assets, liabilities, non-controlling interests, and results of
operations of a VIE need to be included in the company's consolidated financial
statements. A company that holds variable interests in an entity will need to
consolidate such entity if the company absorbs a majority of the VIE's expected
losses or receive a majority of the entity's expected residual returns if they
occur, or both.
23
The provisions of FIN 46 apply to the Company upon initial involvement with
the respective entity for transactions created after January 31, 2003. The
adoption of FIN 46 in 2003 had no effect on the Company in 2003. The provisions
of FIN 46 and related revised interpretations apply no later than the end of the
first interim reporting period ending March 15, 2004 (March 31, 2004) for
entities created before February 1, 2003. The Company is currently evaluating
and assessing the impact of FIN 46 and the related revised interpretations on
entities created before February 1, 2003.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Prior to January 1, 2003 we accounted for our stock compensation in
accordance with APB No. 25, "Accounting for Stock Issued to Employees", based
upon the intrinsic value method. This method results in no compensation expense
for options issued with an exercise price equal to or exceeding the market value
of the Common Shares on the date of grant. Effective January 1, 2003, we elected
to account for our stock-based compensation in accordance with SFAS No. 123 and
its amendment (SFAS No. 148), "Accounting for Stock Based Compensation", which
will result in compensation expense being recorded based on the fair value of
the stock options and other equity awards issued. SFAS 148 provides three
possible transition methods for changing to the fair value method. We have
elected to use the modified-prospective method. This method requires that we
recognize stock-based employee compensation cost from the beginning of the
fiscal year in which the recognition provisions are first applied as if the fair
value method had been used to account for all employee awards granted, or
settled, in fiscal years beginning after December 15, 1994. The following table
illustrates the effect on net income and earnings per share as if the fair value
method was applied to all outstanding and unvested awards in each period
presented (amounts in thousands, except per share data):
2003 2002 2001
------- ------- -------
Net income available for Common
Shares as reported ................. $27,014 $36,445 $32,083
Add: Stock-based compensation
expense included in net income as
reported ........................... 2,139 2,185 2,549
Deduct: Stock-based compensation
expense determined under the fair
value based method for all awards .. (2,139) (2,086) (2,203)
------- ------- -------
Pro forma net income available for
Common Shares ...................... $27,014 $36,544 $32,429
======= ======= =======
Pro forma net income per Common
Share - Basic ...................... $ 1.22 $ 1.69 $ 1.54
======= ======= =======
Pro forma net income per Common
Share - Fully Diluted .............. $ 1.20 $ 1.65 $ 1.50
======= ======= =======
24
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 2003 TO YEAR ENDED DECEMBER 31, 2002
Since December 31, 2001, the gross investment in real estate increased from
$1,238 million to $1,315 million as of December 31, 2003, due primarily to the
aforementioned acquisitions and dispositions of Properties during the period.
The total number of sites owned or controlled increased from 50,663 as of
December 31, 2001 to 51,715 as of December 31, 2003.
The following table summarizes certain financial and statistical data for
the Property Operations for the Core Portfolio and the Total Portfolio for the
years ended December 31, 2003 and 2002.
CORE PORTFOLIO TOTAL PORTFOLIO
------------------------------------------- ----------------------------------------
INCREASE/ INCREASE/ %
(dollars in thousands) 2003 2002 (DECREASE) % CHANGE 2003 2002 (DECREASE) CHANGE
-------- -------- ---------- -------- -------- -------- ---------- ------
Community base rental income ...... $191,655 $185,766 $ 5,889 3.2% $196,919 $194,640 $ 2,279 1.2%
Resort base rental income ......... 256 154 102 66.2% 11,780 9,146 2,634 28.8%
Utility and other income .......... 18,764 18,458 306 7.5% 20,150 19,684 466 2.4%
-------- -------- ------- ---- -------- -------- ------- ----
Property operating revenues ..... 210,675 204,378 6,297 3.1% 228,849 223,470 5,379 2.4%
Property operating and
maintenance ...................... 56,535 54,510 2,025 3.7% 64,996 62,843 2,153 3.4%
Real estate taxes ................. 17,278 16,338 940 5.8% 18,917 17,827 1,090 6.1%
Property management ............... 8,629 8,498 131 1.5% 9,373 9,292 81 0.9%
-------- -------- ------- ---- -------- -------- ------- ----
Property operating expenses ..... 82,442 79,346 3,096 4.5% 93,286 89,962 3,324 3.7%
-------- -------- ------- ---- -------- -------- ------- ----
Income from property operations ... $128,233 $125,032 $ 3,201 2.6% $135,563 $133,508 $ 2,055 1.5%
======== ======== ======= ==== ======== ======== ======= ====
Site and Occupancy Information(1):
Average total sites ............... 41,570 41,578 (8) 0.0% 43,134 43,627 (493) (1.1%)
Average occupied sites ............ 37,893 38,594 (701) (1.9%) 39,363 40,467 (1,104) (2.7%)
Occupancy % ....................... 91.2% 92.8% (1.7%) (1.7%) 91.3% 92.8% (1.5%) (1.5%)
Monthly base rent per site ........ $ 421.49 $ 401.11 $ 20.38 5.1% $ 416.89 $ 400.82 $ 16.07 4.0%
Total sites
As of December 31, .............. 41,580 41,590 (10) 0.0% 43,143 43,178 (35) (0.0%)
Total occupied sites
As of December 31, .............. 37,479 38,346 (867) (2.3%) 38,946 39,736 (790) (2.0%)
(1) Site and occupancy information excludes Resort sites and Properties owned
through unconsolidated joint ventures as well as the sites of Properties
acquired or sold during 2002 and 2003.
Property Operating Revenues
The 3.2% increase in Community base rental income for the Core Portfolio
reflects a 5.1% increase in monthly base rent per site coupled with a 1.9%
decrease in average occupied sites. The increase in utility and other income for
the Core Portfolio is due primarily to increases in utility income, which
resulted from higher expenses for these items.
Property Operating Expenses
The 3.7% increase in property operating and maintenance expense for the
Core Portfolio is due primarily to increases in insurance and other expenses,
utility expense, repair and maintenance expense, administrative expense and
payroll expense. The 5.8% increase in Core Portfolio real estate taxes is
generally due to higher property assessments on certain Properties. Property
management expense for the Core Portfolio, which reflects costs of managing the
Properties and is estimated based on a percentage of Property operating
revenues, increased by 1.5% due to increases in payroll costs and computer
expenses.
25
RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF YEAR ENDED DECEMBER 31, 2003 TO YEAR ENDED DECEMBER 31, 2002
(CONTINUED)
Home Sales Operations
The following table summarizes certain financial and statistical data for
the Home Sales Operations for the years ended December 31, 2003 and 2002.
HOME SALES OPERATIONS
---------------------------------------------
INCREASE/
(dollars in thousands) 2003 2002 (DECREASE) % CHANGE
-------- -------- ---------- --------
Gross revenues from new home sales... $ 33,512 $ 30,618 2,894 9.5%
Cost of new home sales .............. (29,064) (24,689) 4,375 17.7%
-------- -------- ------ ------
Gross profit from new home sales .... 4,448 5,929 (1,481) (25.0%)
Gross revenues from used home sales 3,094 2,919 175 6.0%
Cost of used home sales ............. (2,703) (2,494) 209 8.4%
-------- -------- ------ ------
Gross profit from used home sales ... 391 425 (34) (8.0%)
Brokered resale revenues, net ....... 1,724 1,592 132 8.3%
Home selling expenses ............... (7,360) (7,664) (304) (4.0%)
Ancillary services revenues, net .... 216 522 (306) (58.6%)
-------- -------- ------ ------
Income from home sales operations ... $ (581) $ 804 (1,385) (172.3%)
======== ======== ====== ======
HOME SALES VOLUMES:
New home sales .................... 458 420 38 9.0%
Used home sales ................... 189 182 7 3.8%
Brokered home resales ............. 1,102 986 116 11.8%
New home sales gross profit reflects a 9.0% increase in sales volume
coupled with a 6.1% decrease in the gross margin. The average selling price of
new homes remained steady year over year. Used home sales gross profit reflects
a decrease in gross margin on used home sales, partially offset by an increase
in volume. Brokered resale revenues reflects increased resale volumes. The 4.0%
decrease in home selling expenses primarily reflects reductions in advertising
expenses.
Other Income and Expenses
In October, 2003, we received approximately $501 million from the Recap.
The cash received from the Recap was used to pay down our Line of Credit and pay
off our Term Loan, with the remainder placed in short-term investments to be
used for payment of a special distribution in January, 2004 and for future
acquisitions. As a result, interest income increased reflecting additional
interest earned on short-term investments with an average balance of $273
million. The increase in other corporate income reflects increased income from
unconsolidated joint ventures. The decrease in general and administrative
expense is due to decreased professional fees and public company costs,
partially offset by increased payroll costs and banking expenses. Interest and
related amortization increased due to the Recap and the payment of approximately
$3 million to unwind the 2001 Swap, partially offset by decreased interest rates
during the period. The weighted average outstanding debt balances for the years
ended December 31, 2003 and 2002 were approximately $800 million and $731.8
million, respectively. The effective interest rate was 6.4% and 6.8% per annum
for the years ended December 31, 2003 and 2002, respectively.
26
RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF YEAR ENDED DECEMBER 31, 2002 TO YEAR ENDED DECEMBER 31, 2001
Since December 31, 2000, the gross investment in real estate increased from
$1,218 million to $1,296 million as of December 31, 2002, due primarily to the
aforementioned acquisitions and dispositions of Properties during the period.
The total number of sites owned or controlled increased from 51,304 as of
December 31, 2000 to 51,582 as of December 31, 2002.
The following table summarizes certain financial and statistical data for
the Property Operations for the Core Portfolio and the Total Portfolio for the
years ended December 31, 2002 and 2001.
CORE PORTFOLIO TOTAL PORTFOLIO
------------------------------------------ -----------------------------------------------
INCREASE/ INCREASE/ %
(dollars in thousands) 2002 2001 (DECREASE) % CHANGE 2002 2001 (DECREASE) CHANGE
-------- -------- ---------- -------- -------- -------- ---------- ------
Community base rental income ...... $186,889 $179,579 $7,310 4.1% $194,640 $190,982 $ 3,658 1.9%
Resort base rental income ......... 494 439 55 12.5% 9,146 5,748 3,398 59.1%
Utility and other income .......... 18,244 18,786 (542) (2.9%) 19,684 20,381 (697) (3.4%)
-------- -------- ------ ---- -------- -------- ------- ----
Property operating revenues ..... 205,627 198,804 6,823 3.4% 223,470 217,111 6,359 2.9%
Property operating and
maintenance ...................... 54,240 53,024 1,216 2.3% 62,843 60,807 2,036 3.3%
Real estate taxes ................. 16,443 15,271 1,172 7.7% 17,827 16,882 945 5.6%
Property management ............... 8,430 8,120 310 3.8% 9,292 8,984 308 3.4%
-------- -------- ------ ---- -------- -------- ------- ----
Property operating expenses ..... 79,113 76,415 2,698 3.5% 89,962 86,673 3,289 3.8%
-------- -------- ------ ---- -------- -------- ------- ----
Income from property operations ... $126,514 $122,389 $4,125 3.4% $133,508 $130,438 $ 3,070 2.4%
======== ======== ====== ==== ======== ======== ======= ====
Site and Occupancy Information(1):
Average total sites ............... 41,489 41,428 61 0.1% 44,552 46,243 (1,691) (3.7%)
Average occupied sites ............ 38,642 39,108 (466) (1.2%) 41,435 43,576 (2,141) (4.9%)
Occupancy % ....................... 93.1% 94.4% (1.3%) (1.3%) 93.0% 94.2% (1.2%) (1.2%)
Monthly base rent per site ........ $ 403.04 $ 382.65 $20.39 5.3% $ 397.80 $ 371.20 $ 26.61 7.1%
Total sites
As of December 31, .............. 41,588 41,472 116 0.3% 43,906 45,743 (1,837) (4.0%)
Total occupied sites
As of December 31, .............. 38,399 38,991 (592) (1.5%) 40,410 42,887 (2,477) (5.8%)
(1) Site and occupancy information excludes Resort sites and Properties owned
through unconsolidated joint ventures as well as the sites of Properties
sold during 2002.
Property Operating Revenues
The 4.1% increase in Community base rental income for the Core Portfolio
reflects a 5.3% increase in monthly base rent per site coupled with a 1.2%
decrease in average occupied sites. The decrease in utility and other income for
the Core Portfolio is due primarily to decreases in utility income, which
resulted from lower expenses for these items.
Property Operating Expenses
The increase in property operating and maintenance expense for the Core
Portfolio is due primarily to increases in property payroll, insurance and other
expenses, repair and maintenance and administrative expenses, partially offset
by decreased utility expense. The increase in Core Portfolio real estate taxes
is generally due to higher property assessments on certain Properties. Property
management expense for the Core Portfolio, which reflects costs of managing the
Properties and is estimated based on a percentage of Property operating
revenues, increased by 3.8% due to increases in payroll costs and office
expenses.
27
RESULTS OF OPERATIONS (CONTINUED)
Home Sales Operations
The following table summarizes certain financial and statistical data for
the Home Sales Operations for the years ended December 31, 2002 and 2001.
HOME SALES OPERATIONS
--------------------------------------------------
INCREASE/
(dollars in thousands) 2002 2001 (DECREASE) % CHANGE
-------- ----------- ---------- --------
(Pro forma)
Gross revenues from new home sales . $ 30,618 $ 32,608 (1,990) (6.1%)
Cost of new home sales ............. (24,689) (25,925) 1,236 4.8%
-------- -------- ------ -----
Gross profit from new home sales ... 5,929 6,683 (754) (11.3%)
Gross revenues from used home sales 2,919 3,631 (712) (19.6%)
Cost of used home sales ............ (2,494) (2,561) 67 2.6%
-------- -------- ------ -----
Gross profit from used home sales .. 425 1,070 (645) (60.3%)
Brokered resale revenues, net ...... 1,592 1,723 (131) (7.6%)
Home selling expenses .............. (7,664) (8,240) 576 67.0%
Ancillary services revenues, net ... 522 1,092 (570) (52.2%)
-------- -------- ------ -----
Income from home sales operations .. $ 804 $ 2,328 (1,524) (65.5%)
======== ======== ====== =====
HOME SALES VOLUMES:
New home sales ................... 420 485 (65) (13.4%)
Used home sales .................. 182 250 (68) (27.2%)
Brokered home resales ............ 986 1,114 (128) (11.5%)
Prior to January 1, 2002, the results of operations of RSI were accounted
for using the equity method and reported on a single line item called Equity in
Income of Affiliates. As a result of the acquisition of RSI (see Note 7), the
Company owns and controls RSI and consolidates the financial results of RSI with
those of the Company. The pro forma presentation of detailed 2001 amounts is for
comparison purposes and has no effect on previously reported net income. For the
year ended December 31, 2001, equity in income of affiliates was approximately
$1.8 million and included the $2.3 million of income from home sales operations
presented above as well as $539,000 of interest income, $15,000 of corporate
expenses and $1.0 million of interest expense.
New home sales gross profit reflects a 13.4% decrease in sales volume
coupled with a 1.1% decrease in the gross margin. The average selling price of
new homes increased $6,000 or 8.7% compared to 2001. Used home sales gross
profit reflects a decrease in both volume and gross margin on used home sales.
Brokered resale revenues reflects decreased resale volumes. The 6.9% decrease in
home selling expenses primarily reflects reductions in payroll and advertising
expenses.
Other Income and Expenses
The increase in interest income reflects a decrease in notes receivable
offset by an increase in chattel notes receivable acquired through the
acquisition of RSI. The decrease in other corporate income primarily reflects
decreased income from unconsolidated joint ventures. The increase in general and
administrative expense is due to increases in costs related to operating a
public company, increased payroll costs and increased consulting and legal
costs. Interest and related amortization decreased due to lower interest rates
during the period. The weighted average outstanding debt balances for the years
ended December 31, 2002 and 2001 were $731.8 million and $713.2 million,
respectively. The effective interest rate was 6.8% and 7.0% per annum for the
years ended December 31, 2002 and 2001, respectively.
28
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
As of December 31, 2003, we had $325.7 million in cash and cash equivalents
and $110.0 million available on our Line of Credit. We expect to meet our
short-term liquidity requirements, including distributions, generally through
our working capital, net cash provided by operating activities and availability
under the Line of Credit. We expect to meet certain long-term liquidity
requirements such as scheduled debt maturities, property acquisitions and
capital improvements by long-term collateralized and uncollateralized borrowings
including borrowings under our Line of Credit and the issuance of debt
securities or additional equity securities in the Company, in addition to
working capital.
INFLATION
Substantially all of the leases at the Properties allow for monthly or
annual rent increases which provide us with the opportunity to achieve
increases, where justified by the market, as each lease matures. Such types of
leases generally minimize our risks of inflation.
FUNDS FROM OPERATIONS
Funds From Operations ("FFO"), a non-GAAP financial performance measure,
was redefined by the National Association of Real Estate Investment Trusts
("NAREIT") in April 2002, as net income (computed in accordance with GAAP),
before allocation to minority interests, excluding gains (or losses) from sales
of property, plus real estate depreciation and after adjustments for
unconsolidated partnerships and joint ventures. The Company computes FFO in
accordance with the NAREIT definition, which may differ from the methodology for
calculating FFO utilized by other equity REITs and, accordingly, may not be
comparable to such other REITs' computations. The Company believes that FFO is
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, FFO provides investors an understanding of the ability of
the Company to incur and service debt and to make capital expenditures. FFO 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.
The following table presents a calculation of FFO for the years ended
December 31, 2003, 2002 and 2001 (amounts in thousands):
2003 2002 2001
-------- -------- --------
COMPUTATION OF FUNDS FROM OPERATIONS:
Net income available for Common Shares ................... $ 27,014 $ 36,445 $ 32,083
Income allocated to Common OP Units ...................... 6,474 8,926 8,209
Depreciation on real estate assets and other costs ....... 38,034 35,552 34,228
Depreciation expense included in discontinued operations.. 135 484 605
Gain on sale of Properties and other ..................... (10,826) (13,014) (8,168)
-------- -------- --------
Funds from operations .................................. $ 60,831 $ 68,393 $ 66,957
======== ======== ========
Weighted average Common Shares outstanding - diluted ..... 28,002 27,632 27,010
======== ======== ========
29
ACQUISITIONS AND DISPOSITIONS
During the year ended December 31, 2001, we acquired two Florida Properties
for an aggregate purchase price of approximately $17.3 million and completed the
sale of seven properties in Kansas, Missouri and Oklahoma, for a total sale
price of approximately $17.4 million. Also during 2001, we finalized a
settlement agreement whereby we received $10.8 million in proceeds related to
the sale of a Property in Indiana.
During the year ended December 31, 2002, we acquired the eleven Properties
listed in the table below. The acquisitions were funded with borrowings on our
Line of Credit and the assumption of $47.9 million of mortgage debt, which
includes a $3.0 million mark-to-market adjustment. In addition, we purchased
adjacent land and land improvements for several Properties for approximately
$559,000.
TOTAL PURCHASE DEBT
DATE ACQUIRED PROPERTY LOCATION SITES PRICE ASSUMED
- ----------------- ------------------- ------------------- ----- -------- -----------
($ millions) ($ millions)
March 12, 2002 Mt. Hood Village Welches, OR 450 $ 7.2 $ ---
July 10, 2002 Harbor View Village New Port Richey, FL 471 15.5 8.1
July 31, 2002 Golden Sun Apache Junction, AZ 329 6.3 3.1
July 31, 2002 Countryside Apache Junction, AZ 560 7.5 ---
July 31, 2002 Holiday Village Ormond Beach, FL 301 10.4 7.1
July 31, 2002 Breezy Hill Pompano Beach, FL 762 20.5 10.5
August 14, 2002 Highland Woods Pompano Beach, FL 148 3.9 2.5
August 7, 2002 Tropic Winds Harlingen, TX 531 4.9 ---
October 1, 2002 Silk Oak Lodge Clearwater, FL 180 6.2 3.9
December 18, 2002 Hacienda Village New Port Richey, FL 519 16.8 10.2
December 31, 2002 Glen Ellen Clearwater, FL 117 2.4 2.5
----- ------ -----
TOTALS 4,368 $101.6 $47.9
===== ====== =====
During the year ended 2002, we effectively sold 17 Properties as part of a
restructuring of the College Heights Joint Venture discussed hereinafter. In
addition, we sold Camelot Acres, a 319 site Property in Burnsville, Minnesota,
for approximately $14.2 million.
During the year ended December 31, 2003, we sold the three Properties
listed in the table below. Proceeds from the sales were used to repay amounts on
the Company's Line of Credit. Also during the same period, we acquired a parcel
of land adjacent to one of our Properties for approximately $97,000.
TOTAL DISPOSITION GAIN ON
DATE SOLD PROPERTY LOCATION SITES PRICE SALE
- ------------- ----------------- -------------- ----- ------------ ------------
($ millions) ($ millions)
June 6, 2003 Independence Hill Morgantown, WV 203 $ 3.9 $ 2.8
June 6, 2003 Brook Gardens Hamburg, NY 424 17.8 4.1
June 30, 2003 Pheasant Ridge Mount Airy, MD 101 5.4 3.9
--- ----- -----
728 $27.1 $10.8
=== ===== =====
In December, 2003, we acquired three Resort Properties listed in the table
below. The acquisitions were funded with monies held in short-term investments.
The acquisitions included the assumption of liabilities of approximately
$650,000. Also during 2003, we acquired a parcel of land adjacent to one of our
Properties for approximately $97,000.
TOTAL PURCHASE DEBT
DATE ACQUIRED PROPERTY LOCATION SITES PRICE ASSUMED
- ----------------- ----------- ----------- ----- ------------ ------------
($ millions) ($ millions)
December 3, 2003 Toby's Arcadia, FL 379 $4.3 $---
December 15, 2003 Araby Acres Yuma, AZ 337 5.7 3.2
December 15, 2003 Foothill Yuma, AZ 180 1.8 1.4
30
INVESTMENTS IN JOINT VENTURES
Effective September 1, 2002, the Company restructured its investment in
Wolverine Property Investment Limited Partnership (the "College Heights Joint
Venture" or the "Venture"), a joint venture with Wolverine Investors, LLP. The
Venture included 18 Properties with 3,581 sites. The results of operations of
the College Heights Joint Venture prior to restructuring were included with the
results of the Company due to the Company's voting equity interest and control
over the Venture. Pursuant to the restructuring, the Company sold its general
partnership interest, sold all of the Company's voting equity interest and
reduced the Company's total investment in the College Heights Joint Venture. As
consideration for the sale, the Company retained sole ownership of Down Yonder,
a 361 site community in Clearwater, Florida, received cash of approximately $5.2
million and retained preferred limited partnership interests of approximately
$10.3 million, recorded net of a $2.4 million reserve. The continuing preferred
limited partnership interests are accounted for using the equity method and
reported as an investment in a joint venture.
ACQUISITION OF REALTY SYSTEMS, INC.
On January 1, 2002, the Company purchased all of the common stock of Realty
Systems, Inc. ("RSI"). The Company previously owned the non-voting preferred
stock of RSI and had notes receivable from RSI which were recorded as an
investment in affiliate. The Company purchased the common stock of RSI from
Equity Group Investments, Inc., controlled by Samuel Zell, Chairman of the Board
of Directors of the Company, for approximately $675,000. As a result of this
acquisition, the Company owns and controls RSI and consolidates the financial
results of RSI with those of the Company including $839,000 of cash from the
acquisition on January 1, 2002.
CAPITAL IMPROVEMENTS
Capital expenditures for improvements are identified by the Company as
recurring capital expenditures ("Recurring CapEx"), site development costs and
corporate costs. Recurring CapEx was approximately $11.9 million and $13.4
million for the years ended December 31, 2003 and 2002, respectively. Of these
expenditures, the Company believes that approximately $8.0 million or $155 per
site for 2003 and $7.6 million or $147 per site for 2002 are non-revenue
producing improvements which are necessary in order to increase and/or maintain
occupancy levels and maintain competitive market rents for new and renewing
residents. Site development costs were approximately $9.0 million and $10.4
million for the years ended December 31, 2003 and 2002, respectively, and
represent costs to develop expansion sites at certain of the Company's
Properties and costs for improvements to sites when a smaller used home is
replaced with a larger new home.
EQUITY TRANSACTIONS
In order to qualify as a REIT for federal income tax purposes, the Company
must distribute 90% or more of its taxable income (excluding capital gains) to
its stockholders. The following distributions have been declared and/or paid to
common stockholders and minority interests since January 1, 2001.
DISTRIBUTION
AMOUNT PER FOR THE QUARTER STOCKHOLDER
SHARE ENDING RECORD DATE PAYMENT DATE
- ------------ ------------------ ------------------ ----------------
$0.4450 March 31, 2001 March 30, 2001 April 13, 2001
$0.4450 June 30, 2001 June 29, 2001 July 13, 2001
$0.4450 September 30, 2001 September 28, 2001 October 12, 2001
$0.4450 December 31, 2001 December 28, 2001 January 11, 2002
- -------------------------------------------------------------------------------------
$0.4750 March 31, 2002 March 29, 2002 April 12, 2002
$0.4750 June 30, 2002 June 28, 2002 July 12, 2002
$0.4750 September 30, 2002 September 27, 2002 October 11, 2002
$0.4750 December 31, 2002 December 27, 2002 January 10, 2003
- -------------------------------------------------------------------------------------
$0.4950 March 31, 2003 March 28, 2003 April 11, 2003
$0.4950 June 30, 2003 June 27, 2003 July 11, 2003
$0.4950 September 30, 2003 September 26, 2003 October 10, 2003
On December 12, 2003, we declared a one-time special distribution of $8.00
per share payable to stockholders of record on January 8, 2004. We used proceeds
from the $501 million borrowing in October, 2003 to pay the special distribution
on January 16, 2004. The special cash dividend will be reflected on
stockholders' 2004 1099-DIV to be issued in January 2005.
31
EQUITY TRANSACTIONS (CONTINUED)
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 annually on the last
calendar day of each quarter beginning December 31, 1999. The Company expects to
continue to make regular annual distributions and has set its 2004 distribution
to common stockholders at $0.05 per share per annum.
MORTGAGES AND CREDIT FACILITIES
On October 17, 2003, we closed 49 mortgage loans collateralized by 51
Properties (the "Recap") providing total proceeds of approximately $501 million
at a weighted average interest rate of 5.84% and with a weighted average
maturity of approximately 9 years. Approximately $170 million of the proceeds
were used to repay amounts outstanding on the Company's Line of Credit and Term
Loan. Approximately $225 million was used to pay a special dividend of $8.00 per
share on January 16, 2004. The remaining funds are being held in short-term
investments and will be used primarily for investments in 2004.
We have an unsecured Line of Credit with a group of banks (the "Line of
Credit") with a total facility of $110 million, bearing interest at the London
Interbank Offered Rate ("LIBOR") plus 1.65% that matures on August 9, 2006. We
pay a quarterly fee on the average unused amount of the total facility equal to
0.15% of such amount. In October, 2003, all amounts outstanding on the Line of
Credit were repaid with proceeds from the Recap. As of December 31, 2003, $110
million was available under the Line of Credit. The Line of Credit had a total
facility of $150 million prior to amendment in December, 2003.
We had a $100 million unsecured term loan (the "Term Loan") with a group of
banks with interest only payable monthly at LIBOR plus 1.375%. In October, 2003,
we paid off the Term Loan with proceeds from the Recap.
On October 29, 2001, we entered into an interest rate swap agreement (the
"2001 Swap"), effectively fixing LIBOR on $100 million of our floating rate debt
at approximately 3.7% per annum for the period October 2001 through August 2004.
The terms of the 2001 Swap required monthly settlements on the same dates
interest payments were due on the debt. In accordance with SFAS No. 133, the
2001 Swap was reflected at market value. In October, 2003, we unwound the 2001
Swap at a cost of approximately $3 million, which is included in interest and
related amortization in 2003 in the accompanying Consolidated Statements of
Operations.
On April 17, 2003, we entered into an agreement to refinance and increase
the Bay Indies Mortgage from approximately $21.9 million to $45 million. Under
the new agreement, the Bay Indies Mortgage bears interest at 5.69% per annum,
amortizes over 25 years and matures April 17, 2013. The net proceeds were used
to pay down the Company's Line of Credit in April, 2003. Also during the year
ended December 31, 2003, mortgage notes payable on four other Properties were
repaid totaling approximately $23.5 million using proceeds from borrowings on
the Company's Line of Credit.
During the year ended December 31, 2002, as part of the purchase of RSI, in
a non-cash transaction, we assumed a $12.5 million note payable ("Conseco
Financing Note"), collateralized by manufactured home inventory. The Conseco
Financing Note was repaid at a discount during 2002 using proceeds from our Line
of Credit. In addition, we repaid a maturing mortgage note in the amount of $1.1
million and $2.1 million of other unsecured notes payable using proceeds from
our Line of Credit.
During the year ended December 31, 2001, we repaid three maturing mortgages
in the aggregate amount of $12.1 million using proceeds from our Line of Credit.
In addition, we entered into a $50.0 million mortgage note (the "Stagecoach
Mortgage") collateralized by 7 Properties beneficially owned by MHC Stagecoach,
L.L.C. The Stagecoach Mortgage bears interest at a rate of 6.98% per annum,
amortizes beginning September 1, 2001 over 10 years and matures August 31, 2011.
Proceeds from the financing were used to reduce borrowings on the Line of Credit
by $37.9 million.
Certain of our mortgage and credit agreements contain covenants and
restrictions including restrictions as to the ratio of secured or unsecured debt
versus encumbered or unencumbered assets, the ratio of fixed charges-to-earnings
before interest, taxes, depreciation and amortization ("EBITDA"), limitations on
certain holdings and other restrictions.
32
MORTGAGES AND CREDIT FACILITIES (CONTINUED)
As of December 31, 2003, we were subject to certain contractual payment
obligations as described in the table below (dollars in thousands). We are not
subject to capital lease obligations or unconditional purchase obligations as of
December 31, 2003.
Contractual Obligations Total 2004 2005 2006 2007 2008 Thereafter
- ----------------------- ----- ---- ---- ---- ---- ---- ----------
Long Term Debt(1)................... $1,076,279 --- $6,478 $17,409 $265,113 $200,908 $586,371
Weighted average interest rates..... 6.4% --- 7.8% 7.4% 7.0% 5.6% 6.6%
(1) Balance excludes net premiums and discounts of $17.
In addition, the Company leases land under non-cancelable 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 percentage of gross revenues. For the years ended December 31,
2003, 2002 and 2001, ground lease rent was approximately $1.6 million per year.
Minimum future rental payments under the ground leases are approximately $1.6
million for each of the next five years and approximately $26.3 million
thereafter.
SUBSEQUENT EVENTS
Since December 31, 2003, we invested in 30 Properties as listed in the
table below. The combined investment in these 30 properties was approximately
$137.6 million and was funded with monies held in short-term investments and
additional debt. (amounts in millions, except for total sites)
PURCHASE NET
CLOSING DATE PROPERTY LOCATION TOTAL SITES PRICE DEBT EQUITY
------------ -------- -------- ----------- -------- ----- ------
ACQUISITIONS:
January 15, 2004 O'Connell's(a) Amboy, IL 668 $ 6.6 $ 5.0 $1.6
January 30, 2004 Spring Gulch(b) New Holland, PA 420 6.0 4.8 1.2
February 3, 2004 Paradise(c) Mesa, AZ 950 25.0 20.0 5.0
February 18, 2004 Twin Lakes(d) Chocowinity, NC 400 5.2 3.8 1.4
February 19, 2004 Lakeside(e) New Carlisle, IN 95 1.7 --- 1.7
February 5, 2004 Shangri La Largo, FL 160 (f) 4.5 (f)
February 5, 2004 Terra Ceia Palmetto, FL 203 (f) 2.6 (f)
February 5, 2004 Southernaire Mt. Dora, FL 134 (f) 2.1 (f)
February 5, 2004 Sixth Avenue Zephryhills, FL 140 (f) 2.3 (f)
February 5, 2004 Suni Sands Yuma, AZ 336 (f) 3.2 (f)
February 5, 2004 Topic's Spring Hill, FL 230 (f) 2.2 (f)
February 5, 2004 Coachwood Colony Leesburg, FL 200 (f) 4.3 (f)
February 5, 2004 Waterway Cedar Point, NC 336 (f) 6.3 (f)
February 5, 2004 Desert Paradise Yuma, AZ 260 (f) 1.5 (f)
February 5, 2004 Goose Creek Newport, NC 598 (f) 12.6 (f)
MEZZANINE INVESTMENTS(g):
February 3, 2004 Fiesta Grande I & II Casa Grande, AZ 767 --- --- 3.7
February 3, 2004 Tropical Palms North Ft. Myers, FL 297 --- --- 1.9
February 3, 2004 Island Vista Estates North Ft. Myers, FL 617 --- --- 4.6
February 3, 2004 Foothills West Casa Grande, AZ 188 --- --- 1.5
February 3, 2004 Capri Yuma, AZ 300 --- --- 2.1
February 3, 2004 Casita Verde Casa Grande, AZ 192 --- --- 1.2
February 3, 2004 Rambler's Rest Venice, FL 647 --- --- 6.2
February 3, 2004 Venture In Show Low, AZ 389 --- --- 2.4
February 3, 2004 Scenic Asheville, NC 224 --- --- 1.2
February 3, 2004 Clerbrook Clermont, FL 1,255 --- --- 3.9
February 3, 2004 Inlet Oaks Murrells Inlet, SC 178 --- --- 1.0
JOINT VENTURES(h):
December 18, 2003 Lake Myers Mocksville, NC 425 --- --- 0.4
January 21, 2004 Pine Haven Ocean View, NJ 625 --- --- 0.4
January 27, 2004 Twin Mills Howe, IN 501 --- --- 0.2
February 10, 2004 Plymouth Rock Elkhart Lake, WI 609 --- --- 0.4
(a) Property was purchased from O'Connell's Holding Corp. and O'Connell's, Inc.
(b) Property was purchased from Spring Gulch, Inc.
(c) Property was purchased from PRVR Limited Partnership.
(d) Property was purchased from Twin Lakes Land, LLC and Twin Lakes Camping
Resort, LLC.
(e) Property was purchased from Don-Bar Family Limited Partnership.
(f) The portfolio was acquired for a total purchase price of $62 million and
$20.4 million of net equity. The transaction was funded partially through
loans obtained on the individual properties as shown in the table.
(g) On February 3, 2004, the Company invested approximately $29.7 million in
preferred equity in six entities controlled by Diversified Investments,
Inc. ("Diversified"). In addition, the Company has invested approximately
$1.4 million in the Diversified entities managing these properties.
(h) The Company invested approximately $1.4 million with Diversified in four
separate entities, each controlling a Property.
In addition, on February 17, 2004, we tendered payment of $69 million cash
to acquire a 93% equity interest in entities that own and operate 28 vacation
resort properties, containing 11,357 sites. Twenty of the properties are located
in Florida, six in Texas, and two in California. The acquisition was funded with
monies held in short-term investments and $50 million drawn from the Company's
line of credit.
Beginning in 1996, a series of partnerships were formed between "NHC"
entities and "PAMI" entities. The PAMI entities have sued for specific
performance in Chancery Court in Delaware seeking to acquire the NHC entities'
interests. The NHC entities have filed a counter-suit, and have asked the judge
to schedule a hearing to address the matter within thirty days. Under the terms
and conditions of the partnership agreements, $69 million was paid to acquire
the PAMI entities' interests. Principals of the NHC entities will continue to
operate the properties and maintain an equity position in the new entity. The
existing dispute is related to the PAMI entities' desire to liquidate their
investments. While the possibility of additional litigation and its attendant
risks remain, we believe that providing liquidity to the NHC entities to acquire
the PAMI interests may assist in resolving the dispute.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
Our earnings are affected by changes in interest rates, since a portion of
our outstanding indebtedness is at variable rates based on LIBOR. Our Line of
Credit ($110 million outstanding at December 31, 2003) bears interest at LIBOR
plus 1.65%, per annum. If LIBOR increased/decreased by 1.0% during the year
ended December 31, 2003, interest expense would have increased/decreased by
approximately $1.3 million based on the average balance outstanding under the
Company's Line of Credit during the period.
On October 29, 2001, we entered into the 2001 Swap, effectively fixing the
LIBOR rate on $100 million of our floating rate debt at approximately 3.7% per
annum for the period October 2001 through August 2004. The terms of the 2001
Swap required monthly settlements on the same dates interest payments were due
on the debt. In the fourth quarter of 2003, we unwound the 2001 Swap for a cost
of approximately $3 million. Effective January 1, 2001, the Company adopted
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133") and its amendments, SFAS
No. 137 and SFAS No. 138. In accordance with SFAS No. 133, the interest rate
swap was reflected at market value. We believed the 2001 Swap was a perfectly
effective cash flow hedge, under SFAS No. 133, and there would be no effect on
net income as a result of the mark-to-market adjustment. Mark-to-market changes
in the value of the 2001 Swap prior to its payoff were included in other
comprehensive income.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Combined Financial Statements on page F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures as of December 31, 2003.
Based on that evaluation, the Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures were effective as of December 31, 2003. There were no material
changes in the Company's internal control over financial reporting during the
fourth quarter 2003.
33
PART III
ITEMS 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be set forth herein pursuant to Item 401 and
Item 405 of Regulation S-K is contained under the captions "Election of
Directors," "Election of Directors - Committees of the Board; Meetings" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's
definitive proxy statement for the Company's 2004 Annual Meeting of Shareholders
to be held on May 4, 2004 (the "2004 Proxy Statement) and such information is
incorporated herein by reference.
In addition, the information that is included under the caption "Election
of Directors - Corporate Governance" in the 2004 Proxy Statement regarding the
Company's written Guidelines on Corporate Governance and the Company's Business
Ethics and Conduct Policy is incorporated herein by reference.
ITEMS 11, 12, 13 AND 14.
EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The information required by Item 11, Item 12, Item 13 and Item 14 will be
contained in the 2004 Proxy Statement, and thus this Part has been omitted in
accordance with General Instruction G(3) to Form 10-K.
34
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)
(1&2) See Index to Financial Statements and Schedules on page F-1 of
this Form 10-K.
(3) Exhibits:
2(a) Admission Agreement between Equity Financial and
Management Co., Manufactured Home Communities, Inc. and
MHC Operating Partnership
3.1(a) Articles of Incorporation of Manufactured Home
Communities, Inc.
3.2(a) Articles of Amendment and Restatement of Manufactured Home
Communities, Inc.
3.3(g) Amended Bylaws of Manufactured Home Communities, Inc.
4 Not applicable
9 Not applicable
10.1(a) Amended and Restated Agreement of Limited Partnership of
MHC Operating Limited Partnership
10.2(a) Agreement of Limited Partnership of MHC Financing Limited
Partnership
10.3(a) Agreement of Limited Partnership of MHC Management Limited
Partnership
10.4(a) Property Management and Leasing Agreement between MHC
Financing Limited Partnership and MHC Management
Limited Partnership
10.5(a) Property Management and Leasing Agreement between MHC
Operating Limited Partnership and MHC Management
Limited Partnership
10.6(a) Services Agreement between Realty Systems, Inc. and MHC
Management Limited Partnership
10.7(a) Rate Protection Agreement
10.8(a) Revolving Credit Note made by Realty Systems, Inc. to
Equity Financial and Management Co.
10.9(a) Assignment to MHC Operating Limited Partnership of
Revolving Credit Note made by Realty Systems, Inc. to
Equity Financial and Management Co.
10.10(a) Stock Option Plan
10.11A(a) Indenture of Mortgage, Deed of Trust, Security Agreement,
Financing Statement, Fixture Filing and Assignment of
Rents
10.11B(a) Promissory Note
10.11C(a) Assignment of Loan Documents
10.11D(a) Assignment of Leases, Rents and Security Deposits
10.11E(a) Swap Agreement Pledge and Security Agreement
10.11F(a) Cash Collateral Account Security, Pledge and Assignment
Agreement
10.11G(a) Assignment of Property Management and Leasing Agreement
10.11H(a) Trust Agreement
10.12(a) Form of Noncompetition Agreement
10.13(a) Form of Noncompetition Agreement
10.13A(a) Form of Noncompetition Agreement
10.14(a) General Electric Credit Corporation Commitment Letter
10.15(a) Administrative Services Agreement between Realty Systems,
Inc. and Equity Group Investments, Inc.
10.16(a) Registration Rights and Lock-Up Agreement with the Company
(the Original Owners, EF&M, Directors,
Officers and Employees)
10.17(a) Administrative Services Agreement between the Company and
Equity Group Investments, Inc.
10.18(a) Form of Subscription Agreement between the Company and
certain officers and other individuals dated March 3, 1993
10.19(a) Form of Secured Promissory Note payable to the Company by
certain officers dated March 3, 1993
10.20(a) Form of Pledge Agreement between the Company and certain
officers dated March 3, 1993
10.21(a) Loan and Security Agreement between Realty Systems, Inc.
and MHC Operating Limited Partnership
10.22(a) Equity and Registration Rights Agreement with the Company
(the GM Trusts)
10.23(b) Agreement of Limited Partnership of MHC Lending Limited
Partnership
10.23(c) Agreement of Limited Partnership of MHC-Bay Indies
Financing Limited Partnership
10.24(c) Agreement of Limited Partnership of MHC-De Anza Financing
Limited Partnership
10.25(c) Agreement of Limited Partnership of MHC-DAG Management
Limited Partnership
10.26(d) Amendment No. 2 to MHC Operating Limited Partnership
Amended and Restated Partnership Agreement dated
February 15, 1996
10.27(d) Form of Subscription Agreement between the Company and
certain members of management of the Company
dated January 2, 1996
10.28(d) Form of Secured Promissory Note payable to the Company by
certain members of management of the Company dated
January 2, 1996
35
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
10.29(d) Form of Pledge Agreement between the Company and certain
members of management of the Company dated January 2, 1996
10.30(e) Second Amended and Restated MHC Operating Limited
Partnership Agreement of Limited Partnership, dated as of
March 15, 1996
10.31(f) Agreement of Limited Partnership of MHC Financing Limited
Partnership Two
10.32(g) $265,000,000 Mortgage Note dated December 12,1997
10.33(g) Second Amended and Restated Credit Agreement (Revolving
Facility) between the Company, MHC Operating Limited
Partnership, and certain lenders and agents, dated
April 28, 1998
10.34(g) First Amendment to Second Amended and Restated Credit
Agreement (Revolving Facility) between the Company, MHC
Operating Limited Partnership, and certain lenders and
agents, dated December 18, 1998
10.35(h) Second Amendment to Second Amended and Restated Credit
Agreement (Revolving Facility) between the Company, MHC
Operating Limited Partnership, and certain lenders and
agents, dated August 9, 2000
10.36(g) Amended and Restated Credit Agreement (Term Loan) between
the Company, MHC Operating Limited Partnership, and certain
lenders and agent, dated April 28, 1998
10.36(h) First Amendment to Amended and Restated Credit Agreement
(Term Loan) between the Company, MHC Operating Limited
Partnership, and certain lenders and agent, dated
November 21, 2000
10.36(g) Letter Agreement between the Company and Bank of America
National Trust and Savings Association confirming the $100
million swap transaction, dated July 11, 1995
10.39(h) $110,000,000 Amended, Restated and Consolidated Promissory
Note dated June 28, 2000
10.40(h) $15,750,000 Promissory Note Secured by Leasehold Deed of
Trust dated July 13, 2000
10.41(i) Credit Agreement (Term Loan) between the Company, MHC
Operating Limited Partnership and certain lenders and
agents dated February 9, 2002.
10.42(i) Third Amendment to Second Amended and Restated Credit
Agreement (Revolving Facility) between the Company, MHC
Operating Limited Partnership, and certain lenders and
agents, dated February 9, 2002
10.43(i) $50,000,000 Promissory Note secured by Leasehold Deeds of
Trust (Stagecoach Mortgage) dated December 2, 2001.
10.44(j) Fourth Amendment to the Second Amended and Restated Credit
Agreement (Revolving Facility) between the Company, MHC
Operating Limited Partnership, and certain lenders and
agents, dated December 11, 2003.
10.45(j) Loan Agreement dated October 17, 2003 between MHC Sunrise
Heights, L.L.C., as Borrower, and Bank of America, N.A.,
as Lender.
10.45.1(j) Schedule identifying substantially identical agreements to
Exhibit No. 10.45.
10.46(j) Form of Loan Agreement dated October 17, 2003 between MHC
Countryside L.L.C., as Borrower, and Bank of America, N.A.,
as Lender.
10.46.1(j) Schedule identifying substantially identical agreements to
Exhibit No. 10.46.
10.47(j) Form of Loan Agreement dated October 17, 2003 between MHC
Creekside L.L.C., as Borrower, and Bank of America, N.A.,
as Lender.
10.47.1(j) Schedule identifying substantially identical agreements to
Exhibit No. 10.47.
10.48(j) Form of Loan Agreement dated October 17, 2003 between MHC
Golf Vista Estates L.L.C., as Borrowers, and Bank of
America, N.A., as Lender.
10.48.1(j) Schedule identifying substantially identical agreements to
Exhibit No. 10.48.
11 Not applicable
12(j) Computation of Ratio of Earnings to Fixed Charges
13 Not applicable
14 Not applicable
15 Not applicable
16 Not applicable
17 Not applicable
18 Not applicable
21(j) Subsidiaries of the registrant
22 Not applicable
23(j) Consent of Independent Auditors
24.1(j) Power of Attorney for Joseph B. McAdams dated March 2, 2004
24.2(j) Power of Attorney for Howard Walker dated March 2, 2004
24.3(j) Power of Attorney for Thomas E. Dobrowski dated March 1,
2004
24.4(j) Power of Attorney for Gary Waterman dated March 2, 2004
24.5(j) Power of Attorney for Donald S. Chisholm dated March 2,
2004
24.6(j) Power of Attorney for David A. Helfand dated March 2, 2004
36
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
31.1(j) Certification of Chief Financial Officer Pursuant To
Section 302 of the Sarbanes-Oxley Act Of 2002
31.2(j) Certification of Chief Executive Officer Pursuant To
Section 302 of the Sarbanes-Oxley Act Of 2002
32.1(j) Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350
32.2(j) Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350
(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) Included as an exhibit to the Company's Report on Form 10-K dated
December 31, 2000, and incorporated herein by reference.
(i) Included as an exhibit to the Company's Report on Form 10-K dated
December 31, 2002, and incorporated herein by reference.
(j) Filed herewith.
(b) Reports on Form 8-K:
Form 8-K dated and filed October 21, 2003, relating to Item 7 -
"Financial Statements and Exhibits" and Item 12 - "Disclosure of
Results of Operations and Financial Condition" regarding release of
3rd Quarter 2003 results of operations and financial condition.
Form 8-K dated and filed December 12, 2003, relating to Item 5 -
"Other Events and Regulation FD Disclosure" regarding declaration of
a special dividend.
Form 8-K dated and filed December 16, 2003, relating to Item 5 -
"Other Events and Regulation FD Disclosure" regarding the tax
treatment of special dividend.
(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.
37
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 10, 2004 By: /s/ Thomas P. Heneghan
-------------------- --------------------------------------
Thomas P. Heneghan
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 10, 2004 By: /s/ Michael B. Berman
-------------------- --------------------------------------
Michael B. Berman
Vice President, Treasurer
and Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
38
MANUFACTURED HOME COMMUNITIES, INC. - SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ Thomas P. Heneghan President and Chief Executive Officer
- ------------------------------
Thomas P. Heneghan *Attorney-in-Fact March 10, 2004
-----------------------
Vice President, Treasurer
/s/ Michael B. Berman and Chief Financial Officer
- ------------------------------
Michael B. Berman *Attorney-in-Fact March 10, 2004
-----------------------
/s/ Samuel Zell Chairman of the Board
- ------------------------------
Samuel Zell March 10, 2004
-----------------------
/s/ Sheli Z. Rosenberg Director
- ------------------------------
Sheli Z. Rosenberg March 10, 2004
-----------------------
*David A. Helfand Director
- ------------------------------
David A. Helfand March 10, 2004
-----------------------
*Donald S. Chisholm Director
- ------------------------------
Donald S. Chisholm March 10, 2004
-----------------------
*Thomas E. Dobrowski Director
- ------------------------------
Thomas E. Dobrowski March 10, 2004
-----------------------
*Howard Walker Director
- ------------------------------
Howard Walker March 10, 2004
-----------------------
*Joseph B. McAdams Director
- ------------------------------
Joseph B. McAdams March 10, 2004
-----------------------
*Gary Waterman Director
- ------------------------------
Gary Waterman March 10, 2004
-----------------------
39
INDEX TO FINANCIAL STATEMENTS
MANUFACTURED HOME COMMUNITIES, INC.
PAGE
----
Report of Independent Auditors ............................................................................... F-2
Consolidated Balance Sheets as of December 31, 2003 and 2002................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001..................... F-4 and F-5
Consolidated Statements of Other Comprehensive Income for the years ended December 31, 2003, 2002, and 2001.... F-5
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 2003, 2002 and 2001........................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001..................... F-7
Notes to Consolidated Financial Statements..................................................................... F-8
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
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, 2003 and 2002, and the
related consolidated statements of operations, other comprehensive income,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 2003. We have also audited the related financial
statement schedules listed in the index at Item 15(a). These financial
statements and schedules are the responsibility of the management of
Manufactured Home Communities, Inc. Our responsibility is to express an opinion
on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Manufactured
Home Communities, Inc. at December 31, 2003 and 2002, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, in 2003
Manufactured Home Communities, Inc. changed its method of accounting for
stock-based employee compensation. In addition, in 2002 Manufactured Home
Communities, Inc. changed its method of accounting for discontinued operations.
ERNST & YOUNG LLP
Chicago, Illinois
January 27, 2004, except for Note 18
as to which the date is February 19, 2004 and
Note 17 as to which the date is February 24, 2004
F-2
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2003 AND 2002
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
DECEMBER 31, DECEMBER 31,
2003 2002
------------ ------------
ASSETS
Investment in real estate:
Land ............................................................. $ 282,803 $ 284,219
Land improvements ................................................ 911,176 893,839
Buildings and other depreciable property ......................... 121,117 117,949
---------- ----------
..................................................................... 1,315,096 1,296,007
Accumulated depreciation ......................................... (272,497) (238,098)
---------- ----------
Net investment in real estate .................................. 1,042,599 1,057,909
Cash and cash equivalents .......................................... 325,740 7,270
Notes receivable ................................................... 11,551 10,044
Investment in joint ventures ....................................... 18,828 19,634
Rents receivable, net .............................................. 2,385 1,735
Deferred financing costs, net ...................................... 14,164 5,030
Inventory .......................................................... 31,604 33,638
Prepaid expenses and other assets .................................. 27,044 27,590
---------- ----------
Total assets ..................................................... $1,473,915 $1,162,850
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable ........................................... $1,076,183 $ 575,370
Unsecured term loan .............................................. -- 100,000
Unsecured line of credit ......................................... -- 84,750
Other notes payable .............................................. 113 113
Accounts payable and accrued expenses ............................ 27,815 31,010
Accrued interest payable ......................................... 5,978 6,415
Rents received in advance and security deposits .................. 6,616 5,966
Distributions payable ............................................ 224,696 13,106
---------- ----------
Total liabilities .............................................. 1,341,401 816,730
Commitments and contingencies
Minority interest - Common OP Units and other ...................... 1,716 43,501
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; 22,563,348 and 22,093,240
shares issued and outstanding for 2003 and 2002, respectively... 222 218
Paid-in capital .................................................. 263,066 256,394
Deferred compensation ............................................ (494) (3,069)
Employee notes ................................................... -- (2,713)
Distributions in excess of accumulated earnings .................. (256,996) (68,713)
Accumulated other comprehensive (loss) income .................... -- (4,498)
---------- ----------
Total stockholders' equity ..................................... 5,798 177,619
---------- ----------
Total liabilities and stockholders' equity ....................... $1,473,915 $1,162,850
========== ==========
The accompanying notes are an integral part of the financial statements
F-3
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
2003 2002 2001
--------- -------- --------
PROPERTY OPERATIONS:
Community base rental income ..................... $ 196,919 $194,640 $190,982
Resort base rental income ........................ 11,780 9,146 5,748
Utility and other income ......................... 20,150 19,684 20,381
--------- -------- --------
Property operating revenues .................... 228,849 223,470 217,111
Property operating and maintenance ............... 64,996 62,843 60,807
Real estate taxes ................................ 18,917 17,827 16,882
Property management .............................. 9,373 9,292 8,984
--------- -------- --------
Property operating expenses ...................... 93,286 89,962 86,673
--------- -------- --------
Income from property operations ................ 135,563 133,508 130,438
HOME SALES OPERATIONS:
Gross revenues from inventory home sales ......... 36,606 33,537 ---
Cost of inventory home sales ..................... (31,767) (27,183) ---
--------- -------- --------
Gross profit from inventory home sales ......... 4,839 6,354 ---
Brokered resale revenues, net .................... 1,724 1,592 ---
Home selling expenses ............................ (7,360) (7,664) ---
Ancillary services revenues, net ................. 216 522 ---
--------- -------- --------
Income (loss) from home sales operations ....... (581) 804 ---
OTHER INCOME AND EXPENSES:
Interest income .................................. 1,695 967 639
Equity in income of affiliates ................... --- --- 1,811
Equity in income of unconsolidated joint ventures 2,065 1,277 1,353
General and administrative ....................... (8,060) (8,192) (6,687)
Interest and related amortization ................ (58,402) (50,729) (51,305)
Depreciation on corporate assets ................. (1,240) (1,277) (1,243)
Depreciation on real estate assets and other costs (38,034) (35,552) (34,228)
Gain on sale of properties and other ............. --- --- 8,168
--------- -------- --------
Total other income and expenses ................ (101,976) (93,506) (81,492)
MINORITY INTERESTS:
(Income) allocated to Common OP Units ............ (4,330) (5,848) (7,688)
(Income) allocated to Perpetual Preferred OP Units (11,252) (11,252) (11,252)
--------- -------- --------
Income from continuing operations .............. 17,424 23,706 30,006
DISCONTINUED OPERATIONS:
Discontinued operations .......................... 1,043 3,287 3,203
Depreciation on discontinued operations .......... (135) (484) (605)
Gain on sale of properties and other ............. 10,826 13,014 ---
Minority interests on discontinued operations .... (2,144) (3,078) (521)
--------- -------- --------
Income from discontinued operations ............ 9,590 12,739 2,077
--------- -------- --------
NET INCOME AVAILABLE FOR COMMON SHARES ....... $ 27,014 $ 36,445 $ 32,083
========= ======== ========
The accompanying notes are an integral part of the financial statements
F-4
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
2003 2002 2001
------- ------- -------
EARNINGS PER COMMON SHARE - BASIC:
Income from continuing operations ...................... $ .79 $ 1.10 $ 1.43
======= ======= =======
Income from discontinued operations .................... $ .43 $ .59 $ .10
======= ======= =======
Net income available for Common Shares ................. $ 1.22 $ 1.69 $ 1.53
======= ======= =======
EARNINGS PER COMMON SHARE - FULLY DILUTED:
Income from continuing operations ...................... $ .78 $ 1.07 $ 1.40
======= ======= =======
Income from discontinued operations .................... $ .42 $ .57 $ .09
======= ======= =======
Net income available for Common Shares ................. $ 1.20 $ 1.64 $ 1.49
======= ======= =======
Distributions declared per Common Shares outstanding ... $ 9.485 $ 1.90 $ 1.78
======= ======= =======
Tax status of Common Shares distributions paid during the
year:
Ordinary income ........................................ $ .68 $ 1.50 $ 1.31
======= ======= =======
Long-term capital gain ................................. $ .57 $--- $---
======= ======= =======
Unrecaptured section 1250 gain ......................... $ .16 $--- $---
======= ======= =======
Return of capital ...................................... $ .55 $ 0.37 $ 0.44
======= ======= =======
Weighted average Common Shares outstanding - basic ....... 22,077 21,617 21,036
======= ======= =======
Weighted average Common Shares outstanding - fully diluted 28,002 27,632 27,010
======= ======= =======
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(AMOUNTS IN THOUSANDS)
2003 2002 2001
------- -------- -------
Net income available for Common Shares ..................... $27,014 $ 36,445 $32,083
Net unrealized holding gains (losses) on derivative
instruments ............................................. 4,498 (4,987) 489
------- -------- -------
Net other comprehensive income available for Common Shares $31,512 $ 31,458 $32,572
======= ======== =======
The accompanying notes are an integral part of the financial statements
F-5
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(AMOUNTS IN THOUSANDS)
2003 2002 2001
--------- --------- ---------
PREFERRED STOCK, $.01 PAR VALUE .................................... $ --- $ --- $ ---
========= ========= =========
COMMON STOCK, $.01 PAR VALUE
Balance, beginning of year ......................................... $ 218 $ 215 $ 210
Issuance of Common Stock through restricted stock grants ......... --- 1 1
Exercise of options .............................................. 4 2 4
--------- --------- ---------
Balance, end of year ............................................... $ 222 $ 218 $ 215
========= ========= =========
PAID - IN CAPITAL
Balance, beginning of year ......................................... $ 256,394 $ 245,827 $ 235,681
Issuance of Common Stock for employee notes ...................... --- --- ---
Conversion of OP Units to Common Stock ........................... 343 227 599
Issuance of Common Stock through exercise of options ............. 6,323 5,782 7,743
Issuance of Common Stock through restricted stock grants ......... --- 2,709 1,627
Issuance of Common Stock through employee stock purchase plan .... 3,254 2,512 2,365
Compensation expense related to stock options and restricted stock 611 --- ---
Transition adjustment - FAS 123 .................................. (1,047) --- ---
Adjustment for Common OP Unitholders
in the Operating Partnership .................................... (2,812) (663) (2,188)
--------- --------- ---------
Balance, end of year ............................................... $ 263,066 $ 256,394 $ 245,827
========= ========= =========
DEFERRED COMPENSATION
Balance, beginning of year ......................................... $ (3,069) $ (4,062) $ (5,969)
Issuance of Common Stock through restricted stock grants ......... --- (2,709) (1,628)
Transition adjustment - FAS 123 .................................. 1,047 -- --
Recognition of deferred compensation expense ..................... 1,528 3,702 3,535
--------- --------- ---------
Balance, end of year ............................................... $ (494) $ (3,069) $ (4,062)
========= ========= =========
EMPLOYEE NOTES
Balance, beginning of year ......................................... $ (2,713) $ (3,841) $ (4,205)
Principal payments ............................................... 2,713 1,128 364
--------- --------- ---------
Balance, end of year ............................................... $ -- $ (2,713) $ (3,841)
========= ========= =========
DISTRIBUTIONS IN EXCESS OF ACCUMULATED COMPREHENSIVE EARNINGS
Balance, beginning of year ......................................... $ (73,211) $ (62,989) $ (57,622)
Net income ....................................................... 27,014 36,445 32,083
Other comprehensive income:
Unrealized holding (losses) gains on derivative instruments .... 4,498 (4,987) 489
--------- --------- ---------
Comprehensive income ......................................... 31,512 31,458 32,572
--------- --------- ---------
Distributions .................................................... (215,296) (41,680) (37,939)
--------- --------- ---------
Balance, end of year ............................................... $(256,995) $ (73,211) $ (62,989)
========= ========= =========
The accompanying notes are an integral part of the financial statements
F-6
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(AMOUNTS IN THOUSANDS)
2003 2002 2001
--------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................ $ 27,014 $ 36,445 $ 32,083
Adjustments to reconcile net income to cash provided by operating
activities:
Income allocated to minority interests .................................. 17,726 20,178 19,461
Gain on sale of Properties and other ................................. (10,826) (13,014) (8,168)
Depreciation expense ................................................. 39,403 37,094 36,076
Amortization expense ................................................. 5,031 963 1,108
Equity in income of affiliates and joint ventures .................... (1,998) (1,158) (2,782)
Amortization of deferred compensation and other ...................... 2,139 3,930 3,535
Increase in provision for uncollectable rents receivable ............. 126 941 427
Changes in assets and liabilities:
Increase in rents receivable ......................................... (774) (1,186) (953)
Decrease in inventory ................................................ 1,846 1,887 ---
(Increase) decrease in prepaid expenses and other assets ............. (1,439) (7,610) 1,330
Increase (decrease) in accounts payable and accrued expenses ......... (3,055) 1,471 (1,358)
Increase (decrease) in rents received in advance and security deposits (30) 235 (51)
--------- -------- --------
Net cash provided by operating activities ............................... 75,163 80,176 80,708
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of rental properties .......................................... (6,836) (56,531) (17,770)
Proceeds from dispositions of assets ...................................... 27,170 14,171 24,209
Distributions from (investment in) joint ventures ......................... 1,535 (7,149) 1,697
Proceeds from restructuring of College Heights joint venture, net ......... --- 4,647 ---
Contributions to and distributions from Affiliates, net ................... --- --- (11,493)
Purchase of RSI ........................................................... --- (675) ---
Cash received in acquisition of RSI ....................................... --- 839 ---
Collections (funding) of notes receivable ................................. (1,507) (3,784) 3,478
Improvements:
Improvements-corporate .................................................. (72) (681) (840)
Improvements-rental properties .......................................... (11,912) (13,377) (12,689)
Site development costs .................................................. (8,976) (10,433) (9,659)
--------- -------- --------
Net cash (used in) investing activities ................................... (598) (72,973) (23,067)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from stock options and employee stock purchase plan .......... 9,581 8,296 10,112
Distributions to Common Stockholders, Common OP Unitholders
and Perpetual Preferred OP Unitholders ................................... (65,687) (58,314) (58,111)
Repurchase of Common Stock and OP Units ................................... --- --- (41)
Collection of principal payments on employee notes ........................ 2,713 1,128 364
Line of credit:
Proceeds ................................................................ 53,000 82,000 46,000
Repayments .............................................................. (137,750) (13,500) (89,650)
Repayment of term loan .................................................... (100,000) --- ---
Refinancing - net proceeds (repayments) ................................... 501,057 (16,096) 37,870
Principal payments ........................................................ (4,844) (4,217) (5,047)
Debt issuance costs ....................................................... (14,165) (584) (631)
--------- -------- --------
Net cash provided by (used in) financing activities ....................... 243,905 (1,287) (59,134)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents ........................ 318,470 5,916 (1,493)
Cash and cash equivalents, beginning of year ................................ 7,270 1,354 2,847
--------- -------- --------
Cash and cash equivalents, end of year ...................................... $ 325,740 $ 7,270 $ 1,354
========= ======== ========
SUPPLEMENTAL INFORMATION
Cash paid during the year for interest ...................................... $ 52,396 $ 46,097 $ 52,947
========= ======== ========
The accompanying notes are an integral part of the financial statements
F-7
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 MHC Operating Limited
Partnership (the "Operating Partnership") and other consolidated subsidiaries
("Subsidiaries"), are referred to herein as the "Company", "MHC", "we", "us",
and "our". We believe that we have qualified for taxation as a real estate
investment trust ("REIT") for federal income tax purposes since our taxable year
ended December 31, 1993. We plan to continue to meet the requirements for
taxation as a REIT. Many of these requirements, however, are highly technical
and complex. We cannot, therefore, guarantee that we have qualified or will
qualify in the future as a REIT. The determination that we are a REIT requires
an analysis of various factual matters that may not be totally within our
control and we cannot provide any assurance that the Internal Revenue Service
("IRS") will agree with our analysis. For example, to qualify as a REIT, at
least 95% of our gross income must come from sources that are itemized in the
REIT tax laws. We are also required to distribute to stockholders at least 90%
of our REIT taxable income excluding capital gains. The fact that we hold our
assets through MHC Operating Limited Partnership and its subsidiaries further
complicates the application of the REIT requirements. Even a technical or
inadvertent mistake could jeopardize our REIT status. Furthermore, Congress and
the IRS might make changes to the tax laws and regulations, and the courts might
issue new rulings that make it more difficult, or impossible, for us to remain
qualified as a REIT. We do not believe, however, that any pending or proposed
tax law changes would jeopardize our REIT status.
If we fail to qualify as a REIT, we would be subject to federal income tax
at regular corporate rates. Also, unless the IRS granted us relief under certain
statutory provisions, we would remain disqualified as a REIT for four years
following the year we first failed to qualify. Even if the Company qualifies for
taxation as a REIT, the Company is subject to certain state and local taxes on
its income and property and Federal income and excise taxes on its undistributed
income.
We are a fully integrated company that owns and operates manufactured home
communities ("Communities") and park model communities ("Resorts"). The Company
was formed to continue the property operations, business objectives and
acquisition strategies of an entity that had owned and operated Communities
since 1969. As of December 31, 2003, we owned or had an ownership interest in a
portfolio of 142 Communities and Resorts (the "Properties") located throughout
the United States containing 51,715 residential sites.
The operations of the Company are conducted primarily through the Operating
Partnership. The Company contributed the proceeds from its initial public
offering to the Operating Partnership for a general partnership interest. The
financial results of the Operating Partnership and the Subsidiaries are
consolidated in the Company's consolidated financial statements. In addition,
since certain activities, if performed by the Company, may not have been
qualifying REIT activities under the Internal Revenue Code of 1986, as amended
(the "Code"), the Company has formed certain taxable REIT subsidiaries, as
defined in the Code, to engage in such activities. Realty Systems, Inc. ("RSI")
is a wholly owned subsidiary of the Company that, doing business as Carefree
Sales, is engaged in the business of purchasing, selling and leasing
manufactured homes that are located or will be located in Properties owned and
managed by the Company. Carefree Sales also provides brokerage services to
residents at such Properties. Typically, residents move from a Community but do
not relocate their homes. Carefree Sales may provide brokerage services, in
competition with other local brokers, by seeking buyers for the homes. Carefree
Sales also leases homes to prospective residents with the expectation that the
tenant eventually will purchase the home. Subsidiaries of RSI lease from the
Operating Partnership certain real property within or adjacent to certain of the
Properties consisting of golf courses, pro shops, stores and restaurants.
F-8
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION OF THE COMPANY AND BASIS OF PRESENTATION (CONTINUED)
The limited partners of the Operating Partnership (the "Common OP
Unitholders") receive an allocation of net income which is based on their
respective ownership percentage of the Operating Partnership which is shown on
the Consolidated Financial Statements as Minority Interests - Common OP Units.
As of December 31, 2003, the Minority Interests - Common OP Units represented
5,312,387 units of limited partnership interest ("OP Units") which are
convertible into an equivalent number of shares of the Company's common stock.
The issuance of additional shares of common stock or common OP Units changes the
respective ownership of the Operating Partnership for both the Minority
Interests and the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Consolidation
The Company consolidates its majority owned subsidiaries in which it
has the ability to control the operations of the subsidiaries. The Company
does not consolidate entities with respect to which it does not have sole
control over the major decisions. All inter-company transactions have been
eliminated in consolidation. The Company's acquisitions were all accounted
for as purchases in accordance with Accounting Principles Board Opinion No.
16 "Business Combinations" for those transactions initiated before June 30,
2001 and in accordance with Statement of Financial Accounting Standards No.
141 ("SFAS No. 141") "Business Combinations" for those transactions
completed after June 30, 2001.
In accordance with SFAS 141, the Company allocates the purchase price
of real estate to land, land improvements, building and, if determined to
be material, intangibles, such as the value of above, below and at-market
leases and origination costs associated with the in-place leases. We
depreciate the amount allocated to land improvements, building and other
intangible assets over their estimated useful lives, which generally range
from three to thirty years. The values of the above and below market leases
are amortized and recorded as either an increase (in the case of below
market leases) or a decrease (in the case of above market leases) to rental
income over the remaining term of the associated lease. The value
associated with in-place leases is amortized over the expected term, which
includes an estimated probability of lease renewal.
In January 2003, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 46, Consolidation of Variable Interest Entities
("FIN 46"). The objective of this Interpretation is to provide guidance on
how to identify a variable interest entity ("VIE") and determine when the
assets, liabilities, non-controlling interests, and results of operations
of a VIE need to be included in the company's consolidated financial
statements. A company that holds variable interests in an entity will need
to consolidate such entity if the company absorbs a majority of the VIE's
expected losses or receives a majority of the entity's expected residual
returns if they occur, or both.
The provisions of FIN 46 apply to the Company upon initial involvement
with the respective entity for transactions created after January 31, 2003.
The adoption of FIN 46 in 2003 had no effect on the Company in 2003. The
provisions of FIN 46 and related revised interpretations apply no later
than the end of the first interim reporting period ending March 15, 2004
(March 31, 2004) for entities created before February 1, 2003. The Company
is currently evaluating and assessing the impact of FIN 46 and the related
revised interpretations on entities created before February 1, 2003.
(b) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
F-9
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) Segments
We manage all our operations on a property by property basis. Since
each property has similar economic and operational characteristics, the
Company has one reportable segment, which is the operation of manufactured
home communities. The following table identifies our five largest markets
and provides information regarding our Communities and Resorts including
Communities owned in joint ventures.
NUMBER OF PERCENT OF PERCENT OF TOTAL PROPERTY
MAJOR MARKET PROPERTIES TOTAL SITES TOTAL SITES OPERATING REVENUES
- ------------ ---------- ----------- ----------- -------------------------
Florida 52 23,366 45.3% 40.8%
California 25 6,229 12.0% 20.1%
Arizona 21 5,930 11.5% 8.5%
Colorado 10 3,452 6.7% 8.2%
Delaware 7 2,238 4.3% 4.1%
Other 27 10,500 20.2% 18.3%
- ---------- --- ------ ----- -----
Total 142 51,715 100.0% 100.0%
========== === ====== ===== =====
Our largest Property, Bay Indies, located in Venice, Florida,
accounted for approximately 3.0% of our total property operating revenues
for the year ended December 31, 2003. The operation of manufactured home
communities segment comprised approximately 97%, 97.8% and 97.2% of total
property operating revenues for the years ended December 31, 2003, 2002 and
2001, respectively. The operation of manufactured home communities segment
comprised approximately 93.5% and 92.2% of total assets at December 31,
2003 and 2002, respectively. The distribution of the Properties throughout
the United States reflects our belief that geographic diversification helps
insulate the portfolio from regional economic influences. We intend to
target new acquisitions in or near markets where the Properties are located
and will also consider acquisitions of properties outside such markets.
(d) Inventory
Inventory consists of new and used manufactured homes, is stated at
the lower of cost or market after consideration of the N.A.D.A. (National
Automobile Dealers Association) Manufactured Housing Appraisal Guide and
the current market value of each home included in the manufactured home
inventory. Inventory sales revenues and resale revenues are recognized when
the home sale is closed. Resale revenues are stated net of commissions paid
to employees of $893,000 for the year ended December 31, 2003.
(e) Real Estate
Real estate is recorded at cost less accumulated depreciation.
Depreciation is computed on the straight-line basis over the estimated
useful lives of the assets. We use a 30-year estimated life for buildings
acquired and structural and land improvements, a ten-to-fifteen-year
estimated life for building upgrades and a three-to-seven-year estimated
life for furniture, fixtures and equipment. Expenditures for ordinary
maintenance and repairs are expensed to operations as incurred and
significant renovations and improvements that improve the asset and extend
the useful life of the asset are capitalized and then expensed over their
estimated useful life.
In addition, the FASB is currently reviewing the methods of
depreciation and cost capitalization for all industries and in June 2001
issued FASB Exposure Draft, "Accounting in Interim and Annual Financial
Statements for Certain Costs and Activities Related to Property, Plant and
Equipment", the implementation of which, if issued, could also have a
material effect on the Company's results of operations. Total depreciation
expense was $39.4 million, $37.3 million and $36.0 million for the years
ended December 31, 2003, 2002 and 2001, respectively.
F-10
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Real Estate (continued)
We evaluate our Properties for impairment when conditions exist which
may indicate that it is probable that the sum of expected future cash flows
(undiscounted) from a Property over the anticipated holding period is less
than its carrying value. Upon determination that a permanent impairment has
occurred, the applicable Property is reduced to fair value. For the year
ended December 31, 2003, permanent impairment conditions did not exist at
any of our Properties. For properties to be disposed of, an impairment loss
is recognized when the fair value of the property, less the estimated cost
to sell, is less than the carrying amount of the property measured at the
time the Company has a commitment to sell the property and/or is actively
marketing the property for sale. A property to be disposed of is reported
at the lower of its carrying amount or its estimated fair value, less costs
to sell. Subsequent to the date that a property is held for disposition,
depreciation expense is not recorded. In August 2001, the FASB issued
Statement of Financial Accounting Standards No. 144 ("SFAS No. 144"),
"Accounting for the Impairment or Disposal of Long-Lived Assets" which is
effective for fiscal years beginning after December 15, 2001. The Company
adopted SFAS No. 144 during 2002 and we have shown separately as
discontinued operations in all periods presented the results of operations
for all assets sold during 2003 and 2002 or assets classified as real
estate held for disposition as of December 31, 2003 and 2002. The gain on
sale of discontinued operations for 2003 and 2002 is included in the gain
on sale of properties and other.
Certain costs, primarily legal costs, relative to our efforts to
effectively change the use and operations of several Properties subject to
rent control (see Note 17) are currently classified in other assets. These
costs, to the extent these efforts are successful, are capitalized to the
extent of the established value of the revised project and included in the
net investment in real estate for the appropriate Properties (see Note 5).
To the extent these efforts are not successful, these costs will be
expensed. In addition, we capitalize certain costs, primarily legal costs,
related to entering into lease agreements which govern the terms under
which we may enter into leases with individual tenants and which are
expensed over the term of the lease agreement.
(f) Cash and Cash Equivalents
We consider all demand and money market accounts and certificates of
deposit with a maturity, when purchased, of three months or less to be cash
equivalents.
(g) Notes Receivable
Notes receivable generally are stated at their outstanding unpaid
principal balances net of any deferred fees or costs on originated loans,
or unamortized discounts or premiums net of a valuation allowance. Interest
income is accrued on the unpaid principal balance. Discounts or premiums
are amortized to income using the interest method. In certain cases we
finance the sale of homes to our residents (referred to as "Chattel Loans")
which loans are secured by the homes. The valuation allowance for the
Chattel Loans is calculated based a comparison of the outstanding principal
balance of each note compared to the N.A.D.A. value and the current market
value of the underlying manufactured home collateral.
(h) Investments in Joint Ventures
Investments in unconsolidated joint ventures are accounted for using
the equity method of accounting because we do not have control over the
activities of the investees. Our net equity investment is reflected on the
consolidated balance sheets, and the consolidated statements of operations
include our share of net income or loss from the unconsolidated joint
ventures. Any difference between the carrying amount of these investments
on our consolidated balance sheet and the historical cost of the underlying
equity is depreciated as an adjustment to income from unconsolidated joint
ventures generally over 30 years.
F-11
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i) Fair Value of Financial Instruments
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, 2003
and 2002.
(j) 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. Upon
amendment of the Line of Credit, unamortized deferred financing fees are
accounted for in accordance with EITF No. 98-14, "Debtor's Accounting for
Changes in Line-of-Credit or Revolving-Debt Arrangements." Accumulated
amortization for such costs was $2.7 million and $2.4 million at December
31, 2003 and 2002, respectively.
(k) Revenue Recognition
Rental income attributable to leases is recorded when earned from
tenants. We will reserve for receivables when we believe the ultimate
collection is less than probable. Our provision for uncollectable rents
receivable was $827,000 as of December 31, 2003 and $700,000 as of December
31, 2002. Income from home sales is recognized when the earnings process is
complete. The earnings process is complete when the home has been
delivered, the purchaser has accepted the home and title has transferred.
(l) 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 (5,312,387 and 5,359,927 at December 31, 2003 and
2002, respectively) by OP Units and shares of 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 shares of Common Stock on a one-for-one basis), such
transactions and the proceeds therefrom are treated as capital transactions
and result in an allocation between stockholders' equity and Minority
Interests to account for the change in the respective percentage ownership
of the underlying equity of the Operating Partnership.
On September 30, 1999, the Operating Partnership completed a $125
million private placement of 9.0% Series D Cumulative Perpetual Preferred
Units ("POP Units") with two institutional investors. The POP Units, which
are callable by the Company after five years, have no stated maturity or
mandatory redemption, have no voting rights and are not convertible into OP
Units or Common Stock. Income is allocated to the POP Units at a preferred
rate per annum of 9.0% on the original capital contribution of $125
million. Costs related to the placement of $3.1 million were recorded as a
reduction to additional paid-in capital.
F-12
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(m) 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. We paid state and local taxes of approximately $56,000,
$20,000 and $50,000 during the years ended December 31, 2003, 2002 and
2001, respectively. In addition, taxable income from non-REIT activities
managed through taxable REIT subsidiaries is subject to federal, state and
local income taxes. As of December 31, 2003, net investment in real estate
and notes receivable had a Federal tax basis of approximately $743.3
million and $27.6 million, respectively.
(n) Derivative Instruments and Hedging Activities
We 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.
(o) Reclassifications
Certain 2002 and 2001 amounts have been reclassified to conform to the
2003 financial presentation. Such reclassifications have no effect on the
operations or equity as originally presented.
(p) Stock Compensation
Prior to January 1, 2003, we accounted for our stock compensation in
accordance with APB No. 25, "Accounting for Stock Issued to Employees",
based upon the intrinsic value method. This method results in no
compensation expense for options issued with an exercise price equal to or
exceeding the market value of the Common Stock on the date of grant.
Effective January 1, 2003, we elected to account for our stock compensation
in accordance with SFAS No. 123 and its amendment (SFAS No. 148),
"Accounting for Stock Based Compensation", which resulted in compensation
expense being recorded based on the fair value of the stock options and
other equity awards issued (see Note 14).
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.
F-13
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - EARNINGS PER COMMON SHARE (CONTINUED)
The following table sets forth the computation of basic and diluted
earnings per share for the years ended December 31, 2003, 2002, and 2001
(amounts in thousands):
YEARS ENDED DECEMBER 31,
-------------------------------
2003 2002 2001
------- ------- -------
NUMERATORS:
INCOME FROM CONTINUING OPERATIONS:
Income from continuing operations - basic ........... $17,424 $23,706 $30,006
Amounts allocated to dilutive securities ............ 4,330 5,848 7,688
------- ------- -------
Income from continuing operations - fully diluted ... $21,754 $29,554 $37,694
======= ======= =======
INCOME FROM DISCONTINUED OPERATIONS:
Income from discontinued operations - basic ......... $ 9,590 $12,739 $ 2,077
Amounts allocated to dilutive securities ............ 2,144 3,078 521
------- ------- -------
Income from discontinued operations - fully diluted.. $11,734 $15,817 $ 2,598
======= ======= =======
NET INCOME AVAILABLE FOR COMMON SHARES:
Net income available for Common Shares - basic ...... $27,014 $36,445 $32,083
Amounts allocated to dilutive securities ............ 6,474 8,926 8,209
------- ------- -------
Net income available for Common Shares - fully
diluted ............................................ $33,488 $45,371 $40,292
======= ======= =======
DENOMINATOR:
Weighted average Common Shares outstanding - basic .... 22,077 21,617 21,036
Effect of dilutive securities:
Redemption of Common OP Units for Common Shares ....... 5,342 5,403 5,466
Employee stock options and restricted shares .......... 583 612 508
------- ------- -------
Weighted average Common Shares outstanding - fully
diluted .............................................. 28,002 27,632 27,010
======= ======= =======
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, 2003, 2002 and 2001 (excluding OP
Units of 5,312,387, 5,359,927 and 5,426,374 outstanding at December 31, 2003,
2002 and 2001, respectively):
2003 2002 2001
---------- ---------- ----------
Shares outstanding at January 1, ......................... 22,093,240 21,562,343 21,064,785
Common Stock issued through conversion of OP Units ..... 47,540 66,447 87,956
Common Stock issued through exercise of options ........ 302,526 282,959 387,115
Common Stock issued through stock grants ............... 35,000 108,341 57,000
Common Stock issued through Employee Stock Purchase Plan 85,042 73,150 98,987
Common Stock repurchased and retired ................... --- --- (133,500)
---------- ---------- ----------
Shares outstanding at December 31, ....................... 22,563,348 22,093,240 21,562,343
========== ========== ==========
As of December 31, 2003 and 2002, the Company's percentage ownership of the
Operating Partnership was approximately 80%. The remaining approximately 20% is
owned by the Common OP Unitholders.
F-14
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS (CONTINUED)
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.
The Operating Partnership pays distributions of 9.0% per annum on the $125
million of POP Units. Distributions on the POP Units are paid quarterly on the
last calendar day of each quarter.
The following distributions have been declared and/or paid to common
stockholders and Minority Interests since January 1, 2001:
DISTRIBUTION FOR THE QUARTER SHAREHOLDER
AMOUNT PER SHARE ENDING RECORD DATE PAYMENT DATE
- ---------------- ------------------ ------------------ ----------------
$0.4450 March 31, 2001 March 30, 2001 April 13, 2001
$0.4450 June 30, 2001 June 29, 2001 July 13, 2001
$0.4450 September 30, 2001 September 28, 2001 October 12, 2001
$0.4450 December 31, 2001 December 28, 2001 January 11, 2002
- -----------------------------------------------------------------------------------------
$0.4750 March 31, 2002 March 29, 2002 April 12, 2002
$0.4750 June 30, 2002 June 28, 2002 July 12, 2002
$0.4750 September 30, 2002 September 27, 2002 October 11, 2002
$0.4750 December 31, 2002 December 27, 2002 January 10, 2003
- -----------------------------------------------------------------------------------------
$0.4950 March 31, 2003 March 28, 2003 April 11, 2003
$0.4950 June 30, 2003 June 27, 2003 July 11, 2003
$0.4950 September 30, 2003 September 26, 2003 October 10, 2003
On December 12, 2003, we declared a one-time special distribution of $8.00
per share payable to stockholders of record on January 8, 2004. We used proceeds
from the $501 million borrowing in October, 2003 to pay the special distribution
on January 16, 2004. The special cash dividend will be reflected on
stockholders' 2004 1099-DIV to be issued in January 2005.
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
Company's 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 the offering period; and (b) the closing price for a
share of Common Stock on the first day of the offering period. Shares of Common
Stock issued through the ESPP for the years ended December 31, 2003, 2002 and
2001 were 82,943, 71,107 and 96,485, respectively.
F-15
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INVESTMENT IN REAL ESTATE
Land improvements consist primarily of improvements such as grading,
landscaping and infrastructure items such as streets, sidewalks or water mains.
Depreciable property consists of permanent buildings in the Properties such as
clubhouses, laundry facilities, maintenance storage facilities, and furniture,
fixtures and equipment.
During the year ended December 31, 2001, we acquired two Florida
Properties, totaling 730 sites, for an aggregate purchase price of approximately
$17.3 million and completed the sale of seven Properties, totaling 1,281 sites,
in Kansas, Missouri and Oklahoma, for a total sale price of approximately $17.4
million. A gain of $8.1 million was recorded on the sale. In addition, we
terminated a 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. Also during 2001, we
finalized a settlement agreement whereby we received $10.8 million in proceeds
related to the sale of a Property in Indiana.
During the year ended December 31, 2002, we acquired the eleven Properties
listed in the table below. The acquisitions were funded with borrowings on our
Line of Credit and the assumption of $47.9 million of mortgage debt, which
includes a $3.0 million discount mark-to-market adjustment. In addition, we
purchased adjacent land and land improvements for several Properties for
approximately $559,000.
TOTAL PURCHASE DEBT
DATE ACQUIRED PROPERTY LOCATION SITES PRICE ASSUMED
- ------------- ------------------- ------------------- ----- ------------ ------------
($ millions) ($ millions)
March 12, 2002 Mt. Hood Village Welches, OR 450 $ 7.2 $ ---
July 10, 2002 Harbor View Village New Port Richey, FL 471 15.5 8.1
July 31, 2002 Golden Sun Apache Junction, AZ 329 6.3 3.1
July 31, 2002 Countryside Apache Junction, AZ 560 7.5 ---
July 31, 2002 Holiday Village Ormond Beach, FL 301 10.4 7.1
July 31, 2002 Breezy Hill Pompano Beach, FL 762 20.5 10.5
August 14, 2002 Highland Woods Pompano Beach, FL 148 3.9 2.5
August 7, 2002 Tropic Winds Harlingen, TX 531 4.9 ---
October 1, 2002 Silk Oak Lodge Clearwater, FL 180 6.2 3.9
December 18, 2002 Hacienda Village New Port Richey, FL 519 16.8 10.2
December 31, 2002 Glen Ellen Clearwater, FL 117 2.4 2.5
----- ------ -----
TOTALS 4,368 $101.6 $47.9
===== ====== =====
Also during 2002, we effectively sold 17 Properties as part of a
restructuring of the College Heights Joint Venture discussed hereinafter. In
addition, we sold Camelot Acres, a 319 site Property in Burnsville, Minnesota,
for approximately $14.2 million.
During the year ended December 31, 2003, we sold the three properties
listed in the table below. Proceeds from the sales were used to repay amounts on
the Company's Line of Credit.
TOTAL DISPOSITION GAIN ON
DATE DISPOSED PROPERTY LOCATION SITES PRICE SALE
- ------------- ----------------- -------------- ----- ------------ ------------
($ millions) ($ millions)
June 6, 2003 Independence Hill Morgantown, WV 203 $ 3.9 $ 2.8
June 6, 2003 Brook Gardens Hamburg, NY 424 17.8 4.1
June 30, 2003 Pheasant Ridge Mount Airy, MD 101 5.4 3.9
--- ----- -----
728 $27.1 $10.8
=== ===== =====
F-16
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INVESTMENT IN REAL ESTATE (CONTINUED)
In December, 2003, we acquired three Resort Properties listed in the table
below. The acquisitions were funded with monies held in short-term investments.
The acquisitions included the assumption of liabilities of approximately
$650,000. Also during 2003, we acquired a parcel of land adjacent to one of our
Properties for approximately $97,000.
TOTAL PURCHASE DEBT
DATE ACQUIRED PROPERTY LOCATION SITES PRICE ASSUMED
- ------------- ----------- ----------- ----- ------------ ------------
($ millions) ($ millions)
December 3, 2003 Toby's Arcadia, FL 379 $4.3 $---
December 15, 2003 Araby Acres Yuma, AZ 337 5.7 3.2
December 15, 2003 Foothill Yuma, AZ 180 1.8 1.4
All acquisitions have been accounted for utilizing the purchase method of
accounting and, accordingly, the results of operations of acquired assets are
included in the statements of operations from the dates of acquisition. We
acquired all of these Properties from unaffiliated third parties.
During the years ended December 31, 2003 and 2002, we capitalized
approximately $1.5 million and $5.7 million of costs, respectively, primarily
legal costs, relative to our efforts to effectively change the use and
operations of several Properties which are currently recorded in other assets.
These costs will be expensed if management determines these efforts will not be
successful. Due to the successful settlement of litigation related to one
Property, DeAnza Santa Cruz, we reclassified approximately $5.3 million of these
costs to land improvements and will depreciate these costs over 30 years (see
Note 17).
We actively seek to acquire additional Properties and currently are 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 properties which are subject to satisfactory
completion of our due diligence review (see Note 18).
NOTE 6 - INVESTMENT IN JOINT VENTURES
The Company recorded approximately $2.1 million, $1.3 million, and $971,000
of net income from joint ventures in the years ended December 31, 2003, 2002 and
2001, respectively; and received approximately $1.5 million and $607,000 in
distributions from joint ventures in the years ended December 31, 2003 and 2002,
respectively. Due to the Company's inability to control the joint ventures, the
Company accounts for its investment in the joint ventures using the equity
method of accounting.
The following is a summary of the Company's investments in unconsolidated
joint ventures:
NUMBER OF ECONOMIC INVESTMENT AS OF INVESTMENT AS OF
PROPERTY LOCATION SITES INTEREST (a) DEC. 31, 2003 DEC. 31, 2002
- -------- -------------- --------- ------------ ---------------- ----------------
(in thousands) (in thousands)
Trails West .......................... Tucson, AZ 503 50% $ 1,752 $ 1,917
Plantation ........................... Calimesa, CA 385 50% 2,825 2,861
Manatee .............................. Bradenton, FL 290 90% 45 631
Home ................................. Hallandale, FL 136 90% 1,082 1,092
Villa del Sol ........................ Sarasota, FL 207 90% 654 726
Voyager .............................. Tucson, AZ --- 25% 4,412 4,463
Preferred Interests in College Heights --- 17% 8,058 7,944
----- ------- -------
1,521 $18,828 $19,634
===== ======= =======
(a) The percentages shown approximate the Company's economic interest. The
Company's legal interest may differ.
F-17
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INVESTMENT IN JOINT VENTURE (CONTINUED)
Effective September 1, 2002, the Company restructured its investment in
Wolverine Property Investment Limited Partnership (the "College Heights Joint
Venture" or the "Venture"), a joint venture with Wolverine Investors, LLP. The
Venture included 18 Properties with 3,581 sites. The results of operations of
the College Heights Joint Venture prior to restructuring were included with the
results of the Company due to the Company's voting equity interest and control
over the Venture. Pursuant to the restructuring, the Company sold its general
partnership interest, sold all of the Company's voting equity interest and
reduced the Company's total investment in the College Heights Joint Venture. As
consideration for the sale, the Company retained sole ownership of Down Yonder,
a 361 site Community in Clearwater, Florida, received cash of approximately $5.2
million and retained preferred limited partnership interests of approximately
$10.3 million, recorded net of a $2.4 million reserve. The continuing preferred
limited partnership interests will be accounted for using the equity method and
reported as an investment in a joint venture.
NOTE 7 - ACQUISITION OF REALTY SYSTEMS, INC.
On January 1, 2002, the Company purchased all of the common stock of Realty
Systems, Inc. ("RSI"). The Company previously owned the non-voting preferred
stock of RSI and had notes receivable from RSI which were recorded as an
investment in affiliate. The Company purchased the common stock of RSI from
Equity Group Investments, Inc., controlled by Samuel Zell, Chairman of the Board
of Directors of the Company, for approximately $675,000. As a result of this
acquisition, the Company owns and controls RSI and consolidates the financial
results of RSI with those of the Company. Prior to the purchase of the common
stock of RSI, we accounted for our investment in RSI using the equity method and
classified the investment as investment in and advances to affiliates.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition:
(amounts in thousands)
ASSETS
Buildings and other depreciable property.. $ 6,656
Cash and cash equivalents ................ 839
Notes receivable ......................... 4,772
Investment in joint ventures ............. 200
Inventory ................................ 35,524
Prepaid expenses and other assets ........ 2,724
--------
Total assets acquired .................. 50,715
LIABILITIES
Other notes payable ...................... (12,862)
Accounts payable and accrued expenses .... (2,718)
Accrued interest payable ................. (73)
--------
Total liabilities assumed .............. (15,653)
Conversion of previous investment ........ (34,387)
--------
Cash paid for common equity interest ..... $ (675)
========
NOTE 8 - NOTES RECEIVABLE
At December 31, 2003 and 2002, the Company had approximately $11.6 million
and $10.0 million in notes receivable, respectively. On December 28, 2000, the
Company, in connection with the Voyager Joint Venture, entered into an agreement
to loan $3.0 million to certain principals of Meadows Management Company. The
notes are collateralized with a combination of Common OP Units and partnership
interests in this and other joint ventures. The notes bear interest at prime
plus 0.5% per annum, require quarterly interest only payments and mature on
December 31, 2011. The outstanding balance on these notes as of December 31,
2003 is $1.6 million.
F-18
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - NOTES RECEIVABLE (CONTINUED)
The Company has approximately $9.9 million in Chattel Loans receivable,
which yield interest at a per annum average rate of approximately 9.9%, have an
average term and amortization of 5 to 15 years, require monthly principal and
interest payments and are collateralized by manufactured homes at certain of the
Properties.
NOTE 9 - EMPLOYEE NOTES RECEIVABLE
As of December 31, 2002, the Company had employee notes receivable of
approximately $2.7 million which were repaid in 2003. These notes were
collateralized by shares of the Company's Common Stock and are presented as a
reduction of Stockholders' Equity.
NOTE 10 - LONG-TERM BORROWINGS
As of December 31, 2003 and December 31, 2002, the Company had outstanding
mortgage indebtedness of approximately $1,076 million and $575.4 million,
respectively, encumbering 114 and 66 of the Company's Properties, respectively.
As of December 31, 2003 and December 31, 2002, the carrying value of such
Properties was approximately $1,124 million and $720 million, respectively.
The outstanding mortgage indebtedness as of December 31, 2003 consists of:
- - Approximately $501.4 million of mortgage debt ("Mortgage Debt") consisting
of 49 loans collateralized by 51 Properties, beneficially owned by separate
legal entities that are subsidiaries of the Company, which we closed on
October 17, 2003 (the "Recap"). Of this Mortgage Debt, $177.9 million bears
interest at 5.35% per annum and matures November 1, 2008; $71.1 million
bears interest at 5.72% per annum and matures November 1, 2010; $79.1
million bears interest at 6.02% per annum and matures November 1, 2013; and
$173.3 million bears interest at 6.33% per annum and matures November 1,
2015. The Mortgage Debt amortizes over 30 years.
- - A $265.0 million mortgage note (the "$265 Million Mortgage") collateralized
by 28 Properties beneficially owned by MHC Financing Limited Partnership.
The $265 Million Mortgage has a maturity date of January 2, 2028 and bears
interest at 7.015% per annum. There is no principal amortization until
February 1, 2008, after which principal and interest are to be paid from
available cash flow and the interest rate will be reset at a rate equal to
the then 10-year U.S. Treasury obligations plus 2.0%. The $265 Million
Mortgage is presented net of a settled hedge of $3.0 million (net of
accumulated amortization of $357,000) which is being amortized into
interest expense over the life of the loan.
- - A $91.4 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 $48.9 million mortgage note (the "Stagecoach Mortgage") collateralized by
7 Properties beneficially owed by MHC Stagecoach L.L.C. The Stagecoach
Mortgage bears interest at a rate of 6.98% per annum, amortizes beginning
September 1, 2001 over 10 years and matures September 1, 2011.
- - A $44.5 million mortgage note (the "Bay Indies Mortgage") collateralized by
one Property beneficially owned by MHC Bay Indies, L.L.C. On April 17,
2003, we entered into an agreement to refinance and increase the Bay Indies
Mortgage from approximately $21.9 million to $45 million. Under the new
agreement, the Bay Indies Mortgage bears interest at 5.69% per annum,
amortizes over 25 years and matures April 17, 2013.
F-19
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - LONG-TERM BORROWINGS (CONTINUED)
- A $15.3 million mortgage note (the "Date Palm Mortgage")
collateralized by one Property beneficially owned by MHC Date Palm,
L.L.C. The Date Palm Mortgage bears interest at a rate of 7.96% per
annum, amortizes beginning August 1, 2000 over 30 years and matures
July 1, 2010.
- Approximately $112.2 million of mortgage debt on 20 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 6.5% to 9.3% per annum. Included in this
debt, the Company has a $2.4 million loan recorded to account for a
direct financing lease entered into in May 1997. In addition, $4.6
million of this debt was assumed in the acquisition of three
Properties in December, 2003 (see Note 5).
We have an unsecured Line of Credit with a group of banks (the "Line of
Credit") with a total facility of $110 million, bearing interest at the London
Interbank Offered Rate ("LIBOR") plus 1.65% that matures on August 9, 2006. We
pay a quarterly fee on the average unused amount of the total facility equal to
0.15% of such amount. In October, 2003, all amounts outstanding on the Line of
Credit were repaid with proceeds from the Recap. As of December 31, 2003, $110
million was available under the Credit Agreement. The Line of Credit had a total
facility of $150 million prior to amendment in December, 2003.
We had a $100 million unsecured term loan (the "Term Loan") with a group of
banks with interest only payable monthly at LIBOR plus 1.375%. In October, 2003,
we paid off the Term Loan with proceeds from the Recap.
On October 29, 2001, we entered into an interest rate swap agreement (the
"2001 Swap"), effectively fixing LIBOR on $100 million of our floating rate debt
at approximately 3.7% per annum for the period October 2001 through August 2004.
The terms of the 2001 Swap required monthly settlements on the same dates
interest payments were due on the debt. In accordance with SFAS No. 133 as
herein defined, the 2001 Swap was reflected at market value. In November, 2003,
we unwound the 2001 Swap at a cost of approximately $3 million, which is
included in interest and related amortization in 2003 in the accompanying
Consolidated Statements of Operations.
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
- -------------------------------------- ----------
2004 $ --
2005 6,478
2006 17,409
2007 265,113
2008 200,908
Thereafter 586,371
Net unamortized premiums and discounts 17
----------
Total $1,076,296
==========
F-20
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 generally 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. Non-cancelable long-term leases are in effect at certain sites within
approximately 25 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 non-cancelable tenant leases at December 31, 2003 as follows
(amounts in thousands):
YEAR AMOUNT
- ---------- --------
2004 46,415
2005 48,112
2006 38,750
2007 31,794
2008 22,253
Thereafter 20,708
--------
Total $208,032
========
NOTE 12 - GROUND LEASES
The Company leases land under non-cancelable 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
percentage of gross revenues. For the years ended December 31, 2003, 2002 and
2001, ground lease rent was approximately $1.6 million per year. Minimum future
rental payments under the ground leases are approximately $1.6 million for each
of the next five years and approximately $26.3 million thereafter.
NOTE 13 - TRANSACTIONS WITH RELATED PARTIES
Equity Group Investments, Inc. ("EGI"), an entity controlled by Mr. Samuel
Zell, Chairman of the Company's Board of Directors, and certain of its
affiliates have provided services such as administrative support and investor
relations. Fees paid to EGI and its affiliates amounted to approximately $300,
$1,000 and $2,000 for the years ended December 31, 2003, 2002 and 2001,
respectively. There were no significant amounts due to these affiliates as of
December 31, 2003 and 2002, respectively.
Certain related entities, affiliated with Mr. Zell, have provided services
to the Company. These entities include, but are not limited to, The Riverside
Agency, Inc. which provided insurance brokerage services and Two North Riverside
Plaza Joint Venture Limited Partnership from which the Company leases office
space. Fees paid to these entities amounted to approximately $404,000, $645,000
and $454,000 for the years December 31, 2003, 2002 and 2001, respectively.
Amounts due to these affiliates were approximately $32,000 and $52,000 as of
December 31, 2003 and 2002, respectively. In addition, during 2003, we paid
$25,000 to J. Green & Co., L.L.C. for services provided by Mr. Berman, the
Company's current Chief Financial Officer, prior to his employment by the
Company.
Related party agreements or fee arrangements are generally for a term of
one year and approved by independent members of the Company's Board of
Directors.
NOTE 14 - STOCK OPTION PLAN AND STOCK GRANTS
The Company's Stock Option and Stock Award Plan (the "Plan") was adopted in
December 1992 and amended and restated from time to time, most recently
effective March 23, 2001. Pursuant to the Plan, officers, directors, employees
and consultants of the Company are offered the opportunity (i) to acquire shares
of Common Stock through the grant of stock options ("Options"), including
non-qualified stock options and, for key employees, incentive stock options
within the meaning of Section 422 of the Internal Revenue Code; and (ii) to be
awarded shares of Common Stock ("Restricted Stock Grants"), subject to
conditions and restrictions determined by the Compensation, Nominating, and
Corporate Governance Committee of the Board (the "Compensation Committee"). 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, 2003 to
officers, employees and consultants, generally, one-third are exercisable one
year after
F-21
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
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. A maximum of 6,000,000 shares of
Common Stock are available for grant under the Plan and no more than 250,000
shares may be subject to grants to any one individual in any calendar year.
Grants under the Plan are made by the Compensation Committee, which
determines the individuals eligible to receive awards, the types of awards, and
the terms, conditions and restrictions applicable to any award. In addition, the
terms of two specific types of awards are contemplated under the Plan:
- The first type of award is a grant of Options or Restricted Stock
Grants of Common Stock made to each member of the Board at the meeting
held immediately after each annual meeting of the Company's
stockholders. Generally, if the director elects to receive Options,
the grant will cover 10,000 shares of Common Stock at an exercise
price equal to the fair market value on the date of grant. If the
director elects to receive a Restricted Stock Grant of Common Stock,
he or she will receive an award of 2,000 shares. Exercisability or
vesting with respect to either type of award will be with respect to
one-third of the award after six months, two-thirds of the award after
one year, and the full award after two years.
- The second type of award is a grant of Common Stock in lieu of 50% of
their bonus otherwise payable to individuals with a title of Vice
President or above. A recipient can request that the Compensation
Committee pay a greater or lesser portion of the bonus in shares of
Common Stock.
Prior to 2003, we accounted for our stock compensation in accordance with
APB No. 25, "Accounting for Stock Issued to Employees", based upon the intrinsic
value method. This method results in no compensation expense for Options issued
with an exercise price equal to or exceeding the market value of the Common
Stock on the date of grant. Effective January 1, 2003, we elected to account for
our stock-based compensation in accordance with SFAS No. 123 and its amendment
(SFAS No. 148), "Accounting for Stock Based Compensation", which will result in
compensation expense being recorded based on the fair value of the Options and
other equity awards issued. SFAS No. 148 provides three possible transition
methods for changing to the fair value method. We have elected to use the
modified-prospective method. This method requires that we recognize stock-based
employee compensation cost from the beginning of the fiscal year in which the
recognition provisions are first applied as if the fair value method had been
used to account for all employee awards granted, or settled in fiscal years
beginning after December 15, 1994. The following table illustrates the effect on
net income and earnings per share as if the fair value method was applied to all
outstanding and unvested awards in each period presented (amounts in thousands,
except per share data):
2003 2002 2001
------- ------- -------
Net income available for Common
Shares as reported ................ $27,014 $36,445 $32,083
Add: Stock-based compensation
expense included in net income as
reported .......................... 2,139 2,185 2,549
Deduct: Stock-based compensation
expense determined under the fair
value based method for all awards.. (2,139) (2,086) (2,203)
------- ------- -------
Pro forma net income available for
Common Shares ..................... $27,014 $36,544 $32,429
======= ======= =======
Pro forma net income per Common
Share - Basic ..................... $ 1.22 $ 1.69 $ 1.54
======= ======= =======
Pro forma net income per Common
Share - Fully Diluted ............. $ 1.20 $ 1.65 $ 1.50
======= ======= =======
F-22
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
Restricted Stock Grants
In 1998, the Company awarded 233,500 Restricted Stock Grants to certain
members of management of the Company. These Restricted Stock Grants vested 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 Restricted Stock Grants of approximately
$5.7 million as of the date of grant was treated in 1998 as deferred
compensation and amortized in accordance with their vesting. The Company
recognized compensation expense of approximately $722,000, $1.1 million and $2.0
million related to these Restricted Stock Grants in 2003, 2002, and 2001,
respectively. The balance of unamortized deferred compensation related to these
Restricted Stock Grants is $0 as of December 31, 2003.
In 1999, the Company awarded 65,000 Restricted Stock Grants to certain
members of senior management of the Company. These Restricted Stock Grants
vested over three years with one-half vesting in 1999. The fair market value of
these Restricted Stock Grants of approximately $1.5 million as of the date of
grant was treated in 1999 as deferred compensation and amortized in accordance
with their vesting. The Company recognized compensation expense of approximately
$0, $0, and $386,000 related to these Restricted Stock Grants in 2003, 2002, and
2001, respectively. The balance of unamortized deferred compensation related to
these Restricted Stock Grants is $0 as of December 31, 2003.
In 2000, the Company awarded 69,750 Restricted Stock Grants to certain
members of senior management of the Company. These Restricted Stock Grants
vested over three years with one-half vesting in 2000. The fair market value of
these Restricted Stock Grants of approximately $1.9 million as of the date of
grant was treated in 2000 as deferred compensation and amortized in accordance
with their vesting. The Company recognized compensation expense of approximately
$0, $478,000, and $478,000 related to these Restricted Stock Grants in 2003,
2002, and 2001, respectively. The balance of unamortized deferred compensation
related to these Restricted Stock Grants is $0 as of December 31, 2003.
In 2001, the Company awarded 43,000 Restricted Stock Grants to certain
members of management of the Company. These Restricted 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 Restricted Stock Grants of approximately
$1.2 million as of the date of grant was treated in 2001 as deferred
compensation and amortized in accordance with their vesting. The Company
recognized compensation expense of approximately $167,000, $239,000 and $239,000
related to these Restricted Stock Grants in 2003, 2002 and 2001, respectively.
The balance of unamortized deferred compensation related to these Restricted
Stock Grants is approximately $335,000 as of December 31, 2003.
In 2002, the Company awarded 69,750 Restricted Stock Grants to certain
members of senior management of the Company. These Restricted Stock Grants vest
over three years, but may be restricted for a period of up to ten years
depending upon certain performance benchmarks tied to increases in funds from
operations being met. The fair market value of these Restricted Stock Grants of
approximately $2.2 million as of the date of grant was treated in 2002 as
deferred compensation and amortized in accordance with their vesting. The
Company recognized compensation expense of approximately $380,000 and $1.4
million related to these Restricted Stock Grants in 2003 and 2002, respectively.
The balance of unamortized deferred compensation related to these Restricted
Stock Grants is $0 as of December 31, 2003.
In 2003, 2002, and 2001, the Company awarded 35,000, 16,000, and 16,000
Restricted Stock Grants, respectively, to directors with a fair market value of
approximately $733,000, $376,000 and $302,000 in 2003, 2002 and 2001
respectively. The Company recognized compensation expense of approximately
$470,000 related to these Restricted Stock Grants in 2003. The balance of
unamortized deferred compensation related to the 2002 and 2001 Restricted Stock
Grants is $125,000 and $0, respectively, as of December 31, 2003.
F-23
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
Stock Options
The fair value of each grant is estimated on the grant date using the
Black-Scholes model. The following table includes the assumptions that were made
and the estimated fair values:
ASSUMPTION 2003 2002 2001
------- ----------- -----------
(pro forma) (pro forma)
Dividend yield 5.6 6.3 6.3
Risk-free interest rate 3.5 3.5 5.5
Expected life 5 years 5 years 5 years
Expected volatility .14 .19 .20
- ---------------------------------------------------------------------------------------------------------
Estimated Fair Value of Options Granted $40,600 $37,432 $428,861
A summary of the Company's stock option activity, and related information
for the years ended December 31, 2003, 2002 and 2001 follows:
WEIGHTED AVERAGE
SHARES SUBJECT EXERCISE PRICE PER
TO OPTIONS SHARE
-------------- ------------------
Balance at December 31, 2000 2,107,871 $22.30
Options granted .......... 177,150 30.03
Options exercised ........ (387,115) 19.98
Options canceled ......... (69,558) 25.04
---------
Balance at December 31, 2001 1,828,348 23.44
Options granted .......... 20,000 33.55
Options exercised ........ (282,959) 20.48
Options canceled ......... (49,492) 24.94
---------
Balance at December 31, 2002 1,515,897 24.08
Options granted .......... 20,000 32.67
Options exercised ........ (302,526) 21.06
Options canceled ......... (9,437) 25.60
---------
Balance at December 31, 2003 1,223,934 24.95
=========
The following table summarizes information regarding Options outstanding at
December 31, 2003:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- --------------------------------
WEIGHTED
AVERAGE
OUTSTANDING WEIGHTED
CONTRACTUAL WEIGHTED AVERAGE AVERAGE
RANGE OF EXERCISE PRICES OPTIONS LIFE (IN YEARS) EXERCISE PRICE OPTIONS EXERCISE PRICE
- ------------------------ ---------- --------------- ---------------- --------- --------------
$15.63 to $21.38 183,500 2.4 $18.85 183,500 $18.85
$22.00 to $24.38 412,737 4.7 $23.55 412,737 $23.55
$25.06 to $26.99 446,443 5.4 $26.23 446,443 $26.23
$30.65 to $33.55 181,254 8.1 $31.19 112,958 $31.11
--------- --- ------ --------- ------
1,223,934 5.1 $24.95 1,155,638 $24.58
========= === ====== ========= ======
As of December 31, 2003, 2002 and 2001, 2,148,524 shares, 2,194,087 shares
and 2,250,345 shares remained available for grant, respectively; of these
1,036,853, shares, 1,071,853 shares and 1,157,603 shares, respectively, remained
available for Restricted Stock Grants.
F-24
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2003 and 2002, no Preferred Stock was issued by the Company.
NOTE 16 - SAVINGS PLAN
The Company has a qualified retirement plan, with a salary deferral feature
designed to qualify under Section 401 of the Code (the "401(k) Plan"), to cover
its employees and those of its Subsidiaries, if any. The 401(k) Plan permits
eligible employees of the Company and those of any Subsidiary to defer up to 19%
of their eligible compensation on a pre-tax basis subject to certain maximum
amounts. In addition, the Company will match dollar-for-dollar the participant's
contribution up to 4% of the participant's eligible compensation.
In addition, amounts contributed by the Company will vest, on a prorated
basis, according to the participant's vesting schedule. After five years of
employment with the Company, the participants will be 100% vested for all
amounts contributed by the Company. Additionally, a discretionary profit sharing
component of the 401(k) Plan provides for a contribution to be made annually for
each participant in an amount, if any, as determined by the Company. All
employee contributions are 100% vested. The Company's contribution to the 401(k)
Plan was approximately $240,000, $248,000, and $353,000, for the years ended
December 31, 2003, 2002, and 2001, respectively.
The Company has established a supplemental executive retirement plan (the
"SERP") to provide certain officers and directors an opportunity to defer a
portion of their eligible compensation in order to save for retirement and for
the education of their children. The SERP is restricted to investments in
Company common shares, certain marketable securities that have been specifically
approved, or cash equivalents. In accordance with EITF 97-14 "Accounting for
Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi
Trust and Invested", the deferred compensation liability represented in the SERP
and the securities issued to fund such deferred compensation liability are
consolidated by the Company on the balance sheet. Assets held in the SERP are
included in other assets and are classified as trading securities and reported
at fair value, with unrealized gains and losses included in earnings. Company
shares held in the SERP are classified in stockholders equity due to the
inability of the Company to repurchase these shares.
NOTE 17 - COMMITMENTS AND CONTINGENCIES
DEANZA SANTA CRUZ
The residents of DeAnza Santa Cruz Mobile Estates, a Property located in
Santa Cruz, California, brought several actions opposing fees and charges in
connection with water service at the Property. As a result of one action, the
Company rebated approximately $36,000 to the residents. The DeAnza Santa Cruz
Homeowners Association ("HOA") then proceeded to a jury trial alleging these
"overcharges" entitled them to an award of punitive damages. In January 1999, a
jury awarded the HOA $6.0 million in punitive damages. On December 21, 2001 the
California Court of Appeal for the Sixth District reversed the $6.0 million
punitive damage award, the related award of attorneys' fees, and, as a result,
all post-judgment interest thereon, on the basis that punitive damages are not
available as a remedy for a statutory violation of the California Mobilehome
Residency Law ("MRL"). The decision of the appellate court left the HOA, the
plaintiff in this matter, with the right to seek a new trial in which it must
prove its entitlement to either the statutory penalty and attorneys' fees
available under the MRL or punitive damages based on causes of action for fraud,
misrepresentation or other tort. In order to resolve this matter, the Company
accrued for and agreed to pay $201,000 to the HOA. This payment resolved the
punitive damage claim. The HOA's attorney has made a motion asking for an award
of attorneys' fees and costs in the amount of approximately $1.5 million as a
result of this resolution of the litigation. On April 2, 2003 the court awarded
attorney's fees to the HOA's attorney in the amount of $593,000 and court costs
of approximately $20,000. The Company has appealed this award and has not
accrued for the amount in its consolidated financial statements.
F-25
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
OTHER CALIFORNIA RENT CONTROL LITIGATION
As part of the Company's effort to realize the value of its Properties
subject to rent control, the Company has initiated lawsuits against several
municipalities in California. The Company's goal is to achieve a level of
regulatory fairness in California's rent control jurisdictions, and in
particular those jurisdictions that prohibit increasing rents to market upon
turnover. This regulatory feature, called vacancy control, allows tenants to
sell their homes for a premium representing the value of the future discounted
rent-controlled rents. In the Company's view, such regulation results in a
transfer of the value of the Company's shareholders' land, which would otherwise
be reflected in market rents, to tenants upon the sales of their homes in the
form of an inflated purchase price that cannot be attributed to the value of the
home being sold. As a result, in the Company's view, the Company loses the value
of its asset and the selling tenant leaves the Community with a windfall
premium. The Company has discovered through the litigation process that certain
municipalities considered condemning the Company's Communities at values well
below the value of the underlying land. In the Company's view, a failure to
articulate market rents for sites governed by restrictive rent control would put
the Company at risk for condemnation or eminent domain proceedings based on
artificially reduced rents. Such a physical taking, should it occur, could
represent substantial lost value to shareholders. The Company is cognizant of
the need for affordable housing in the jurisdictions, but asserts that
restrictive rent regulation with vacancy control does not promote this purpose
because the benefits of such regulation are fully capitalized into the prices of
the homes sold. The Company estimates that the annual rent subsidy to tenants in
these jurisdictions is approximately $15 million. In a more well-balanced
regulatory environment, the Company would receive market rents that would
eliminate the subsidy and homes would trade at or near their intrinsic value.
In connection with such efforts, the Company recently announced it has
entered into a settlement agreement with the City of Santa Cruz, California and
that, pursuant to the settlement agreement, the City amended its rent control
ordinance to exempt the Company's property from rent control as long as the
Company offers a long term lease which gives the Company the ability to increase
rents to market upon turnover and bases annual rent increases on the Consumer
Price Index ("CPI"). The settlement agreement benefits the Company's
shareholders by allowing them to receive the value of their investment in this
Community through vacancy decontrol while preserving annual CPI based rent
increases in this age restricted Property.
The Company's efforts to achieve a balanced regulatory environment
incentivize tenant groups to file lawsuits against the Company seeking large
damage awards. The homeowners association at Contempo Marin ("CMHOA"), a 396
site Property in San Rafael, California, sued the Company in December 2000 over
a prior settlement agreement on a capital pass-through after the Company sued
the City of San Rafael in October 2000 alleging its rent control ordinance is
unconstitutional. In the Contempo Marin case, the CMHOA prevailed on a motion
for summary judgment on an issue that permits the Company to collect only $3.72
out of a monthly pass-through amount of $7.50 that the Company believes had been
agreed to by the CMHOA in a settlement agreement. The Company intends to
vigorously defend this matter, which has been stayed pending a related state
court appeal by the Company of an order dismissing its claims against the City
of San Rafael. The Company believes that such lawsuits will be a consequence of
the Company's efforts to change rent control since tenant groups actively desire
to preserve the premium value of their homes in addition to the discounted rents
provided by rent control. The Company has determined that its efforts to
rebalance the regulatory environment despite the risk of litigation from tenant
groups are necessary not only because of the $15 million annual subsidy to
tenants, but also because of the condemnation risk.
ELLENBURG COMMUNITIES
The Company and certain other parties entered into a settlement agreement
(the "Settlement"), which was approved by the Los Angeles County Superior Court
in April 2000. The Settlement resolved substantially all of the litigation and
appeals involving the Ellenburg Properties, and transactions arising out of the
Settlement closed on May 22, 2000. Only the appeal of one entity remained, the
outcome of which was not expected to materially affect the Company.
F-26
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
ELLENBURG COMMUNITIES (CONTINUED)
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 appealed. Although this appeal was
one not resolved by the Settlement, the California Court of Appeal dismissed
Fund 20's substantive appeals on March 13, 2003 as moot. Fund 20 petitioned the
California Supreme Court to review this decision which review was denied.
In October 2001, Fund 20 sued the Company and certain of its affiliates
again, this time in Alameda County, California making substantially the same
allegations. The Company obtained an injunction preventing the case from
proceeding until the Fund 20 appeal is decided and other related proceedings in
Arizona (from which the Company has already been dismissed with prejudice) are
concluded. The Company obtained a court order enjoining Fund 20 from proceeding
with its Alameda County action.
In February, 2004, the Company entered into a settlement agreement with
Fund 20 resolving all remaining matters at no cost to the Company and with
mutual releases.
COUNTRYSIDE AT VERO BEACH
The Company has received letters dated June 17, 2002 and August 26, 2002
from Indian River County ("County"), claiming that the Company currently owes
sewer impact fees in the amount of approximately $518,000 with respect to the
Property known as Countryside at Vero Beach, located in Vero Beach, Florida,
purportedly under the terms of an agreement between the County and a prior owner
of the Property. In response, the Company has advised the County that these fees
are no longer due and owing as a result of a 1996 settlement agreement between
the County and the prior owner of the Property, providing for the payment of
$150,000 to the County to discharge any further obligation for the payment of
impact or connection fees for sewer service at the Property. The Company paid
this settlement amount (with interest) to the County in connection with the
Company's acquisition of the Property. Accordingly, the Company believes that
the County's claims are without merit.
DELAWARE DECLARATORY JUDGMENT ACTION
In April 2002, the Company entered into a Stipulation and Consent Order to
Cease and Desist (the "Consent Order") with the State of Delaware (the "State").
The Consent Order resolved various issues raised by the State concerning the
terms of a new lease form used or proposed for use by the Company at certain of
its Properties in Delaware. Among other provisions, the Consent Order
contemplated that the Company would work with the State to develop and implement
a new lease form for use in Delaware. The Consent Order expressly provided that
nothing contained therein would preclude the Company from seeking declaratory
relief from a court as to the legality or enforceability of any provisions which
the Company might wish to incorporate in future leases.
Throughout the summer of 2002, the Company's Delaware legal counsel engaged
in dialogue with representatives of the State concerning various matters,
including the lease provisions to which the State had objected but which the
Company wished to incorporate in future leases. Through this process, it became
apparent that the parties could not reach agreement as to the legality or
enforceability of the proposed lease provisions, and that the Company would need
to seek declaratory relief from a court in order to resolve the matter, as
contemplated by the Consent Order. Accordingly, on August 29, 2002, the Company
filed a Petition for Declaratory Judgment and Other Relief (as amended, the
"Petition") in Sussex County, Delaware Superior Court (the "Court").
F-27
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
DELAWARE DECLARATORY JUDGMENT ACTION (CONTINUED)
In response to the filing of the Petition, on October 1, 2002, the State
filed its Answer to Petition for Declaratory and Other Relief, and Counterclaims
for Civil Enforcement and Contempt (as amended, "Answer and Counterclaim") with
the Court. In the Answer and Counterclaim, the State sought, inter alia,
restitution, statutory penalties, investigative costs and attorneys' fees under
the Delaware Mobile Home Lots and Leases Act, the Consumer Fraud Act, the
Uniform Deceptive Trade Practices Act and the Delaware Consumer Contracts law,
and separately sought a finding of contempt and related contempt penalties for
alleged violations of the Consent Order.
The Company filed a Motion to Dismiss Respondents' Counterclaims with the
Court on October 29, 2002, and the State filed a Motion for Summary Judgment
with the Court on November 15, 2002. On December 30, 2002, the Company filed a
First Amended Petition for Declaratory Judgment and Other Relief with the Court,
and on January 31, 2003, the State filed an Amended Answer and Counterclaim with
the Court.
On August 29, 2003, the Court issued its decision disposing of all pending
claims in the litigation except one. Specifically, the Court held, inter alia,
that (i) the Company may eliminate the rent cap formula from existing leases at
certain of its Delaware Properties as the leases come up for renewal, (ii)
certain lease provisions proposed by the Company may not be implemented or
enforced under applicable state law, (iii) the change in water supplier at one
of the Properties did not violate the leases at such Property, (iv) the Company
did not violate the Consent Order by filing the Petition, and (v) the Company
did not violate any state statutes as alleged by the State.
The August 29, 2003 decision left open the issue of whether the Company had
violated the Consent Order by continuing to use the disputed lease form (but not
enforce the provisions at issue) at one of its Properties following entry of the
Consent Order (the Company believed that it had no choice but to continue to use
this lease form until the State had approved a new form for use at the Property
as contemplated by the Consent Order). On October 3, 2003, the Court issued its
final order, finding that continued use of the disputed lease form, as to new
tenants but not as to renewal tenants, following entry of the Consent Order
constituted a violation thereof, and assessing a civil penalty in the amount of
$5,000.
On November 3, 2003, the State filed a Notice of Appeal with the Supreme
Court of the State of Delaware, appealing a portion of the Court's order denying
the State's Motion for Summary Judgment. The State's appeal is limited to the
single issue of whether the Company has the right to eliminate "rent cap"
provisions contained in certain existing leases upon automatic renewal of the
leases in accordance with Delaware law. The appeal has been fully briefed, and
oral argument in the matter is scheduled for March 16, 2004.
On November 14, 2003, the State filed a motion for Stay Pending Appeal with
the Court, and on December 3, 2003, the Company filed its response opposing the
motion. On December 16, 2003, the Court issued its order on the motion, holding
that the Company may proceed to issue notices of default to tenants who fail to
pay the full amount of their current rental obligations, but may not initiate
eviction proceedings against such tenants until April 1, 2004, and may not
enforce any such eviction order until the Supreme Court rules on the appeal.
OTHER
The Company is involved in various other legal proceedings arising in the
ordinary course of business. Management believes that all proceedings herein
described or referred to, taken together, are not expected to have a material
adverse impact on the Company.
F-28
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUBSEQUENT EVENTS
Since December 31, 2003, we invested in 30 Properties as listed in the
table below. The combined investment in these 30 properties was approximately
$137.6 million and was funded with monies held in short-term investments and
additional debt. (amounts in millions, except for total sites)
PURCHASE NET
CLOSING DATE PROPERTY LOCATION TOTAL SITES PRICE DEBT EQUITY
------------ -------- -------- ----------- -------- ----- ------
ACQUISITIONS:
January 15, 2004 O'Connell's(a) Amboy, IL 668 $ 6.6 $ 5.0 $1.6
January 30, 2004 Spring Gulch(b) New Holland, PA 420 6.0 4.8 1.2
February 3, 2004 Paradise(c) Mesa, AZ 950 25.0 20.0 5.0
February 18, 2004 Twin Lakes(d) Chocowinity, NC 400 5.2 3.8 1.4
February 19, 2004 Lakeside(e) New Carlisle, IN 95 1.7 --- 1.7
February 5, 2004 Shangri La Largo, FL 160 (f) 4.5 (f)
February 5, 2004 Terra Ceia Palmetto, FL 203 (f) 2.6 (f)
February 5, 2004 Southernaire Mt. Dora, FL 134 (f) 2.1 (f)
February 5, 2004 Sixth Avenue Zephryhills, FL 140 (f) 2.3 (f)
February 5, 2004 Suni Sands Yuma, AZ 336 (f) 3.2 (f)
February 5, 2004 Topic's Spring Hill, FL 230 (f) 2.2 (f)
February 5, 2004 Coachwood Colony Leesburg, FL 200 (f) 4.3 (f)
February 5, 2004 Waterway Cedar Point, NC 336 (f) 6.3 (f)
February 5, 2004 Desert Paradise Yuma, AZ 260 (f) 1.5 (f)
February 5, 2004 Goose Creek Newport, NC 598 (f) 12.6 (f)
MEZZANINE INVESTMENTS(g):
February 3, 2004 Fiesta Grande I & II Casa Grande, AZ 767 --- --- 3.7
February 3, 2004 Tropical Palms North Ft. Myers, FL 297 --- --- 1.9
February 3, 2004 Island Vista Estates North Ft. Myers, FL 617 --- --- 4.6
February 3, 2004 Foothills West Casa Grande, AZ 188 --- --- 1.5
February 3, 2004 Capri Yuma, AZ 300 --- --- 2.1
February 3, 2004 Casita Verde Casa Grande, AZ 192 --- --- 1.2
February 3, 2004 Rambler's Rest Venice, FL 647 --- --- 6.2
February 3, 2004 Venture In Show Low, AZ 389 --- --- 2.4
February 3, 2004 Scenic Asheville, NC 224 --- --- 1.2
February 3, 2004 Clerbrook Clermont, FL 1,255 --- --- 3.9
February 3, 2004 Inlet Oaks Murrells Inlet, SC 178 --- --- 1.0
JOINT VENTURES(h):
December 18, 2003 Lake Myers Mocksville, NC 425 --- --- 0.4
January 21, 2004 Pine Haven Ocean View, NJ 625 --- --- 0.4
January 27, 2004 Twin Mills Howe, IN 501 --- --- 0.2
February 10, 2004 Plymouth Rock Elkhart Lake, WI 609 --- --- 0.4
(a) Property was purchased from O'Connell's Holding Corp. and O'Connell's, Inc.
(b) Property was purchased from Spring Gulch, Inc.
(c) Property was purchased from PRVR Limited Partnership.
(d) Property was purchased from Twin Lakes Land, LLC and Twin Lakes Camping
Resort, LLC.
(e) Property was purchased from Don-Bar Family Limited Partnership.
(f) The portfolio was acquired for a total purchase price of $62 million and
$20.4 million of net equity. The transaction was funded partially through
loans obtained on the individual properties as shown in the table.
(g) On February 3, 2004, the Company invested approximately $29.7 million in
preferred equity in six entities controlled by Diversified Investments,
Inc. ("Diversified"). In addition, the Company has invested approximately
$1.4 million in the Diversified entities managing these properties.
(h) The Company invested approximately $1.4 million with Diversified in four
separate entities, each controlling a Property.
F-29
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is unaudited quarterly data for 2003 and 2002 (amounts in
thousands, except for per share amounts):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
2003 3/31 6/30 9/30 12/31
---- ------- ------- ------- -------
Total revenues(a) ................................................. $64,569 $66,760 $68,760 $71,066
Income from continuing operations(a) .............................. $ 7,380 $ 5,112 $ 5,200 $ (268)
Income from discontinued operations(a) ............................ $ 294 $ 9,288 $ 8 $ --
Net income (loss) available to common shareholders ................ $ 7,674 $14,400 $ 5,208 $ (268)
Weighted average Common Shares outstanding - Basic ................ 21,918 22,027 22,114 22,247
Weighted average Common Shares outstanding - Diluted .............. 27,276 27,371 27,458 27,568
Net income (loss) per Common Share outstanding - Basic ............ $ .35 $ .65 $ .24 $ (.01)
Net income (loss) per Common Share outstanding - Diluted .......... $ .34 $ .64 $ .23 $ (.01)
(a) Amounts may differ from previously disclosed amounts due to
reclassification of discontinued operations.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
2002 3/31 6/30 9/30 12/31
---- -------- ------- ------- -------
Total revenues(a) .................................................. $63,222 $64,414 $65,223 $68,508
Income from continuing operations(a) ............................... $ 6,584 $ 5,952 $ 5,080 $ 6,090
Income from discontinued operations(a) ............................. $ 531 $ 486 $ 1,632 $10,090
Net income available to common shareholders ........................ $ 7,115 $ 6,438 $ 6,712 $16,180
Weighted average Common Shares outstanding - Basic ................. 21,433 21,563 21,676 21,794
Weighted average Common Shares outstanding - Diluted ............... 27,508 27,664 27,693 27,678
Net income per Common Share outstanding - Basic .................... $ 0.33 $ 0.30 $ 0.31 $ 0.74
Net income per Common Share outstanding - Diluted .................. $ 0.32 $ 0.29 $ 0.30 $ 0.73
(a) Amounts may differ from previously disclosed amounts due to
reclassification of discontinued operations.
F-30
SCHEDULE II
MANUFACTURED HOME COMMUNITIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 2003
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, 2001:
Allowance for doubtful accounts ................. $300,000 $426,579 $--- ($426,579) $300,000
For the year ended December 31, 2002:
Allowance for doubtful accounts ................. $300,000 $940,565 $--- ($540,565) $700,000
For the year ended December 31, 2003:
Allowance for doubtful accounts ................. $700,000 $820,822 $--- ($693,822) $827,000
(1) Deductions represent tenant receivables deemed uncollectible.
S-1
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2003
(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 4,009 932 3,219 0 515
Araby Acres .............. Yuma AZ 3,250 1,440 4,345 0 0
The Highlands at Brentwood Mesa AZ 10,910 1,997 6,024 0 526
Carefree Manor ........... Phoenix AZ 3,398 706 3,040 0 219
Casa del Sol #1 .......... Peoria AZ 10,445 2,215 6,467 0 874
Casa del Sol #2 .......... Glendale AZ 9,827 2,103 6,283 0 604
Casa del Sol #3 .......... Glendale AZ 11,188 2,450 7,452 0 334
Central Park ............. Phoenix AZ 5,139 1,612 3,784 0 584
Countryside .............. Phoenix AZ 3,787 2,056 6,241 0 171
Desert Skies ............. Phoenix AZ 5,046 792 3,126 0 185
Fairview Manor ........... Tucson AZ 5,114 1,674 4,708 0 1,113
Foothill ................. Yuma AZ 1,350 459 1,402 0 0
Golden Sun ............... Scottsdale AZ 3,029 1,678 5,049 0 27
Hacienda De Valencia ..... Mesa AZ 5,676 833 2,701 0 1,659
Palm Shadows ............. Glendale AZ 8,480 1,400 4,218 0 368
Sedona Shadows ........... Sedona AZ 2,521 1,096 3,431 0 391
Sunrise Heights .......... Phoenix AZ 5,636 1,000 3,016 0 369
The Mark ................. Mesa AZ 8,943 1,354 4,660 6 793
The Meadows .............. Tempe AZ 12,060 2,613 7,887 0 533
Whispering Palms ......... Phoenix AZ 3,219 670 2,141 0 161
California Hawaiian ...... San Jose CA 27,449 5,825 17,755 0 1,532
Colony Park .............. Ceres CA 5,826 890 2,837 0 262
Concord Cascade .......... Pacheco CA 5,291 985 3,016 0 840
Contempo Marin ........... San Rafael CA 25,669 4,787 16,379 0 2,318
Coralwood ................ Modesto CA 6,200 0 5,047 0 245
Date Palm Country Club ... Cathedral City CA 15,340 4,138 14,064 (23) 2,755
Date Palm ................ Cathedral City CA 0 0 216 0 26
Four Seasons ............. Fresno CA 0 756 2,348 0 199
Laguna Lake .............. San Luis Obispo CA 5,128 2,845 6,520 0 241
Lamplighter .............. Spring Valley CA 3,806 633 2,201 0 648
Meadowbrook .............. Santee CA 0 4,345 12,528 0 1,277
Monte del Lago ........... Castroville CA 7,845 3,150 9,469 0 1,026
Quail Meadows ............ Riverbank CA 5,280 1,155 3,469 0 259
Nicholson Plaza .......... San Jose CA 0 0 4,512 0 53
Rancho Mesa .............. El Cajon CA 9,600 2,130 6,389 0 204
Gross Amount Carried
at Close of
Period 12/31/03
------------------------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
- ----------------------------------------------------------------------------------------------------------------------
Apollo Village ........... Phoenix AZ 932 3,734 4,666 (1,163) 1994
Araby Acres .............. Yuma AZ 1,440 4,345 5,785 (12) 2003
The Highlands at Brentwood Mesa AZ 1,997 6,550 8,547 (2,315) 1993
Carefree Manor ........... Phoenix AZ 706 3,259 3,965 (683) 1998
Casa del Sol #1 .......... Peoria AZ 2,215 7,341 9,556 (1,355) 1996
Casa del Sol #2 .......... Glendale AZ 2,103 6,887 8,990 (1,248) 1996
Casa del Sol #3 .......... Glendale AZ 2,450 7,786 10,236 (1,448) 1998
Central Park ............. Phoenix AZ 1,612 4,368 5,980 (2,781) 1983
Countryside .............. Phoenix AZ 2,056 6,412 8,468 (284) 2002
Desert Skies ............. Phoenix AZ 792 3,311 4,103 (693) 1998
Fairview Manor ........... Tucson AZ 1,674 5,821 7,495 (1,122) 1998
Foothill ................. Yuma AZ 459 1,402 1,861 (4) 2003
Golden Sun ............... Scottsdale AZ 1,678 5,076 6,754 (229) 2002
Hacienda De Valencia ..... Mesa AZ 833 4,360 5,193 (2,248) 1984
Palm Shadows ............. Glendale AZ 1,400 4,586 5,986 (1,667) 1993
Sedona Shadows ........... Sedona AZ 1,096 3,822 4,918 (835) 1997
Sunrise Heights .......... Phoenix AZ 1,000 3,385 4,385 (1,104) 1994
The Mark ................. Mesa AZ 1,360 5,453 6,813 (1,691) 1994
The Meadows .............. Tempe AZ 2,613 8,420 11,033 (2,787) 1994
Whispering Palms ......... Phoenix AZ 670 2,302 2,972 (493) 1998
California Hawaiian ...... San Jose CA 5,825 19,287 25,112 (4,206) 1997
Colony Park .............. Ceres CA 890 3,099 3,989 (776) 1998
Concord Cascade .......... Pacheco CA 985 3,856 4,841 (2,317) 1983
Contempo Marin ........... San Rafael CA 4,787 18,697 23,484 (5,712) 1994
Coralwood ................ Modesto CA 0 5,292 5,292 (1,149) 1997
Date Palm Country Club ... Cathedral City CA 4,115 16,819 20,934 (5,038) 1994
Date Palm ................ Cathedral City CA 0 242 242 (85) 1994
Four Seasons ............. Fresno CA 756 2,547 3,303 (566) 1997
Laguna Lake .............. San Luis Obispo CA 2,845 6,761 9,606 (1,461) 1998
Lamplighter .............. Spring Valley CA 633 2,849 3,482 (1,739) 1983
Meadowbrook .............. Santee CA 4,345 13,805 18,150 (2,587) 1998
Monte del Lago ........... Castroville CA 3,150 10,495 13,645 (2,213) 1997
Quail Meadows ............ Riverbank CA 1,155 3,728 4,883 (712) 1998
Nicholson Plaza .......... San Jose CA 0 4,565 4,565 (970) 1997
Rancho Mesa .............. El Cajon CA 2,130 6,593 8,723 (1,223) 1998
S-2
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2003
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
-------------------- --------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
- --------------------------------------------------------------------------------------------------------------------
Rancho Valley El Cajon CA 3,668 685 1,902 0 769
Royal Holiday Hemet CA 0 778 2,643 0 270
Royal Oaks Visalia CA 0 602 1,921 0 274
DeAnza Santa Cruz Santa Cruz CA 10,456 2,103 7,201 0 5,514
Santiago Estates Sylmar CA 16,205 3,562 10,767 0 633
Sea Oaks Los Osos CA 0 871 2,703 0 243
Sunshadow San Jose CA 0 0 5,707 0 129
Westwinds (4 properties) San Jose CA 0 0 17,616 0 4,988
Bear Creek Sheridan CO 4,880 1,100 3,359 0 209
Cimarron Broomfield CO 4,653 863 2,790 0 604
Golden Terrace Golden CO 4,245 826 2,415 0 643
Golden Terrace South Golden CO 2,400 750 2,265 0 548
Golden Terrace West Golden CO 8,432 1,694 5,065 0 955
Hillcrest Village Aurora CO 10,581 1,912 5,202 289 2,277
Holiday Hills Denver CO 14,856 2,159 7,780 0 3,652
Holiday Village CO Co. Springs CO 3,536 567 1,759 0 909
Pueblo Grande Pueblo CO 1,890 241 1,069 0 419
Woodland Hills Denver CO 7,499 1,928 4,408 0 2,391
Aspen Meadows Rehoboth Beach DE 5,620 1,148 3,460 0 192
Camelot Meadows Rehoboth Beach DE 7,400 527 2,058 1,251 3,643
Mariners Cove Millsboro DE 16,452 990 2,971 0 3,393
McNicol Rehoboth Beach DE 2,710 563 1,710 0 58
Sweetbriar Rehoboth Beach DE 3,040 498 1,527 0 268
Waterford Estates Bear DE 30,954 5,250 16,202 0 479
Whispering Pines Lewes DE 9,871 1,536 4,609 0 911
Maralago Cay Lantana FL 21,600 5,325 15,420 0 2,613
Bay Indies Venice FL 44,524 10,483 31,559 10 3,054
Bay Lake Estates Nokomis FL 3,708 990 3,390 0 875
Breezy Hill Pompano Beach FL 10,281 5,510 16,555 0 46
Buccaneer N. Ft. Myers FL 13,902 4,207 14,410 0 1,085
Bulow Village Resort Flagler Beach FL 0 0 228 0 37
Bulow Village Flagler Beach FL 10,404 3,637 949 0 5,106
Carriage Cove Daytona Beach FL 8,084 2,914 8,682 0 756
Coral Cay Margate FL 20,195 5,890 20,211 0 2,518
Coquina St Augustine FL 0 5,286 5,545 0 5,276
Meadows at Countrywood Plant City FL 18,292 4,514 13,175 0 2,575
Gross Amount Carried
at Close of
Period 12/31/03
------------------------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
- ----------------------------------------------------------------------------------------------------------------------
Rancho Valley El Cajon CA 685 2,671 3,356 (1,524) 1983
Royal Holiday Hemet CA 778 2,913 3,691 (497) 1998
Royal Oaks Visalia CA 602 2,195 2,797 (470) 1997
DeAnza Santa Cruz Santa Cruz CA 2,103 12,715 14,818 (2,366) 1994
Santiago Estates Sylmar CA 3,562 11,400 14,962 (2,317) 1998
Sea Oaks Los Osos CA 871 2,946 3,817 (616) 1997
Sunshadow San Jose CA 0 5,836 5,836 (1,259) 1997
Westwinds (4 properties) San Jose CA 0 22,604 22,604 (4,951) 1997
Bear Creek Sheridan CO 1,100 3,568 4,668 (705) 1998
Cimarron Broomfield CO 863 3,394 4,257 (2,128) 1983
Golden Terrace Golden CO 826 3,058 3,884 (1,751) 1983
Golden Terrace South Golden CO 750 2,813 3,563 (611) 1997
Golden Terrace West Golden CO 1,694 6,020 7,714 (3,184) 1986
Hillcrest Village Aurora CO 2,201 7,479 9,680 (4,535) 1983
Holiday Hills Denver CO 2,159 11,432 13,591 (6,672) 1983
Holiday Village CO Co. Springs CO 567 2,668 3,235 (1,462) 1983
Pueblo Grande Pueblo CO 241 1,488 1,729 (904) 1983
Woodland Hills Denver CO 1,928 6,799 8,727 (2,272) 1994
Aspen Meadows Rehoboth Beach DE 1,148 3,652 4,800 (762) 1998
Camelot Meadows Rehoboth Beach DE 1,778 5,701 7,479 (1,119) 1998
Mariners Cove Millsboro DE 990 6,364 7,354 (2,594) 1987
McNicol Rehoboth Beach DE 563 1,768 2,331 (350) 1998
Sweetbriar Rehoboth Beach DE 498 1,795 2,293 (427) 1998
Waterford Estates Bear DE 5,250 16,681 21,931 (2,679) 1996
Whispering Pines Lewes DE 1,536 5,520 7,056 (2,638) 1998
Maralago Cay Lantana FL 5,325 18,033 23,358 (3,579) 1997
Bay Indies Venice FL 10,493 34,613 45,106 (10,939) 1994
Bay Lake Estates Nokomis FL 990 4,265 5,255 (1,287) 1994
Breezy Hill Pompano Beach FL 5,510 16,601 22,111 (735) 2002
Buccaneer N. Ft. Myers FL 4,207 15,495 19,702 (4,795) 1994
Bulow Village Resort Flagler Beach FL 0 265 265 (31) 2001
Bulow Village Flagler Beach FL 3,637 6,055 9,692 (1,170) 1994
Carriage Cove Daytona Beach FL 2,914 9,438 12,352 (1,955) 1998
Coral Cay Margate FL 5,890 22,729 28,619 (6,732) 1994
Coquina St Augustine FL 5,286 10,821 16,107 (1,155) 1999
Meadows at Countrywood Plant City FL 4,514 15,750 20,264 (2,949) 1998
S-3
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2003
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
------------------ -------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
- --------------------------------------------------------------------------------------------------------------------
Country Place New Port Richey FL 8,500 663 0 18 7,095
Country Side North Vero Beach FL 17,347 3,711 11,133 0 1,597
Down Yonder Largo FL 7,776 2,652 7,981 0 53
East Bay Oaks Largo FL 5,532 1,240 3,322 0 499
Eldorado Village Largo FL 3,910 778 2,341 0 458
Glen Ellen Clearwater FL 2,440 627 1,882 0 22
Grand Island Grand Island FL 0 1,723 5,208 125 1,711
Hacienda Village New Port Richey FL 10,028 4,362 13,088 0 192
Harbor View New Port Richey FL 8,053 4,045 12,146 0 48
Heritage Village Vero Beach FL 13,520 2,403 7,259 0 631
Highland Wood Pompano Beach FL 2,408 1,043 3,130 0 4
Hillcrest Clearwater FL 4,297 1,278 3,928 0 647
Holiday Ranch Largo FL 3,835 925 2,866 0 191
Holiday Village FL Vero Beach FL 0 350 1,374 0 132
Holiday Village Ormond Beach FL 7,049 2,610 7,837 0 62
Indian Oaks Rockledge FL 4,449 1,089 3,376 0 712
Lake Fairways N. Ft. Myers FL 30,460 6,075 18,134 35 1,376
Lake Haven Dunedin FL 7,862 1,135 4,047 0 2,011
Lakewood Village Melbourne FL 9,818 1,862 5,627 0 557
Lighthouse Pointe Port Orange FL 12,701 2,446 7,483 23 816
Mid-Florida Lakes Leesburg FL 21,815 5,997 20,635 0 4,284
Oak Bend Ocala FL 5,772 850 2,572 0 850
Pickwick Port Orange FL 10,438 2,803 8,870 0 474
Pine Lakes N. Ft. Myers FL 31,464 6,306 14,579 21 5,311
Sherwood Forest Kissimmee FL 27,355 4,852 14,596 0 3,531
Sherwood Forest Resort Kissimmee FL 0 2,870 3,621 568 1,287
Silk Oak Clearwater FL 3,854 1,670 5,028 0 36
Southern Palms Eustis FL 5,727 2,169 5,884 0 1,471
Spanish Oaks Ocala FL 7,164 2,250 6,922 0 847
Oaks at Countrywood Plant City FL 1,318 1,111 2,513 (265) 1,325
The Heritage N. Ft. Myers FL 9,791 1,438 4,371 346 3,030
The Lakes at Countrywood Plant City FL 9,711 2,377 7,085 0 753
The Meadows, FL Palm Beach FL 6,106 3,229 9,870 0 1,088
Gardens
Toby's Arcadia FL 0 1,093 3,280 0 0
Windmill Manor Bradenton FL 8,022 2,153 6,125 0 1,058
Windmill Village - Ft. Myers N. Ft. Myers FL 8,835 1,417 5,440 0 1,226
Gross Amount Carried
at Close of
Period 12/31/03
------------------------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
- ----------------------------------------------------------------------------------------------------------------------
Country Place New Port Richey FL 681 7,095 7,776 (2,539) 1986
Country Side North Vero Beach FL 3,711 12,730 16,441 (2,709) 1998
Down Yonder Largo FL 2,652 8,034 10,686 (359) 1998
East Bay Oaks Largo FL 1,240 3,821 5,061 (2,438) 1983
Eldorado Village Largo FL 778 2,799 3,577 (1,746) 1983
Glen Ellen Clearwater FL 627 1,904 2,531 (70) 2002
Grand Island Grand Island FL 1,848 6,919 8,767 (621) 2001
Hacienda Village New Port Richey FL 4,362 13,280 17,642 (476) 2002
Harbor View New Port Richey FL 4,045 12,194 16,239 (542) 2002
Heritage Village Vero Beach FL 2,403 7,890 10,293 (2,492) 1994
Highland Wood Pompano Beach FL 1,043 3,134 4,177 (139) 2002
Hillcrest Clearwater FL 1,278 4,575 5,853 (1,023) 1998
Holiday Ranch Largo FL 925 3,057 3,982 (638) 1998
Holiday Village FL Vero Beach FL 350 1,506 1,856 (336) 1998
Holiday Village Ormond Beach FL 2,610 7,899 10,509 (354) 2002
Indian Oaks Rockledge FL 1,089 4,088 5,177 (905) 1998
Lake Fairways N. Ft. Myers FL 6,110 19,510 25,620 (5,849) 1994
Lake Haven Dunedin FL 1,135 6,058 7,193 (3,060) 1983
Lakewood Village Melbourne FL 1,862 6,184 8,046 (1,984) 1994
Lighthouse Pointe Port Orange FL 2,469 8,299 10,768 (1,730) 1998
Mid-Florida Lakes Leesburg FL 5,997 24,919 30,916 (7,209) 1994
Oak Bend Ocala FL 850 3,422 4,272 (1,110) 1993
Pickwick Port Orange FL 2,803 9,344 12,147 (1,831) 1998
Pine Lakes N. Ft. Myers FL 6,327 19,890 26,217 (5,887) 1994
Sherwood Forest Kissimmee FL 4,852 18,127 22,979 (3,404) 1998
Sherwood Forest Resort Kissimmee FL 3,438 4,908 8,346 (877) 1998
Silk Oak Clearwater FL 1,670 5,064 6,734 (184) 2002
Southern Palms Eustis FL 2,169 7,355 9,524 (1,381) 1998
Spanish Oaks Ocala FL 2,250 7,769 10,019 (2,551) 1993
Oaks at Countrywood Plant City FL 846 3,838 4,684 (549) 1998
The Heritage N. Ft. Myers FL 1,784 7,401 9,185 (2,191) 1993
The Lakes at Countrywood Plant City FL 2,377 7,838 10,215 (766) 2001
The Meadows, FL Palm Beach FL 3,229 10,958 14,187 (1,695) 1999
Gardens
Toby's Arcadia FL 1,093 3,280 4,373 (9) 2003
Windmill Manor Bradenton FL 2,153 7,183 9,336 (1,350) 1998
Windmill Village - Ft. Myers N. Ft. Myers FL 1,417 6,666 8,083 (4,108) 1983
S-4
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2003
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
------------------- -------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
- --------------------------------------------------------------------------------------------------------------------
Winds of St. Armands North
(fka Windmill North) Sarasota FL 8,589 1,523 5,063 0 1,272
Winds of St. Armands South
(fka Windmill South) Sarasota FL 5,486 1,106 3,162 0 751
Five Seasons Cedar Rapids IA 0 1,053 3,436 0 558
Holiday Village, IA Sioux City IA 0 313 3,744 0 457
Golf Vistas Monee IL 14,593 2,843 4,719 0 5,415
Willow Lake Estates Elgin IL 21,365 6,138 21,033 0 3,107
Forest Oaks (fka Burns
Harbor) Chesterton IN 0 916 2,909 0 1,672
Oak Tree Village Portage IN 4,507 0 0 569 3,554
Windsong Indianapolis IN 0 1,482 4,480 0 167
Creekside Wyoming MI 3,760 1,109 3,646 0 40
Casa Village Billings MT 11,040 1,011 3,109 181 2,421
Del Rey Albuquerque NM 0 1,926 5,800 0 721
Bonanza Las Vegas NV 4,742 908 2,643 0 787
Boulder Cascade Las Vegas NV 8,980 2,995 9,020 0 794
Cabana Las Vegas NV 9,363 2,648 7,989 0 259
Flamingo West Las Vegas NV 10,788 1,730 5,266 0 1,201
Villa Borega Las Vegas NV 7,170 2,896 8,774 0 273
Greenwood Village Manorville NY 17,698 3,667 9,414 484 3,433
Falcon Wood Village Eugene OR 5,200 1,112 3,426 0 164
Quail Hollow Fairview OR 0 0 3,249 0 161
Shadowbrook Clackamas OR 6,320 1,197 3,693 0 125
Mt. Hood Village Welches OR 0 1,817 5,733 0 (308)
Green Acres Breinigsville PA 13,839 2,680 7,479 0 2,502
Fun n Sun San Benito TX 0 2,533 0 417 9,609
Tropic Winds Harlingen TX 0 1,221 3,809 0 82
All Seasons Salt Lake City UT 3,491 510 1,623 0 207
Westwood Village Farr West UT 7,591 1,346 4,179 0 1,107
Meadows of Chantilly Chantilly VA 27,284 5,430 16,440 0 3,091
Kloshe Illahee Federal Way WA 6,222 2,408 7,286 0 209
Gross Amount Carried
at Close of
Period 12/31/03
------------------------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
- ----------------------------------------------------------------------------------------------------------------------
Winds of St. Armands North
(fka Windmill North) Sarasota FL 1,523 6,335 7,858 (3,680) 1983
Winds of St. Armands South
(fka Windmill South) Sarasota FL 1,106 3,913 5,019 (2,296) 1983
Five Seasons Cedar Rapids IA 1,053 3,994 5,047 (1,065) 1998
Holiday Village, IA Sioux City IA 313 4,201 4,514 (2,400) 1986
Golf Vistas Monee IL 2,843 10,134 12,977 (1,753) 1997
Willow Lake Estates Elgin IL 6,138 24,140 30,278 (7,160) 1994
Forest Oaks (fka Burns
Harbor) Chesterton IN 916 4,581 5,497 (1,693) 1993
Oak Tree Village Portage IN 569 3,554 4,123 (1,613) 1987
Windsong Indianapolis IN 1,482 4,647 6,129 (1,118) 1998
Creekside Wyoming MI 1,109 3,686 4,795 (763) 1998
Casa Village Billings MT 1,192 5,530 6,722 (2,865) 1983
Del Rey Albuquerque NM 1,926 6,521 8,447 (2,365) 1993
Bonanza Las Vegas NV 908 3,430 4,338 (2,091) 1983
Boulder Cascade Las Vegas NV 2,995 9,814 12,809 (1,961) 1998
Cabana Las Vegas NV 2,648 8,248 10,896 (2,648) 1994
Flamingo West Las Vegas NV 1,730 6,467 8,197 (1,861) 1994
Villa Borega Las Vegas NV 2,896 9,047 11,943 (1,945) 1997
Greenwood Village Manorville NY 4,151 12,847 16,998 (2,156) 1998
Falcon Wood Village Eugene OR 1,112 3,590 4,702 (772) 1997
Quail Hollow Fairview OR 0 3,410 3,410 (737) 1997
Shadowbrook Clackamas OR 1,197 3,818 5,015 (863) 1997
Mt. Hood Village Welches OR 1,817 5,425 7,242 (377) 2002
Green Acres Breinigsville PA 2,680 9,981 12,661 (4,718) 1988
Fun n Sun San Benito TX 2,950 9,609 12,559 (1,707) 1998
Tropic Winds Harlingen TX 1,221 3,891 5,112 (176) 2002
All Seasons Salt Lake City UT 510 1,830 2,340 (421) 1997
Westwood Village Farr West UT 1,346 5,286 6,632 (1,161) 1997
Meadows of Chantilly Chantilly VA 5,430 19,531 24,961 (6,053) 1994
Kloshe Illahee Federal Way WA 2,408 7,495 9,903 (1,582) 1997
S-5
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2003
(AMOUNTS IN THOUSANDS)
Costs Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
-------------------- ---------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
- --------------------------------------------------------------------------------------------------------------------
Realty Systems, Inc. 0 0 0 0 4,191
Management Business 0 0 436 0 8,973
-------------------------------------------------------------
$1,076,184 $278,748 $850,290 $4,055 $182,003
-============================================================
Gross Amount Carried
at Close of
Period 12/31/03
--------------------------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
- ----------------------------------------------------------------------------------------------------------------------
Realty Systems, Inc. 0 4,191 4,191 0 2002
Management Business 0 9,409 9,409 (8,349) 1990
------------------------------------------------
$282,803 $1,032,293 1,301,505 ($272,497)
================================================
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 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 $21.3 million as of December 31, 2003.
(4) The aggregate cost of land and depreciable property for Federal income tax
purposes was approximately $1.2 billion, as of December 31, 2003.
(5) All Properties were acquired, except for Country Place Village, which was
constructed.
S-6
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2003
(AMOUNTS IN THOUSANDS)
The changes in total real estate for the years ended December 31, 2003, 2002 and
2001 were as follows:
2003 2002 2001
---------- ---------- ----------
Balance, beginning of year ................. $1,296,007 $1,238,138 $1,218,176
Acquisitions(1) ......................... 12,116 107,138 17,770
Improvements ............................. 20,960 24,491 23,188
Dispositions(2) and other ............... (13,987) (73,760) (20,996)
---------- ---------- ----------
Balance, end of year ....................... $1,315,096 $1,296,007 $1,238,138
========== ========== ==========
(1) Acquisitions for the year ended December 31, 2002 include the non-cash
assumption by the Company of $47.9 million of mortgage debt.
(2) Dispositions and other for 2003 includes non-cash capitalization of legal
fees of $5.3 million related to DeAnza Santa Cruz (see Note 5).
The changes in accumulated depreciation for the years ended December 31, 2003,
2002 and 2001 were as follows:
2003 2002 2001
-------- -------- --------
Balance, beginning of year .................... $238,098 $211,878 $181,580
Depreciation expense ........................ 39,409 37,188 35,205
Dispositions and other ...................... (5,010) (10,968) (4,907)
-------- -------- --------
Balance, end of year .......................... $272,497 $238,098 $211,878
======== ======== ========
S-7