SUI

Sun Communities, Inc. 10-K Summary (Fiscal Year Ended Dec 31, 2003)

Business Context and Reporting Period

Sun Communities, Inc. is a self-administered and self-managed Real Estate Investment Trust (REIT) owning, operating, and developing manufactured housing communities concentrated in the midwestern and southeastern United States. The reporting period covers the fiscal year ended December 31, 2003. As of year-end, the Company owned 127 properties across 17 states, comprising 43,875 developed sites (38,797 manufactured home sites and 5,078 RV sites) and 6,756 sites suitable for development. The Company also operates Sun Home Services, Inc. (SHS), which sells and leases manufactured homes.

Key Financial Metrics

Occupancy: Aggregate occupancy was 86% (excluding RV sites), with stabilized communities at 89.5% and development communities at 58.7%.

Material Changes vs. Prior Period

• Consolidation of Sun Home Services (SHS): Effective December 31, 2003, the Company consolidated SHS under FIN 46. This added $19.5 million in home sales revenue and $3.4 million in ancillary revenue, significantly impacting the income statement structure compared to 2002.
• Revenue Growth: Total revenues increased 18% to $189.1 million, driven by rental income growth ($159.1 million) and the inclusion of SHS sales.
• Expense Increases: Total expenses rose to $164.4 million. Selling, general, and administrative expenses increased by $10.4 million primarily due to SHS consolidation. Interest expense increased by $4.3 million due to higher debt levels.
• Asset Write-down: Other income included a $4.9 million write-down of an impaired asset related to a new community development.
• Debt Restructuring: Total debt increased by $106 million. The Company issued $150 million in senior notes in April 2003 to retire maturing debt and pay down its line of credit. Additionally, $58.1 million of Preferred OP Units were reclassified as debt under SFAS 150.

Guidance, Outlook, and Risks

• Acquisitions: The Company entered into agreements in early 2004 to acquire a portfolio of 26 properties (19 via equity interest, 7 via purchase) totaling 11,331 sites. Completion is subject to litigation involving the seller's minority partner.
• Investment in Origen: The Company invested $50 million in Origen Financial, Inc. (approx. 33% ownership) in October 2003. This investment is accounted for using the equity method.
• Liquidity: The Company maintains a $105 million unsecured line of credit ($99 million outstanding at year-end) and a $25 million loan facility. Management anticipates investing $5 million in development and $20–$40 million in acquisitions in 2004.
• Risks: Key risks include geographic concentration (33% in Michigan, 16% in Florida), exposure to repossessed manufactured homes affecting occupancy, interest rate fluctuations on variable debt, and the uncertainty of the pending PAMI acquisition litigation.

Investor Verification Checklist

• SHS Consolidation Impact: Verify the long-term profitability and integration of Sun Home Services now that it is fully consolidated.
• PAMI Acquisition Status: Monitor the resolution of the Delaware Chancery Court litigation regarding the 26-property acquisition to assess closing certainty.
• Debt Maturities: Review the $35.1 million in debt due within one year and the $66.6 million due in 2005 to assess refinancing needs.
• Origen Investment Performance: Track the performance of the $50 million equity investment in Origen Financial, Inc., given the volatility in the manufactured home lending sector.
• Occupancy Trends: Monitor occupancy rates in Michigan and Florida, which represent nearly 50% of the portfolio, against local economic conditions.