10-Q 1 k71209e10vq.txt QUARTERLY REPORT FOR PERIOD ENDED JUNE 30, 2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| Quarterly report pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002. OR | | Transition pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 COMMISSION FILE NUMBER 333-2522-01 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP (Exact Name of Registrant as Specified in its Charter) Michigan 38-3144240 (State of Organization) (I.R.S. Employer Identification No.) 31700 Middlebelt Road 48334 Suite 145 Farmington Hills, Michigan (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (248) 932-3100 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 [ ] Page 1 of 22 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP INDEX

2 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS JUNE 30, 2002 AND DECEMBER 31, 2001 (IN THOUSANDS)

The accompanying notes are an integral part of the consolidated financial statements. 3 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIODS ENDED JUNE 30, 2002 AND 2001 (IN THOUSANDS, EXCEPT FOR PER UNIT DATA)

The accompanying notes are an integral part of the consolidated financial statements 4 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (IN THOUSANDS)

The accompanying notes are an integral part of the consolidated financial statements 5 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION: These unaudited condensed consolidated financial statements of Sun Communities Operating Limited Partnership (the "Company"), have been prepared pursuant to the Securities and Exchange Commission ("SEC") rules and regulations and should be read in conjunction with the financial statements and notes thereto of the Company as of December 31, 2001. The following notes to consolidated financial statements present interim disclosures as required by the SEC. The accompanying consolidated financial statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of the interim financial statements. All such adjustments are of a normal and recurring nature. Sun Communities, Inc. ("Sun"), a self-administered and self-managed REIT with no independent operations of its own, is the sole general partner of the Company. As general partner, Sun has unilateral control and complete responsibility for management of the Company. The balance sheet of Sun as of June 30, 2002 is identical to the accompanying Company balance sheet, except as follows:

6 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. INVESTMENTS IN AND ADVANCES TO AFFILIATES: Sun Home Services, Inc. ("SHS") provides home sales and other services to current and prospective tenants. Through the Operating Partnership, the Company owns 100 percent of the outstanding preferred stock of SHS and is entitled to ninety-five percent (95%) of the operating cash flow. The common stock is owned by one officer of the Company and the estate of a former officer of the Company who collectively are entitled to receive five percent (5%) of the operating cash flow. Through SHS, the Company owns approximately a thirty percent (30%) interest in Origen Financial LLC ("Origen"), which company holds all of the operating assets of Bingham Financial Services ("BFSC") and its subsidiaries. BFSC owns approximately a twenty percent (20%) interest in Origen and the Company (together with the other investors in Origen) has certain rights to purchase its pro-rata share of BFSC's interest in Origen at fair value. Additionally, in August 2002, the maximum availability under the secured line of credit provided by Origen by the Company and another unaffiliated lender was increased to $35 million until December 31, 2002, at which time the line of credit is due and payable in full. Pursuant to the terms of the participation agreement between the Company and the other lender, the Company is obligated to loan up to $20 million to Origen under the line of credit and the other lender is required to loan up to $15 million to Origen under the line of credit. The Company and the other lender participate pari-passu in the first $30 million advanced under the line of credit and any funds advanced to Origen in excess of $30 million will be subordinate in all respect to the first $30 million. As of August 22, 2002, approximately $13.5 million was advanced by the Company under its participation in the line of credit. As a result of the increased line of credit, the Company's aggregate investment in, and maximum advances to, Origen is $35 million ($15 million equity investment in the initial $40 million capitalization and up to $20 million of advances under the line of credit). For comparison purposes, as of June 30, 2001, the Company was the sole provider of up to $64 million of debt financing to BFSC, the predecessor to Origen. Consequently, although the Company was the sole provider of up to $64 million of credit in June 2001, the Company is now committed to contribute an aggregate of $35 million to Origen out of the total $75 million contributed to Origen in the form of equity investment ($40 million) and line of credit ($35 million). Also included in investment in and advances to affiliates is the Company's investment in and advances to SunChamp, a development entity comprising eleven new communities. The Company owns approximately seventeen percent (17%) of SunChamp at June 30, 2002. All of these investments are accounted for utilizing the equity method of accounting. 3. RENTAL PROPERTY: The following summarizes rental property (in thousands):

During the six months ended June 30, 2002, the Company acquired two communities totaling 889 sites for approximately $37 million. In January 2002, in conjunction with a property acquisition, the Company issued 100,000 Series B-2 Preferred OP Units that bear interest at the rate of 6.0 percent per annum for the first five years and 7.0 percent per annum thereafter. The Series B-2 Preferred Units are convertible into Common OP Units in January 2005 at $45 per unit and redeemable at $45 per unit in January 2007 and, upon certain circumstances, at times thereafter. 7 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. RENTAL PROPERTY, CONTINUED: In October 2001, the FASB issued FAS Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. During the first quarter of 2002, the Company sold one property with a net book value of approximately $2.9 million resulting in a gain of approximately $0.4 million. The adoption of this statement requires all dispositions of properties to be disclosed as discontinued operations in the period in which they occur and prior periods to be reclassified to conform with the current period presentation. At December 31, 2001, this property was classified as held for use. 4. NOTES AND OTHER RECEIVABLES (AMOUNTS IN THOUSANDS):

At June 30, 2002 the maturities of mortgage and other notes receivables are approximately as follows: 2002-$0.7 million; 2003-$1.5 million; 2004-$18.1 million; 2005 and after-$33.6 million. 8 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. DEBT: The following table sets forth certain information regarding debt (in thousands):

On May 31, 2002, the Company closed on a $100.8 million collateralized debt facility with the proceeds applied to the line of credit. In July 2002, the Company refinanced its existing line of credit to an $85 million facility. The Company had $37 million of this refinanced facility available to borrow at June 30, 2002. Borrowings under the refinanced line of credit bear interest at the rate of LIBOR plus 0.85% and mature July 2, 2005 with a one-year optional extension. 6. OTHER INCOME: The components of other income are as follows for the periods ended June 30, 2002 and 2001 (in thousands):

9 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. EARNINGS PER OP UNIT (IN THOUSANDS):

Diluted earnings per OP unit reflect the potential dilution that would occur if securities were exercised or converted into OP units. Sun issued 316,000 shares of common stock at an average price of $41 raising $12.5 million in capital contributions for the Company through June 30, 2002. 8. NEW ACCOUNTING PRONOUNCEMENTS: In May 2002, the FASB issued SFAS 145, Rescission of FAS Nos. 4, 44 and 64, Amendment of FAS 13, and Technical Corrections as of April 2002. The provisions of this Statement related to the rescission of Statement 4 shall be applied in fiscal years beginning after May 15, 2002. The provisions related to Statement 13 shall be effective for transactions occurring after May 15, 2002, with early application encouraged. All other provisions of this Statement shall be effective for financial statements issued on or after May 15, 2002, with early application encouraged. Adoption of this statement did not have a significant impact on the financial position or results of operations of the Company. 10 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes thereto. Capitalized terms are used as defined elsewhere in this Form 10-Q. SIGNIFICANT ACCOUNTING POLICIES The Company had identified significant accounting policies that, as a result of the judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operations involved, could result in material changes to its financial condition or result of operations under different conditions or using different assumptions. Details regarding the Company's significant accounting policies are described fully in the Company's 2001 Annual Report filed with the Securities and Exchange Commission on Form 10-K. During the three and six months ended June 30, 2002, there have been no material changes to the Company's significant accounting policies that impacted the Company's financial condition or results of operations. RESULTS OF OPERATIONS Comparison of the three months ended June 30, 2002 and 2001 For the three months ended June 30, 2002, income before gain from property dispositions, net and distribution to Preferred OP Units decreased by 8.4 percent from $10.9 million to $10.0 million, when compared to the three months ended June 30, 2001. The decrease was due to increased revenues of $1.0 million offset by increased expenses of $1.9 million as described in more detail below. Income from property increased by $3.2 million from $34.5 million to $37.7 million, or 9.3 percent, due to acquisitions (1.7 million) and rent increases and other community revenues ($1.5 million). Income from affiliates decreased by $0.9 million to a loss of $0.9 million due to losses at affiliates caused principally by reduced home sales and loan originations. Other income decreased by $1.3 million from $3.6 million to $2.3 million due primarily to a decrease in interest income. Property operating and maintenance expenses increased by $0.8 million from $6.9 million to $7.7 million, or 11.3 percent, primarily due to acquisitions ($0.5 million). Real estate taxes increased by $0.2 million from $2.3 million to $2.5 million due to acquisitions ($0.1 million) and changes in certain assessments. 11 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS, CONTINUED: Property management expenses remained constant at $0.6 million representing 1.5 percent and 1.9 percent of income from property in 2002 and 2001, respectively. General and administrative expenses remained constant at $1.2 million, representing 2.9 percent and 3.2 percent of total revenues in 2002 and 2001, respectively. Earnings before interest, taxes, depreciation and amortization ("EBITDA", an alternative financial performance measure that may not be comparable to similarly titled measures reported by other companies, defined as total revenues less property operating and maintenance, real estate taxes, property management, and general and administrative expenses) increased by $0.1 million from $27.0 million to $27.1 million. EBITDA as a percent of revenues was 69.3 percent in 2002 compared to 70.8 percent in 2001. Depreciation and amortization increased by $1.2 million from $8.2 million to $9.4 million, or 14.5 percent, due primarily to the net additional investment in rental properties. Interest expense decreased by $0.2 million from $7.9 million to $7.7 million, or 2.1 percent, due primarily to decreasing rates on variable rate debt. The three months ended June 30, 2001 also included a $0.8 million gain from property disposition, net. Comparison of the six months ended June 30, 2002 and 2001 For the six months ended June 30, 2002, income before gain from property dispositions, net and distribution to Preferred OP Units decreased by 5.7 percent from $22.2 million to $20.9 million, when compared to the six months ended June 30, 2001. The decrease was due to increased revenues of $2.7 million offset by increased expenses of $4.0 million as described in more detail below. Income from property increased by $7.0 million from $69.1 million to $76.1 million, or 10.2 percent, due to acquisitions (3.8 million) and rent increases and other community revenues ($3.2 million). Income from affiliates decreased from $0.1 million to a loss of $1.2 million due to losses at affiliates caused principally by reduced new home sales and loan originations. Other income decreased by $3.1 million from $7.9 million to $4.8 million due primarily to a decrease in interest income. Property operating and maintenance expenses increased by $1.6 million from $14.3 million to $15.9 million, or 11.1 percent, primarily due to acquisitions ($1.0 million). Real estate taxes increased by $0.5 million from $4.6 million to $5.1 million due to acquisitions ($0.25 million) and changes in certain assessments. Property management expenses decreased by $0.1 million form $1.4 million to $1.3 million representing 1.7 percent and 2.1 percent of income from property in 2002 and 2001, respectively. 12 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS, CONTINUED: General and administrative expenses increased by $0.1 million from $2.4 million to $2.5 million, representing 3.1 percent and 3.0 percent of total revenues in 2002 and 2001, respectively. EBITDA decreased by $0.5 million from $54.9 million to $54.4 million. EBITDA as a percent of revenues was 68.9 percent in 2002 compared to 70.6 percent in 2001. Depreciation and amortization increased by $2.5 million from $16.0 million to $18.5 million, or 15.6 percent, due primarily to the net additional investment in rental properties. Interest expense decreased by $0.7 million from $16.2 million to $15.5 million, or 4.3 percent, due primarily to decreasing rates on variable rate debt. The six months ended June 30, 2001 also included a $4.3 million gain from property disposition, net. 13 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS, CONTINUED: SAME PROPERTY INFORMATION The following table reflects property-level financial information as of and for the six months ended June 30, 2002 and 2001. The "Same Property" data represents information regarding the operation of communities owned as of January 1, 2001 and June 30, 2002. Site, occupancy, and rent data for those communities is presented as of the last day of each period presented. The "Total Portfolio" column differentiates from the "Same Property" column by including financial information for managed but not owned communities, new development and acquisition communities.

(1) Occupancy % and weighted average rent relates to manufactured housing sites, excluding recreational vehicle sites. On a same property basis, property EBITDA increased by $2.6 million from $45.8 million to $48.4 million, or 5.7 percent. Property revenues increased by $3.0 million from $61.8 million to $64.8 million, or 4.8 percent, due primarily to increases in rents including water and property tax pass through. 14 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Company's principal liquidity demands have historically been, and are expected to continue to be, distributions to Sun's stockholders and the Company's unitholders, property acquisitions, development and expansion of properties, capital improvements of properties and debt repayment. The Company expects to meet its short-term liquidity requirements through its working capital provided by operating activities and its line of credit, as described below. The Company considers its ability to generate cash from operations (anticipated to be approximately $70 million annually) to be adequate to meet all operating requirements, including recurring capital improvements, routinely amortizing debt and other normally recurring expenditures of a capital nature, pay distributions to Sun's stockholders to maintain Sun's qualification as a REIT in accordance with the Internal Revenue Code and make distributions to the Operating Partnership's unitholders. The Company plans to invest approximately $25 to $30 million annually in developments consisting of expansions to existing communities and the development of new communities. The Company expects to finance these investments by using net cash flows provided by operating activities and by drawing upon its line of credit. Furthermore, the Company expects to invest in the range of $40 to $60 million in the acquisition of properties in 2002, depending upon market conditions. The Company plans to finance these investments by using net cash flows provided by operating activities and by drawing upon its line of credit. Cash and cash equivalents increased by $6.5 million to $11.1 million at June 30, 2002 compared to $4.6 million at December 31, 2001 because cash provided by operating activities and financing activities exceeded cash used in investing activities. Net cash provided by operating activities decreased by $8.4 million to $30.9 million for the six months ended June 30, 2002 compared to $39.3 million for the six months ended June 30, 2001. This decrease was primarily due to accounts payable and other liabilities decreasing by $3.5 million and other assets increasing by $6.2 million offset by an increase in earnings attributed to OP Units before depreciation and amortization, gain from property dispositions, net and discontinued operations increasing by $1.3 million. The Company's net cash flows provided by operating activities may be adversely impacted by, among other things: (a) the market and economic conditions in the Company's current markets generally, and specifically in metropolitan areas of the Company's current markets; (b) lower occupancy and rental rates of the Properties; (c) increased operating costs, including insurance premiums, real estate taxes and utilities, that cannot be passed on to the Company's tenants; and (d) decreased sales of manufactured homes. See "Risk Factors" in Sun's Registration Statement on S-3, Amendment No. 1 (Registration No. 333-96769). 15 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES, CONTINUED: On May 31, 2002, the Company closed on a $100.8 million collateralized five year variable rate (2.5% at June 30, 2002) debt facility which is convertible to a five to ten year fixed rate loan with the proceeds applied to the line of credit. In July 2002, the Company refinanced its existing line of credit to an $85 million facility which matures in July 2005, with a one year optional extension. At June 30, 2002, the average interest rate of outstanding borrowings under the line of credit was 2.84%, with $48 million outstanding and $37 million available to be drawn under the refinanced facility. The line of credit facility contains various leverage, debt service coverage, net worth maintenance and other customary covenants all of which the Company was in compliance with at June 30, 2002. The Company's primary long-term liquidity needs are principal payments on outstanding indebtedness. At June 30, 2002, the Company's outstanding contractual obligations were as follows:

(1) The Company is the guarantor of $22.9 million in personal bank loans which is not reflected in the balance sheet, maturing in 2004, made to Sun's and the Company's directors, employees and consultants for the purpose of purchasing shares of Sun's common stock or the Company's OP Units pursuant to Sun's Stock Purchase Plan. The Company is obligated under the Guaranty only in the event that one or more of the borrowers cannot repay their loan when due. (2) The provisions of the callable/redeemable $65 million notes are such that the maturity date will likely be 2015 if the 10 year Treasury rate is less than 5.7% on May 16, 2005. The maturity is reflected in the above table based on that assumption. 16 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES, CONTINUED: The Company anticipates meeting its long-term liquidity requirements, such as scheduled debt maturities, large property acquisitions, Operating Partnership unit redemptions, and potential additional capital contributions to affiliates (see Footnote 2 INVESTMENTS IN AND ADVANCES TO AFFILIATES), through the issuance of debt or equity securities, including equity units in the Operating Partnership, or from selective asset sales. The Company has maintained investment grade ratings with Fitch ICBA, Moody's Investor Service and Standard & Poor's, which facilitates access to the senior unsecured debt market. Since 1993, the Company has raised, in the aggregate, $275.9 million from the sale of shares of Sun's common stock (including 316,000 shares of common stock sold during the six months ended June 30, 2002 at an average price of $41 raising $12.5 million in capital contributions), $93.3 million from the sale of OP units in the Company and $532 million from the issuance of secured and unsecured debt securities. In addition, at June 30, 2002, eighty-six of the Properties were unencumbered by debt, therefore, providing substantial financial flexibility. The ability of the Company to finance its long-term liquidity requirements in such manner will be affected by numerous economic factors affecting the manufactured housing community industry at the time, including the availability and cost of mortgage debt, the financial condition of the Company, the operating history of the Properties, the state of the debt and equity markets, and the general national, regional and local economic conditions. See "Risk Factors" in Sun's Registration Statement on S-3, Amendment No. 1 (Registration No. 333-96769). If the Company is unable to obtain additional equity or debt financing on acceptable terms, the Company's business, results of operations and financial condition will be harmed. At June 30, 2002, the Company's debt to total market capitalization approximated 42.3 percent (assuming conversion of all Common OP Units to shares of common stock). The debt has a weighted average maturity of approximately 6.0 years and a weighted average interest rate of 6.0 percent. Capital expenditures for the six months ended June 30, 2002 and 2001 included recurring capital expenditures of $2.6 million and $1.9 million, respectively. Net cash used in investing activities increased by $48.6 million to $56.4 million compared to $7.8 million provided by investing activities for the six months ended June 30, 2001. This increase was due to a $17.1 million increase in rental property, acquisition activities , repayments from financing notes receivable, net decreasing by $10.5 million, a $14.0 million decrease in proceeds related to property dispositions and an increase of $7.0 million in investment in and advances to affiliates. Net cash provided by financing activities increased by $74.3 million to $8.6 million from $31.9 million used in financing activities for the six months ended June 30, 2001. This increase was primarily due to proceeds from notes payable, net of deferred financing costs, of $100.5 million, a $60.9 million reduction of repayments on notes payable and other debt and proceeds from capital contributions increasing by $19.9 million net of capital withdrawals. 17 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OTHER Funds from operations ("FFO") is defined by the National Association of Real Estate Investment Trusts ("NAREIT") as net income (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from sales of property, plus rental property depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Industry analysts consider FFO to be an appropriate supplemental measure of the operating performance of an equity REIT primarily because the computation of FFO excludes historical cost depreciation as an expense and thereby facilitates the comparison of REITs which have different cost bases in their assets. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time, whereas real estate values have instead historically risen or fallen based upon market conditions. FFO does not represent cash flow from operations as defined by generally accepted accounting principles and is a supplemental measure of performance that does not replace net income as a measure of performance or net cash provided by operating activities as a measure of liquidity. In addition, FFO is not intended as a measure of a REIT's ability to meet debt principal repayments and other cash requirements, nor as a measure of working capital. The following table calculates FFO for both basic and diluted purposes for the periods ended June 30, 2002 and 2001 (in thousands):

18 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OTHER, CONTINUED: Special Note Regarding Forward-Looking Statements This Form 10-Q contains various "forward-looking statements" within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. The words "may", "will", "expect", "believe", "anticipate", "should", "estimate", and similar expressions identify forward-looking statements. These forward-looking statements reflect the Company's current views with respect to future events and financial performance, but are based upon current assumptions regarding the Company's operations, future results and prospects, and are subject to many uncertainties and factors relating to the Company's operations and business environment which may cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements. Please see the section entitled "Risk Factors" of Sun's S-3, Amendment No. 1 (Registration No. 333-96769) for a list of uncertainties and factors. Such factors include, but are not limited to, the following: (i) changes in the general economic climate; (ii) increased competition in the geographic areas in which the Company owns and operates manufactured housing communities; (iii) changes in government laws and regulations affecting manufactured housing communities; and (iv) the ability of the Company to continue to identify, negotiate and acquire manufactured housing communities and/or vacant land which may be developed into manufactured housing communities on terms favorable to the Company. RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") approved Statement of Financial Accounting Standards ("SFAS") 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires, among other things, that the purchase method of accounting for business combinations be used for all business combinations initiated after September 30, 2001. SFAS 142 addresses the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS 142 requires, among other things, that goodwill and other indefinite-lived intangible assets no longer be amortized and that such assets be tested for impairment at least annually. SFAS 142 is effective for fiscal years beginning after December 15, 2001. The adoption of these statements did not have a significant impact on the financial position or results of operations of the Company. 19 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OTHER, CONTINUED: RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED: In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This Statement supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business (as previously defined in that Opinion).The provisions of this SFAS 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The provisions of this standard generally are to be applied prospectively. The adoption of this statement requires all dispositions of properties to be disclosed as discontinued operations in the period in which they occur and prior periods to be reclassified to conform with the current period presentation. The Company sold one property in the first quarter, which has been presented accordingly. This implementation of the statement did not have any other material effect on the Company. In May 2002, the FASB issued SFAS 145, Rescission of FAS Nos. 4, 44 and 64, Amendment of FAS 13, and Technical Corrections as of April 2002. The provisions of this Statement related to the rescission of Statement 4 shall be applied in fiscal years beginning after May 15, 2002. The other provisions related to Statement 13 shall be effective for transactions occurring after May 15, 2002, with early application encouraged, All provisions of this Statement shall be effective for financial statements issued on or after May 15, 2002, with early application encouraged. Adoption of this statement did not have a significant impact on the financial position or results of operations of the Company. PART II ITEM 6.(a) - EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K. See the attached Exhibit Index. ITEM 6.(b) - REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K during the period covered by this Form 10-Q. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: August 13, 2002 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP BY: Sun Communities, Inc., General Partner BY: /s/ Jeffrey P. Jorissen ---------------------------------------------- Jeffrey P. Jorissen, Chief Financial Officer and Secretary (Duly authorized officer and principal financial officer) CERTIFICATION The undersigned officers hereby certify that: (a) this Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (b) the information contained in this Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the issuer. /s/ Gary A. Shiffman Dated: August 13, 2002 ---------------------------------------------- Gary A. Shiffman, Chief Executive Officer of Sun Communities, Inc., its General Partner /s/ Jeffrey P. Jorissen Dated: August 13, 2002 ---------------------------------------------- Jeffrey P. Jorissen, Chief Financial Officer of Sun Communities, Inc., its General Partner 21 SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP EXHIBIT INDEX

-------------- (1) Incorporated by reference to Sun Communities, Inc.'s Report on Form 10-Q for the period ended June 30, 2002, No. 1-12616. 22

SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP 10-Q