Filed Pursuant to Rule 424(b)(3)
File No. 333-104737
PROSPECTUS
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209,216 SHARES
SUN COMMUNITIES, INC.
COMMON STOCK
This prospectus covers the sale of up to 209,216 shares of Sun
Communities, Inc. common stock by certain stockholders. We will not receive any
proceeds from the sale of the shares by the stockholders.
The common stock is listed on the New York Stock Exchange under the
symbol "SUI." The last reported sale price of the common stock as reported on
the New York Stock Exchange on May 7, 2003, was $39.30 per share.
SEE "RISK FACTORS" ON PAGE 3 FOR CERTAIN FACTORS RELATING TO AN INVESTMENT IN
THE SHARES.
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These securities have not been approved or disapproved by the
Securities and Exchange Commission or any state securities
commission nor has the Securities and Exchange Commission
or any state securities commission passed upon the
accuracy or adequacy of this prospectus. Any
representation to the contrary is a
criminal offense.
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The Attorney General of the State of New York has not passed
on or endorsed the merits of this offering. Any
representation to the contrary is unlawful.
The date of this Prospectus is May 8, 2003
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that Sun
Communities, Inc., a Maryland corporation (hereinafter sometimes referred to as
"we", "us", or the "Company"), filed with the Securities and Exchange Commission
(the "SEC") utilizing a "shelf" registration process. Under this shelf process,
the selling stockholders may, from time to time, sell the common stock described
in this prospectus. We may prepare a prospectus supplement at any time to add,
update or change information contained in this prospectus. Except for those
instances in which a specific date is referenced, the information in this
prospectus is accurate as of March 31, 2003. You should read both this
prospectus and any prospectus supplement together with additional information
described under the heading "Where You Can Find More Information".
We believe that we have included or incorporated by reference all
information material to investors in this prospectus, but certain details that
may be important for specific investment purposes have not been included. To see
more detail, you should read the exhibits filed with or incorporated by
reference into the registration statement.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports and other information with
the SEC. You may read and copy any document we file at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the SEC's
public reference rooms. Our SEC filings are also available to the public over
the Internet at the SEC's web site at http://www.sec.gov. In addition, our
common stock is listed on the New York Stock Exchange and such reports, proxy
statements and other information concerning the Company can be inspected at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the following documents we filed with the SEC and our
future filings with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the
Securities Exchange Act of 1934 until we or any underwriters sell all of the
securities:
The following documents and information heretofore filed with the
Commission are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 2002, as amended;
2. The Company's current report on Form 8-K dated April 11, 2003;
3. The description of our common stock contained in our Registration
Statement on Form 8-A dated November 23, 1993; and
4. The description of rights to purchase our Junior Participating
Preferred Stock contained in our Registration Statement on Form
8-A dated May 27, 1998.
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You may request a copy of these filings at no cost, by writing or calling us at
the following address:
Sun Communities, Inc.
27777 Franklin Road
Suite 200
Southfield, MI 48034
Attn: Corporate Secretary
(248) 208-2500
You should rely only on the information incorporated by reference or provided in
this prospectus and any supplement. We have not authorized anyone else to
provide you with different information.
THE COMPANY
As used in this prospectus, "Company," "us," "we," "our" and similar
terms means Sun Communities, Inc., a Maryland corporation, and one or more of
its subsidiaries (including the Operating Partnership (as defined below) and Sun
Home Services, Inc.).
We are a self-administered and self-managed real estate investment
trust, or REIT. We own and operate manufactured housing communities concentrated
in the midwestern and southeastern United States. We are a fully integrated real
estate company which, together with our affiliates and predecessors, has been in
the business of acquiring, operating, and expanding manufactured housing
communities since 1975. As of December 31, 2002, we owned, managed, and/or
financed a portfolio of 129 communities (the "Properties") located in 17 states
containing an aggregate of approximately 43,959 developed sites and
approximately 7,642 sites suitable for development.
Structured as an umbrella partnership REIT, or UPREIT, Sun Communities
Operating Limited Partnership, a Michigan limited partnership (the "Operating
Partnership"), is the entity through which we conduct substantially all of our
operations, and which owns, either directly or indirectly through subsidiaries,
all of our assets (the subsidiaries, collectively with the Operating
Partnership, the "Subsidiaries"). We are the sole general partner of, and, as of
December 31, 2002, held approximately 87.6% of the interests (not including
preferred limited partnership interests) in the Operating Partnership. Subject
to the tax and other risks discussed in the section entitled "Risk Factors", our
stockholders achieve substantially the same economic benefits as direct
ownership, operation, and management of the Properties. As sole general partner
of the Operating Partnership, we have the exclusive power to manage and conduct
the business of the Operating Partnership, subject to certain limited
exceptions.
Our executive and principal property management office is located at
27777 Franklin Road, Suite 200, Southfield, Michigan 48034, and the
telephone number is (248) 208-2500. We have regional property management offices
in Elkhart, Indiana and Tampa, Florida.
RISK FACTORS
Our prospects are subject to certain uncertainties and risks. Our future
results could differ materially from current results, and our actual results
could differ materially from those projected in forward-looking statements as a
result of certain risk factors. These risk factors include, but are not limited
to, those set forth below, other one-time events, and important factors
disclosed previously and from time to time in other Company filings with the
Securities and Exchange Commission. This registration statements contains
certain forward-looking statements.
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REAL ESTATE RISKS
General economic conditions and the concentration of our properties in Michigan
and Florida may affect our ability to generate sufficient revenue.
The market and economic conditions in our current markets generally, and
specifically in metropolitan areas of our current markets, may significantly
affect manufactured home occupancy or rental rates. Occupancy and rental rates,
in turn, may significantly affect our revenues, and if our communities do not
generate revenues sufficient to meet our operating expenses, including debt
service and capital expenditures, our cash flow and ability to pay or refinance
our debt obligations could be adversely affected. We derived significant amounts
of rental income for the period ended December 31, 2002 from properties located
in Michigan and Florida. As of December 31, 2002, 44 of our 129 Properties, or
approximately 34%, are located in Michigan, and 20 or approximately 16%, are
located in Florida. As a result of the geographic concentration of our
Properties in Michigan and Florida, we are exposed to the risks of downturns in
the local economy or other local real estate market conditions which could
adversely affect occupancy rates, rental rates and property values of properties
in these markets. The following factors, among others, may adversely affect the
revenues generated by our communities:
- the national and local economic climate which may be adversely impacted by,
among other factors, plant closings and industry slowdowns;
- local real estate market conditions such as the oversupply of manufactured
housing sites or a reduction in demand for manufactured housing sites in an
area;
- the rental market which may limit the extent to which rents may be increased
to meet increased expenses without decreasing occupancy rates;
- the perceptions by prospective tenants of the safety, convenience and
attractiveness of the Properties and the neighborhoods where they are
located;
- zoning or other regulatory restrictions;
- competition from other available manufactured housing sites and alternative
forms of housing (such as apartment buildings and site-built single-family
homes);
- our ability to provide adequate management, maintenance and insurance;
- increased operating costs, including insurance premiums, real estate taxes
and utilities; or
- the enactment of rent control laws.
Our income would also be adversely affected if tenants were unable to
pay rent or if sites were unable to be rented on favorable terms. If we were
unable to promptly relet or renew the leases for a significant number of the
sites, or if the rental rates upon such renewal or reletting were significantly
lower than expected rates, then our business and results of operations could be
adversely affected. In addition, certain expenditures associated with each
equity investment (such as real estate taxes and maintenance costs) generally
are not reduced when circumstances cause a reduction in income from the
investment. Furthermore, real estate investments are relatively
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illiquid and, therefore, will tend to limit our ability to vary our portfolio
promptly in response to changes in economic or other conditions.
Competition affects occupancy levels and rents which could adversely affect our
revenues.
All of our Properties are located in developed areas that include other
manufactured housing community properties. The number of competitive
manufactured housing community properties in a particular area could have a
material adverse effect on our ability to lease sites and on rents charged at
our Properties or at any newly acquired properties. We may be competing with
others with greater resources and whose officers and directors have more
experience than our officers and directors. In addition, other forms of
multi-family residential properties, such as private and federally funded or
assisted multi-family housing projects and single-family housing, provide
housing alternatives to potential tenants of manufactured housing communities.
Our ability to sell manufactured homes may be affected by various factors, which
may in turn adversely affect our profitability.
Sun Home Services, Inc., a Michigan corporation ("SHS"), is in the
manufactured home sales market offering manufactured home sales services to
tenants and prospective tenants of our communities. The market for the sale of
manufactured homes may be adversely affected by the following factors:
- downturns in economic conditions which adversely impact the housing
market;
- an oversupply of, or a reduced demand for, manufactured homes;
- the difficulty facing potential purchasers in obtaining affordable
financing as a result of heightened lending criteria; and
- an increase in the rate of manufactured home repossessions which
provide aggressively priced competition to new manufactured home
sales.
Any of the above listed factors could adversely impact our rate of
manufactured home sales, which would result in a decrease in profitability.
Increases in taxes and regulatory compliance costs may reduce our revenue.
Costs resulting from changes in real estate tax laws generally may be
passed through to tenants and will not affect us. Increases in income, service
or other taxes, however, generally are not passed through to tenants under
leases and may adversely affect our funds from operations and our ability to pay
or refinance our debt. Similarly, changes in laws increasing the potential
liability for environmental conditions existing on properties or increasing the
restrictions on discharges or other conditions may result in significant
unanticipated expenditures, which would adversely affect our business and
results of operations.
We may not be able to integrate or finance our development activities.
We are engaged in the construction and development of new communities, and
intend to continue in the development and construction business in the future.
Our development and construction business may be exposed to the following risks
which are in addition to those risks associated with the ownership and operation
of established manufactured housing communities:
- we may not be able to obtain financing with favorable terms for
community development which may make us unable to proceed with the
development;
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- we may be unable to obtain, or face delays in obtaining, necessary
zoning, building and other governmental permits and authorizations,
which could result in increased costs and delays, and even require us
to abandon development of the community entirely if we are unable to
obtain such permits or authorizations;
- we may abandon development opportunities that we have already begun
to explore and as a result we may not recover expenses already
incurred in connection with exploring such development opportunities;
- we may be unable to complete construction and lease-up of a community
on schedule resulting in increased debt service expense and
construction costs;
- we may incur construction and development costs for a community which
exceed our original estimates due to increased materials, labor or
other costs, which could make completion of the community
uneconomical and we may not be able to increase rents to compensate
for the increase in development costs which may impact our
profitability;
- we may be unable to secure long-term financing on completion of
development resulting in increased debt service and lower
profitability; and
- occupancy rates and rents at a newly developed community may
fluctuate depending on several factors, including market and economic
conditions, which may result in the community not being profitable.
If any of the above occurred, our business and results of operations could be
adversely affected.
We may not be able to integrate or finance our acquisitions and our acquisitions
may not perform as expected.
We acquire and intend to continue to acquire manufactured housing
communities on a select basis. The success and profitability of our acquisition
activities are subject to the risks of the acquired community failing to perform
as expected based on our analyses of our investment in the community, and our
underestimation of the costs of repositioning, redeveloping or expanding the
acquired community.
Rent control legislation may harm our ability to increase rents.
State and local rent control laws in certain jurisdictions may 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. Certain Properties are located, and we may purchase
additional properties, in markets that are either subject to rent control or in
which rent-limiting legislation exists or may be enacted.
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We may be subject to environmental liability.
Under various federal, state and local laws, ordinances and regulations,
an owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous substances at, on, under or in such property.
Such laws often impose such liability without regard to whether the owner knew
of, or was responsible for, the presence of such hazardous substances. The
presence of such substances, or the failure to properly remediate such
substances, may adversely affect the owner's ability to sell or rent such
property, to borrow using such property as collateral or to develop such
property. Persons who arrange for the disposal or treatment of hazardous
substances also may be liable for the costs of removal or remediation of such
substances at a disposal or treatment facility owned or operated by another
person. In addition, certain environmental laws impose liability for the
management and disposal of asbestos-containing materials and for the release of
such materials into the air. These laws may provide for third parties to seek
recovery from owners or operators of real properties for personal injury
associated with asbestos-containing materials. In connection with the ownership,
operation, management, and development of real properties, we may be considered
an owner or operator of such properties and, therefore, are potentially liable
for removal or remediation costs, and also may be liable for governmental fines
and injuries to persons and property. When we arrange for the treatment or
disposal of hazardous substances at landfills or other facilities owned by other
persons, we may be liable for the removal or remediation costs at such
facilities.
All of the Properties have been subject to a Phase I or similar
environmental audit (which involves general inspections without soil sampling or
ground water analysis) completed by independent environmental consultants. These
environmental audits have not revealed any significant environmental liability
that would have a material adverse effect on our business. These audits cannot
reflect conditions arising after the studies were completed, and no assurances
can be given that existing environmental studies reveal all environmental
liabilities, that any prior owner or operator of a property or neighboring owner
or operator did not create any material environmental condition not known to us,
or that a material environmental condition does not otherwise exist as to any
one or more Properties.
Losses in excess of our insurance coverage or uninsured losses could adversely
affect our cash flow.
We maintain comprehensive liability, fire, flood (where appropriate),
extended coverage, and rental loss insurance on the Properties with policy
specifications, limits, and deductibles which are customarily carried for
similar properties. As a result of market conditions in the insurance industry,
we recently decided to carry a large deductible on our liability insurance.
Certain types of losses, however, may be either uninsurable or not economically
insurable, such as losses due to earthquakes, riots, or acts of war. In the
event an uninsured loss occurs, we could lose both our investment in and
anticipated profits and cash flow from the affected property. Any loss would
adversely affect our ability to repay our debt. In the year 2000, our former
insurance carrier filed bankruptcy, and as a result some or all of the
outstanding and incurred, but not yet reported, claims against our policy may
not be covered which would require us to cover the loss directly. We expect our
maximum exposure associated with this insurance carrier's bankruptcy to be
immaterial and therefore, no reserve has been provided in the financial
statements.
FINANCING AND INVESTMENT RISKS
Our significant amount of debt could limit our operational flexibility or
otherwise adversely affect our financial condition.
We have a significant amount of debt. As of December 31, 2002, we had
approximately $667 million of total debt outstanding, consisting of
approximately $270 million in collateralized debt, and approximately $397
million in unsecured debt. Included in the collateralized debt outstanding is
$254 million of indebtedness that is
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collateralized by mortgage liens on 35 of the Properties (the "Mortgage Debt").
In addition, as of December 31, 2002, we had entered into two capitalized lease
obligations for an aggregate of $16.4 million. Each capitalized lease obligation
involves a lease for a manufactured housing community providing that we will
lease the community for a certain number of years and then have the option to
purchase the community at or prior to the end of the lease term. In each case,
if we fail to exercise our purchase right, the landlord has the right to require
us to buy the property at the same price for which we had the purchase option.
If we fail to meet our obligations under the Mortgage Debt, the lender would be
entitled to foreclose on all or some of the Properties securing such debt. If we
fail to satisfy our lease obligations or an obligation to purchase the property,
the landlord/seller would be entitled to evict us from the property. In each
event, this could have a material adverse effect on us and our ability to make
expected distributions, and could threaten our continued viability.
We are subject to the risks normally associated with debt financing,
including the following risks:
- our cash flow may be insufficient to meet required payments of
principal and interest, or require us to dedicate a substantial
portion of our cash flow to pay our debt and the interest associated
with our debt rather than to other areas of our business;
- our existing indebtedness may limit our operating flexibility due to
financial and other restrictive covenants, including restrictions on
incurring additional debt;
- it may be more difficult for us to obtain additional financing in the
future for our operations, working capital requirements, capital
expenditures, debt service or other general requirements;
- we may be more vulnerable in the event of adverse economic and
industry conditions or a downturn in our business; and
- we may be placed at a competitive disadvantage compared to our
competitors that have less debt.
If any of the above risks occurred, our financial condition and results
of operations could be materially adversely affected.
Our advances to Origen subject us to certain risks.
Currently, we (together with one unaffiliated lender and one lender
affiliated with Gary A. Shiffman, our Chief Executive Officer) provide financing
to Origen Financial, LLC, a Delaware limited liability company ("Origen"). The
financing provided to Origen consists of a $48.0 million standby line of credit
and a $10.0 million term loan, each bearing interest at a per annum rate equal
to 700 basis points over LIBOR, with a minimum interest rate of 11% and a
maximum interest rate of 15%. This credit facility matures December 31, 2003 but
is extendable automatically to December 31, 2004 upon the occurrence of certain
events. This credit facility is collateralized by a security interest in
Origen's assets, which is subordinate in all respects to all institutional
indebtedness of Origen, and a guaranty and pledge of assets by Bingham Financial
Services Corporation.
Under the terms of a participation agreement we entered into with the
other lenders, we are obligated to loan up to $35.5 million to Origen under the
credit facility (of which approximately $33.6 million was advanced as of
December 31, 2002) and the other lenders are required to loan up to $22.5
million to Origen under the credit facility and we jointly administer the credit
facility. Under the participation agreement, we are entitled to 43.75% of the
first $40.0 million of proceeds from Origen upon repayment of the credit
facility and $18.0 million of our
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advances to Origen are subordinate in all respects to the first $40.0 million of
proceeds from Origen upon the repayment of the credit facility.
Origen's business has been negatively impacted by the current condition
of the manufactured housing finance industry, illustrated by the bankruptcy
filings of Oakwood Homes Corporation and Conseco, Inc. in the fourth quarter of
2002. In particular, Origen's business has suffered as a result of the general
economic recession, excessive amounts of repossession inventory, declining
recovery rates in the repossession market and the deteriorating asset-backed
securitization market. Origen's principal source of liquidity is its
securitization program through which its loans are sold into the asset-backed
securities market. Although Origen has successfully accessed this market in the
past, Origen is currently unable to access the asset-backed securities market on
favorable terms and Origen may not be able to access this market on terms
attractive to Origen in the future. If Origen cannot sell its loans in the
asset-backed securities market on favorable terms and Origen is unable to secure
alternative sources of funding, its business, financial condition and liquidity
will be materially adversely affected.
Although we do not believe that our advances to Origen are impaired at
this time, we will continually evaluate the realizability of our advances to
Origen in accordance with applicable accounting standards and we may be required
to write-off all or a portion of our advances to Origen in the future. If we
write-off all or a portion of our advances to Origen in the future, our results
of operations and financial condition could be materially and adversely
affected.
In addition, the Origen credit facility subjects us to all of the risks
of being a lender. These risks include the risks relating to borrower
delinquency and default and the adequacy of the collateral for such loans.
Because this credit facility is subordinated to certain senior debt of Origen,
in the event Origen is unable to meet its obligations under the senior debt
facility, our right to receive amounts owed to us under our credit facility will
be suspended pending payment of the amounts owing under the senior debt
facility. Because the security interest securing Origen's obligations under the
credit facility is subordinate to the security interest of certain senior debt
of Origen, in the event of a bankruptcy of Origen, our right to access Origen's
assets to satisfy the amounts outstanding under the credit facility would be
subject to the senior lender's prior rights to the same collateral. Moreover, if
we choose to advance additional funds to Origen beyond the $58.0 million credit
facility and the other participation lenders do not participate in such
additional advances, these secondary advances will be subordinate to any senior
debt of Origen and subordinate to all indebtedness of Origen in which all
participation lenders have participated.
The financial condition and solvency of our borrowers and the market value of
our properties may adversely affect our investments in real estate, installment
and other loans.
As of December 31, 2002, we had an investment of approximately $38.4
million in real estate loans to several entities and Properties, some of which
are secured by a first lien on the underlying property, and others which are
unsecured loans subordinate to the primary lender. Also, as of December 31,
2002, we had outstanding approximately $11.6 million in installment loans to
owners of manufactured homes. These installment loans are collateralized by the
manufactured homes. We may invest in additional mortgages and installment loans
in the future. As of December 31, 2002, we had advances of approximately $33.6
million to Origen under a $58.0 million credit facility. By virtue of our
investment in the mortgages and the loans, we are subject to the following risks
of such investment:
- the borrowers may not be able to make debt service payments or pay
principal when due;
- the value of property securing the mortgages and loans may be less
than the amounts owed; and
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- interest rates payable on the mortgages and loans may be lower than
our cost of funds.
If any of the above occurred, our business and results of operations could be
adversely affected.
TAX RISKS
We may suffer adverse tax consequences and be unable to attract capital if we
fail to qualify as a REIT.
We believe that since our taxable year ended December 31, 1994, we have
been organized and operated, and intend to continue to operate, so as to qualify
for taxation as a REIT under the Internal Revenue Code. Although we believe that
we have been and will continue to be organized and have operated and will
continue to operate so as to qualify for taxation as a REIT, we cannot assure
you that we have been or will continue to be organized or operated in a manner
to so qualify or remain so qualified. Qualification as a REIT involves the
satisfaction of numerous requirements (some on an annual and quarterly basis)
established under highly technical and complex Code provisions for which there
are only limited judicial or administrative interpretations, and involves the
determination of various factual matters and circumstances not entirely within
our control. In addition, frequent changes occur in the area of REIT taxation,
which require the Company continually to monitor its tax status.
If we fail to qualify as a REIT in any taxable year, we would be subject
to federal income tax (including any applicable alternative minimum tax) on our
taxable income at regular corporate rates. Moreover, unless entitled to relief
under certain statutory provisions, we also would be disqualified from treatment
as a REIT for the four taxable years following the year during which
qualification was lost. This treatment would reduce our net earnings available
for investment or distribution to stockholders because of the additional tax
liability to us for the years involved. In addition, distributions to
stockholders would no longer be required to be made. Even if we qualify for and
maintain our REIT status, we will be subject to certain federal, state and local
taxes on our property and certain of our operations.
We intend for the Operating Partnership to qualify as a partnership, but we
cannot guarantee that it will qualify.
We believe that the Operating Partnership has been organized as a
partnership and will qualify for treatment as such under the Code. However, if
the Operating Partnership is deemed to be a "publicly traded partnership," it
will be treated as a corporation instead of a partnership for federal income tax
purposes unless at least 90% of its income is qualifying income as defined in
the Internal Revenue Code. The income requirements applicable to REITs and the
definition of "qualifying income" for purposes of this 90% test are similar in
most respects. Qualifying income for the 90% test generally includes passive
income, such as specified types of real property rents, dividends and interest.
We believe that the Operating Partnership would meet this 90% test, but we
cannot guarantee that it would. If the Operating Partnership were to be taxed as
a corporation, it would incur substantial tax liabilities, we would fail to
qualify as a REIT for federal income tax purposes, and our ability to raise
additional capital could be significantly impaired.
Our ability to accumulate cash is restricted due to certain REIT distribution
requirements.
In order to qualify as a REIT, we must distribute to our stockholders at
least 90% of our REIT taxable income (calculated without any deduction for
dividends paid and excluding net capital gain) and to avoid federal income
taxation, our distributions must not be less than 100% of our REIT taxable
income, including capital gains. As a result of the distribution requirements,
we do not expect to accumulate significant amounts of cash. Accordingly, these
distributions could significantly reduce the cash available to us in subsequent
periods to fund our operations and future growth.
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BUSINESS RISKS
Some of our directors and officers may have conflicts of interest with respect
to certain related party transactions and other business interests.
Ownership of SHS. Gary A. Shiffman, the President, Chief
Executive Officer and Chairman of the Board of Directors of the Company,
and the Estate of Milton M. Shiffman (former Chairman of the Board), are
the owners of all of the outstanding common stock of SHS, and as such
are entitled to 5% of the cash flow from the operating activities of SHS
(we own 100% of the non-voting preferred stock which entitles us to 95%
of such cash flow). Arthur A. Weiss, one of our directors, is also a
personal representative of the Estate.
For certain tax reasons, we made our equity investment in Origen
through SUI TRS, Inc., a taxable REIT subsidiary ("TRS"), which is
wholly owned by SHS. We contributed $15.0 million to SHS in connection
with the Origen investment and, as the holder of all of the non-voting
preferred stock of SHS, we are entitled to 95% of the cash flow from the
operating activities of SHS, including the operating activities of the
TRS, and effectively an approximate 30% interest in Origen. As part of
the $5.0 million investment in Origen by Mr. Shiffman and members of his
family, Mr. Shiffman and the Estate contributed approximately $790,000
to SHS as part of the investment in Origen by TRS, and, as the holders
of all of the voting common stock of SHS, they are entitled to 5% of the
cash flow from the operating activities of SHS, including the operating
activities of the TRS, and effectively an approximate 1.6% indirect
interest in Origen. The balance of the Shiffman family's $5.0 million
investment in Origen was made through a separate family owned entity
which holds 8.4% of the Shiffman family's aggregate 10% interest.
Thus, in all transactions involving SHS, Mr. Shiffman and Mr.
Weiss may have a conflict of interest with respect to their respective
obligations as an officer and/or director of the Company and Mr.
Shiffman's right and the Estate's right to receive a portion of the cash
flow from the operating activities of SHS. The following are the current
transactions and agreements involving SHS which may present a conflict
of interest for Mr. Shiffman and Mr. Weiss:
- the agreement between SHS and us for sales, brokerage, and leasing
services;
- the intercompany loans from the Operating Partnership to SHS;
- the investment in Origen by SUI TRS, Inc., a wholly owned subsidiary
of SHS; and
- the ownership and operation of SHS's other subsidiaries, including
Sun Water Oak Golf, Inc.
The failure to negotiate these and other transactions or
agreements involving SHS on an arm's length basis, or to enforce the
material terms of any agreement or arrangement between SHS and us could
have an adverse effect on us.
Tax Consequences Upon Sale of Properties. Gary A. Shiffman holds
limited partnership interests in the Operating Partnership which were
received in connection with the contribution of 24 properties from
partnerships previously affiliated with him (the "Sun Partnerships").
Prior to any redemption of these limited partnership interests for our
common stock, Mr. Shiffman will have tax consequences different from
those of us and our public stockholders on the sale of any of the Sun
Partnerships. Therefore, Mr.
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Shiffman and the Company may have different objectives regarding the
appropriate pricing and timing of any sale of those properties.
Lease of Executive Offices. On November 1, 2002, we leased
approximately 31,300 rentable square feet of office space from American
Center LLC and we expect to relocate our principal executive offices to
this office space in the second quarter of 2003. Gary A. Shiffman,
together with certain family members, indirectly owns approximately a
21% equity interest in American Center LLC. This lease is for an initial
term of five years and we have the right to extend the lease for an
additional five year term. The annual base rent under this lease begins
at $19.25 per square foot (gross) for the first lease year and increases
$0.50 per square foot for each successive year of the initial term. Mr.
Shiffman may have a conflict of interest with respect to his obligations
as an officer and/or director of the Company and his ownership interest
in American Center.
If we are required beginning in the third quarter of 2003 to consolidate
interests we hold in variable interest entities (including possibly SHSs and
Origen) pursuant to FASB Interpretation No. 46, it would materially affect the
accounting presentation of our financial condition.
We, together with our advisors, are in the process of assessing whether
we have an interest in any variable interest entities, including without
limitation, SHS and Origen, which may require consolidation pursuant to FIN No.
46. The provisions of FIN No. 46 apply beginning in the third quarter of 2003 to
variable interest entities in which a company holds a variable interest that it
acquired before February 1, 2003. If these rules are interpreted to require us
to consolidate the assets, liabilities and operations of SHS and/or Origen, it
would materially impact the accounting presentation of our financial statements,
including, without limitation, reflecting increased indebtedness for the
Company. We believe that any such changes in the accounting treatment would not
be taken into account in assessing our ability to continue to meet our covenant
requirements under the terms of our existing line of credit. We cannot, however,
predict at this time whether the lenders under the line of credit would raise
any concerns about our ability to meet our financial covenants if we were
required to consolidate SHS and Origen in our future financial statements. We
also are not able to predict at this time whether there would be any other
potential adverse impact of the new interpretations under FIN No. 46.
We rely on key management.
We are dependent on the efforts of our executive officers, particularly
Gary A. Shiffman, Jeffrey P. Jorissen, Brian W. Fannon and Jonathan M. Colman
(together, the "Senior Officers"). The loss of services of one or more of our
executive officers could have a temporary adverse effect on our operations. We
do not currently maintain or contemplate obtaining any "key-man" life insurance
on the Senior Officers.
In addition, upon the death or disability of Mr. Shiffman, we could lose
the right to appoint a Manager of Origen or otherwise vote our interests in
Origen, which could adversely affect our investment in Origen.
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Certain provisions in our governing documents may make it difficult for a
third-party to acquire us.
9.8% Ownership Limit. In order to qualify and maintain our
qualification as a REIT, not more than 50% of the outstanding shares of
our capital stock may be owned, directly or indirectly, by five or fewer
individuals. Thus, ownership of more than 9.8% of our outstanding shares
of common stock by any single stockholder has been restricted, with
certain exceptions, for the purpose of maintaining our qualification as
a REIT under the Internal Revenue Code. Such restrictions in our charter
do not apply to Gary Shiffman, the Estate of Milton M. Shiffman and
Robert B. Bayer, a former director and officer of the Company.
The 9.8% ownership limit, as well as our ability to issue
additional shares of common stock or shares of other stock (which may
have rights and preferences over the common stock), may discourage a
change of control of the Company and may also: (1) deter tender offers
for the common stock, which offers may be advantageous to stockholders;
and (2) limit the opportunity for stockholders to receive a premium for
their common stock that might otherwise exist if an investor were
attempting to assemble a block of common stock in excess of 9.8% of the
outstanding shares of the Company or otherwise effect a change of
control of the Company.
Staggered Board. Our Board of Directors has been divided into
three classes of directors. The term of one class will expire each year.
Directors for each class will be chosen for a three-year term upon the
expiration of such class's term, and the directors in the other two
classes will continue in office. The staggered terms for directors may
affect the stockholders' ability to change control of the Company even
if a change in control were in the stockholders' interest.
Preferred Stock. Our charter authorizes the Board of Directors to
issue up to 10,000,000 shares of preferred stock and to establish the
preferences and rights (including the right to vote and the right to
convert into shares of common stock) of any shares issued. The power to
issue preferred stock could have the effect of delaying or preventing a
change in control of the Company even if a change in control were in the
stockholders' interest.
Rights Plan. We adopted a stockholders' rights plan in 1998 that
provides our stockholders (other than a stockholder attempting to acquire a 15%
or greater interest in the Company) with the right to purchase stock in the
Company at a discount in the event any person attempts to acquire a 15% or
greater interest in the Company. Because this plan could make it more expensive
for a person to acquire a controlling interest in the Company, it could have the
effect of delaying or preventing a change in control of the Company even if a
change in control were in the stockholders' interest.
Changes in our investment and financing policies may be made without stockholder
approval.
Our investment and financing policies, and our policies with respect to
certain other activities, including our growth, debt, capitalization,
distributions, REIT status, and operating policies, are determined by our Board
of Directors. Although the Board of Directors has no present intention to do so,
these policies may be amended or revised from time to time at the discretion of
the Board of Directors without notice to or a vote of our stockholders.
Accordingly, stockholders may not have control over changes in our policies and
changes in our policies may not fully serve the interests of all stockholders.
Substantial sales of our common stock could cause our stock price to fall.
Sales of a substantial number of shares of our common stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for shares. As of December 31, 2002, up to 3,259,601 shares of our common
stock may be issued in the future to the limited partners of the Operating
Partnership in exchange for their Common or Preferred OP Units. The limited
partners may sell such shares pursuant to registration rights or an available
exemption from registration. Also, Water Oak, Ltd., a former owner of one of the
Properties, will be
13
issued Common OP Units with a value of approximately $1,000,000 annually through
2007. In 2008 and 2009, Water Oak, Ltd. will be issued Common OP Units with a
value of approximately $1,200,000. In addition, as of December 31, 2002, options
to purchase 975,767 shares of our common stock were outstanding under our 1993
Employee Stock Option Plan, our 1993 Non-Employee Director Stock Option Plan and
our Long-Term Incentive Plan (the "Plans") and an additional 150,519 shares have
been reserved for issuance pursuant to the Plans. No prediction can be made
regarding the effect that future sales of shares of our common stock will have
on the market price of shares.
An increase in interest rates may have an adverse effect on the price of our
common stock.
One of the factors that may influence the price of our common stock in
the public market will be the annual distributions to stockholders relative to
the prevailing market price of the common stock. An increase in market interest
rates may tend to make the common stock less attractive relative to other
investments, which could adversely affect the market price of our common stock.
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SELLING STOCKHOLDERS
The Selling Stockholders may use this prospectus for the resale of
shares of Common Stock being registered by this prospectus, although no Selling
Stockholder is obligated to sell any such shares. Each of the Selling
Stockholders is a holder of Common OP Units and/or shares of Common Stock. We
are the sole general partner of the Operating Partnership. Under the terms of
the Operating Partnership's Second Amended and Restated Limited Partnership
Agreement (the "Partnership Agreement"), the Common OP Units may be exchanged
for shares of Common Stock. As of the date of this prospectus, the exchange
ratio is one share for each Common OP Unit exchanged, but such exchange ratio is
subject to adjustment in certain events pursuant to anti-dilution provisions
contained in the Partnership Agreement. The Common Stock offered by this
prospectus has been or will be issued to the Selling Stockholders in exchange
for Common OP Units held by the Selling Stockholders (the "Shares"). The Selling
Stockholders are not required to exchange Common OP Units to Common Stock. With
the exception of Mr. Weiss who is one of our directors, none of the Selling
Stockholders is an affiliate of the Company.
The following table sets forth certain information regarding the Selling
Stockholders and the shares of Common Stock beneficially owned by each of them:
Shares Beneficially
Owned After
Shares of Common Completion of
Stock Beneficially Number of the Offering (2)
Owned Prior to the Shares ----------------
Selling Stockholder Offering (1) Being Offered Number Percent(3)
------------------- ------------ ------------- ------ ----------
Julius J. Shepard 30,000 30,000 0 *
Revocable Trust DTD 5/24/91
Estate of Stanley C. Lesser 10,662 10,662 0 *
Louis Benson 18,931 5,000 13,931 *
Robin Fuchs 4,489 4,489 0 *
Philip Benson 4,489 4,489 0
*
Ira J. Jaffe 6,300 6,300 0 *
Brian Hermelin 35,000 35,000 0 *
Helene Lewis 4,000 4,000 0 *
Robert Orley 35,000 35,000 0 *
Arthur A. Weiss 22,938 6,938 16,000(4) *
Jeffrey G. Heuer 9,500 9,500 0 *
Stanford Morris Revocable 23,062 23,062 0 *
Living Trust U/T/A July
10, 1980
Jewish Communal Fund 10,000 10,000 0 *
Water Oak, Ltd. 25,016 24,776 240 *
TOTAL 239,387 209,216 30,171
(1) The number set forth in this column is the number of shares of Common Stock
held by each such Selling Stockholder and/or the number of shares of Common
Stock that would be received upon an exchange of Common OP Units held by
each such Selling Stockholder.
(2) Assumes that all shares of Common Stock being offered and registered
hereunder are sold, although no Selling Stockholder is obliged to sell any
such shares.
(3) Based upon 18,113,677 shares of Common Stock outstanding as of April 17,
2003.
(4) Mr. Weiss currently holds options to purchase 16,000 shares of Common
Stock.
* Less than one percent (1%).
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USE OF PROCEEDS
We will not receive any of the proceeds of any sale by the Selling
Stockholders.
PLAN OF DISTRIBUTION
The Company is registering the Shares on behalf of the Selling
Stockholders. As used herein, "Selling Stockholders" includes pledgees, donees,
transferees or other successors in interest (collectively with the Selling
Stockholders, the "Sellers") selling shares received from a Selling Stockholder
after the date of this prospectus. The Sellers, directly or through brokers,
dealers, underwriters, agents or market makers, may sell some or all of the
Shares. Any broker, dealer, underwriter, agent or market maker participating in
a transaction involving the Shares may receive a commission from the Sellers.
Usual and customary commissions may be paid by the Sellers. The broker, dealer,
underwriter or market maker may agree to sell a specified number of the Shares
at a stipulated price per Share and, to the extent that such person is unable to
do so acting as an agent for the Sellers, to purchase as principal any of the
Shares remaining unsold at a price per Share required to fulfill the person's
commitment to the Sellers.
A broker, dealer, underwriter or market maker who acquires the Shares
from the Sellers as a principal for its own account may thereafter resell such
Shares from time to time in transactions (which may involve block or cross
transactions and which may also involve sales to or through another broker,
dealer, underwriter, agent or market maker, including transactions of the nature
described above) on the New York Stock Exchange, in negotiated transactions or
otherwise, at market prices prevailing at the time of the sale, or at negotiated
prices. In connection with such resales, the broker, dealer, underwriter, agent
or market maker may pay commissions to, or receive commissions from, the
purchasers of the Shares. The Sellers also may sell some or all of the Shares
directly to purchasers without the assistance of a broker, dealer, underwriter,
agent or market maker and without the payment of any commissions.
The Sellers and any brokers, dealers, agents or market makers
participating in a distribution of the Shares may be deemed to be "underwriters"
within the meaning of the Securities Act.
Other than any commissions or discounts paid or allowed by the Selling
Stockholders to underwriters, dealers, brokers or agents, all expenses incurred
in connection with this offering are being borne by us.
Pursuant to the registration rights granted to the Selling Stockholders
in connection with the issuance of Common OP Units to the Selling Stockholders,
we have agreed to indemnify the Selling Stockholders and any person who controls
a Selling Stockholder against certain liabilities and expenses arising out of,
or based upon the information set forth in, or incorporated by reference in,
this prospectus, and the registration statement of which this prospectus is a
part, including liabilities under the Securities Act. Any commissions paid or
any discounts or concessions allowed to any broker, dealer, underwriter, agent
or market maker and, if any such broker, dealer, underwriter, agent or market
maker purchases any of the Shares as principal, any profits received on the
resale of such Shares, may be deemed to be underwriting commissions or discounts
under the Securities Act.
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LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon by
Jaffe, Raitt, Heuer & Weiss, Professional Corporation, Detroit, Michigan. Arthur
A. Weiss, who is a director of the Company, is a shareholder of Jaffe, Raitt,
Heuer & Weiss, P.C. In addition, as of December 31, 2002 certain shareholders of
Jaffe, Raitt, Heuer & Weiss, P.C. beneficially owned approximately 37,238 shares
of our Common Stock.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K for the year ended December 31, 2002, as amended
have been so incorporated in reliance on the reports of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
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No dealer, salesperson or other individual has
been authorized to give any information or to
make any representations not contained or 209,216 SHARES
incorporated by reference in this prospectus in
connection with any offering to be made by the
prospectus. If given or made, such information
or representations must not be relied upon as
having been authorized by the Company. This
prospectus does not constitute an offer to sell,
or a solicitation of an offer to buy, the
securities, in any jurisdiction where, or to any
person to whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this
prospectus nor any offer or sale made hereunder
shall, under any circumstance, create an
implication that there has been no change in the
facts set forth in this prospectus or in the SUN COMMUNITIES, INC.
affairs of the Company since the date hereof.
TABLE OF CONTENTS
PROSPECTUS
Page
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COMMON STOCK
ABOUT THIS PROSPECTUS 2
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WHERE YOU CAN FIND MORE INFORMATION 2 PROSPECTUS
--------------
RISK FACTORS 3
USE OF PROCEEDS 16
PLAN OF DISTRIBUTION 16
LEGAL MATTERS 17
EXPERTS 17
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MAY 8, 2003
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