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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019.

☐ TRANSITION PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-12616

SUN COMMUNITIES INC.

(Exact Name of Registrant as Specified in its Charter)



Maryland				38-2730780
(State of Incorporation)				(I.R.S. Employer Identification No.)

27777 Franklin Rd,	Suite 200,	Southfield,	Michigan	48034
(Address of Principal Executive Offices)				(Zip Code)

(248) 208-2500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	SUI	New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. (Check one):



Large accelerated filer	Accelerated filer	Non-accelerated filer	Smaller reporting company	Emerging growth company
☒	☐	☐	☐	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of Common Stock, $0.01 par value per share, outstanding as of July 18, 2019: 90,670,873

INDEX




PART I – FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements:
	Consolidated Balance Sheets as of June 30, 2019 (Unaudited) and December 31, 2018	1
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)	2
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)	3
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 (Unaudited)	4
	Consolidated Statement of Equity (Unaudited)	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45
Item 4.	Controls and Procedures	45

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 6.	Exhibits	47
	Signatures	48

SUN COMMUNITIES, INC.

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)



	(Unaudited)
	June 30, 2019			December 31, 2018
ASSETS
Land	$	1,286,952		$	1,201,945
Land improvements and buildings	6,026,193			5,586,250
Rental homes and improvements	599,150			571,661
Furniture, fixtures and equipment	215,610			201,090
Investment property	8,127,905			7,560,946
Accumulated depreciation	(1,560,061		)	(1,442,630		)
Investment property, net (including 324,931 and 308,171 for consolidated VIEs at June 30, 2019 and December 31, 2018; see Note 8)	6,567,844			6,118,316
Cash and cash equivalents	28,704			50,311
Marketable securities	53,553			49,037
Inventory of manufactured homes	55,869			49,199
Notes and other receivables, net	164,303			160,077
Collateralized receivables, net	97,658			106,924
Other assets, net (including 23,167 and 19,809 for consolidated VIEs at June 30, 2019 and December 31, 2018; see Note 8)	254,153			176,162
TOTAL ASSETS	$	7,222,084		$	6,710,026
LIABILITIES
Mortgage loans payable (including 43,661 and 44,172 for consolidated VIEs at June 30, 2019 and December 31, 2018; see Note 8)	$	2,863,485		$	2,815,957
Secured borrowings on collateralized receivables	98,299			107,731
Preferred Equity - Sun NG RV Resorts LLC - mandatorily redeemable (fully attributable to consolidated VIEs; See Note 8)	35,249			35,277
Preferred OP units - mandatorily redeemable	34,663			37,338
Lines of credit	76,079			128,000
Distributions payable	69,719			63,249
Advanced reservation deposits and rent	160,527			133,698
Other liabilities (including 32,461 and 6,914 for consolidated VIEs at June 30, 2019 and December 31, 2018; see Note 8)	204,167			157,862
TOTAL LIABILITIES	3,542,188			3,479,112
Commitments and contingencies (see Note 17)
Series A-4 preferred stock, $0.01 par value. Issued and outstanding: 1,052 shares at June 30, 2019 and 1,063 shares at December 31, 2018	31,402			31,739
Series A-4 preferred OP units	9,590			9,877
Series D preferred OP units	51,462			—
Equity Interests - NG Sun LLC (fully attributable to consolidated VIEs; See Note 8)	22,099			21,976
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value. Authorized: 180,000 shares; Issued and outstanding: 90,667 shares at June 30, 2019 and 86,357 shares at December 31, 2018	907			864
Additional paid-in capital	4,851,323			4,398,949
Accumulated other comprehensive loss	(1,184		)	(4,504		)
Distributions in excess of accumulated earnings	(1,343,792		)	(1,288,486		)
Total Sun Communities, Inc. stockholders' equity	3,507,254			3,106,823
Noncontrolling interests
Common and preferred OP units	50,880			53,354
Consolidated variable interest entities	7,209			7,145
Total noncontrolling interests	58,089			60,499
TOTAL STOCKHOLDERS' EQUITY	3,565,343			3,167,322
TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY	$	7,222,084		$	6,710,026

See accompanying Notes to Consolidated Financial Statements.

SUN COMMUNITIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts) (Unaudited)



	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
REVENUES
Income from real property	$	226,099		$	198,670		$	442,878		$	395,881
Revenue from home sales	47,242			41,217			86,860			76,117
Rental home revenue	14,412			13,348			28,383			26,368
Ancillary revenue	17,265			12,031			25,747			18,599
Interest income	4,919			5,277			9,719			10,593
Brokerage commissions and other revenues, net	2,508			891			6,188			1,851
Total revenues	312,445			271,434			599,775			529,409
EXPENSES
Property operating and maintenance	65,888			58,691			123,797			110,321
Real estate taxes	15,726			14,076			31,056			27,912
Cost of home sales	34,435			30,932			63,712			57,503
Rental home operating and maintenance	5,091			5,315			9,879			10,542
Ancillary expenses	12,480			8,241			19,581			13,624
Home selling expenses	3,626			3,986			6,950			7,276
General and administrative	23,697			21,452			45,584			41,209
Catastrophic weather related charges, net	179			53			961			(2,160		)
Depreciation and amortization	76,153			67,773			152,709			134,210
Loss on extinguishment of debt	70			1,522			723			1,718
Interest expense	33,661			32,260			67,675			63,398
Interest on mandatorily redeemable preferred OP units / equity	1,181			790			2,275			1,409
Total expenses	272,187			245,091			524,902			466,962
Income Before Other Items	40,258			26,343			74,873			62,447
Remeasurement of marketable securities	3,620			—			3,887			—
Other income / (expense), net	1,021			(1,828		)	2,919			(4,445		)
Income / (loss) from nonconsolidated affiliates	393			(8		)	737			(67		)
Current tax expense	(272		)	(225		)	(486		)	(399		)
Deferred tax benefit / (expense)	96			(112		)	313			235
Net Income	45,116			24,170			82,243			57,771
Less: Preferred return to preferred OP units / equity	(1,718		)	(1,103		)	(3,041		)	(2,183		)
Less: Amounts attributable to noncontrolling interests	(2,585		)	(2,227		)	(3,626		)	(4,321		)
Net income attributable to Sun Communities, Inc.	40,813			20,840			75,576			51,267
Less: Preferred stock distribution	(428		)	(432		)	(860		)	(873		)
Net income attributable to Sun Communities, Inc. common stockholders	$	40,385		$	20,408		$	74,716		$	50,394
Weighted average common shares outstanding
Basic	87,130			79,612			86,325			79,233
Diluted	87,564			80,116			86,770			79,905
Earnings per share (Refer to Note 14):
Basic	$	0.46		$	0.25		$	0.86		$	0.63
Diluted	$	0.46		$	0.25		$	0.86		$	0.63

See accompanying Notes to Consolidated Financial Statements.

SUN COMMUNITIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands) (Unaudited)



	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Net income	$	45,116		$	24,170		$	82,243		$	57,771
Foreign currency translation loss adjustment	(1,913		)	(1,594		)	(3,488		)	(3,455		)
Total comprehensive income	43,203			22,576			78,755			54,316
Less: Comprehensive income attributable to noncontrolling interests	(2,494		)	(2,147		)	(3,458		)	(4,152		)
Comprehensive income attributable to Sun Communities, Inc.	40,709			20,429			75,297			50,164

See accompanying Notes to Consolidated Financial Statements.

SUN COMMUNITIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)



	Six Months Ended
	June 30, 2019			June 30, 2018
OPERATING ACTIVITIES
Net Cash Provided By Operating Activities	$	259,844		$	198,682
INVESTING ACTIVITIES
Investment in properties	(262,944		)	(157,863		)
Acquisitions of properties, net of cash acquired	(308,165		)	(260,426		)
Proceeds from dispositions of assets and depreciated homes, net	28,774			18,776
Purchases of notes receivable	—			(213		)
Repayments of notes and other receivables	2,307			1,478
Investments in nonconsolidated affiliates	(30,502		)	(9,243		)
Net Cash Used For Investing Activities	(570,530		)	(407,491		)
FINANCING ACTIVITIES
Issuance of common stock, OP units, and preferred OP units, net	443,420			85,969
Redemption of Series B-3 preferred OP units	(2,675		)	(4,105		)
Borrowings on lines of credit	2,345,659			1,041,876
Payments on lines of credit	(2,397,580		)	(546,839		)
Proceeds from issuance of other debt	265,000			—
Payments on other debt	(223,559		)	(235,174		)
Prepayment penalty on debt	—			(1,718		)
Proceeds received from return of prepaid deferred financing costs	1,618			—
Distributions to stockholders, OP unit holders, and preferred OP unit holders	(133,989		)	(117,054		)
Payments for deferred financing costs	(3,875		)	(602		)
Net Cash Provided By Financing Activities	294,019			222,353
Effect of exchange rate changes on cash, cash equivalents and restricted cash	443			(252		)
Net change in cash, cash equivalents and restricted cash	(16,224		)	13,292
Cash, cash equivalents and restricted cash, beginning of period	62,262			23,509
Cash, cash equivalents and restricted cash, end of period (see Note 16)	$	46,038		$	36,801



	Six Months Ended
	June 30, 2019		June 30, 2018
SUPPLEMENTAL INFORMATION
Cash paid for interest (net of capitalized interest of $3,283 and $2,205 respectively)	$	66,947	$	62,648
Cash paid for interest on mandatorily redeemable debt	$	2,275	$	1,399
Cash paid for income taxes	$	703	$	680
Noncash investing and financing activities
Reduction in secured borrowing balance	$	9,432	$	10,940
Change in distributions declared and outstanding	$	6,401	$	4,106
Conversion of common and preferred OP units	$	527	$	1,120
Conversion of Series A-4 preferred stock	$	337	$	675
Noncash investing and financing activities at the date of acquisition:
Acquisitions - Equity Interests - NG Sun LLC (see Note 8)	$	—	$	21,869
Acquisitions - Preferred Equity - Sun NG RV Resorts LLC (see Note 8)	$	—	$	35,277
Acquisitions - Debt assumed	$	—	$	3,012
Acquisitions - Series D preferred interest	$	51,930	$	—
Acquisitions - Escrow	$	1,395	$	—

See accompanying Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENT OF EQUITY

(In thousands) (Unaudited)



	Temporary Equity			Stockholders’ Equity
				Common Stock		Additional Paid-in Capital			Distributions in Excess of Accumulated Earnings			Accumulated Other Comprehensive Income / (Loss)			Non-controlling Interests			Total Stockholders’ Equity			Total Equity
Balance at December 31, 2018	$	63,592		$	864	$	4,398,949		$	(1,288,486	)	$	(4,504	)	$	60,499		$	3,167,322		$	3,230,914
Issuance of common stock and common OP units, net	—			1		(4,322		)	—			—			—			(4,321		)	(4,321		)
Conversion of OP units	—			—		280			—			—			(280		)	—			—
Accrued Equity Interests - NG Sun LLC	256			—		—			(65		)	—			(191		)	(256		)	—
Share-based compensation - amortization and forfeitures	—			—		3,719			74			—			—			3,793			3,793
Issuance of Series D OP Units	51,930			—		—			—			—			—			—			51,930
Foreign currency translation	—			—		—			—			1,498			77			1,575			1,575
Net income	178			—		—			36,086			—			863			36,949			37,127
Distributions	(528		)	—		15			(65,214		)	—			(2,954		)	(68,153		)	(68,681		)
Balance at March 31, 2019	$	115,428		$	865	$	4,398,641		$	(1,317,605	)	$	(3,006	)	$	58,014		$	3,136,909		$	3,252,337
Issuance of common stock and common OP units, net	—			37		447,704			—			—			—			447,741			447,741
Conversion of OP units	(112		)	5		242			—			—			(135		)	112			—
Conversion of Series A-4 preferred stock	(337		)	—		337			—			—			—			337			—
Accrued Equity Interests - NG Sun LLC	117			—		—			(308		)	—			191			(117		)	—
Share-based compensation - amortization and forfeitures	—			—		4,414			84			—			—			4,498			4,498
Issuance of Series D OP Units	—			—		—			—			—			—			—			—
Foreign currency translation	—			—		—			—			1,822			91			1,913			1,913
Net income	15			—		—			42,531			—			2,570			45,101			45,116
Distributions	(558		)	—		(15		)	(68,494		)	—			(2,642		)	(71,151		)	(71,709		)
Balance at June 30, 2019	$	114,553		$	907	$	4,851,323		$	(1,343,792	)	$	(1,184	)	$	58,089		$	3,565,343		$	3,679,896



				Stockholders’ Equity
	Temporary Equity			Common Stock		Additional Paid-in Capital			Distributions in Excess of Accumulated Earnings			Accumulated Other Comprehensive Income / (Loss)			Non-controlling Interests			Total Stockholders’ Equity			Total Equity
Balance at December 31, 2017	$	43,066		$	797	$	3,758,533		$	(1,162,001	)	$	1,102		$	65,256		$	2,663,687		$	2,706,753
Issuance of common stock and common OP units, net	—			2		(3,298		)	—			—			—			(3,296		)	(3,296		)
Conversion of OP units	(60		)	—		342			—			—			(283		)	59			(1		)
Share-based compensation - amortization and forfeitures	—			—		3,489			90			—			—			3,579			3,579
Foreign currency translation	—			—		—			—			(1,772		)	(89		)	(1,861		)	(1,861		)
Net income	71			—		—			31,507			—			2,023			33,530			33,601
Distributions	(171		)	—		—			(57,159		)	—			(2,888		)	(60,047		)	(60,218		)
Balance at March 31, 2018	$	42,906		$	799	$	3,759,066		$	(1,187,563	)	$	(670	)	$	64,019		$	2,635,651		$	2,678,557
Issuance of common stock and common OP units, net	—			10		89,255			—			—			—			89,265			89,265
Conversion of OP units	(233		)	—		778			—			—			(544		)	234			1
Conversion of Series A-4 preferred stock	(675		)	—		675			—			—			—			675			—
Share-based compensation - amortization and forfeitures	—			—		4,283			91			—			—			4,374			4,374
Foreign currency translation	—			—		—			—			(1,514		)	(80		)	(1,594		)	(1,594		)
Acquisition of noncontrolling interests	21,869			—		—			—			—			—			—			21,869
Net income	48			—		—			21,943			—			2,179			24,122			24,170
Distributions	(170		)	—		—			(57,865		)	—			(2,880		)	(60,745		)	(60,915		)
Balance at June 30, 2018	$	63,745		$	809	$	3,854,057		$	(1,223,394	)	$	(2,184	)	$	62,694		$	2,691,982		$	2,755,727

See accompanying Notes to Consolidated Financial Statements.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

Sun Communities, Inc., a Maryland corporation, and all wholly-owned or majority-owned and controlled subsidiaries, including Sun Communities Operating Limited Partnership (the “Operating Partnership”) and Sun Home Services, Inc. (“SHS”) are referred to herein as the “Company,” “us,” “we,” and “our.”

We follow accounting standards set by the Financial Accounting Standards Board (“FASB”). FASB sets generally accepted accounting principles (“GAAP”), which we follow to ensure that we consistently report our financial condition, results of operations, and cash flows. References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification (“ASC”).

These unaudited Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information and in accordance with GAAP. Pursuant to the SEC rules and regulations we present interim disclosures and certain information and footnote disclosures as required. Accordingly, the unaudited Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying unaudited Consolidated Financial Statements reflect, in the opinion of management, all adjustments, including adjustments of a normal and recurring nature, necessary for a fair presentation of the interim financial statements. All intercompany transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period financial statements in order to conform to current period presentation.

The results of operations for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. These unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC on February 21, 2019 (the “2018 Annual Report”). These statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our 2018 Annual Report.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

2. Revenue

Disaggregation of Revenue

The following tables details our revenue by major source (in thousands):



	Three Months Ended
	June 30, 2019						June 30, 2018
	Real Property Operations		Home Sales and Rentals		Consolidated		Real Property Operations		Home Sales and Rentals		Consolidated
Revenue
Income from real property	$	226,099	$	—	$	226,099	$	198,670	$	—	$	198,670
Revenue from home sales	—		47,242		47,242		—		41,217		41,217
Rental home revenue	—		14,412		14,412		—		13,348		13,348
Ancillary revenue	17,265		—		17,265		12,031		—		12,031
Interest Income	4,919		—		4,919		5,277		—		5,277
Brokerage commissions and other revenues, net	2,508		—		2,508		891		—		891
Total revenue	$	250,791	$	61,654	$	312,445	$	216,869	$	54,565	$	271,434



	Six Months Ended
	June 30, 2019						June 30, 2018
	Real Property Operations		Home Sales and Rentals		Consolidated		Real Property Operations		Home Sales and Rentals			Consolidated
Revenue
Income from real property	$	442,878	$	—	$	442,878	$	395,881	$	—		$	395,881
Revenue from home sales	—		86,860		86,860		—		76,117		<