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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 September 30, 2019.

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

SUN COMMUNITIES INC.

(Exact Name of Registrant as Specified in its Charter)



Maryland	1-12616	38-2730780
(State of Incorporation)	Commission file number	(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 October 17, 2019: 90,687,618

INDEX




PART I – FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheets as of September 30, 2019 (Unaudited) and December 31, 2018	1
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)	2
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)	3
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 (Unaudited)	4
	Consolidated Statement of Equity for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)	5
	Notes to Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	48
Item 4.	Controls and Procedures	48

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 6.	Exhibits	51
	Signatures	52

SUN COMMUNITIES, INC.

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)



	(Unaudited)
	September 30, 2019			December 31, 2018
Assets
Land	$	1,311,103		$	1,201,945
Land improvements and buildings	6,200,895			5,586,250
Rental homes and improvements	614,002			571,661
Furniture, fixtures and equipment	251,363			201,090
Investment property	8,377,363			7,560,946
Accumulated depreciation	(1,619,924		)	(1,442,630		)
Investment property, net (including $341,563 and $308,171 for consolidated VIEs at September 30, 2019 and December 31, 2018; see Note 8)	6,757,439			6,118,316
Cash and cash equivalents	26,198			50,311
Marketable securities	64,818			49,037
Inventory of manufactured homes	55,234			49,199
Notes and other receivables, net	174,934			160,077
Collateralized receivables, net	93,054			106,924
Other assets, net (including $22,598 and $19,809 for consolidated VIEs at September 30, 2019 and December 31, 2018; see Note 8)	226,177			176,162
Total Assets	$	7,397,854		$	6,710,026
Liabilities
Mortgage loans payable (including $47,256 and $44,172 for consolidated VIEs at September 30, 2019 and December 31, 2018; see Note 8)	$	2,967,128		$	2,815,957
Secured borrowings on collateralized receivables	93,669			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	140,632			128,000
Distributions payable	69,726			63,249
Advanced reservation deposits and rent	137,797			133,698
Other liabilities (including $28,031 and $6,914 for consolidated VIEs at September 30, 2019 and December 31, 2018; see Note 8)	242,119			157,862
Total Liabilities	3,720,983			3,479,112
Commitments and contingencies (see Note 17)
Series A-4 preferred stock, $0.01 par value. Issued and outstanding: 1,052 September 30, 2019 and 1,063 December 31, 2018	31,402			31,739
Series A-4 preferred OP units	9,540			9,877
Series D preferred OP units	51,248			—
Equity interests - NG Sun LLC and NG Whitewater (fully attributable to consolidated VIEs; see Note 8)	27,461			21,976
Stockholders' Equity
Common stock, $0.01 par value. Authorized: 180,000 shares; Issued and outstanding: 90,690 September 30, 2019 and 86,357 December 31, 2018	907			864
Additional paid-in capital	4,854,958			4,398,949
Accumulated other comprehensive loss	(2,825		)	(4,504		)
Distributions in excess of accumulated earnings	(1,353,214		)	(1,288,486		)
Total Sun Communities, Inc. stockholders' equity	3,499,826			3,106,823
Noncontrolling interests
Common and preferred OP units	49,540			53,354
Consolidated variable interest entities	7,854			7,145
Total noncontrolling interests	57,394			60,499
Total Stockholders' Equity	3,557,220			3,167,322
Total Liabilities, Temporary Equity and Stockholders' Equity	$	7,397,854		$	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						Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Revenues
Income from real property	$	256,423		$	229,607		$	699,301		$	625,488
Revenue from home sales	49,805			46,131			136,665			122,248
Rental home revenue	14,444			13,589			42,827			39,957
Ancillary revenue	31,999			27,608			57,746			46,207
Interest income	4,770			5,256			14,489			15,849
Brokerage commissions and other revenues, net	5,002			1,222			11,190			3,073
Total Revenues	362,443			323,413			962,218			852,822
Expenses
Property operating and maintenance	79,095			71,656			202,892			181,977
Real estate taxes	15,399			14,533			46,455			42,445
Cost of home sales	36,318			33,692			100,030			91,195
Rental home operating and maintenance	6,008			6,236			15,887			16,778
Ancillary expenses	18,707			15,361			38,288			28,985
Home selling expenses	3,988			4,043			10,938			11,319
General and administrative expenses	22,975			19,763			68,559			60,972
Catastrophic weather related charges, net	341			173			1,302			(1,987		)
Depreciation and amortization	76,532			71,982			229,241			206,192
Loss on extinguishment of debt	12,755			528			13,478			1,255
Interest expense	32,219			33,932			99,894			98,321
Interest on mandatorily redeemable preferred OP units / equity	1,216			1,142			3,491			2,551
Total Expenses	305,553			273,041			830,455			740,003
Income Before Other Items	56,890			50,372			131,763			112,819
Remeasurement of marketable securities	12,661			—			16,548			—
Other income / (expense), net	(4,408		)	1,231			(1,489		)	(3,214		)
Income from nonconsolidated affiliates	77			126			814			59
Current tax expense	(420		)	(213		)	(906		)	(612		)
Deferred tax benefit / (expense)	(349		)	199			(36		)	434
Net Income	64,451			51,715			146,694			109,486
Less: Preferred return to preferred OP units / equity	(1,599		)	(1,152		)	(4,640		)	(3,335		)
Less: Amounts attributable to noncontrolling interests	(5,422		)	(4,071		)	(9,048		)	(8,392		)
Net Income attributable to Sun Communities, Inc.	57,430			46,492			133,006			97,759
Less: Preferred stock distribution	(428		)	(432		)	(1,288		)	(1,305		)
Net Income attributable to Sun Communities, Inc. common stockholders	$	57,002		$	46,060		$	131,718		$	96,454

Weighted average common shares outstanding - basic	89,847			81,599			87,499			80,022
Weighted average common shares outstanding - diluted	90,332			82,081			87,931			80,024

Basic earnings per share (see Note 14)	$	0.63		$	0.56		$	1.49		$	1.19
Diluted earnings per share (see Note 14)	$	0.63		$	0.56		$	1.50		$	1.19

See accompanying Notes to Consolidated Financial Statements.

SUN COMMUNITIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands) (Unaudited)



	Three Months Ended						Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Net Income	$	64,451		$	51,715		$	146,694		$	109,486
Foreign currency translation gain / (loss) adjustment	(1,717		)	1,890			1,771			(1,565		)
Total Comprehensive Income	62,734			53,605			148,465			107,921
Less: Comprehensive Income attributable to noncontrolling interests	(5,346		)	(4,167		)	(9,140		)	(8,319		)
Comprehensive Income attributable to Sun Communities, Inc.	$	57,388		$	49,438		$	139,325		$	99,602

See accompanying Notes to Consolidated Financial Statements.

SUN COMMUNITIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)



	Nine Months Ended
	September 30, 2019			September 30, 2018
Operating Activities
Net Cash Provided By Operating Activities	$	398,293		$	301,204
Investing Activities
Investment in properties	(412,092		)	(257,017		)
Acquisitions of properties, net of cash acquired	(403,889		)	(305,724		)
Proceeds from dispositions of assets and depreciated homes, net	43,157			34,825
Issuance of notes and other receivables	(30,186		)	(216		)
Repayments of notes and other receivables	3,249			2,880
Investments in nonconsolidated affiliates	(42,896		)	(19,851		)
Distributions from nonconsolidated affiliates	43,406			—
Net Cash Used For Investing Activities	(799,251		)	(545,103		)
Financing Activities
Issuance of common stock, OP units, and preferred OP units, net	441,871			624,152
Redemption of Series B-3 preferred OP units	(2,675		)	(4,105		)
Borrowings on lines of credit	2,681,980			1,187,098
Payments on lines of credit	(2,669,348		)	(1,228,907		)
Proceeds from issuance of other debt	523,721			228,336
Payments on other debt	(372,219		)	(275,401		)
Prepayment penalty on debt	(12,610		)	(2,024		)
Proceeds received from return of prepaid deferred financing costs	1,618			—
Distributions to stockholders, OP unit holders, and preferred OP unit holders	(205,639		)	(177,926		)
Payments for deferred financing costs	(6,568		)	(1,645		)
Net Cash Provided By Financing Activities	380,131			349,578
Effect of exchange rate changes on cash, cash equivalents and restricted cash	291			(94		)
Net change in cash, cash equivalents and restricted cash	(20,536		)	105,585
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)	$	41,726		$	129,094



	Nine Months Ended
	September 30, 2019		September 30, 2018
Supplemental Information
Cash paid for interest (net of capitalized interest of $5,673 and $3,216 respectively)	$	99,925	$	94,801
Cash paid for interest on mandatorily redeemable debt	$	3,132	$	2,551
Cash paid (refunds) for income taxes	$	818	$	741
Noncash investing and financing activities
Reduction in secured borrowing balance	$	14,062	$	16,093
Change in distributions declared and outstanding	$	6,442	$	7,991
Conversion of common and preferred OP units	$	1,411	$	1,489
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)	$	—	$	21,976
Acquisitions - Preferred Equity - Sun NG RV Resorts LLC (see Note 8)	$	—	$	35,277
Acquisitions - Debt assumed	$	3,900	$	3,120
Acquisitions - Series D preferred interest	$	51,930	$	—
Acquisitions - Escrow	$	1,395	$	—
Acquisitions - Deferred liability	$	12,597	$	—

See accompanying Notes to Consolidated Financial Statements.

SUN COMMUNITIES, INC.

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		)	—			—
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			—
Equity Interests - NG Sun LLC	117			—		—			(308		)	—			191			(117		)	—
Share-based compensation - amortization and forfeitures	—			—		4,414			84			—			—			4,498			4,498
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
Issuance of common stock and common OP units, net	—			—		(1,549		)	—			—			—			(1,549		)	(1,549		)
Conversion of OP units	—			—		884			—			—			(884		)	—			—
Equity Interests - NG Sun LLC	788			—		—			(93		)	—			—			(93		)	695
Equity Interests - NG Sun Whitewater LLC	2,404			—		—			—			—			—			—			2,404
Share-based compensation - amortization and forfeitures	—			—		4,300			82			—			—			4,382			4,382
Foreign currency translation	—			—		—			—			(1,641		)	(76		)	(1,717		)	(1,717		)
Net income	2,533			—		—			59,028			—			2,890			61,918			64,451
Distributions	(627		)	—		—			(68,439		)	—			(2,625		)	(71,064		)	(71,691		)
Balance at September 30, 2019	$	119,651		$	907	$	4,854,958		$	(1,353,214	)	$	(2,825	)	$	57,394		$	3,557,220		$	3,676,871

SUN COMMUNITIES, INC.

CONSOLIDATED STATEMENT OF EQUITY

(In thousands) (Unaudited) - (Continued)



				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		)
Equity Interests - NG Sun LLC	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
Issuance of common stock and common OP units, net	—			54		538,129			—			—			—			538,183