Sun Communities Annual Report 2013

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-KANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2013Commission file number 1-12616SUN 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)Common Stock, Par Value $0.01 per Share New York Stock ExchangeSecurities Registered Pursuant to Section 12(b) of the Act Name of each exchange on which registered7.125% Series A Cumulative Redeemable Preferred Stock, Par Value $0.01per Share New York Stock ExchangeSecurities Registered Pursuant to Section 12(b) of the Act Name of each exchange on which registeredSecurities Registered Pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] No [ ]Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [ ] No [X]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 12months (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[ ]Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted 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 tosubmit and post such files). Yes [ X ] No [ ]Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. (Check one):Large accelerated filer [ X ]Accelerated filer [ ]Non-accelerated filer [ ]Smaller reporting company [ ]Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes[ ] No [X]As of June 30, 2013, the aggregate market value of the Registrant’s stock held by non-affiliates was approximately $1,699,804,983.68 (computed by reference to the closingsales price of the Registrant’s common stock as of June 30, 2013). For this computation, the Registrant has excluded the market value of all shares of common stock reported asbeneficially owned by executive officers and directors of the Registrant; such exclusion shall not be deemed to constitute an admission that any such person is an affiliate of theRegistrant.Number of shares of common stock, $0.01 par value per share, outstanding as of February 14, 2014: 36,168,663SUN COMMUNITIES, INC.Table of ContentsItemDescriptionPage Part I. Item 1.Business4Item 1A.Risk Factors9Item 1B.Unresolved Staff Comments21Item 2.Properties22Item 3.Legal Proceedings29Item 4.Mine Safety Disclosures29 Part II. Item 5.Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities29Item 6.Selected Financial Data33Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations34Item 7A.Quantitative and Qualitative Disclosures about Market Risk55Item 8.Financial Statements and Supplementary Data56Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure56Item 9A.Controls and Procedures57Item 9B.Other Information58 Part III. Item 10.Directors, Executive Officers and Corporate Governance59Item 11.Executive Compensation66Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters79Item 13.Certain Relationships and Related Transactions, and Director Independence81Item 14.Principal Accountant Fees and Services83 Part IV. Item 15.Exhibits and Financial Statement Schedules843SUN COMMUNITIES, INC.PART IITEM 1. BUSINESSGENERALSun Communities, Inc., a Maryland corporation, together with the Sun Communities Operating Limited Partnership, a Michigan limited partnership (the“Operating Partnership”) and other consolidated subsidiaries are referred to herein as the “Company”, “us”, “we”, and “our”. We are a self-administered andself-managed real estate investment trust (“REIT”).We are a fully integrated real estate company which, together with our affiliates and predecessors, has been in the business of acquiring, operating, developingand expanding manufactured housing ("MH") and recreational vehicle ("RV") communities since 1975. We lease individual parcels of land (“sites”) withutility access for placement of manufactured homes and RVs to our customers. We are also engaged through a taxable subsidiary, Sun Home Services, Inc., aMichigan corporation (“SHS”), in the marketing, selling, and leasing of new and pre-owned homes to current and future residents in our communities. Theoperations of SHS support and enhance our occupancy levels, property performance, and cash flows.We own, operate, and develop MH and RV communities concentrated in the midwestern, southern, and southeastern United States. As of December 31, 2013,we owned and operated a portfolio of 188 properties located in 26 states (the “Properties”, or “Property”), including 150 MH communities, 27 RVcommunities, and 11 Properties containing both MH and RV sites. As of December 31, 2013, the Properties contained an aggregate of 69,789 developed sitescomprised of 54,168 developed manufactured home sites, 7,633 annual RV sites (inclusive of both annual and seasonal usage rights), 7,988 transient RVsites, and approximately 6,300 additional manufactured home sites suitable for development.Our executive and principal property management office is located at 27777 Franklin Road, Suite 200, Southfield, Michigan 48034 and our telephone numberis (248) 208-2500. We have regional property management offices located in Austin, Texas; San Antonio, Texas; Dayton, Ohio; Grand Rapids, Michigan;Elkhart, Indiana; Indianapolis, Indiana; Traverse City, Michigan; Charlotte, North Carolina; Denver, Colorado; Ft. Myers, Florida and Orlando, Florida;and we employed an aggregate of 1,236 full and part time employees as of December 31, 2013.Our website address is www.suncommunities.com and we make available, free of charge, on or through our website all of our periodic reports, including ourannual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as soon as reasonably practicable after we file such reportswith the Securities and Exchange Commission (the "SEC").STRUCTURE OF THE COMPANYThe Operating Partnership is structured as an umbrella partnership REIT, or UPREIT. In 1993, we contributed our net assets to the Operating Partnership inexchange for the sole general partner interest in the Operating Partnership and the majority of all the Operating Partnership’s initial capital. We substantiallyconduct our operations through the Operating Partnership. The Operating Partnership owns, either directly or indirectly through subsidiaries, all of our assets.This UPREIT structure enables us to comply with certain complex requirements under the federal tax rules and regulations applicable to REITs, and to acquireMH and RV communities in transactions that defer some or all of the sellers’ tax consequences. The financial results of the Operating Partnership and ourother subsidiaries are consolidated in our consolidated financial statements. The financial results include certain activities that do not necessarily qualify asREIT activities under the Internal Revenue Code of 1986, as amended (the “Code”). We have formed taxable REIT subsidiaries, as defined in the Code, toengage in such activities. We use taxable REIT subsidiaries to offer certain services to our residents and engage in activities that would not otherwise bepermitted under the REIT rules if provided directly by us or by the Operating Partnership. The taxable REIT subsidiaries include our home sales business,SHS, which provides manufactured home sales, leasing and other services to current and prospective tenants of the Properties.We do not own all of the Operating Partnership units ("OP units"). As of December 31, 2013, the Operating Partnership had issued and outstanding38,209,616 common OP units, 3,400,000 7.125% Series A Cumulative Redeemable Preferred OP Units (the "7.125% Series A OP Units"), 1,325,275preferred OP units ("Aspen preferred OP units"), 455,476 Series A-1 preferred OP units, 112,400 Series B-3 preferred OP units and 40,267.50 Series A-3preferred OP units. As of December 31, 2013, we held 36,140,294 common OP units, or approximately 94.6% of the issued and outstanding common OPunits, all of the 7.125% Series A OP Units and no Aspen preferred OP units, Series A-1 preferred OP units, Series B-3 preferred OP units or Series A-3preferred OP units.Subject to certain limitations, the holder of each common OP unit at its option may convert such common OP unit at any time into one share of our commonstock. The holders of common OP units receive distributions on the same dates and in amounts equal4SUN COMMUNITIES, INC.to the distributions paid to holders of our common stock.Subject to certain limitations, at any time prior to January 1, 2024, the holder of each Aspen preferred OP unit at its option may convert such Aspen preferredOP unit into: (a) if the market price of our common stock is $68.00 per share or less, 0.397 common OP units, or (b) if the market price of our commonstock is greater than $68.00 per share, that number of common OP units determined by dividing (i) the sum of (A) $27.00 plus (B) 25% of the amount bywhich the market price of our common stock exceeds $68.00 per share, by (ii) the per-share market price of our common stock. The holders of Aspenpreferred OP units generally receive distributions on the same dates as distributions are paid to holders of common OP units. Each Aspen preferred OP unit isentitled to receive distributions in an amount equal to the product of (x) $27.00, multiplied by (y) an annual rate equal to the 10-year United States Treasurybond yield plus 239 basis points; provided, however, that the aggregate distribution rate shall not be less than 6.5% nor more than 9%. On January 2, 2024,we are required to redeem all Aspen preferred OP units that have not been converted to common OP Units. In addition, we are required to redeem the Aspenpreferred OP units of any holder thereof within five days after receipt of a written demand during the existence of certain uncured Aspen preferred OP unitdefaults, including our failure to pay distributions on the Aspen preferred OP units when due and our failure to provide certain security for the payment ofdistributions on the Aspen preferred OP units. We may also redeem Aspen preferred OP units from time to time if we and the holder thereof agree to do so.Subject to certain limitations, the holder of each Series A-1 preferred OP unit at its option may exchange such Series A-1 preferred OP unit at any time on orafter December 31, 2013, into 2.439 shares of our common stock (which exchange rate is subject to adjustment upon stock splits, recapitalizations andsimilar events). The holders of Series A-1 preferred OP units generally receive distributions on the same dates as distributions are paid to holders of commonOP units. Each Series A-1 preferred OP unit is entitled to receive distributions in an amount equal to the product of $100.00 multiplied by an annual rate equalto 5.1% until June 23, 2013, and an annual rate equal to 6.0% thereafter.Series B-3 preferred OP units are not convertible. The holders of Series B-3 preferred OP units generally receive distributions on the same dates as distributionsare paid to holders of common OP units. Each Series B-3 preferred OP unit is entitled to receive distributions in an amount equal to the product of $100.00multiplied by an annual rate equal to 8.0%. As of December 31, 2013, there were 36,700 outstanding Series B-3 preferred OP units which were issued onDecember 1, 2002, 33,450 outstanding Series B-3 preferred OP units which were issued on January 1, 2003, and 42,250 outstanding Series B-3 preferred OPunits which were issued on January 5, 2004. Subject to certain limitations, (x) during the 90-day period beginning on each of the tenth through fifteenthanniversaries of the issue date of the applicable Series B-3 preferred OP Units, (y) at any time after the fifteenth anniversary of the issue date of the applicableSeries B-3 preferred OP Units, or (z) after our receipt of notice of the death of the electing holder of a Series B-3 preferred OP unit, each holder of Series B-3preferred OP Units may require us to redeem such holder's Series B-3 preferred OP units at the redemption price of $100.00 per unit. In addition, at any timeafter the fifteenth anniversary of the issue date of the applicable Series B-3 preferred OP units we may redeem, at our option, all of the Series B-3 preferred OPunits of any holder thereof at the redemption price of $100.00 per unit.In connection with the issuance of the 7.125% Series A Cumulative Redeemable Preferred Stock ("Series A Preferred Stock"), the Operating Partnershipcreated the 7.125% Series A OP Units as a new class of OP units. All of the outstanding 7.125% Series A OP Units are held by us and they have rights,preferences and other terms substantially similar to the Series A Preferred Stock, including rights to receive distributions at the same time and in the sameamounts as distributions paid on Series A Preferred Stock. The Operating Partnership issued the 7.125% Series A OP Units to us in consideration of ourcontributing to the Operating Partnership the net proceeds of our November 2012 offering of shares of Series A Preferred Stock. The 7.125% Series A OPUnits rank senior in all respects to the Aspen preferred OP units, the Series A-1 preferred OP units, the Series A-3 preferred OP units, the Series B-3 preferredOP units and the common OP units. So long as any Aspen preferred OP units remain issued and outstanding, the Operating Partnership may not issue anyOP units that are not junior to the Aspen preferred OP units without the written consent of holders of a majority of the Aspen preferred OP units. Holders of amajority of the Aspen preferred OP units have consented to the issuance of up to $150.0 million in OP units senior to the Aspen preferred OP units, includingthe 7.125% Series A OP Units issued to us. Holders of a majority of the Aspen preferred OP units have previously consented to the issuance of up toapproximately an additional $54.5 million of OP Units that are pari passu with the Aspen preferred OP units.Subject to certain limitations, including certain contractual restrictions contained in the related acquisition agreements, the holder of each Series A-3 preferredOP unit at its option may exchange such Series A-3 preferred OP unit at any time into 1.8605 shares of our common stock (which exchange rate is subject toadjustment upon stock splits, recapitalizations and similar events). The holders of Series A-3 preferred OP units generally receive distributions on the samedates as distributions are paid to holders of common OP Units. Each Series A-3 preferred OP unit is entitled to receive distributions in an amount equal to theproduct of $100.00 multiplied by an annual rate equal to 4.5%.5SUN COMMUNITIES, INC.REAL PROPERTY OPERATIONSProperties are designed and improved for several home options of various sizes and designs and consist of MH communities and RV communities.An MH community is a residential subdivision designed and improved with sites for the placement of manufactured homes and related improvements andamenities. Manufactured homes are detached, single‑family homes which are produced off‑site by manufacturers and installed on sites within the community.Manufactured homes are available in a wide array of designs, providing owners with a level of customization generally unavailable in other forms of multi-family housing developments.Modern manufactured housing communities, such as the Properties, contain improvements similar to other garden‑style residential developments, includingcentralized entrances, paved streets, curbs and gutters, and parkways. In addition, these communities also often provide a number of amenities, such as aclubhouse, a swimming pool, shuffleboard courts, tennis courts, and laundry facilities.An RV community is a resort or park designed and improved with sites for the placement of RVs for varied lengths of time. Properties may also providevacation rental homes. RV communities, such as the Properties, include a number of amenities, such as restaurants, golf courses, swimming pools, tenniscourts, fitness centers, planned activities and spacious social facilities.The owner of each home on our Properties leases the site on which the home is located. We own the underlying land, utility connections, streets, lighting,driveways, common area amenities and other capital improvements and are responsible for enforcement of community guidelines and maintenance. Some ofthe Properties provide water and sewer service through public or private utilities, while others provide these services to residents from on‑site facilities. Eachowner of a home within our Properties is responsible for the maintenance of the home and leased site. As a result, capital expenditure needs tend to be lesssignificant relative to multi‑family rental apartment complexes.PROPERTY MANAGEMENTOur property management strategy emphasizes intensive, hands‑on management by dedicated, on‑site district and community managers. We believe that thison‑site focus enables us to continually monitor and address resident concerns, the performance of competitive properties and local market conditions. As ofDecember 31, 2013, we employed 1,236 full and part time employees, of which 765 were located on‑site as property managers, support staff, or maintenancepersonnel.Our community managers are overseen by John B. McLaren, our President and Chief Operating Officer, who has been in the manufactured housing industrysince 1995, three Senior Vice Presidents of Operations and Sales, two Division Vice Presidents and 18 Regional Vice Presidents. The Regional Vice Presidentsare responsible for semi-annual market surveys of competitive communities, interaction with local manufactured home dealers, regular property inspectionsand oversight of property operations and sales functions for eight to twelve properties.Each district or community manager performs regular inspections in order to continually monitor the Property’s physical condition and to effectively addresstenant concerns. In addition to a district or community manager, each district or property has on-site maintenance personnel and management support staff.We hold mandatory training sessions for all new property management personnel to ensure that management policies and procedures are executed effectivelyand professionally. All of our property management personnel participate in on-going training to ensure that changes to management policies and procedures areimplemented consistently. We offer approximately 300 courses for our team members through our Sun University, which has led to increased knowledge andaccountability for daily operations and policies and procedures.HOME SALES AND RENTALSSHS is engaged in the marketing, selling and leasing of new and pre-owned homes to current and future residents in our communities. Since tenants oftenpurchase a home already on-site within a community, such services enhance occupancy and property performance. Additionally, because many of the homeson the Properties are sold through SHS, better control of home quality in our communities can be maintained than if sales services were conducted solelythrough third-party brokers. SHS also leases homes to prospective tenants. At December 31, 2013, SHS had 9,726 occupied leased homes in its portfolio.Homes for this rental program (the "Rental Program") are purchased at discounted rates from finance companies that hold repossessed homes within ourcommunities. New homes are also purchased for the Rental Program. Leases associated with the Rental Program generally have a term of one year. The RentalProgram requires intensive management of costs associated with repair and refurbishment of these homes as the tenants vacate and the homes are re-leased,similar to apartment rentals. We received approximately 31,0006SUN COMMUNITIES, INC.applications during 2013 to live in our Properties, providing a significant "resident boarding" system allowing us to market purchasing a home to the bestapplicants and to rent to the remainder of approved applicants. Through the Rental Program we are able to demonstrate our product and lifestyle to the renters,while monitoring their payment history and converting qualified renters to owners.REGULATIONS AND INSURANCEGeneralMH and RV community properties are subject to various laws, ordinances and regulations, including regulations relating to recreational facilities such asswimming pools, clubhouses and other common areas. We believe that each Property has the necessary operating permits and approvals.InsuranceOur management believes that the Properties are covered by adequate fire, flood (where appropriate), property and business interruption insurance provided byreputable companies with commercially reasonable deductibles and limits. We maintain a blanket policy that covers all of our Properties. We have obtainedtitle insurance insuring fee title to the Properties in an aggregate amount which we believe to be adequate. Claims made to our insurance carriers that aredetermined to be recoverable are classified in other receivables as incurred.SITE LEASES OR USAGE RIGHTSThe typical lease we enter into with a tenant for the rental of a manufactured home site is month‑to‑month or year‑to‑year, renewable upon the consent of bothparties, or, in some instances, as provided by statute. A small number of our leases, mainly Florida properties, are tied to consumer price index or otherindices as it relates to rent increase. Generally, market rate adjustments are made on an annual basis. These leases are cancelable for non‑payment of rent,violation of community rules and regulations or other specified defaults. During the five calendar years ended December 31, 2013, on average 2.5% of thehomes in our communities have been removed by their owners and 4.8% of the homes have been sold by their owners to a new owner who then assumes rentalobligations as a community resident. The cost to move a home is approximately $4,000 to $10,000. The average resident remains in our communities forapproximately 20 years, while the average home, which gives rise to the rental stream, remains in our communities for approximately 40 years.At Properties zoned for RV use, our customers have short-term (“transient”) usage rights or long-term (“annual”) usage rights. The transient RV customerstypically prepay for their stay or leave deposits for the following season, whereas the annual RV customers prepay for their stay or leave a deposit to reserve asite. Many of these RV customers do not live full time on the Property.Please see the risk factors at Item 1A, and financial statements and related notes beginning on page F-1 of this Form 10-K for more detailed information.FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K contains various “forward-looking statements” within the meaning of the United States Securities Act of 1933, as amended(the "Securities Act"), and the United States Securities Exchange Act of 1934, as amended (the "Exchange Act"), and we intend that such forward-lookingstatements will be subject to the safe harbors created thereby. For this purpose, any statements contained in this filing that relate to expectations, beliefs,projections, future plans and strategies, trends or prospective events or developments and similar expressions concerning matters that are not historical factsare deemed to be forward-looking statements. Words such as “forecasts,” “intends,” “intend,” “intended,” “goal,” “estimate,” “estimates,” “expects,”“expect,” “expected,” “project,” “projected,” “projections,” “plans,” “predicts,” “potential,” “seeks,” “anticipates,” “anticipated,” “should,” “could,” “may,”“will,” “designed to,” “foreseeable future,” “believe,” “believes,” “scheduled” and similar expressions are intended to identify forward-looking statements,although not all forward looking statements contain these words. These forward-looking statements reflect our current views with respect to future events andfinancial performance, but involve known and unknown risks and uncertainties, both general and specific to the matters discussed in this filing. These risksand uncertainties may cause our actual results to be materially different from any future results expressed or implied by such forward-looking statements. Inaddition to the risks disclosed under “Risk Factors” contained in this Annual Report on Form 10-K and our other filings with the SEC, such risks anduncertainties include:•changes in general economic conditions, the real estate industry and the markets in which we operate;7SUN COMMUNITIES, INC.•difficulties in our ability to evaluate, finance, complete and integrate acquisitions, developments and expansions successfully;•our liquidity and refinancing demands;•our ability to obtain or refinance maturing debt;•our ability to maintain compliance with covenants contained in our debt facilities;•availability of capital;•difficulties in completing acquisitions;•our ability to maintain rental rates and occupancy levels;•our failure to maintain effective internal control over financial reporting and disclosure controls and procedures;•increases in interest rates and operating costs, including insurance premiums and real property taxes;•risks related to natural disasters;•general volatility of the capital markets and the market price of shares of our capital stock;•our failure to maintain our status as a REIT;•changes in real estate and zoning laws and regulations;•legislative or regulatory changes, including changes to laws governing the taxation of REITs;•litigation, judgments or settlements;•competitive market forces; and•the ability of manufactured home buyers to obtain financing and the level of repossessions by manufactured home lenders.Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. We undertakeno obligation to publicly update or revise any forward-looking statements included or incorporated by reference into this filing, whether as a result of newinformation, future events, changes in our expectations or otherwise.Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity,performance or achievements. All written and oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety bythese cautionary statements.8SUN COMMUNITIES, INC.ITEM 1A. RISK FACTORSOur prospects are subject to certain uncertainties and risks. Our future results could differ materially from current results, and our actual results could differmaterially from those projected in forward‑looking statements as a result of certain risk factors. These risk factors include, but are not limited to, those setforth below, other one‑time events, and important factors disclosed previously and from time to time in our other filings with the SEC.REAL ESTATE RISKSGeneral economic conditions and the concentration of our properties in Michigan, Florida, Indiana, and Texas may affect our ability to generatesufficient revenue.The market and economic conditions in our current markets generally, and specifically in metropolitan areas of our current markets, may significantly affectmanufactured home occupancy or rental rates. Occupancy and rental rates, in turn, may significantly affect our revenues, and if our communities do notgenerate revenues sufficient to meet our operating expenses, including debt service and capital expenditures, our cash flow and ability to pay or refinance ourdebt obligations could be adversely affected. We derive significant amounts of our rental income from properties located in Michigan, Florida, Indiana, andTexas. As of December 31, 2013, 74 of our 188 Properties, representing approximately 36% of developed sites, are located in Michigan; 27 Properties,representing approximately 19% of developed sites, are located in Florida; 18 Properties, representing approximately 9% of developed sites, are located inIndiana; and 18 Properties, representing approximately 9% of developed sites, are located in Texas. As a result of the geographic concentration of our Propertiesin Michigan, Florida, Indiana, and Texas, we are exposed to the risks of downturns in the local economy or other local real estate market conditions whichcould adversely affect occupancy rates, rental rates, and property values of properties in these markets.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 topromptly 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 thanexpected rates, then our business and results of operations could be adversely affected. In addition, certain expenditures associated with each Property (such asreal estate taxes and maintenance costs) generally are not reduced when circumstances cause a reduction in income from the Property. Furthermore, real estateinvestments are relatively illiquid and, therefore, will tend to limit our ability to vary our portfolio promptly in response to changes in economic or otherconditions.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 MH and RV sites or a reduction in demand for MH and RV sites in an area;•the number of repossessed homes in a particular market;•the lack of an established dealer network;•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 our Properties and the neighborhoods where they are located;•zoning or other regulatory restrictions;•competition from other available MH and RV communities and alternative forms of housing (such as apartment buildings and site‑builtsingle‑family homes);•our ability to provide adequate management, maintenance and insurance;9SUN COMMUNITIES, INC.REAL ESTATE RISKS, CONTINUED•increased operating costs, including insurance premiums, real estate taxes, and utilities; and•the enactment of rent control laws or laws taxing the owners of manufactured homes.Competition affects occupancy levels and rents which could adversely affect our revenues.All of our Properties are located in developed areas that include other MH and RV community properties. The number of competitive MH and RV communityproperties in a particular area could have a material adverse effect on our ability to lease sites and increase rents charged at our Properties or at any newlyacquired properties. We may be competing with others with greater resources and whose officers and directors have more experience than our officers anddirectors. In addition, other forms of multi‑family residential properties, such as private and federally funded or assisted multi‑family housing projects andsingle‑family housing, provide housing alternatives to potential tenants of MH and RV communities.Our ability to sell or lease manufactured homes may be affected by various factors, which may in turn adversely affect our profitability.SHS operates in the manufactured home market offering manufactured home sales and leasing services to tenants and prospective tenants of our communities.The market for the sale and lease 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 or decrease in the rate of manufactured home repossessions which provide aggressively priced competition to new manufactured homesales.Any of the above listed factors could adversely impact our rate of manufactured home sales and leases, which would result in a decrease in profitability.We may not be able to integrate or finance our acquisitions and our acquisitions may not perform as expected.We have acquired and intend to continue to acquire MH and RV communities on a select basis. Our acquisition activities and their success are subject to thefollowing risks:•we may be unable to acquire a desired property because of competition from other well capitalized real estate investors, including both publicly tradedreal estate investment trusts and institutional investment funds;•even if we enter into an acquisition agreement for a property, it is usually subject to customary conditions to closing, including completion of duediligence investigations to our satisfaction, which may not be satisfied;•even if we are able to acquire a desired property, competition from other real estate investors may significantly increase the purchase price;•we may be unable to finance acquisitions on favorable terms;•acquired properties may fail to perform as expected;•acquired properties may be located in new markets where we face risks associated with a lack of market knowledge or understanding of the localeconomy, lack of business relationships in the area and unfamiliarity with local governmental and permitting procedures; and•we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existingoperations.10SUN COMMUNITIES, INC.REAL ESTATE RISKS, CONTINUEDIf any of the above occurred, our business and results of operations could be adversely affected.In addition, we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As aresult, if a liability were to be asserted against us based upon ownership of those properties, we might have to pay substantial sums to settle it, which couldadversely affect our cash flow.Increases in taxes and regulatory compliance costs may reduce our revenue.Costs resulting from changes in real estate laws, income taxes, service or other taxes, generally are not passed through to tenants under leases and mayadversely affect our funds from operations and our ability to pay or refinance our debt. Similarly, changes in laws increasing the potential liability forenvironmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipatedexpenditures, which would adversely affect our business and results of operations.We may not be able to integrate or finance our expansion and development activities.From time to time, we engage in the construction and development of new communities or expansion of existing communities, and may continue to engage inthe development and construction business in the future. Our development and construction business may be exposed to the following risks which are inaddition to those risks associated with the ownership and operation of established MH and RV communities:•we may not be able to obtain financing with favorable terms for community development which may make us unable to proceed with thedevelopment;•we may be unable to obtain, or face delays in obtaining, necessary zoning, building and other governmental permits and authorizations, which couldresult in increased costs and delays, and even require us to abandon development of the community entirely if we are unable to obtain such permitsor authorizations;•we may abandon development opportunities that we have already begun to explore and as a result we may not recover expenses already incurred inconnection 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 constructioncosts;•we may incur construction and development costs for a community which exceed our original estimates due to increased materials, labor or othercosts, which could make completion of the community uneconomical and we may not be able to increase rents to compensate for the increase indevelopment 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.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 ofcapital improvements. Enactment of such laws has been considered from time to time in other jurisdictions. Certain Properties are located, and we maypurchase additional properties, in markets that are either subject to rent control or in which rent‑limiting legislation exists or may be enacted.11SUN COMMUNITIES, INC.REAL ESTATE RISKS, CONTINUEDWe 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 ofcertain hazardous substances at, on, under or in such property. Such laws often impose such liability without regard to whether the owner knew of, or wasresponsible for, the presence of such hazardous substances. The presence of such substances, or the failure to properly remediate such substances, mayadversely 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 arrangefor 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 treatmentfacility owned or operated by another person. In addition, certain environmental laws impose liability for the management and disposal of asbestos‑containingmaterials 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 propertiesfor personal injury associated with asbestos‑containing materials. In connection with the ownership, operation, management, and development of realproperties, we may be considered an owner or operator of such properties and, therefore, are potentially liable for removal or remediation costs, and also maybe liable for governmental fines and injuries to persons and property. When we arrange for the treatment or disposal of hazardous substances at landfills orother 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 wateranalysis) completed by independent environmental consultants. These environmental audits have not revealed any significant environmental liability thatwould have a material adverse effect on our business. These audits cannot reflect conditions arising after the studies were completed, and no assurances can begiven that existing environmental studies reveal all environmental liabilities, that any prior owner or operator of a property or neighboring owner or operator didnot create any material environmental condition not known to us, or that a material environmental condition does not otherwise exist as to any one or moreProperties.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. Certain types of losses, however, may be either uninsurable or not economicallyinsurable, 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 anticipatedprofits and cash flow from the affected property. Any loss could adversely affect our ability to repay our debt.FINANCING AND INVESTMENT RISKSOur 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, 2013, we had approximately $1.5 billion of total debt outstanding, consisting of approximately$1.2 billion in debt that is collateralized by mortgage liens on 113 of the Properties, $110.5 million that is secured by collateralized receivables, $181.4million that is collateralized by liens on manufactured homes and $47.0 million that is unsecured debt. If we fail to meet our obligations under our secureddebt, the lenders would be entitled to foreclose on all or some of the collateral securing such debt which could have a material adverse effect on us and ourability 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 flowto 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 incurringadditional 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;12SUN COMMUNITIES, INC.FINANCING AND INVESTMENT RISKS, CONTINUED•we may be placed at a competitive disadvantage compared to our competitors that have less debt; and•we may not be able to refinance at all or on favorable terms, as our debt matures.If any of the above risks occurred, our financial condition and results of operations could be materially adversely affected.We may incur substantially more debt, which would increase the risks associated with our substantial leverage.Despite our current indebtedness levels, we may incur substantially more debt in the future. If new debt is added to our current debt levels, an even greaterportion of our cash flow will be needed to satisfy our debt service obligations. As a result, the related risks that we now face could intensify and increase therisk of a default on our indebtedness.The financial condition and solvency of our borrowers may adversely affect our installment notes.As of December 31, 2013, we had approximately $135.3 million of installment notes, net of reserves, to owners of manufactured homes. These installmentloans are collateralized by the manufactured homes. We may invest in additional mortgages and installment loans in the future. By virtue of our investment inthe 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 installment notes receivable may be less than the amounts owed; and•interest rates payable on the installment notes receivable 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 RISKSWe 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 fortaxation as a REIT under the Code. Although we believe that we have been and will continue to be organized and have operated and will continue to operate soas to qualify for taxation as a REIT, we cannot be assured that we have been or will continue to be organized or operated in a manner to so qualify or remain soqualified. Qualification as a REIT involves the satisfaction of numerous requirements (some on an annual and quarterly basis) established under highlytechnical and complex Code provisions for which there are only limited judicial or administrative interpretations, and involves the determination of variousfactual matters and circumstances not entirely within our control. In addition, frequent changes occur in the area of REIT taxation, which require us tocontinually monitor our tax status.If we fail to qualify as a REIT in any taxable year, we could be subject to federal income tax (including any applicable alternative minimum tax) on our taxableincome 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 wouldreduce 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 certainfederal, state and local taxes on our property and certain of our operations.We intend for the Operating Partnership to be taxed 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 OperatingPartnership is deemed to be a “publicly traded partnership,” it will be treated as a corporation instead of a partnership for federal income tax purposes unlessat least 90% of its income is qualifying income as defined in the 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 ofreal13SUN COMMUNITIES, INC.TAX RISKS, CONTINUEDproperty rents, dividends and interest. We believe that the Operating Partnership has and will continue to meet this 90% test, but we cannot guarantee that ithas or will. If the Operating Partnership were to be taxed as a regular corporation, it would incur substantial tax liabilities, we would fail to qualify as a REITfor federal income tax purposes, and our ability to raise additional capital could be significantly impaired.Our ability to accumulate cash may be 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 dividendspaid and excluding net capital gain) and to avoid federal income taxation, our distributions must not be less than 100% of our REIT taxable income, includingcapital gains. As a result of the distribution requirements, we do not expect to accumulate significant amounts of cash. Accordingly, these distributions couldsignificantly reduce the cash available to us in subsequent periods to fund our operations and future growth.Our taxable REIT subsidiaries, or TRSs, are subject to special rules that may result in increased taxes.As a REIT, we must pay a 100% penalty tax on certain payments that we receive if the economic arrangements between us and any of our TRSs are notcomparable to similar arrangements between unrelated parties. The Internal Revenue Service may successfully assert that the economic arrangements of any ofour inter-company transactions are not comparable to similar arrangements between unrelated parties.Dividends payable by REITs do not qualify for the reduced tax rates applicable to certain dividends.The maximum federal tax rate for certain qualified dividends payable to domestic stockholders that are individuals, trusts and estates is 20%. Dividendspayable by REITs, however, are generally not eligible for this reduced rate. Although this legislation does not adversely affect the taxation of REITs ordividends paid by REITs, the more favorable rates applicable to regular qualified corporate dividends could cause investors who are individuals, trusts andestates to perceive investments in REITs to be relatively less competitive than investments in stock of non-REIT corporations that pay dividends, which couldadversely affect the comparative value of the stock of REITs, including our common stock and Series A Preferred Stock.Complying with REIT requirements may cause us to forego otherwise attractive opportunities.To remain qualified as a REIT for federal income tax purposes, we must continually satisfy requirements and tests under the tax law concerning, among otherthings, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock.In order to meet these tests, we may be required to forego or limit attractive business or investment opportunities and distribute all of our net earnings ratherthan invest in attractive opportunities or hold larger liquid reserves. Therefore, compliance with the REIT requirements may hinder our ability to operate solelyto maximize profits.Our ability to use net operating loss carryforwards to reduce future tax payments may be limited if we experience a change in ownership, or iftaxable income does not reach sufficient levels.Under Section 382 of the Code, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equityownership over a rolling three-year period), the corporation’s ability to use its pre-ownership-change net operating loss carryforwards to offset its post-ownership-change income may be limited. We may experience ownership changes in the future. If an ownership change were to occur, we would be limited inthe portion of net operating loss carryforwards that we could use in the future to offset taxable income for U.S. federal income tax purposes.BUSINESS RISKSSome of our directors and officers may have conflicts of interest with respect to certain related party transactions and other business interests.Ownership of Origen. We own 5,000,000 shares of Origen Financial, Inc. (“Origen”) common stock and Shiffman Origen LLC (which is owned by theMilton M. Shiffman Spouse’s Marital Trust, Gary A. Shiffman (our Chief Executive Officer), and members14SUN COMMUNITIES, INC.BUSINESS RISKS, CONTINUEDof Mr. Shiffman’s family) owns 1,025,000 shares of Origen common stock. Gary A. Shiffman is a member of the Board of Directors of Origen, and one ofour directors, Arthur A. Weiss, is a trustee of the Milton M. Shiffman Spouse’s Marital Trust. Accordingly, in all transactions involving Origen, Mr.Shiffman and/or Mr. Weiss may have a conflict of interest with respect to their respective obligations as our officer and/or director.Lease of Executive Offices. Gary A. Shiffman, together with certain of his family members, indirectly owns a 21% equity interest in American Center LLC,the entity from which we lease office space for our principal executive offices. Arthur A. Weiss owns a less than one percent indirect interest in AmericanCenter LLC. Under this lease agreement, we lease approximately 48,200 rentable square feet. The term of the lease is until October 31, 2016, with an option torenew for an additional five years. The base rent through October 31, 2014 is $18.12 per square foot (gross). From November 1, 2014 to August 31, 2015,the base rent will be $18.24 per square foot (gross) and from September 1, 2015 to October 31, 2016, the base rent will be $17.92 per square foot (gross). Asof May 2013, we also have a temporary lease through April 30, 2014 for approximately 10,500 rentable square feet with base rent equal to $14.33 per squarefoot (gross). Mr. Shiffman and Mr. Weiss may have a conflict of interest with respect to their obligations as our officer and/or director and their respectiveownership interests in American Center LLC.Legal Counsel. During 2013, Jaffe, Raitt, Heuer, & Weiss, Professional Corporation acted as our general counsel and represented us in various matters.Arthur A. Weiss, one of our directors, is the Chairman of the Board of Directors and a shareholder of such firm. We incurred legal fees and expenses owed toJaffe, Raitt, Heuer, & Weiss of approximately $3.2 million, $3.4 million and $2.5 million in the years ended December 31, 2013, 2012 and 2011,respectively.Tax Consequences Upon Sale of Properties. Gary A. Shiffman holds limited partnership interests in the Operating Partnership which were received inconnection with the contribution of 24 properties (four of which have been sold) 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 on us andour public stockholders upon the sale of any of the Sun Partnerships. Therefore, we and Mr. Shiffman may have different objectives regarding the appropriatepricing and timing of any sale of those properties.We rely on key management.We are dependent on the efforts of our executive officers, Gary A. Shiffman, John B. McLaren, Karen J. Dearing and Jonathan M. Colman (together, the“Executive Officers”). The loss of services of one or more of our Executive Officers could have a temporary adverse effect on our operations. We do notcurrently maintain or contemplate obtaining any “key-man” life insurance on the Executive Officers.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 maybe owned, directly or indirectly, by five or fewer individuals. Thus, ownership of more than 9.8%, in number of shares or value, of the issued andoutstanding shares of our capital stock by any single stockholder has been restricted, with certain exceptions, for the purpose of maintaining our qualificationas a REIT under the Code. Such restrictions in our charter do not apply to Milton M. Shiffman, Gary A. Shiffman, and Robert B. Bayer; trustees, personalrepresentatives and agents to the extent acting for them or their respective estates; or certain of their respective relatives.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 preferencesover 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 maybe advantageous to stockholders; and (2) limit the opportunity for stockholders to receive a premium for their common stock that might otherwise exist if aninvestor were attempting to assemble a block of common stock in excess of 9.8% of our outstanding shares or otherwise effect a change of control of theCompany.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. In November 2012, we amended our charter todesignate 3,450,000 shares of preferred stock as 7.125% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share, and issued 3,400,000 ofsuch shares of stock. 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 incontrol were in the stockholders' interest.15SUN COMMUNITIES, INC.BUSINESS RISKS, CONTINUEDUpon the occurrence of certain change of control events, the result of which is that shares of our common stock and the common securities of the acquiring orsurviving entity (or ADRs representing such securities) are not listed on the New York Stock Exchange (“NYSE”), the NYSE MKT or NASDAQ or listed orquoted on an exchange or quotation system that is a successor to the NYSE, the NYSE MKT or NASDAQ, holders of shares of Series A Preferred Stock willhave the right, subject to certain limitations, to convert some or all of their shares of Series A Preferred Stock into shares of our common stock (or equivalentvalue of alternative consideration) and under these circumstances we will also have a special optional redemption right to redeem the shares of Series APreferred Stock. Upon such a conversion, the holders of shares of Series A Preferred Stock will be limited to a maximum number of shares of our commonstock. If our common stock price, as determined in accordance with our charter for these purposes, is less than $20.97, subject to adjustment, the holderswill receive a maximum of 1.1925 shares of our common stock per shares of Series A Preferred Stock, which may result in a holder receiving value that isless than the liquidation preference of the Series A Preferred Stock. These features of the Series A Preferred Stock may have the effect of inhibiting a thirdparty from making an acquisition proposal for Sun or of delaying, deferring or preventing a change of control of Sun under circumstances that otherwisecould provide the holders of our common stock and Series A Preferred Stock with the opportunity to realize a premium over the then-current market price orthat stockholders may otherwise believe is in their best interests.Rights Plan. We adopted a stockholders' rights plan in 2008 that provides our stockholders (other than a stockholder attempting to acquire a 15% or greaterinterest in us) with the right to purchase our stock at a discount in the event any person attempts to acquire a 15% or greater interest in us. Because this plancould make it more expensive for a person to acquire a controlling interest in us, it could have the effect of delaying or preventing a change in control even if achange in control were in the stockholders' interest.Certain provisions of Maryland law could inhibit changes in control, which may discourage third parties from conducting a tender offer orseeking other change of control transactions that could involve a premium price for our common stock or that our stockholders otherwise believeto be in their best interest.Certain provisions of the Maryland General Corporation Law, or MGCL, may have the effect of inhibiting a third party from making a proposal to acquire usor of impeding a change of control under circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realizea premium over the then-prevailing market price of such shares, including: •“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder”(defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof or an affiliate or associateof ours who was the beneficial owner, directly or indirectly, of 10% or more of the voting power of our then outstanding voting stock at any timewithin the two-year period immediately prior to the date in question) for five years after the most recent date on which the stockholder becomes aninterested stockholder, and thereafter impose fair price and/or supermajority and stockholder voting requirements on these combinations; and•“control share” provisions that provide that “control shares” of our company (defined as shares that, when aggregated with other shares controlled bythe stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control shareacquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rightsexcept to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter,excluding all interested shares.The provisions of the MGCL relating to business combinations do not apply, however, to business combinations that are approved or exempted by our boardof directors prior to the time that the interested stockholder becomes an interested stockholder. As permitted by the statute, our board of directors has byresolution exempted Milton M. Shiffman, Robert B. Bayer, and Gary A. Shiffman, their affiliates and all persons acting in concert or as a group with theforegoing, from the business combination provisions of the MGCL and, consequently, the five-year prohibition and the supermajority vote requirements willnot apply to business combinations between us and these persons. As a result, these persons may be able to enter into business combinations with us that maynot be in the best interests of our stockholders without compliance by our company with the supermajority vote requirements and the other provisions of thestatute.16SUN COMMUNITIES, INC.BUSINESS RISKS, CONTINUEDAlso, pursuant to a provision in our bylaws, we have exempted any acquisition of our stock from the control share provisions of the MGCL. However, ourboard of directors may by amendment to our bylaws opt in to the control share provisions of the MGCL at any time in the future.Additionally, Subtitle 8 of Title 3 of the MGCL permits our board of directors, without stockholder approval and regardless of what is currently provided inour charter or bylaws, to elect to be subject to certain provisions relating to corporate governance that may have the effect of delaying, deferring or preventing atransaction or a change of control of our company that might involve a premium to the market price of our common stock or otherwise be in our stockholders'best interests. These provisions include a classified board; two-thirds vote to remove a director; that the number of directors may only be fixed by the board ofdirectors; that vacancies on the board as a result of an increase in the size of the board or due to death, resignation or removal can only be filled by the board,and the director appointed to fill the vacancy serves for the remainder of the full term of the class of director in which the vacancy occurred; and a majorityrequirement for the calling by stockholders of special meetings. Other than a classified board, the filling of vacancies as a result of the removal of a directorand a majority requirement for the calling by stockholders of special meetings, we are already subject to these provisions, either by provisions of our charterand bylaws unrelated to Subtitle 8 or by reason of an election to be subject to certain provisions of Subtitle 8. In the future, our board of directors may elect,without stockholder approval, to make us subject to the provisions of Subtitle 8 to which we are not currently subject.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, REITstatus, and operating policies, are determined by our Board of Directors. Although the Board of Directors has no present intention to do so, these policies maybe 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, stockholdersmay 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.The sale of substantial amounts of our common stock, whether directly by us or in the secondary market, the perception that such sales could occur or theavailability of future issuances of shares of our common stock, OP Units or other securities convertible into or exchangeable or exercisable for our commonstock, could materially and adversely affect the market price of our common stock and our ability to raise capital through future offerings of equity or equity-related securities. In addition, we may issue capital stock that is senior to our common stock in the future for a number of reasons, including to finance ouroperations and business strategy, to adjust our ratio of debt to equity or for other reasons.Based on the applicable conversion ratios then in effect, as of February 14, 2014, in the future we may issue to the limited partners of the OperatingPartnership, up to approximately 2.1 million shares of our common stock in exchange for their common OP Units, up to approximately 0.5 million shares ofour common stock in exchange for their Aspen preferred OP Units, up to approximately 0.1 million shares of our common stock in exchange for their Series A-3 preferred OP Units and up to approximately 1.1 million shares of our common stock in exchange for their Series A-1 preferred OP Units. The limitedpartners may sell such shares pursuant to registration rights or an available exemption from registration. As of February 14, 2014, options to purchase 46,250shares of our common stock were outstanding under our equity incentive plans. We currently have the authority to issue restricted stock awards or options topurchase up to an additional 362,100 shares of our common stock pursuant to our equity incentive plans. In addition, we entered into an “at-the-market”Sales Agreement in May 2012 to issue and sell shares of common stock. As of February 14, 2014, our board of directors had authorized us to sellapproximately an additional $75.5 million of common stock under this agreement. No prediction can be made regarding the effect that future sales of sharesof our common stock or our other securities 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 theprevailing market price of the common stock. An increase in market interest rates may tend to make the common stock less attractive relative to otherinvestments, which could adversely affect the market price of our common stock.17SUN COMMUNITIES, INC.BUSINESS RISKS, CONTINUEDThe volatility in economic conditions and the financial markets may adversely affect our industry, business and financial performance.Although demand in the U.S. improved recently, the U.S. macroeconomic environment remains uncertain and was the primary factor in a slowdown startingin 2008. The global economy remains unstable, and we expect the economic environment may continue to be challenging as continued economic uncertaintyhas generally given the marketplace less confidence. In particular, the financial crisis that affected the banking system and financial markets and the relateduncertainty in global economic conditions resulted in a tightening in the credit markets, a low level of liquidity in many financial markets and volatility incredit, equity and fixed income markets. If such conditions are experienced in future periods, our industry, business and results of operations may be severelyimpacted. The slow recovery and possible impact of automatic sequesters or a failure to raise the “debt ceiling” in the U.S. may adversely impact us. Theother risk factors presented in this Form 10-K discuss some of the principal risks inherent in our business, including liquidity risks, operational risks, andcredit risks, among others. Turbulence in financial markets accentuates each of these risks and magnifies their potential effect on us. If these economicdevelopments continue to rebound slowly or worsen, there could be an adverse impact on our access to capital, stock price and our operating results.Our business operations may not generate the cash needed to make distributions on our capital stock or to service our indebtedness, and we mayadjust our common stock distribution policy.Our ability to make distributions on our common stock and Series A Preferred Stock and payments on our indebtedness and to fund planned capitalexpenditures will depend on our ability to generate cash in the future. We cannot assure you that our business will generate sufficient cash flow from operationsor that future borrowings will be available to us in an amount sufficient to enable us to make distributions on our common stock or Series A Preferred Stock,to pay our indebtedness or to fund our other liquidity needs.The decision to declare and pay distributions on shares of our common stock in the future, as well as the timing, amount and composition of any such futuredistributions, will be at the sole discretion of our Board of Directors in light of conditions then existing, including our earnings, financial condition, capitalrequirements, debt maturities, the availability of debt and equity capital, applicable REIT and legal restrictions and the general overall economic conditionsand other factors. Any change in our distribution policy could have a material adverse effect on the market price of our common stock.Our ability to pay distributions is limited by the requirements of Maryland law.Our ability to pay distributions on our common stock and Series A Preferred Stock is limited by the laws of Maryland. Under Maryland law, a Marylandcorporation generally may not make a distribution if, after giving effect to the distribution, the corporation would not be able to pay its debts as they becomedue in the usual course of business, or the corporation's total assets would be less than the sum of its total liabilities plus, unless the corporation's charterprovides otherwise, the amount that would be needed, if the corporation were dissolved at the time of the distribution, to satisfy the preferential rights upondissolution of stockholders whose preferential rights are superior to those receiving the distribution, provided, however, that a Maryland corporation maymake a distribution from: (i) its net earnings for the fiscal year in which the distribution is made; (ii) its net earnings for the preceding fiscal year; or (iii) thesum of its net earnings for its preceding eight fiscal quarters even if, after such distribution, the corporation's total assets would be less than its total liabilities.Accordingly, we generally may not make a distribution on our common stock or Series A Preferred Stock if, after giving effect to the distribution, we wouldnot be able to pay our debts as they become due in the usual course of business or, unless paid from one of the permitted sources of net earnings as describedabove, our total assets would be less than the sum of our total liabilities plus, unless the terms of such class or series of stock provide otherwise, the amountthat would be needed to satisfy the preferential rights upon dissolution of the holders of shares of any class or series of stock then outstanding, if any, withpreferential rights upon dissolution senior to those of our common stock or Series A Preferred Stock.We may not be able to pay distributions upon events of default under our financing documents.Some of our financing documents contain restrictions on distributions upon the occurrence of events of default thereunder. If such an event of default occurs,such as our failure to pay principal at maturity or interest when due for a specified period of time, we would be prohibited from making payments on ourcommon stock and Series A Preferred Stock.18SUN COMMUNITIES, INC.BUSINESS RISKS, CONTINUEDOur share price could be volatile and could decline, resulting in a substantial or complete loss on our stockholders' investment.The stock markets, including the NYSE on which we list our common stock and Series A Preferred Stock, have experienced significant price and volumefluctuations. As a result, the market price of our common stock and Series A Preferred Stock could be similarly volatile, and investors in our common stockand Series A Preferred Stock may experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects.The price of our common stock and Series A Preferred Stock could be subject to wide fluctuations in response to a number of factors, including:•any increases in prevailing interest rates, which may negatively affect the market for shares of our common stock or Series A Preferred Stock;•the market for similar securities;•issuances of other series or classes of preferred stock or other equity securities;•our operating performance and the performance of other similar companies;•our ability to maintain compliance with covenants contained in our debt facilities;•actual or anticipated variations in our operating results, funds from operations, cash flows or liquidity;•changes in our earnings estimates or those of analysts;•changes in our distribution policy;•publication of research reports about us or the real estate industry generally;•increases in market interest rates that lead purchasers of our common stock to demand a higher dividend yield;•changes in market valuations of similar companies;•adverse market reaction to the amount of our debt outstanding at any time, the amount of our debt maturing in the near- and medium-term andour ability to refinance our debt, or our plans to incur additional debt in the future;•additions or departures of key management personnel;•speculation in the press or investment community;•actions by institutional stockholders; and•general market and economic conditions.Many of the factors listed above are beyond our control. Those factors may cause the market price of our common stock to decline significantly, regardless ofour financial condition, results of operations and prospects. It is impossible to provide any assurance that the market price of our common stock will not fallin the future, and it may be difficult for holders to resell shares of our common stock at prices they find attractive, or at all. In the past, securities class actionlitigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costsand divert our management's attention and resources.Our Series A Preferred Stock has not been rated.We have not sought to obtain a rating for our Series A Preferred Stock. No assurance can be given, however, that one or more rating agencies might notindependently determine to issue such a rating or that such a rating, if issued, would not adversely affect the market price of the Series A Preferred Stock. Inaddition, we may elect in the future to obtain a rating of the Series A Preferred Stock, which could adversely affect the market price of the Series A PreferredStock. Ratings only reflect the views of the rating19SUN COMMUNITIES, INC.BUSINESS RISKS, CONTINUEDagency or agencies issuing the ratings and such ratings could be revised downward, placed on a watch list or withdrawn entirely at the discretion of theissuing rating agency if in its judgment circumstances so warrant. Any such downward revision, placing on a watch list or withdrawal of a rating could havean adverse effect on the market price of the Series A Preferred Stock.Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business andreputation to suffer.In the ordinary course of our business, we collect and store sensitive data, including our proprietary business information and that of our tenants and clientsand personally identifiable information of our employees, in our facility and on our network. Despite our security measures, our information technology andinfrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach couldcompromise our network and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss ofinformation could result in legal claims or proceedings, disrupt our operations, damage our reputation, and cause a loss of confidence, which could adverselyaffect our business.20SUN COMMUNITIES, INC.ITEM 1B. UNRESOLVED STAFF COMMENTSNone.21SUN COMMUNITIES, INC.ITEM 2. PROPERTIESAs of December 31, 2013, the Properties consisted of 150 MH communities, 27 RV communities, and 11 properties containing both MH and RV sites locatedin 26 states. As of December 31, 2013, the Properties contained an aggregate of 69,789 developed sites comprised of 54,168 developed manufactured homesites, 7,633 annual RV sites (inclusive of both annual and seasonal usage rights), 7,988 transient RV sites, and approximately 6,300 additionalmanufactured home sites suitable for development. Most of the Properties include amenities oriented toward family and retirement living. Of the 188Properties, 83 have more than 300 developed manufactured home sites; with the largest having 1,064 developed manufactured home sites. See "Real Estate andAccumulated Depreciation, Schedule III" for detail on Properties that are encumbered.As of December 31, 2013, the Properties had an occupancy rate of 89.7% excluding transient RV sites. Since January 1, 2013, the Properties have averaged anaggregate annual turnover of homes (where the home is moved out of the community) of approximately 2.6% and an average annual turnover of residents(where the resident-owned home is sold and remains within the community, typically without interruption of rental income) of approximately 4.6%. Theaverage renewal rate for residents in our Rental Program was 59.5% for the year ended December 31, 2013.We believe that our Properties’ high amenity levels contribute to low turnover and generally high occupancy rates. All of the Properties provide residents withattractive amenities with most offering a clubhouse, a swimming pool, and laundry facilities. Many of the Properties offer additional amenities such assauna/whirlpool spas, tennis, shuffleboard and basketball courts and/or exercise rooms.We have concentrated our communities within certain geographic areas in order to achieve economies of scale in management and operation. The Properties areprincipally concentrated in the midwestern, southern, and southeastern United States. We believe that geographic diversification helps to insulate the portfoliofrom regional economic influences.The following tables set forth certain information relating to the properties owned as of December 31, 2013. The occupancy percentage includes MH sites andannual RV sites, and excludes transient RV sites.PropertyMH/RVCityStateMH andAnnual RVSites as of12/31/13Transient RVSites as of12/31/13Occupancy as of12/31/13Occupancy as of12/31/12Occupancy as of12/31/11MIDWEST Michigan Academy/West Pointe (1)MHCantonMI441—92% 93% 88% Allendale Meadows Mobile VillageMHAllendaleMI352—89% 80% 78% Alpine Meadows Mobile VillageMHGrand RapidsMI403—98% 91% 87% Apple Carr VillageMHMuskegonMI529—83% 76% 72% Bedford Hills Mobile VillageMHBattle CreekMI339—73% 72% 71% Brentwood Mobile VillageMHKentwoodMI195—97% 97% 99% Brookside VillageMHKentwoodMI196—100% 97% 95% Byron Center Mobile VillageMHByron CenterMI143—94% 89% 93% Camelot VillaMHMacombMI712—79% N/A N/A Candlewick CourtMHOwossoMI211—66% 70% 73% Cider Mill CrossingsMHFentonMI262—72% 51% 19% Cider Mill VillageMHMiddlevilleMI258—83% 77% 67% College Park EstatesMHCantonMI230—84% 77% 73% Continental EstatesMHDavisonMI385—40% 39% 40% Continental NorthMHDavisonMI474—54% 51% 53% Country Acres Mobile VillageMHCadillacMI182—95% 90% 86% Country Hills VillageMHHudsonvilleMI239—98% 93% 74% Country Meadows Mobile VillageMHFlat RockMI577—97% 95% 94% 22SUN COMMUNITIES, INC.PropertyMH/RVCityStateMH andAnnual RVSites as of12/31/13Transient RVSites as of12/31/13Occupancy as of12/31/13Occupancy as of12/31/12Occupancy as of12/31/11Country Meadows VillageMHCaledoniaMI307—95% 88% 77% Countryside VillageMHPerryMI359—60% 61% 58% Creekwood MeadowsMHBurtonMI336—76% 73% 65% Cutler Estates Mobile VillageMHGrand RapidsMI259—95% 96% 98% Davison EastMHDavisonMI190—40% 43% 44% Dutton Mill VillageMHCaledoniaMI307—98% 98% 91% East Village EstatesMHWashington Twp.MI708—99% 93% N/A Falcon PointeMHEast LansingMI142—13%(2) 13%(2) 13%(2) Fisherman’s CoveMHFlintMI162—94% 91% 87% Grand Mobile EstatesMHGrand RapidsMI230—76% 72% 75% HamlinMHWebbervilleMI209—87%(3) 83%(3) 75%(3) Hickory Hills VillageMHBattle CreekMI283—98% 94% 84% Hidden Ridge RV ResortRVHopkinsMI106170100%(5) N/A N/A Holiday West VillageMHHollandMI341—99% 99% 93% Holly Village/Hawaiian Gardens (1)MHHollyMI425—96% 96% 98% Hunters CrossingMHCapacMI114—90% 89% N/A Hunters GlenMHWaylandMI280—79%(2) 69%(2) 63%(2) Kensington MeadowsMHLansingMI290—98% 96% 90% Kings Court Mobile VillageMHTraverse CityMI639—99% 100% 100% Knollwood EstatesMHAllendaleMI161—94% 89% 82% Lafayette PlaceMHWarrenMI254—71% 68% 66% LakeviewMHYpsilantiMI392—97% 98% 97% Leisure VillageMHBelmontMI238—100% 100% 97% Lincoln EstatesMHHollandMI191—98% 93% 92% Meadow Lake EstatesMHWhite LakeMI425—95% 92% 88% Meadowbrook EstatesMHMonroeMI453—94% 92% 92% Northville CrossingsMHNorthvilleMI756—91% 82% N/A Oak Island VillageMHEast LansingMI250—97% 95% 84% Pinebrook VillageMHGrand RapidsMI185—92% 93% 91% Presidential Estates Mobile VillageMHHudsonvilleMI364—97% 95% 90% Richmond PlaceMHRichmondMI117—86% 83% 84% River Haven VillageMHGrand HavenMI721—64% 60% 60% Rudgate ClintonMHClinton TownshipMI667—96% 90% N/A Rudgate ManorMHSterling HeightsMI931—96% 89% N/A Scio Farms EstatesMHAnn ArborMI913—98% 95% 94% Sheffield EstatesMHAuburn HillsMI228—92% 96% 98% Sherman OaksMHJacksonMI366—73% 72% 74% Silver SpringsMHClinton TownshipMI546—96% 89% N/A Southwood VillageMHGrand RapidsMI394—99% 97% 94% St. Clair PlaceMHSt. ClairMI100—74% 75% 75% Sunset RidgeMHPortland TownshipMI190—95% 95%96% Sycamore VillageMHMasonMI396—99% 91% 85% 23SUN COMMUNITIES, INC.PropertyMH/RVCityStateMH andAnnual RVSites as of12/31/13Transient RVSites as of12/31/13Occupancy as of12/31/13Occupancy as of12/31/12Occupancy as of12/31/11Tamarac VillageMHLudingtonMI293—99% 98% 95% Tamarac VillageRVLudingtonMI10512100%(5) 100%(5) 100%(5) Timberline EstatesMHGrand RapidsMI296—94% 87% 83% Town & Country Mobile VillageMHTraverse CityMI192—100% 99% 98% Village TrailsMHHoward CityMI100—94% 97% 97% Warren Dunes VillageMHBridgmanMI188—95% 91% 77% Waverly Shores VillageMHHollandMI326—100% 100% 97% West Village EstatesMHRomulusMI628—100% 93% N/A White Lake Mobile Home VillageMHWhite LakeMI315—96% 98% 96% White Oak EstatesMHMt. MorrisMI480—68% 65% 66% Windham Hills EstatesMHJacksonMI402—85%(3) 78%(3) 77%(3) Windsor Woods VillageMHWaylandMI314—90% 83% 78% Woodhaven PlaceMHWoodhavenMI220—96% 97% 98% Michigan Total 24,91218288% 85% 81% Indiana Brookside Mobile Home VillageMHGoshenIN570—71% 65% 66% Carrington PointeMHFt. WayneIN320—82%(3) 80%(3) 80%(3) Clear Water Mobile VillageMHSouth BendIN227—92% 82% 77% Cobus Green Mobile Home ParkMHElkhartIN386—78% 66% 66% Deerfield RunMHAndersonIN175—73%(3) 62%(3) 61%(3) Four SeasonsMHElkhartIN218—92% 86% 82% Holiday Mobile Home VillageMHElkhartIN326—74% 71% 75% Liberty FarmsMHValparaisoIN220—98% 99% 98% MaplewoodMHLawrenceIN207—66% 67% 69% MeadowsMHNappaneeIN330—47% 51% 50% Pebble Creek (4)MHGreenwoodIN257—93% 98% 93% Pine HillsMHMiddleburyIN129—90% 87% 91% Roxbury ParkMHGoshenIN398—99% 88% 84% TimberbrookMHBristolIN567—52% 52% 55% Valley BrookMHIndianapolisIN798—52% 53% 54% West Glen VillageMHIndianapolisIN552—80% 76% 72% Woodlake EstatesMHFt. WayneIN338—59% 57% 53% Woods Edge Mobile VillageMHWest LafayetteIN598—53%(3) 52%(3) 52%(3) Indiana Total 6,616—71% 68% 67% Ohio Apple Creek Manufactured HomeCommunity and Self StorageMHAmeliaOH176—93% 95% 95% Byrne Hill VillageMHToledoOH236—92% 88% 91% CatalinaMHMiddletownOH462—59% 59% 59% East Fork (4)MHBataviaOH240—90%99%97%Indian Creek RV & Camping ResortRVGeneva on the LakeOH319313100%(5) N/A N/A 24SUN COMMUNITIES, INC.PropertyMH/RVCityStateMH andAnnual RVSites as of12/31/13Transient RVSites as of12/31/13Occupancy as of12/31/13Occupancy as of12/31/12Occupancy as of12/31/11Oakwood VillageMHMiamisburgOH511—98% 96% 92% Orchard LakeMHMilfordOH147—99% 98% 97% Westbrook Senior VillageMHToledoOH112—96% 99% 96% Westbrook VillageMHToledoOH344—94% 96% 96% Willowbrook PlaceMHToledoOH266—94% 87% 91% Woodside TerraceMHHollandOH439—87% 83% 79% Worthington ArmsMHLewis CenterOH224—95% 96% 98% Ohio Total 3,47631389% 88% 87% SOUTH Texas Blazing StarRVSan AntonioTX66196100%(5) N/A N/A Boulder RidgeMHPflugervilleTX526—99% 98% 95% Branch Creek EstatesMHAustinTX392—100% 100% 99% Casa del ValleMHAlamoTX126—98% 100% 100% Casa del ValleRVAlamoTX124137100%(5) 100%(5) 100%(5) Chisholm Point EstatesMHPflugervilleTX417—99% 99% 99% Comal Farms (4)MHNew BraunfelsTX350—99% 97% 99% Kenwood RV and Mobile Home PlazaMHLaFeriaTX41—95% 100% 100% Kenwood RV and Mobile Home PlazaRVLaFeriaTX44195100%(5) 100%(5) 100%(5) Oak CrestMHAustinTX335—100% 99% 98% Pecan BranchMHGeorgetownTX69—94% 93% 91% Pine TraceMHHoustonTX501—99% 99% 98% River Ranch (4)MHAustinTX540—73%(2) 79%(2) 98%River RidgeMHAustinTX515—100% 97%74%(3) SaddlebrookMHAustinTX260—99% 97% 98% Snow to SunMHWeslacoTX184—98% 99% 100% Snow to SunRVWeslacoTX138153100%(5) 100%(5) 100%(5) Stonebridge (4)MHSan AntonioTX335—98% 99% 99% Summit Ridge (4)MHConverseTX370—91% 67% 98% Sunset Ridge (4)MHKyleTX170—100% 99% 98% Woodlake Trails (4)MHSan AntonioTX227—98%70%(3) 98% Texas Total 5,73068196% 94% 96% SOUTHEAST Florida Arbor Terrace RV ParkRVBradentonFL140226100%(5) 100%(5) 98%(5) Ariana Village Mobile Home ParkMHLakelandFL208—94% 92% 92% Blueberry HillRVBushnellFL80325100%(5) 100%(5) N/A Buttonwood BayMHSebringFL407—100% 100% 100% Buttonwood BayRVSebringFL368165100%(5) 100%(5) 98%(5) 25SUN COMMUNITIES, INC.PropertyMH/RVCityStateMH andAnnual RVSites as of12/31/13Transient RVSites as of12/31/13Occupancy as of12/31/13Occupancy as of12/31/12Occupancy as of12/31/11Club NaplesRVNaplesFL133172100%(5) 100%(5) 99%(5) Gold CoasterMHHomesteadFL470—98%(5) 99%(5) 100%(5) Gold CoasterRVHomesteadFL—75N/A N/A N/A Grand LakesRVCitraFL122280100%(5) 100%(5) N/A Groves RV ResortRVFt. MyersFL157118100%(5) 100%(5) 99%(5) Holly Forest EstatesMHHolly HillFL402—99% 99% 99% Indian Creek ParkMHFt. Myers BeachFL353—100% 100% 99% Indian Creek ParkRVFt. Myers BeachFL951133100%(5) 100%(5) 99%(5) Island LakesMHMerritt IslandFL301—100% 100% 99% Kings LakeMHDebaryFL245—100% 99% 96% Lake Juliana LandingsMHAuburndaleFL274—97% 98% 97% Lake San Marino RV ParkRVNaplesFL187220100%(5) 100%(5) 96%(5) Meadowbrook VillageMHTampaFL257—100% 100% 100% Naples RV ResortRVNaplesFL63101100%(5) 100%(5) 94%(5) North LakeRVMoore HavenFL19082100%(5) 100%(5) 100%(5) Orange City RV ResortMHOrange CityFL4—100% 100% 100% Orange City RV ResortRVOrange CityFL230291100%(5) 100%(5) 100%(5) Orange Tree VillageMHOrange CityFL246—100% 99% 100% Rainbow RV ResortMHFrostproofFL37—100% 100% N/A Rainbow RV ResortRVFrostproofFL213249100%(5) 100%(5) N/A Royal CountryMHMiamiFL864—100% 100% 100% Saddle Oak ClubMHOcalaFL376—99% 99% 99% Siesta Bay RV ParkRVFt. Myers BeachFL71384100%(5) 100%(5) 98%(5) Silver Star Mobile VillageMHOrlandoFL406—99% 98% 98% Tampa EastMHDoverFL31—100% 100% 100% Tampa EastRVDoverFL216453100%(5) 100%(5) 96%(5) Three LakesRVHudsonFL175133100%(5) 100%(5) N/A Water Oak Country Club EstatesMHLady LakeFL1,064—99% 99% 100% Florida Total 9,8833,10799% 99% 99% OTHER Autumn RidgeMHAnkenyIA413—99% 99% 100% Bell CrossingMHClarksvilleTN239—90%(3) 79%(3) 72%(3) Big Timber Lake RV ResortRVCape MayNJ256272100%(5) N/A N/A Candlelight VillageMHChicago HeightsIL309—97% 97% 99% Cave CreekMHEvansCO289—98% 99% 91%Countryside AtlantaMHLawrencevilleGA271—100%(6) 100%(6) 100%(6) Countryside GwinnettMHBufordGA331—99% 98% 96% Countryside Lake LanierMHBufordGA548—92% 86% 84% Creekside (4)MHReidsvilleNC45—64%(2) 62%(2) 64%(2) Desert View VillageMHWest WendoverNV93—43%(2) 44%(2) 47%(2) Eagle CrestMHFirestoneCO441—99% 99% 94%EdwardsvilleMHEdwardsvilleKS634—74% 70% 69% 26SUN COMMUNITIES, INC.PropertyMH/RVCityStateMH andAnnual RVSites as of12/31/13Transient RVSites as of12/31/13Occupancy as of12/31/13Occupancy as of12/31/12Occupancy as of12/31/11Forest MeadowsMHPhilomathOR75—100% 100% 99% Glen Laurel (4)MHConcordNC260—88%(2) 77%(2) 67%(2) Gwynn's Island RV Resort &CampgroundRVGwynnVA8829100%(5) N/A N/A High PointeMHFredericaDE411—96% 96% 93% Jellystone Park(TM) of Western New YorkRVNorth JavaNY—299N/A N/A N/A Jellystone Park(TM) at Birchwood AcresRVWoodridgeNY44225100%(5) N/A N/A Lake In WoodRVNarvonPA277144100%(5) N/A N/A Lake Laurie RV & Camping ResortRVCape MayNJ292427100%(5) N/A N/A Meadowbrook (4)MHCharlotteNC321—59%(3) 99% 99% New Point RV ResortRVNew PointVA161162100%(5) N/A N/A North Point EstatesMHPuebloCO108—95%84%(2) 76%(2) Palm Creek Golf & RV ResortMHCasa GrandeAZ150—94% 97% N/A Palm Creek Golf & RV ResortRVCasa GrandeAZ7161,047100%(5) 100%(5) N/A Peter's Pond RV ResortRVSandwichMA231177100%(5) N/A N/A Pheasant RidgeMHLancasterPA553—100% 100% 100% Pin Oak ParcMHO’FallonMO502—86% 83% 82% Pine RidgeMHPetersburgVA245—98% 97% 98% Sea Air VillageMHRehoboth BeachDE372—99% 100% 100% Sea Air VillageRVRehoboth BeachDE1309100%(5) 100%(5) 100%(5) Seaport RV ResortRVMysticCT25116100%(5) N/A N/A SouthforkMHBeltonMO474—62% 61% 62% Sun Villa EstatesMHRenoNV324—97% 98% 100% Timber RidgeMHFt. CollinsCO585—100% 100% 98% Vines RV ResortRVPaso RoblesCA—130N/AN/A N/A Wagon Wheel RV Resort & CampgroundRVOld Orchard BeachME167116100%(5) N/A N/A Westward Ho RV Resort & CampgroundRVGlenbeulahWI195133100%(5) N/A N/A Wild Acres RV Resort & CampgroundRVOrchard BeachME211419100%(5) N/A N/A Woodland Park EstatesMHEugeneOR398—100% 100% 100% Other Total 11,1843,70593% 91% 89% TOTAL / AVERAGE 61,8017,98890% 87% 85% (1) Properties have two licenses but operate as one community.(2) Occupancy in these Properties reflects the fact that these communities are ground-up developments and have not reached full occupancy.(3) Occupancy in these Properties reflects the fact that these communities are in a lease-up phase following an expansion.(4) This Property is owned by an affiliate of SunChamp LLC, a joint venture that owns 11 of our consolidated manufactured home communities, in which we own approximately an81.9% equity interest as of December 31, 2013.(5) Occupancy percentage excludes transient RV sites. Percentage calculated by dividing revenue producing sites by developed sites. A revenue producing site is defined as a site that isoccupied by a paying resident or reserved by a customer with annual or seasonal usage rights. A developed site is defined as an adequate sized parcel of land that has road and utilityaccess which is zoned and licensed (if required) for use as a home site.27SUN COMMUNITIES, INC.(6) The number of developed sites and occupancy percentage at this Property includes sites that have been covered under our comprehensive insurance coverage (subject to deductiblesand certain limitations) for both property damage and business interruption from a flood that caused substantial damage to this Property.28SUN COMMUNITIES, INC.ITEM 3. LEGAL PROCEEDINGSOn June 4, 2010, we settled all of the claims arising out of the litigation filed in 2004 by TJ Holdings, LLC ("TJ Holdings") in the Superior Court of GuilfordCounty, North Carolina and the associated arbitration proceeding commenced by TJ Holdings in Southfield, Michigan. Under the terms of the settlementagreement, in which neither party admitted any liability whatsoever, we paid TJ Holdings $360,000. In addition, pursuant to this settlement, TJ Holdings’percentage ownership interest in Sun/Forest, LLC will be increased on a one time basis, in the event of a sale or refinance of all of the SunChamp Properties, tobetween 9.03% and 28.99% depending on our average closing stock price as reported by the NYSE during the 30 days preceding the sale or refinance of all theSunChamp Properties. Once this percentage ownership interest has been adjusted, there will be no further adjustments from subsequent sales or refinances ofthe SunChamp Properties. The likelihood of a sale or refinancing of all of the SunChamp properties is not probable as these properties continue to see growthpotential nor do we have a need to refinance all of the properties, so we do not expect it to have a material adverse impact on our results of operations orfinancial condition.We are involved in various other legal proceedings arising in the ordinary course of business. All such proceedings, taken together, are not expected to have amaterial adverse impact on our results of operations or financial condition.ITEM 4. MINE SAFETY DISCLOSURESNone.PART IIITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIESMarket InformationOur common stock has been listed on the NYSE since December 8, 1993, and traded under the symbol “SUI”. The following table sets forth the high andlow sales prices per share for the common stock for the periods indicated as reported by the NYSE and the distributions per share paid by us with respect toeach period:Year Ended December 31, 2013 High Low Distributions1st Quarter $49.38 $40.28 $0.63 2nd Quarter $57.78 $46.40 $0.63 3rd Quarter $53.35 $41.93 $0.63 4th Quarter $45.96 $39.53 $0.63(1) Year Ended December 31, 2012 High Low Distributions1st Quarter $43.90 $35.06 $0.63 2nd Quarter $44.68 $39.15 $0.63 3rd Quarter $47.84 $43.37 $0.63 4th Quarter $44.64 $36.15 $0.63(2) (1) Paid on January 17, 2014, to stockholders of record on December 31, 2013(2) Paid on January 18, 2013, to stockholders of record on December 31, 2012On February 14, 2014, the closing share price of our common stock was $47.28 per share on the NYSE, and there were 233 holders of record for the36,168,663 million outstanding shares of common stock. On February 14, 2014, the Operating Partnership had (i) 2,069,322 common OP units issued andoutstanding which were convertible into an equal number of shares of our common stock, (ii) 1,325,275 Aspen preferred OP units issued and outstandingwhich were exchangeable for 526,212 shares of our common stock, (iii) 455,476 Series A-1 preferred OP units issued and outstanding which wereexchangeable for 1,111,361 shares of our common stock and (iv) 40,267.50 Series A-3 preferred OP Units issued and outstanding which were exchangeablefor 74,918 shares of our common stock.We have historically paid regular quarterly distributions to holders of our common stock and common OP Units. In addition, we are obligated to makedistributions to holders of shares of Series A Preferred Stock, Aspen preferred OP units, Series A-1 preferred29SUN COMMUNITIES, INC.OP units, Series A-3 preferred OP units and Series B-3 preferred OP units. See “Structure of the Company” under Part I, Item 1 of this Form 10-K. Our abilityto make distributions on our common and preferred stock and payments on our indebtedness and to fund planned capital expenditures will depend on ourability to generate cash in the future. The decision to declare and pay distributions on shares of our common stock in the future, as well as the timing, amountand composition of any such future distributions, will be at the sole discretion of our Board of Directors in light of conditions then existing, including ourearnings, financial condition, capital requirements, debt maturities, the availability of debt and equity capital, applicable REIT and legal restrictions and thegeneral overall economic conditions and other factors.Securities Authorized for Issuance Under Equity Compensation PlansThe following table reflects information about the securities authorized for issuance under our equity compensation plans as of December 31, 2013. Number of securities to beissued upon exercise ofoutstanding options, warrantsand rights Weighted-average exerciseprice of outstandingoptions, warrants andrights Number of securitiesremaining available forfuture issuance under equitycompensation plans (excludingsecurities reflected in columna) Plan Category (a) (b) (c)Equity compensation plans approved by shareholders 46,250 $30.77 392,100Equity compensation plans not approved by shareholders — — —Total 46,250 $30.77 392,100Issuer Purchases of Equity SecuritiesIn November 2004, our Board of Directors authorized us to repurchase up to 1,000,000 shares of our common stock. We have 400,000 common sharesremaining in the repurchase program. No common shares were repurchased under this program during 2013. There is no expiration date specified for thebuyback program.Recent Sales of Unregistered SecuritiesFrom time to time, we may issue shares of common stock in exchange for OP units that may be tendered to the Operating Partnership for redemption inaccordance with the terms and provisions of the limited partnership agreement of the Operating Partnership. Such shares are issued based on the exchangeratios and formulas described in “Structure of the Company” under Item 1 above.Holders of common OP Units have converted zero units, 2,400 units and 10,249 units to common stock for the years ended December 31, 2013, 2012 and2011, respectively.In February 2013, our Operating Partnership issued 40,267.50 Series A-3 preferred OP units in connection with our acquisition of ten RV communities. SeeNote 2 to our financial statements for other consideration paid in the transaction. The Series A-3 preferred OP units are convertible, but not redeemable. Theholders of the Series A-3 preferred OP units can convert each Series A-3 preferred OP unit at any time, subject to certain contractual restrictions contained inthe acquisition agreements, into 1.8605 shares of our common stock (which exchange rate is subject to adjustment upon stock splits, recapitalizations andsimilar events). The Series A-3 preferred OP unit holders receive an annual preferred return of 4.5%.In June 2011, our Operating Partnership issued 455,476 Series A-1 preferred OP units in connection with our acquisition of the Kentland Communities("Kentland"). The Series A-1 preferred OP units are convertible, but not redeemable. The holders of the Series A-1 preferred OP units can convert each SeriesA-1 preferred OP units at any time after December 31, 2013 into 2.439 shares of common stock (which exchange rate is subject to adjustment upon stocksplits, recapitalizations and similar events). The Series A-1 preferred OP unit holders received an annual preferred return of 5.1% through June 23, 2013 and6.0% thereafter.All of the securities described above were issued in private placements in reliance on Section 4(a)(2) of the Securities Act, including Regulation D promulgatedthere under. No underwriters were used in connection with any of such issuances.30SUN COMMUNITIES, INC.Performance GraphSet forth below is a line graph comparing the yearly percentage change in the cumulative total shareholder return on our common stock against the cumulativetotal return of a broad market index composed of all issuers listed on the NYSE and an industry index comprised of fifteen publicly traded residential realestate investment trusts, for the five year period ending on December 31, 2013. This line graph assumes a $100 investment on December 31, 2008, areinvestment of distributions and actual increase of the market value of our common stock relative to an initial investment of $100. The comparisons in thistable are required by the SEC and are not intended to forecast or be indicative of possible future performance of our common stock. As of December 31,Index 2008 2009 2010 2011 2012 2013Sun Communities, Inc. $100.00 $167.55 $311.61 $372.87 $432.03 $487.97SNL US REIT Residential $100.00 $134.17 $197.07 $225.74 $240.18 $233.42NYSE Market Index $100.00 $128.58 $146.07 $140.71 $163.43 $206.56SUI Peer Group 2012 Index(1) $100.00 $131.23 $186.64 $215.47 $232.91 $217.27SUI Peer Group 2013 Index(2) $100.00 $130.90 $185.69 $214.20 $231.66 $215.69(1) Includes American Campus Communities, Inc., American Capital Agency Corp., Apartment and Management Company, Associated Estates Realty Corporation, AvalonBayCommunities, Inc., BRE Properties, Inc., Camden Property Trust, Colonial Properties Trust, Education Realty Trust, Inc., Equity Lifestyles Properties, Inc., Equity Residential,Essex Property Trust, Inc., Home Properties, Inc., Mid-America Apartment Communities, Inc., Senior Housing Properties Trust and UDR, Inc.(2) Includes the same companies as SUI Peer Group 2012 Index, with the exception of Colonial Properties Trust, which merged with Mid-America Apartment Communities, Inc. in 2013.31SUN COMMUNITIES, INC.The information included under the heading “Performance Graph” is not to be treated as “soliciting material” or as “filed” with the SEC, and is notincorporated by reference into any filing by the Company under the Securities Act or the Exchange Act that is made on, before or after the date of filing of thisForm 10-K.32SUN COMMUNITIES, INC.ITEM 6. SELECTED FINANCIAL DATAThe following table sets forth selected financial and operating information on a historical basis. The historical financial data has been derived from ourhistorical financial statements. The following information should be read in conjunction with the information included in “Management’s Discussion andAnalysis of Financial Condition and Results of Operations”, and the financial statements and accompanying notes included herein. Year Ended December 31, 2013 2012 (1) 2011 (1) 2010 (2) 2009 (2) (In thousands, except for share related data)OPERATING DATA: Revenues$415,222 $338,952 $288,600 $265,407 $258,453Net income (loss) attributable to Sun Communities, Inc. commonstockholders: Income (loss) from continuing operations$10,610 $4,958 $(1,086) $(2,883) $(6,099)Net income (loss)$10,610 $4,958 $(1,086) $(2,883) $(6,302)Income (loss) from continuing operations per share - basic and diluted$0.31 $0.18 $(0.05) $(0.15) $(0.33) Cash distributions declared per common share (3)$2.52 $2.52 $3.15 $2.52 $2.52 BALANCE SHEET DATA: Investment property before accumulated depreciation$2,489,119 $2,177,305 $1,794,605 $1,580,544 $1,565,700Total assets$1,999,236 $1,754,628 $1,367,974 $1,165,342 $1,184,234Total debt and lines of credit$1,492,820 $1,453,501 $1,397,225 $1,258,139 $1,253,907Total stockholders’ equity (deficit)$397,074 $212,990 $(100,655) $(132,384) $(111,308) OTHER FINANCIAL DATA: Net operating income (NOI) (4) from: Real property operations$203,176 $167,715 $146,876 $135,222 $131,131Home sales and home rentals$26,620 $18,677 $12,954 $12,981 $13,410 Funds from operations (FFO) (4)$117,583 $92,409 $73,691 $62,765 $56,073Adjustment to FFO3,928 4,296 1,564 874 3,419FFO excluding certain items$121,511 $96,705 $75,255 $63,639 $59,492 FFO per share excluding certain items - fully diluted$3.22 $3.19 $3.13 $2.97 $2.86(1) Financial information has been restated to reflect certain reclassifications in prior periods to conform to current period presentation.(2) Financial information has been restated to reflect the reclassification of our cable television service business as a discontinued operation. Additionally, financial information has beenrestated to reflect certain reclassifications in prior periods to conform to current period presentation.(3) In 2011, we paid $2.52 in cash distributions per common share and declared $3.15 in distributions per common share.(4) Refer to Item 7, Supplemental Measures, for information regarding the presentation of the NOI financial measure and FFO financial measure.33SUN COMMUNITIES, INC.ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONThe following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the consolidatedfinancial statements and notes thereto included in this Form 10-K.EXECUTIVE SUMMARY2013 Accomplishments•Same Site occupancy increased to 88.9% at year end from 87.1% at December 31, 2012.•Home sales increased 10.7% to a historical high of 1,929.•Completed acquisitions of one MH community and 14 RV communities for an aggregate purchase price of approximately $175.1 million.•Closed one underwritten registered public offering totaling 5.8 million shares of common stock with net proceeds of approximately $249.5 millionafter deducting offering related expenses.•Entered into a $350.0 million senior secured revolving credit facility, which replaced our previous $150.0 million facility, decreased the per annuminterest rate and extended the maturity date to May 15, 2017.•Entered into a loan agreement for $141.5 million, which is classified into two pools and matures on January 1, 2024. The proceeds of the loans,along with $34.4 million in cash, was used to repay in full 11 loans previously made to subsidiaries of the Company.Property Operations:Occupancy in our Properties as well as our ability to increase rental rates directly affects revenues. Our revenue streams are predominantly derived fromcustomers renting our sites on a long-term basis. Our Same Site properties continue to achieve revenue and occupancy increases which drive continued NetOperating Income (“NOI”) growth. Home sales are at their historical high, and we expect to continue to increase the number of homes sold in our portfolio.Portfolio Information: Year Ended December 31, 2013 2012 2011Occupancy % - Total Portfolio - MH and annual RV 89.7% 87.3% 85.3%Occupancy % - Same Site - MH and annual RV 88.9% 87.1% 85.8%Funds from operations excluding certain items(1) $3.22 $3.19 $3.13NOI(1) - Total Portfolio $203,176 $167,715 $146,876NOI(1) - Same Site $173,674 $164,041 $140,058Homes Sold 1,929 1,742 1,439Number of Occupied Rental Homes 9,726 8,110 7,047(1) Refer to Item 7, Supplemental Measures, for information regarding the presentation of the NOI financial measure and funds from operations excluding certain items financialmeasure.Acquisition Activity:Since 2011, we have completed acquisitions of 50 properties with over 21,000 sites located in high growth areas and retirement and vacation destinations suchas Florida, California and Eastern coastal areas such as Old Orchard Beach, Maine; Cape May, New Jersey; Chesapeake Bay, Virginia and Cape Cod,Massachusetts.During 2013, we acquired one MH community comprised of 712 developed sites and 14 RV communities comprised of 1,989 annual developed sites and2,818 transient developed sites for an aggregate purchase price of approximately $175.1 million.We continue to experience an active pipeline of acquisition opportunities and will seek to enhance the growth of the Company through continued selectiveacquisitions.34SUN COMMUNITIES, INC.Development Activity:We expanded 784 sites at eight properties in 2013. The total capital invested was approximately $18.0 million.We continue to expand our properties utilizing our inventory of owned and entitled land (approximately 6,300 developed sites) and expect to constructapproximately 800 additional sites in 2014, located primarily in Texas and Colorado, which have current occupancies in excess of 90%.Capital Activity:In March 2013, we closed one underwritten registered public offering of 5.8 million shares of common stock with net proceeds of approximately $249.5million after deducting offering related expenses.Proceeds from this capital raise allowed us to maintain our targeted leverage levels while continuing to expand our portfolio. MarketsThe following table identifies the Company's largest markets by number of sites:Major Market Number of Properties Total Sites Percentage of Total SitesMichigan 74 25,094 36.0%Florida 27 12,990 18.6%Indiana 18 6,616 9.5%Texas 18 6,411 9.2%Northeast 16 5,858 8.4%Ohio 12 3,789 5.4%West 10 4,356 6.2%Other 13 4,675 6.7%35SUN COMMUNITIES, INC.SUPPLEMENTAL MEASURESIn addition to the results reported in accordance with generally accepted accounting principles in the United States (“GAAP”), we have provided informationregarding NOI in the following tables. NOI is derived from revenues minus property operating and maintenance expenses and real estate taxes. We use NOI asthe primary basis to evaluate the performance of our operations. A reconciliation of NOI to net income (loss) attributable to Sun Communities, Inc. is includedin “Results of Operations” below.We believe that NOI is helpful to investors and analysts as a measure of operating performance because it is an indicator of the return on property investment,and provides a method of comparing property performance over time. We use NOI as a key management tool when evaluating performance and growth ofparticular properties and/or groups of properties. The principal limitation of NOI is that it excludes depreciation, amortization, interest expense, and non-property specific expenses such as general and administrative expenses, all of which are significant costs, and therefore, NOI is a measure of the operatingperformance of our properties rather than of the Company overall. We believe that these costs included in net income (loss) often have no effect on the marketvalue of our property and therefore limit its use as a performance measure. In addition, such expenses are often incurred at a parent company level andtherefore are not necessarily linked to the performance of a real estate asset.NOI should not be considered a substitute for the reported results prepared in accordance with GAAP. NOI should not be considered as an alternative to netincome (loss) as an indicator of our financial performance, or to cash flows as a measure of liquidity; nor is it indicative of funds available for our cashneeds, including our ability to make cash distributions. NOI, as determined and presented by us, may not be comparable to related or similarly titledmeasures reported by other companies.We also provide information regarding Funds From Operations (“FFO”). We consider FFO an appropriate supplemental measure of the financial performanceof an equity REIT. Under the National Association of Real Estate Investment Trusts (“NAREIT”) definition, FFO represents net income, excludingextraordinary items (as defined under GAAP), and gain (loss) on sales of depreciable property, plus real estate related depreciation and amortization (excludingamortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. Management also uses FFO excluding certainitems, a non-GAAP financial measure, which excludes certain gain and loss items that management considers unrelated to the operational and financialperformance of our core business. We believe that this provides investors with another financial measure of our operating performance that is more comparablewhen evaluating period over period results. A discussion of FFO, FFO excluding certain items, a reconciliation of FFO to net income (loss), and FFO to FFOexcluding certain items are included in the presentation of FFO following our “Results of Operations."36SUN COMMUNITIES, INC.The following table is a summary of our consolidated financial results which are discussed in more detail in the following paragraphs (in thousands): Year Ended December 31, 2013 2012 2011Real Property NOI $203,176 $167,715 $146,876Rental Program NOI 58,481 47,084 37,991Home Sales NOI/Gross Profit 14,555 10,229 6,860Site rent from Rental Program (included in Real Property NOI) (46,416) (38,636) (31,897)NOI/Gross profit 229,796 186,392 159,830Adjustments to arrive at net income (loss): Other revenues 14,773 11,455 10,445General and administrative (35,854) (28,353) (27,275)Acquisition related costs (3,928) (4,296) (1,971)Depreciation and amortization (110,078) (89,674) (74,193)Asset impairment charge — — (1,382)Interest expense (76,577) (71,180) (67,939)Provision for state income taxes (234) (249) (150)Distributions from affiliate 2,250 3,900 2,100Net income (loss) 20,148 7,995 (535)Less: Preferred return to A-1 preferred OP units 2,598 2,329 1,222Less: Preferred return to A-3 preferred OP units 166 — —Less: Amounts attributable to noncontrolling interests 718 (318) (671)Net income (loss) attributable to Sun Communities, Inc. 16,666 5,984 (1,086)Less: Series A Preferred Stock Distributions 6,056 1,026 —Net income (loss) attributable to Sun Communities, Inc. common stockholders $10,610 $4,958$(1,086)37SUN COMMUNITIES, INC.RESULTS OF OPERATIONSWe report operating results under two segments: Real Property Operations and Home Sales and Rentals. The Real Property Operations segment owns, operates,and develops MH communities and RV communities concentrated in the midwestern, southern, and southeastern United States and is in the business ofacquiring, operating, and expanding MH and RV communities. The Home Sales and Rentals segment offers manufactured home sales and leasing services totenants and prospective tenants of our communities. We evaluate segment operating performance based on NOI and Gross Profit.COMPARISON OF THE YEARS ENDED DECEMBER 31, 2013 AND 2012REAL PROPERTY OPERATIONS – TOTAL PORTFOLIOThe following tables reflect certain financial and other information for our Total Portfolio for the year ended December 31, 2013 and 2012: Year Ended December 31,Financial Information (in thousands) 2013 2012 Change % ChangeIncome from Real Property $313,097 $255,761 $57,336 22.4%Property operating expenses: Payroll and benefits 28,090 20,340 7,750 38.1%Legal, taxes, & insurance 4,769 3,216 1,553 48.3%Utilities 36,071 29,445 6,626 22.5%Supplies and repair 11,213 10,085 1,128 11.2%Other 7,494 5,753 1,741 30.3%Real estate taxes 22,284 19,207 3,077 16.0%Property operating expenses 109,921 88,046 21,875 24.8%Real Property NOI $203,176 $167,715 $35,461 21.1% As of December 31,Other Information 2013 2012 ChangeNumber of properties 188 173 15Developed sites 69,789 63,697 6,092Occupied sites (1) (2) 55,459 50,412 5,047Occupancy % (1) 89.7% 87.3% 2.4%Weighted average monthly site rent - MH $443 $434 $9Weighted average monthly site rent - RV (3) $380 $406 $(26)Sites available for development 6,339 6,969 (630)(1) Occupied sites and occupancy % include MH and annual RV sites, and excludes transient RV sites.(2) Occupied sites include 2,480 sites acquired during 2013 and 4,989 sites acquired in 2012.(3) Weighted average rent pertains to annual RV sites and excludes transient RV sites.The 21.1% growth in Real Property NOI consists of $25.9 million from newly acquired properties and $9.6 million from our Same Site properties as detailedbelow.38SUN COMMUNITIES, INC.REAL PROPERTY OPERATIONS – SAME SITEA key management tool used when evaluating performance and growth of our properties is a comparison of all Properties owned and operated for the sameperiod in both years ("Same Site"). The Same Site data may change from time-to-time depending on acquisitions, dispositions, management discretion,significant transactions, or unique situations.In order to evaluate the growth of the Same Site communities, management has classified certain items differently than our GAAP statements. Thereclassification difference between our GAAP statements and our Same Site portfolio is the reclassification of water and sewer revenues from income from realproperty to utilities. A significant portion of our utility charges are re-billed to our residents. We reclassify these amounts to reflect the utility expensesassociated with our Same Site portfolio net of recovery.The Same Site information in this comparison of the years ended December 31, 2013 and 2012 includes all Properties acquired on or prior to December 31,2011 and which were owned and operated by the Company during the years ended December 31, 2013 and 2012. Year Ended December 31,Financial Information (in thousands) 2013 2012 Change % ChangeIncome from Real Property $245,703 $233,858 $11,845 5.1 %Property operating expenses: Payroll and benefits 20,689 19,452 1,237 6.4 %Legal, taxes, & insurance 4,101 3,125 976 31.2 %Utilities 13,624 13,279 345 2.6 %Supplies and repair 9,279 9,687 (408) (4.2)%Other 5,366 5,491 (125) (2.3)%Real estate taxes 18,970 18,783 187 1.0 %Property operating expenses 72,029 69,817 2,212 3.2 %Real Property NOI $173,674 $164,041 $9,633 5.9 % As of December 31,Other Information 2013 2012 ChangeNumber of properties 159 159 —Developed sites 55,590 55,006 584Occupied sites (1) 46,908 45,224 1,684Occupancy % (1) (2) 88.9% 87.1% 1.8%Weighted average monthly rent per site - MH $445 $433 $12Weighted average monthly rent per site - RV (3) $416 $409 $7Sites available for development 5,631 6,104 (473)(1) Occupied sites and occupancy % include MH and annual RV sites, and excludes transient RV sites.(2) Occupancy % excludes recently completed but vacant expansion sites.(3) Weighted average rent pertains to annual RV sites and excludes transient RV sites.The 5.9% growth in NOI is primarily due to increased revenues of $11.8 million partially offset by a $2.2 million increase in expenses.Income from real property revenue consists of MH and RV site rent, and miscellaneous other property revenues. The 5.1% growth in income from realproperty was due to a combination of factors. Revenue from our MH and RV portfolio increased $10.7 million due to weighted average rental rate increases of2.3% and due to the increased number of occupied home sites. This growth in revenue was partially offset by rent concessions offered to new residents andcurrent residents converting from home renters to home owners. Additionally, other revenues increased $1.1 million primarily due to increases in late fees andinsufficient fund charges, cable television royalties, property tax revenues and utility income.Property operating expenses increased approximately $2.2 million, or 3.2%, compared to 2012. Of that increase, payroll and benefits increased by $1.2million primarily as a result of increased health insurance, workers compensation costs and salary increases. Legal, taxes and insurance increased $1.0million primarily due to $0.6 million of increased property and casualty insurance and $0.4 million of increased legal fees. Utility expense increased $0.3million primarily as a result of the increased gas and electric costs. These increases were partially offset by a decrease in supplies and repairs of $0.4 million,which was primarily due to decreased lawn services and tree trimming/removal expense, decreased maintenance39SUN COMMUNITIES, INC.and repair expenses for water, irrigation and electric systems and decreased maintenance expenses for our clubhouses, garages, sheds and carports.HOME SALES AND RENTALSWe acquire pre-owned and repossessed manufactured homes generally located within our communities from lenders and dealers at substantial discounts. Welease or sell these value priced homes to current and prospective residents. We also purchase new homes to lease and sell to current and prospective residents. The following table reflects certain financial and other information for our Rental Program for the year ended December 31, 2013 and 2012 (in thousands,except for statistical information): Year Ended December 31,Financial Information 2013 2012 Change % ChangeRental home revenue $32,500 $26,589 $5,911 22.2 %Site rent from Rental Program (1) 46,416 38,636 7,780 20.1 %Rental Program revenue 78,916 65,225 13,691 21.0 %Expenses Commissions 2,507 2,207 300 13.6 %Repairs and refurbishment 9,411 9,002 409 4.5 %Taxes and insurance 4,446 3,467 979 28.2 %Marketing and other 4,071 3,465 606 17.5 %Rental Program operating and maintenance 20,435 18,141 2,294 12.6 %Rental Program NOI $58,481 $47,084 $11,397 24.2 % Other Information Number of occupied rentals, end of period 9,726 8,110 1,616 19.9 %Investment in occupied rental homes $355,789 $287,261 $68,528 23.9 %Number of sold rental homes 924 953 (29) (3.0)%Weighted average monthly rental rate $796 $782 $14 1.8 %(1) The renter’s monthly payment includes the site rent and an amount attributable to the leasing of the home. The site rent is reflected in the Real Property Operations segment. Forpurposes of management analysis, the site rent is included in the Rental Program revenue to evaluate the incremental revenue gains associated with implementation of the RentalProgram, and assess the overall growth and performance of Rental Program and financial impact to our operations.The 24.2% growth in NOI is primarily as a result of the increased number of residents participating in the Rental Program and from increased monthly rentalrates as indicated in the table above.The increase in operating and maintenance expense of $2.3 million was a result of several factors. Personal property and use taxes increased $0.6 million andproperty and casualty insurance increased $0.4 million, both due to the additional homes in the Rental Program, and bad debt expense increased $0.5 million.Commissions increased $0.3 million, primarily due to the increased number of new leases.40SUN COMMUNITIES, INC.The following table reflects certain financial and statistical information for our Home Sales Program for the year ended December 31, 2013 and 2012 (inthousands, except for statistical information): Year Ended December 31,Financial Information 2013 2012 Change % ChangeNew home sales $6,645 $5,380 $1,265 23.5%Pre-owned home sales 48,207 39,767 8,440 21.2%Revenue from homes sales 54,852 45,147 9,705 21.5%New home cost of sales 5,557 4,553 1,004 22.1%Pre-owned home cost of sales 34,740 30,365 4,375 14.4%Cost of home sales 40,297 34,918 5,379 15.4%NOI / Gross profit $14,555 $10,229 $4,326 42.3% Gross profit – new homes $1,088 $827 $261 31.6%Gross margin % – new homes 16.4% 15.4% 1.0% Gross profit – pre-owned homes $13,467 $9,402 $4,065 43.2%Gross margin % – pre-owned homes 27.9% 23.6% 4.3% Statistical Information Home sales volume: New home sales 85 76 9 11.8%Pre-owned home sales 1,844 1,666 178 10.7%Total homes sold 1,929 1,742 187 10.7%Home Sales NOI/Gross profit increased $0.3 million on new home sales and $4.1 million on preowned home sales. The increased profits are due to both anincrease in volume of home sales and an increase in average selling price.41SUN COMMUNITIES, INC.OTHER INCOME STATEMENT ITEMSThe following table summarizes other income and expenses for the years ended December 31, 2013 and 2012 (amounts in thousands): Year Ended December 31, 2013 2012 Change % ChangeAncillary revenues, net $1,151 $(180) $1,331 (739.4)%Interest income $13,073 $11,018 $2,055 18.7 %Brokerage commissions and other revenues $549 $617 $(68) (11.0)%Real property general and administrative $25,941 $20,037 $5,904 29.5 %Home sales and rentals general and administrative $9,913 $8,316 $1,597 19.2 %Acquisition related costs $3,928 $4,296 $(368) (8.6)%Depreciation and amortization $110,078 $89,674 $20,404 22.8 %Interest expense $76,577 $71,180 $5,397 7.6 %Distributions from affiliates $2,250 $3,900 $(1,650) (42.3)%Ancillary revenues, net increased $1.3 million primarily related to increases in our vacation rental income and golf course, restaurant and pro shop income,as a result of our acquisition of 14 RV communities during 2013.Interest income increased primarily due to increases in interest income of $1.3 million from collateralized receivables and $0.7 million from installment notereceivables.Real property general and administrative costs increased primarily due to increased salaries, wages and bonus expense of $2.1 million as a result of ouracquisitions and increased headcount year over year, increased health insurance and workers compensation costs of $0.5 million, increased deferredcompensation of $1.7 million due to awards of restricted stock to our executives and key employees, increased other expenses of $0.9 million related totraining and development, travel, consulting fees, software support and maintenance expenses, office expenses and rent, increased human resources expense of$0.3 million primarily related to pre-employment costs and an update to our payroll processing server and increased legal expense of $0.3 million.Home sales and rentals general and administrative costs increased primarily due to increased salary expense of $0.5 million, increased health insurancecosts of $0.2 million, increased commissions on home sales of $0.3 million, increased advertising expense of $0.3 million and increased utility expense of$0.2 million.Depreciation and amortization costs increased as a result of additional depreciation and amortization of $9.5 million primarily related to our newlyacquired properties (See Note 2 to our financial statements), $6.9 million related to depreciation on investment property for use in our rental program, $2.3million related to the amortization of in place leases and promotions, and $1.7 million related to the write off of the remaining net book value for assetsreplaced during the year.Interest expense on debt, including interest on mandatorily redeemable debt, increased primarily due to an increase of $1.8 million in our mortgage interestdue to debt associated with the acquired properties (See Note 2 to our financial statements), an increase of $1.5 million in amortized financing costs, anincrease of $1.3 million in interest expense on our secured borrowing arrangements, and an increase of $0.9 million in interest on our lines of credit, partiallyoffset by a decrease in preferred OP unit interest expense.Distributions from affiliate decreased approximately $1.7 million. We suspended equity accounting in 2010 on our affiliate, Origen, as our investmentbalance is zero. The income recorded in 2013 and 2012 is distribution income. The amount of the distribution is determined by Origen on a quarterly basis.See Note 7 to our financial statements.42SUN COMMUNITIES, INC.COMPARISON OF THE YEARS ENDED DECEMBER 31, 2012 AND 2011REAL PROPERTY OPERATIONS – TOTAL PORTFOLIOThe following tables reflect certain financial and other information for our Total Portfolio for the year ended December 31, 2012 and 2011: Year Ended December 31,Financial Information (in thousands) 2012 2011 Change % ChangeIncome from Real Property $255,761 $223,613 $32,148 14.4%Property operating expenses: Payroll and benefits 20,340 17,312 3,028 17.5%Legal, taxes, & insurance 3,216 3,200 16 0.5%Utilities 29,445 25,146 4,299 17.1%Supplies and repair 10,085 8,852 1,233 13.9%Other 5,753 4,680 1,073 22.9%Real estate taxes 19,207 17,547 1,660 9.5%Property operating expenses 88,046 76,737 11,309 14.7%Real Property NOI $167,715 $146,876 $20,839 14.2% As of December 31,Other Information 2012 2011 ChangeNumber of properties 173 159 14Developed sites 63,697 54,811 8,886Occupied sites (1) (2) 50,412 44,204 6,208Occupancy % (1) 87.3% 85.3% 2.0%Weighted average monthly site rent - MH (3) $434 $420 $14Weighted average monthly site rent - RV (3) $406 $418 $(12)Sites available for development 6,969 6,443 526(1) Occupied sites and occupancy % include MH and annual RV sites and excludes transient RV sites.(2) Occupied sites include 4,989 sites acquired in 2012 and 4,814 sites acquired during 2011. (3) Weighted average rent pertains to annual RV sites and excludes transient RV sites.The 14.2% growth in NOI was primarily due to $13.0 million from newly acquired properties and $7.8 million from Same Site properties as detailed below.43SUN COMMUNITIES, INC.REAL PROPERTY OPERATIONS – SAME SITEThe Same Site information in this comparison of the years ended December 31, 2012 and 2011 includes all properties acquired on or prior to December 31,2010 and which were owned and operated by the Company during the years ended December 31, 2012 and 2011. Year Ended December 31,Financial Information (in thousands) 2012 2011 Change % ChangeIncome from Real Property $207,849 $198,806 $9,043 4.5 %Property operating expenses: Payroll and benefits 16,696 16,223 473 2.9 %Legal, taxes, & insurance 2,652 2,993 (341) (11.4)%Utilities 11,288 11,004 284 2.6 %Supplies and repair 8,428 8,163 265 3.2 %Other 4,807 4,310 497 11.5 %Real estate taxes 16,157 16,055 102 0.6 %Property operating expenses 60,028 58,748 1,280 2.2 %Real Property NOI $147,821 $140,058 $7,763 5.5 % As of December 31,Other Information 2012 2011 ChangeNumber of properties 136 136 —Developed sites 48,222 47,850 372Occupied sites (1) 39,860 39,230 630Occupancy % (1) (2) 86.7% 85.8% 0.9%Weighted average monthly rent per site - MH (3) $437 $425 $12Weighted average monthly rent per site - RV (3) $453 $431 $22Sites available for development 4,908 5,247 (339)(1) Occupied sites and occupancy % include MH and annual RV sites, and excludes transient RV sites.(2) Occupancy % excludes recently completed but vacant expansion sites.(3) Weighted average rent pertains to annual RV sites and excludes transient RV sites.Real Property NOI increased $7.8 million, or 5.5%, compared to 2011. Income from real property revenue consists of manufactured home and RV site rent,and miscellaneous other property revenues. The 4.5% growth in income from real property was due to a combination of factors. Revenue from ourmanufactured home and RV portfolio increased $9.5 million due to average rental rate increases of 2.8% and due to the increased number of occupied homesites. This growth in revenue was partially offset by rent concessions offered to new residents and current residents converting from home renters to homeowners. Additionally, other revenues decreased $0.5 million due to a decrease in cable television royalties and utility income partially offset by an increase inother charges and fees.Property operating expenses increased $1.3 million, or 2.2%, compared to 2011. Payroll and benefits increased by $0.5 million due to increased salariespartially offset by decreased health and life insurance costs. Other expenses increased $0.5 million primarily due to increased operational meeting expenses,general office expenses, security service expenses, regional manager travel expense and resident relations expenses. Supplies and repairs increased $0.3 millionprimarily due to increased lawn services and community maintenance expenses. Utilities expenses increased $0.3 million primarily due to increased cable,telephone and internet expenses, and real estate taxes increased $0.1 million. These increases were partially offset by a decrease in property insurance of $0.3million.44SUN COMMUNITIES, INC.HOME SALES AND RENTALSWe acquire pre-owned and repossessed manufactured homes generally located within our communities from lenders and dealers at substantial discounts. Welease or sell these value priced homes to current and prospective residents. We also purchase new homes to lease and sell to current and prospective residents. The following table reflects certain financial and other information for our Rental Program for the year ended December 31, 2012 and 2011 (in thousands,except for statistical information): Year Ended December 31,Financial Information 2012 2011 Change % ChangeRental home revenue $26,589 $22,290 $4,299 19.3%Site rent from Rental Program (1) 38,636 31,897 6,739 21.1%Rental Program revenue 65,225 54,187 11,038 20.4%Expenses Commissions 2,207 1,908 299 15.7%Repairs and refurbishment 9,002 8,080 922 11.4%Taxes and insurance 3,467 3,100 367 11.8%Marketing and other 3,465 3,108 357 11.5%Rental Program operating and maintenance 18,141 16,196 1,945 12.0%Rental Program NOI $47,084 $37,991 $9,093 23.9% Other Information Number of occupied rentals, end of period 8,110 7,047 1,063 15.1%Investment in occupied rental homes $287,261 $237,383 $49,878 21.0%Number of sold rental homes 953 789 164 20.8%Weighted average monthly rental rate $782 $756 $26 3.4%(1) The renter’s monthly payment includes the site rent and an amount attributable to the leasing of the home. The site rent is reflected in the Real Property Operations segment. Forpurposes of management analysis, the site rent is included in the Rental Program revenue to evaluate the incremental revenue gains associated with implementation of the RentalProgram, and assess the overall growth and performance of Rental Program and financial impact to our operations.The 23.9% growth in Rental Program NOI was primarily due to increased revenues of $11.0 million, offset by increased expenses of $1.9 million. Revenuesincreased primarily due to the increased number of residents participating in the Rental Program and from increased monthly rental rates as indicated in thetable above.The increase in operating and maintenance expense of $1.9 million was due to several factors. Due to the increased number of occupied rental homes in theRental Program, refurbishment costs for occupant turnover increased $0.5 million, personal property and use taxes increased $0.4 million, bad debt expenseincreased $0.4 million and repair costs increased $0.4 million. Commissions increased $0.3 million due to the increased number of new and renewed leases.Those increases were partially offset by a $0.1 million decrease in advertising costs.45SUN COMMUNITIES, INC.The following table reflects certain financial and statistical information for our Home Sales Program for the year ended December 31, 2012 and 2011 (inthousands, except for statistical information): Year Ended December 31,Financial Information 2012 2011 Change % ChangeNew home sales $5,380 $2,062 $3,318 160.9%Pre-owned home sales 39,767 30,190 9,577 31.7%Revenue from homes sales 45,147 32,252 12,895 40.0%New home cost of sales 4,553 1,700 2,853 167.8%Pre-owned home cost of sales 30,365 23,692 6,673 28.2%Cost of home sales 34,918 25,392 9,526 37.5%NOI / Gross profit $10,229 $6,860 $3,369 49.1% Gross profit – new homes $827 $362 $465 128.5%Gross margin % – new homes 15.4% 17.6% (2.2)% Gross profit – pre-owned homes $9,402 $6,498 $2,904 44.7%Gross margin % – pre-owned homes 23.6% 21.5% 2.1 % Statistical Information Home sales volume: New home sales 76 28 48 171.4%Pre-owned home sales 1,666 1,411 255 18.1%Total homes sold 1,742 1,439 303 21.1%Home Sales NOI increased 49.1% compared to 2011. Gross profit on new home sales increased $0.5 million and gross profit on pre-owned home salesincreased $2.9 million primarily due to increased sales volume.46SUN COMMUNITIES, INC.OTHER INCOME STATEMENT ITEMSThe following table summarizes other income and expenses for the years ended December 31, 2012 and 2011 (amounts in thousands): Year Ended December 31, 2012 2011 Change % ChangeAncillary revenues, net $(180) $7 $(187) (2,671.4)%Interest income $11,018 $9,509 $1,509 15.9 %Brokerage commissions and other revenues $617 $929 $(312) (33.6)%Real property general and administrative $20,037 $19,704 $333 1.7 %Home sales and rentals general and administrative $8,316 $7,571 $745 9.8 %Acquisition related costs $4,296 $1,971 $2,325 118.0 %Depreciation and amortization $89,674 $74,193 $15,481 20.9 %Interest expense $71,180 $67,939 $3,241 4.8 %Distributions from affiliates $3,900 $2,100 $1,800 85.7 %Ancillary revenues, net decreased primarily due increased costs related to the maintenance and operation of our golf courses, restaurants and pro shops andincreased insurance, warranty and credit bureau expense, partially offset by increased revenue from our golf courses, restaurants and pro shops.Interest income increased primarily due to increases in interest income of $0.9 million from collateralized receivables and $0.5 million from installment notereceivables.Home sales and rentals general and administrative costs increased primarily due to increased salary, commission and bonus costs.Acquisition related costs increased by $2.3 million. These costs have been incurred for both completed and potential acquisitions (See Note 2 to our financialstatements).Depreciation and amortization costs increased primarily due to increased depreciation on investment property for use in our Rental Program of $4.9 millionand increased other depreciation and amortization of $10.6 million primarily due to the newly acquired properties (See Note 2 to our financial statements).Interest expense on debt, including interest on mandatorily redeemable debt, increased primarily due to an increase in expense associated with our securedborrowing arrangements of $0.9 million, an increase of $4.2 million in our mortgage interest due to debt associated with the acquired properties (See Note 2 toour financial statements) and a higher rate on our FNMA debt and an increase of $0.1 million in amortized financing costs, offset by a decrease of $2.0million in interest on our lines of credit.Distributions from affiliate increased by $1.8 million. We suspended equity accounting in 2010 on our affiliate, Origen, as our investment balance is zero.The income recorded in 2012 and 2011 is distribution income. The amount of the distribution is determined by Origen on a quarterly basis. See Note 7 of ourfinancial statements.47SUN COMMUNITIES, INC.FUNDS FROM OPERATIONSWe provide information regarding FFO as a supplemental measure of operating performance. FFO is defined by NAREIT as net income (loss) (computed inaccordance GAAP), excluding gains (or losses) from sales of depreciable operating property, plus real estate-related depreciation and amortization, and afteradjustments for unconsolidated partnerships and joint ventures. Due to the variety among owners of identical assets in similar condition (based on historicalcost accounting and useful life estimates), we believe excluding gains and losses related to sales of previously depreciated operating real estate assets,impairment and real estate asset depreciation and amortization, provides a better indicator of our operating performance. FFO is a useful supplementalmeasure of our operating performance because it reflects the impact to operations from trends in occupancy rates, rental rates, and operating costs, providingperspective not readily apparent from net income (loss). Management believes that the use of FFO has been beneficial in improving the understanding ofoperating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. Management, the investmentcommunity, and banking institutions routinely use FFO, together with other measures, to measure operating performance in our industry. Further,management uses FFO for planning and forecasting future periods.Because FFO excludes significant economic components of net income (loss) including depreciation and amortization, FFO should be used as an adjunct to netincome (loss) and not as an alternative to net income (loss). The principal limitation of FFO is that it does not represent cash flow from operations as definedby GAAP and is a supplemental measure of performance that does not replace net income (loss) as a measure of performance or net cash provided by operatingactivities 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 cashrequirements, nor as a measure of working capital. FFO only provides investors with an additional performance measure. FFO is compiled in accordance withits interpretation of standards established by NAREIT, which may not be comparable to FFO reported by other REITs that do not define the term inaccordance with the current NAREIT definition or that interpret the current NAREIT definition differently.48SUN COMMUNITIES, INC.The following table reconciles net income (loss) to FFO data for diluted purposes for the years ended December 31, 2013, 2012 and 2011 (in thousands): Year Ended December 31, 2013 2012 2011Net income (loss) attributable to Sun Communities, Inc. common stockholders $10,610 $4,958 $(1,086)Adjustments: Preferred return to Series A-1 preferred OP units 2,598 2,329 1,222Preferred return to Series A-3 preferred OP units 166 — —Amounts attributable to noncontrolling interests 718 (318) (671)Depreciation and amortization 111,083 90,577 75,479Asset impairment charge — — 1,382Gain on disposition of assets (7,592) (5,137) (2,635)Funds from operations ("FFO") $117,583 $92,409 $73,691Adjustments: State income tax adjustment(1) — — (407)Acquisition related costs 3,928 4,296 1,971FFO excluding certain items $121,511 $96,705 $75,255 Weighted average common shares outstanding: 34,228 26,970 21,147Add: Common OP Units 2,069 2,071 2,075Restricted stock 504 285 235Common stock issuable upon conversion of Series A-1 preferred OP units 1,111 1,111 580Common stock issuable upon conversion of Series A-3 preferred OP units 67 — —Common stock issuable upon conversion of stock options 15 17 16Weighted average common shares outstanding - fully diluted 37,994 30,454 24,053 FFO per share - fully diluted $3.11 $3.05 $3.06FFO per share excluding certain items - fully diluted $3.22 $3.19 $3.13(1) The state income tax adjustment for the period ended December 31, 2011 represents the reversal of the corporate and business tax expense previously excluded from FFO in aprior period.49SUN COMMUNITIES, INC.LIQUIDITY AND CAPITAL RESOURCESOur principal liquidity demands have historically been, and are expected to continue to be, distributions to our stockholders and the unitholders of theOperating Partnership, capital improvements of properties, the purchase of new and pre-owned homes, property acquisitions, development and expansion ofproperties, and debt repayment.Subject to market conditions, we intend to continue to look for opportunities to expand our development pipeline and acquire existing communities. We alsointend to continue to strengthen our capital and liquidity positions by continuing to focus on our core fundamentals, which are generating positive cash flowsfrom operations, maintaining appropriate debt levels and leverage ratios, and controlling overhead costs. We intend to meet our liquidity requirements throughavailable cash balances, cash flows generated from operations, draws on our secured credit facility, secured debt financing transactions, and the use of debtand equity offerings under our automatic shelf registration statement.We completed six acquisitions in 2013 in which we acquired 15 properties in total, one MH community and 14 RV communities. See Note 2 to our financialstatements for details on the acquisitions and Note 9 to our financial statements for related debt transactions. We will continue to evaluate acquisitionopportunities that meet our criteria for acquisition. Should additional investment opportunities arise in 2014, we may finance the acquisitions through securedfinancing, draws on our credit facilities, the assumption of existing debt on the properties and/or the issuance of certain equity securities.During the year ended December 31, 2013, we invested $59.3 million in the acquisition of homes intended for the Rental Program net of proceeds from thirdparty financing from homes sales. Expenditures for 2014 will be dependent upon the condition of the markets for repossessions and new home sales, as wellas rental homes. We finance new home purchases with a $12.0 million floor plan facility. Our ability to purchase homes for sale or rent may be limited bycash received from third party financing of our home sales, available floor plan financing, operating cash flows and working capital available on our securedlines of credit.Our cash flow activities are summarized as follows (in thousands): Year Ended December 31, 2013 2012 2011Net Cash Provided by Operating Activities $114,683 $87,251 $63,311Net Cash Used in Investing Activities $(352,412) $(375,219) $(159,328)Net Cash Provided by Financing Activities $212,974 $311,619 $93,454Operating ActivitiesCash and cash equivalents decreased by $24.8 million from $29.5 million as of December 31, 2012, to $4.8 million as of December 31, 2013. Net cashprovided by operating activities increased by $27.4 million from $87.3 million for the year ended December 31, 2012 to $114.7 million for the year endedDecember 31, 2013.Our net cash flows provided by operating activities from continuing operations may be adversely impacted by, among other things: (a) the market andeconomic conditions in our current markets generally, and specifically in metropolitan areas of our current markets; (b) lower occupancy and rental rates ofour properties; (c) increased operating costs, such as wage and benefit costs, insurance premiums, real estate taxes and utilities, that cannot be passed on toour tenants; (d) decreased sales of manufactured homes and (e) current volatility in economic conditions and the financial markets. See Part I, Item 1A, “RiskFactors” in this 10-K.Investing ActivitiesNet cash used in investing activities was $352.4 million for the year ended December 31, 2013, compared to $375.2 million for the year ended December 31,2012. The decrease of $22.8 million is primarily a result of less cash invested into acquisitions during 2013, partially offset by increased investment inproperties, largely due to homes purchased for the Rental Program in recently acquired and expanded communities, costs incurred for the expansion of usablesites in our communities and an investment in a note receivable, which was extinguished in a net cash settlement during the acquisition of the properties uponwhich the note receivable was attributable to.50SUN COMMUNITIES, INC.Financing ActivitiesNet cash provided by financing activities was $213.0 million for the year ended December 31, 2013, compared to $311.6 million for the year endedDecember 31, 2012. Cash provided by financing activities in 2012 includes $82.2 million of cash received from the issuance of Series A Preferred Stock. Nosuch issuance was done in 2013, which accounts for the majority of the $98.6 million decrease in cash provided by financing activities.We continually evaluate our debt maturities, and, based on management's current assessment, believe we have viable financing and refinancing alternativesthat will not materially adversely impact our expected financial results. We continue to pursue borrowing opportunities with a variety of different lendinginstitutions and have noticed that, although pricing and loan-to-value ratios remain dependent on specific deal terms, spreads for non-recourse mortgagefinancing are compressing and loan-to-value ratios are gradually increasing from levels a year ago. The unsecured debt markets are functioning well and creditspreads are at manageable levels. We continue to assess our debt maturities and financing needs in 2014 and beyond to try to best position the Company ifcurrent credit market conditions change.Financial FlexibilityIn May 2013, we entered into a credit agreement with Citibank, N.A. and certain other lenders consisting of a $350.0 million senior secured revolving creditfacility (the "Facility"), subject to certain borrowing base calculations, and a built in accordion allowing for up to $250.0 million in additional borrowings.The Facility replaced our $150.0 million senior secured revolving credit facility, which was scheduled to mature on October 1, 2014. As of December 31,2013, we had an outstanding balance of $178.1 million on the Facility. We did not have an outstanding balance on the Facility as of December 31, 2012.Borrowings under the Facility bear a floating interest rate based on Eurodollar plus a margin that is determined based on our leverage ratio calculated inaccordance with the Facility agreement, which can range from 1.65% to 2.90%. During 2013, the highest balance on the Facility was $178.1 million, and thehighest balance on the previous senior secured revolving credit facility was $110.2 million. The borrowings under the Facility mature May 15, 2017, whichcan be extended for one additional year at our option, subject to the satisfaction of certain conditions as defined in the credit agreement. Although the Facility isa committed facility, the financial failure of one or more of the participating financial institutions may reduce the amount of available credit for use by us.Our Facility provides us with the ability to issue letters of credit. Our issuance of letters of credit does not increase our borrowings outstanding under our lineof credit, but it does reduce the borrowing amount available. At December 31, 2013, we had outstanding letters of credit to back standby letters of credittotaling approximately $2.7 million, leaving approximately $169.2 million available under the Facility.Pursuant to the terms of the Facility, we are subject to various financial and other covenants. We are currently in compliance with these covenants. The mostrestrictive financial covenants for the Facility are as follows:Covenant Must Be As of 12/31/13Maximum Leverage Ratio <68.5% 46.6%Minimum Fixed Charge Coverage Ratio >1.40 2.19Minimum Tangible Net Worth >$850,141 $1,123,878Maximum Dividend Payout Ratio <95.0% 72.2%Market and Economic ConditionsWhile the U.S. continues to see moderate signs of recovery including improvements in job growth, motor vehicle sales and the housing market, theimprovements are somewhat inconsistent. The Federal Reserve’s tapering of monetary stimulus which began in December 2013, and which has longsuppressed long term interest rates, brings the risk of rising interest rates to the forefront which could move investor sentiment away from the real estate sector.The change in monetary policy could also be perceived as the precursor to real economic improvement which could bode well for real estate operations. Risinginterest rates in the U.S as well as the slowing of quantitative easing by the Federal Reserve has also had a significant impact on global economies which wereare also challenged by political and financial instability. Continued economic uncertainty, both nationally and internationally, causes increased volatility ininvestor confidence thereby creating similar volatility in the availability of both debt and equity capital. If such volatility is experienced in future periods, ourindustry, business and results of operations may be adversely impacted.51SUN COMMUNITIES, INC.We anticipate meeting our long-term liquidity requirements, such as scheduled debt maturities, large property acquisitions, and Operating Partnership unitredemptions through the issuance of certain debt or equity securities and/or the collateralization of our properties. At December 31, 2013, we had 75unencumbered properties with an estimated market value of $676.1 million, 58 of these properties support the borrowing base for our $350.0 million securedline of credit. From time to time, we may also issue shares of our capital stock, issue equity units in our Operating Partnership, obtain debt financing, or sellselected assets. Our ability to finance our long-term liquidity requirements in such a manner will be affected by numerous economic factors affecting themanufactured housing community industry at the time, including the availability and cost of mortgage debt, our financial condition, the operating history ofthe properties, the state of the debt and equity markets, and the general national, regional, and local economic conditions. When it becomes necessary for us toapproach the credit markets, the volatility in those markets could make borrowing more difficult to secure, more expensive, or effectively unavailable. See“Risk Factors” in Part I, Item 1A. If we are unable to obtain additional debt or equity financing on acceptable terms, our business, results of operations andfinancial condition would be adversely impacted.Contractual Cash ObligationsOur primary long-term liquidity needs are principal payments on outstanding indebtedness. As of December 31, 2013, our outstanding contractualobligations, including interest expense, were as follows: Payments Due By Period (In thousands)Contractual Cash Obligations Total Due <1 year 1-3 years 3-5 years After 5 yearsCollateralized term loans - CMBS (1) $643,172 $6,639 $271,122 $48,967 $316,444Collateralized term loans - FNMA 366,019 5,178 62,998 10,991 286,852Aspen preferred OP Units and Series B-3 preferred OP Units 47,022 11,240 — — 35,782Lines of credit 181,383 3,283 — 178,100 —Secured borrowing 110,510 4,871 11,358 13,562 80,719Mortgage notes, other (2) 143,343 14,986 33,050 21,601 73,706 Total principal payments 1,491,449 46,197 378,528 273,221 793,503 Interest expense (3) 362,504 61,272 108,816 71,742 120,674Operating leases 2,511 918 1,593 — — Total contractual obligations $1,856,464 $108,387 $488,937 $344,963 $914,177(1) Our contractual cash obligation related to our Collateralized term loans - CMBS excludes a $1.7 million premium.(2) Our contractual cash obligation related to our Mortgage notes, other excludes a $0.3 million discount. (3) Our contractual cash obligation related to interest expense is calculated based on the current debt levels, rates and maturities as of December 31, 2013 (excluding secured borrowings),and actual payments required in future periods may be different than the amounts included above.As of December 31, 2013, our net debt to enterprise value approximated 45.8% (assuming conversion of all common OP units, A-1 preferred OP units and A-3preferred OP units to shares of common stock). Our debt has a weighted average maturity of approximately 6.8 years and a weighted average interest rate of5.0%.Capital expenditures for the year ended December 31, 2013 and 2012 included recurring capital expenditures of $14.0 million and $9.1 million, respectively.We are committed to the continued upkeep of our properties and therefore do not expect a significant decline in our recurring capital expenditures during 2014.52SUN COMMUNITIES, INC.CRITICAL ACCOUNTING POLICIES AND ESTIMATESManagement’s Discussion and Analysis of Financial Condition and Results of Operations discuss our consolidated financial statements, which have beenprepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amountsof revenues and expenses during the reporting periods. In preparing these financial statements, management has made its best estimate and judgment of certainamounts included in the financial statements. Nevertheless, actual results may differ from these estimates under different assumptions or conditions.Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation ofour consolidated financial statements: Investment PropertyInvestment property is recorded at cost, less accumulated depreciation. We review the carrying value of long-lived assets to be held and used for impairmentquarterly or whenever events or changes in circumstances indicate a possible impairment. Circumstances that may prompt a test of recoverability may includea significant decrease in the anticipated market price, an adverse change to the extent or manner in which an asset may be used or in its physical condition orother such events that may significantly change the value of the long-lived asset. An impairment loss is recognized when a long-lived asset’s carrying value isnot recoverable and exceeds estimated fair value. We estimate the fair value of our long-lived assets based on future cash flows and any potential dispositionproceeds for a given asset. Forecasting cash flows requires management to make estimates and assumptions about such variables as the estimated holdingperiod, rental rates, occupancy, development and operating expenses during the holding period, as well as disposition proceeds. Management uses its bestjudgment when developing these estimates and assumptions, but the development of the projected future cash flows is based on subjective variables. Futureevents could occur which would cause us to conclude that impairment indicators exist, and significant adverse changes in national, regional, or local marketconditions or trends may cause us to change the estimates and assumptions used in our impairment analysis. The results of an impairment analysis could bematerial to our financial statements.Capitalized CostsWe capitalize certain costs incurred in connection with the development, redevelopment, capital enhancement and leasing of our properties. Management isrequired to use professional judgment in determining whether such costs meet the criteria for immediate expense or capitalization. The amounts are dependenton the volume and timing of such activities and the costs associated with such activities. Maintenance, repairs and minor improvements to properties areexpensed when incurred. Renovations and improvements to properties are capitalized and depreciated over their estimated useful lives and construction costsrelated to the development of new community or expansion sites are capitalized until the property is substantially complete. Costs incurred to renovaterepossessed homes for our Rental Program are capitalized and costs incurred to refurbish the homes at turnover and repair the homes while occupied areexpensed. Certain expenditures to dealers and residents related to obtaining lessees in our communities are capitalized and amortized over a seven year periodbased on the anticipated term of occupancy of a resident. Costs associated with implementing our computer systems are capitalized and amortized over theestimated useful lives of the related software and hardware. Costs incurred to obtain new financing are capitalized and amortized over the terms of the relatedloan agreement using the straight-line method (which approximates the effective interest method).Notes and Other ReceivablesWe make financing available to purchasers of manufactured homes generally located in our communities. The notes are collateralized by the underlyingmanufactured home sold. Notes receivable include both installment loans purchased by the Company as well as transferred loans that have not met therequirements for sale accounting which are presented herein as collateralized receivables (See Note 5 to our financial statements for additional information). Forpurposes of accounting policy, all notes receivable are considered one homogeneous segment, as the notes are typically underwritten using the samerequirements and terms. Notes receivable are reported at their outstanding unpaid principal balance adjusted for an allowance for loan loss. Interest income isaccrued based upon the unpaid principal balance of the loans.Past due status of our notes receivable is determined based upon the contractual terms of the note. When a note receivable becomes 60 days delinquent, we stopaccruing interest on the note receivable. The interest on nonaccrual loans is accounted for on the cash basis until qualifying for return to accrual. Loans arereturned to accrual when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. Loans on anonaccrual status were immaterial at December 31, 2013 and 2012. The ability to collect our notes receivable is measured based on current and historicalinformation and events. We consider numerous factors including: length of delinquency, estimated costs to lease or sell, and repossession history. Our53SUN COMMUNITIES, INC.experience supports a high recovery rate for notes receivable; however there is some degree of uncertainty about the recoverability of our investment in thesenotes receivable. We are generally able to recover our recorded investment in uncollectible notes receivable by repossessing the homes on the notes retained by usand repurchasing the homes on the collateralized receivables, and subsequently selling or leasing these homes to potential residents in our communities. Wehave established a loan loss reserve based on our estimated unrecoverable costs associated with repossessed/repurchased homes. We estimate our unrecoverablecosts to be the repurchase price of the home collateralizing the note receivable plus repair and remarketing costs in excess of the estimated selling price of thehome being repossessed. A historical average of this excess cost is calculated based on prior repossessions/repurchases and is applied to our estimated annualfuture repossessions to create the allowance for both installment and collateralized notes receivable. See Note 5 to our financial statements for additionalinformation.We evaluate the collectability of a loan based on our ability to collect the scheduled payments of principal and interest when due according to the contractualterms of the loan agreement. We generally see that if the obligor is delinquent on the loan they are also delinquent on site rent. If the scheduled payment isdelinquent more than five to seven days, dependent on state law, we begin the repossession and eviction process simultaneously. This process generally takes30 to 45 days; due to the short time frame from delinquent loan to repossession we do not evaluate the notes receivables for impairments. No loans wereconsidered impaired as of December 31, 2013 and 2012.We evaluate the credit quality of our notes receivable at the inception of the receivable. We consider the following factors in order to determine the credit qualityof the applicant - rental payment history; home debt to income ratio; loan value to the collateralized asset; total debt to income ratio; length of employment;previous landlord references; and FICO scores.Other receivables are generally comprised of amounts due from residents for rent and related charges, home sale proceeds receivable from sales near year endand various other miscellaneous receivables. Accounts receivable from residents are typically due within 30 days and stated at amounts due from residents netof an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. We evaluate the recoverabilityof our receivables whenever events occur or there are changes in circumstances such that management believes it is probable that it will be unable to collect allamounts due according to the contractual terms of the loan and lease agreements. Receivables related to community rents are reserved when we believe thatcollection is less than probable, which is generally after a resident balance reaches 60 to 90 days past due.Revenue RecognitionRental income attributable to site and home leases is recorded on a straight-line basis when earned from tenants. Leases entered into by tenants are generally forone year terms but may range from month-to-month to two years and are renewable by mutual agreement from us and the resident, or in some cases, asprovided by state statute. Revenue from the sale of manufactured homes is recognized upon transfer of title at the closing of the sales transaction. Interestincome on notes receivable is recorded on a level yield basis over the life of the notes. We report certain taxes collected from the resident and remitted to taxingauthorities in revenue. These taxes include certain Florida property and fire taxes.Refer to Note 1 to our consolidated financial statements for additional information on certain critical accounting policies and estimate.Impact of New Accounting StandardsSee Note 18 to our financial statements, "Recent Accounting Pronouncements", within this Form 10-K.Off-Balance Sheet ArrangementsThe Company does not have any off-balance sheet arrangements with any unconsolidated entities that it believes have or are reasonably likely to have amaterial effect on its financial condition, results of operations, liquidity or capital resources.54SUN COMMUNITIES, INC.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKOur principal market risk exposure is interest rate risk. We mitigate this risk by maintaining prudent amounts of leverage, minimizing capital costs andinterest expense while continuously evaluating all available debt and equity resources and following established risk management policies and procedures,which include the periodic use of derivatives. Our primary strategy in entering into derivative contracts is to minimize the variability interest rate changescould have on our future cash flows. We generally employ derivative instruments that effectively convert a portion of our variable rate debt to fixed rate debt.We do not enter into derivative instruments for speculative purposes.We have three derivative contracts consisting of one interest rate swap agreement with a notional amount of $20.0 million, and two interest rate cap agreementswith a total notional amount of $162.4 million as of December 31, 2013. The swap agreement fixed $20.0 million of variable rate borrowings at 4.02% throughJanuary 2014. The first interest rate cap agreement has a cap rate of 11.27%, a notional amount of $152.4 million, and a termination date of April 2015. Thesecond interest rate cap agreement has a cap rate of 11.02%, a notional amount of $10.0 million and a termination date of October 2016.Our remaining variable rate debt totals $344.0 million and $222.5 million as of December 31, 2013 and 2012, respectively, which bear interest at prime orvarious LIBOR rates. If prime or LIBOR increased or decreased by 1.0% during the year ended December 31, 2013 and 2012, we believe our interest expensewould have increased or decreased by approximately $2.4 million and $2.4 million based on the $235.9 million and $237.8 million average balancesoutstanding under our variable rate debt facilities for the years ended December 31, 2013 and 2012, respectively.55SUN COMMUNITIES, INC.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAFinancial statements and supplementary data are filed herewith under Item 15.ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.56SUN COMMUNITIES, INC.ITEM 9A. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresOur management is responsible for establishing and maintaining disclosure controls and procedures as defined in the rules promulgated under the ExchangeAct. Under the supervision and with the participation of our management, including our Chief Executive Officer, Gary A. Shiffman, and Chief FinancialOfficer, Karen J. Dearing, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2013.Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as ofDecember 31, 2013, to ensure that information we are required to disclose in filings with the SEC under the Exchange Act is recorded, processed, summarizedand reported, within the time periods specified in the Commission’s rules and forms, and to ensure that information required to be disclosed by us in thereports that we file under the Exchange Act is accumulated and communicated to our management, including its principal executive officer and principalfinancial officer, as appropriate to allow timely decisions regarding required disclosure.Design and Evaluation of Internal Control Over Financial ReportingPursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we have included a report of management’s assessment of the design and effectiveness of ourinternal controls as part of this Form 10-K for the fiscal year ended December 31, 2013. Our independent registered public accounting firm also attested to,and reported on, the effectiveness of internal control over financial reporting. Management’s report and the independent registered public accounting firm’sattestation report are included in our 2013 financial statements under the captions entitled “Management’s Report on Internal Control Over Financial Reporting”and “Report of Independent Registered Public Accounting Firm”.Changes in Internal Control Over Financial ReportingThere have been no changes in our internal control over financial reporting during the quarterly period ended December 31, 2013 that have materially affected,or are reasonably likely to materially affect, our internal control over financial reporting.57SUN COMMUNITIES, INC.ITEM 9B. OTHER INFORMATIONNone.58SUN COMMUNITIES, INC.PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEBoard of Directors and CommitteesAt the Company's Annual Meeting of Shareholders held July 23, 2013, the Company's shareholders approved Articles of Amendment to our Amended andRestated Articles of Incorporation, as amended and supplemented, under which the classification of our Board of Directors ("the Board") was eliminated andall directors will be elected annually for one-year terms beginning at our 2014 annual shareholders meeting.The Board meets quarterly, or more often as necessary. The Board met five times during 2013 and took various actions pursuant to resolutions adopted byunanimous written consent. All directors attended at least 75% of the meetings of the Board and each committee on which they served. Except for Messrs. PaulD. Lapides and Ronald L. Piasecki, all of our board members attended the 2013 annual meeting.Effective January 1, 2014, the Board increased the number of members of the Board from seven to eight as permitted under our bylaws and appointed BrianM. Hermelin to serve as a director of the Company until our 2014 annual shareholders meeting and until his successor is elected and qualifies. In addition, Mr.Hermelin has been appointed to the Audit Committee and Executive Committee of the Board, and has been designated as an audit committee financial expert.Several important functions of the Board may be performed by committees that are comprised of members of the Board. Our bylaws authorize the formationof these committees and grant the Board the authority to prescribe the functions of each committee and the standards for membership of each committee. Inaddition, the Board appoints the members of each committee. The Board has four standing committees: an Audit Committee, a Compensation Committee, aNominating and Corporate Governance Committee, and an Executive Committee. You may find copies of the charters of the Audit Committee, theCompensation Committee, the Nominating and Corporate Governance Committee and the Executive Committee under the “Investors-Officers and Directors”section of our website at www.suncommunities.com. You may also find a copy of our corporate governance guidelines and our code of business conduct andethics under the “Investors-Officers and Directors” section of our website at www.suncommunities.com. All of the committee charters, our corporategovernance guidelines and our code of business conduct and ethics are available in print to any shareholder who requests them.The Audit Committee operates pursuant to a fourth amended and restated charter that was approved by the Board in April 2013, and is reviewed annually. It isavailable under the “Investors-Officers and Directors” section of our website at www.suncommunities.com. The Audit Committee, among other functions, (i)has the sole authority to appoint, retain, terminate and determine the compensation of our independent accountants, (ii) reviews with our independentaccountants the scope and results of the audit engagement, (iii) approves professional services provided by our independent accountants, (iv) reviews theindependence of our independent accountants, and (v) directs and controls our internal audit functions. The current members of the Audit Committee areMessrs. Robert H. Naftaly, Clunet R. Lewis (Chairman), Brian M. Hermelin and Ms. Stephanie W. Bergeron, all of whom are “independent” as that term isdefined in the rules of the SEC and applicable rules of the NYSE. The Audit Committee held four formal meetings during the year ended December 31, 2013.The Board has determined that each member of the Audit Committee is an “audit committee financial expert”, as defined by SEC rules.The Compensation Committee operates pursuant to a charter that was approved by the Board in March 2004. A copy of the Compensation Committee Charteris available under the “Investors-Officers and Directors” section of our website at www.suncommunities.com. The Compensation Committee, among otherfunctions, (i) reviews and approves corporate goals and objectives relevant to the compensation of the Chief Executive Officer and such other executive officersas may be designated by the Chief Executive Officer, evaluates the performance of such officers in light of such goals and objectives, and determines andapproves the compensation of such officers based on these evaluations, (ii) approves the compensation of our other executive officers, (iii) recommends to theBoard for approval the compensation of the non-employee directors and (iv) oversees our incentive-compensation plans and equity-based plans. The currentmembers of the Compensation Committee are Messrs. Robert H. Naftaly (Chairman), Clunet R. Lewis and Paul D. Lapides, all of whom are independentdirectors under the NYSE rules. During the year ended December 31, 2013, the Compensation Committee held two formal meetings and took various actionsby unanimous written consent (see “Report of the Compensation Committee on Executive Compensation”).The Nominating and Corporate Governance Committee (the “NCG Committee”) operates pursuant to a charter that was approved by the Board in March 2004.A copy of the NCG Committee Charter is available under the “Investors-Officers and Directors” section of our website at www.suncommunities.com. TheNCG Committee, among other functions, is responsible for (i) identifying individuals qualified to become Board members, consistent with criteria approvedby the Board, (ii) recommending that the Board59SUN COMMUNITIES, INC.select the committee-recommended nominees for election at each annual meeting of shareholders, (iii) developing and recommending to the Board a set ofcorporate governance guidelines applicable to us, and (iv) periodically reviewing such guidelines and recommending any changes, and overseeing theevaluation of the Board. The current members of the NCG Committee are Messrs. Paul D. Lapides (Chairman), Clunet R. Lewis and Ronald L. Piasecki, allof whom are independent under the NYSE rules. The NCG Committee held one formal meeting during the year ended December 31, 2013. The NCGCommittee considers diversity and skills in identifying nominees for service on our Board. Regarding diversity, the NCG Committee considers the entirety ofthe board and a wide range of economic, social and ethnic backgrounds and does not nominate representational directors from any specific group.The Executive Committee operates pursuant to a charter that was approved by the Board in January 2014. The Executive Committee was established togenerally manage our day-to-day business and affairs between regular Board meetings. The Executive Committee has specific authority to approve any and allacquisitions and/or financings (including refinancings of existing debt) by us or our subsidiaries up to a maximum purchase price or loan amount of $50million per transaction. In no event may the Executive Committee, without the prior approval of the Board acting as a whole: (i) recommend to the shareholdersan amendment to our charter; (ii) amend our bylaws; (iii) adopt an agreement of merger or consolidation; (iv) recommend to the shareholders the sale, lease orexchange of all or substantially all of our property and assets; (v) recommend to the shareholders our dissolution or a revocation of a dissolution; (vi) fillvacancies on the Board; (vii) fix compensation of the directors for serving on the Board or on a committee of the Board; (viii) declare distributions or authorizethe issuance of our stock; (ix) approve or take any action with respect to any related party transaction involving us; or (x) take any other action which isforbidden by our bylaws or charter. All actions taken by the Executive Committee must be promptly reported to the Board as a whole and are subject toratification, revision and alteration by the Board, except that no rights of third persons created in reliance on authorized acts of the Executive Committee can beaffected by any such revision or alteration. The current members of the Executive Committee are Messrs. Gary A. Shiffman, Arthur A. Weiss and Brian M.Hermelin. The Executive Committee did not hold any formal meetings during the year ended December 31, 2013.The Board oversees and implements its risk management function several different ways. Specifically, the Audit Committee discusses our risk assessmentand risk management policies with the Chief Financial Officer and other accounting staff, our internal auditor and our independent accountants in conjunctionwith its review of our financial statements as they deem necessary. In addition, the Board discusses the general risks facing us, the risk factors disclosed inour annual and period reports and our risk management policies with our executive management team from time to time throughout the year. In the event that aspecific risk is identified, the Board or the Audit Committee directs management to assess, evaluate and provide remedial recommendations to the Board or theAudit Committee.Independence of Non-Employee DirectorsThe NYSE rules require that a majority of the Board consist of members who are independent. There are different measures of director independence—independence under NYSE rules, under Section 16 of the Exchange Act and under Section 162(m) of the Code. The Board has reviewed information abouteach of our non-employee directors and determined that Ms. Stephanie W. Bergeron and Messrs. Paul D. Lapides, Clunet R. Lewis, Robert H. Naftaly, RonaldL. Piasecki and Brian M. Hermelin are independent directors. The independent directors meet on a regular basis in executive sessions without managementparticipation. In 2013, the executive sessions occurred after some of the regularly scheduled meetings of the entire Board and may occur at such other times asthe independent directors deem appropriate or necessary. The Board appoints a lead director on an annual basis to serve for a term of one year. Clunet R. Lewisis currently serving as lead director. The lead director calls and presides at the executive sessions of our independent directors, acts as a liaison between ourmanagement team and the Board and is responsible for identifying, analyzing and making recommendations to the Board with respect to certain strategic andextraordinary matters.Consideration of Director NomineesBoard Membership CriteriaThe Board of Directors has established criteria for Board membership. These criteria include the following specific, minimum qualifications that the NCGCommittee believes must be met by an NCG Committee-recommended nominee for a position on the Board:•The candidate must have experience at a strategic or policymaking level in a business, government, non-profit or academic organization of highstanding;•The candidate must be highly accomplished in his or her field, with superior credentials and recognition;60SUN COMMUNITIES, INC.•The candidate must be well regarded in the community and must have a long-term reputation for high ethical and moral standards;•The candidate must have sufficient time and availability to devote to our affairs, particularly in light of the number of boards on which thenominee may serve; and•The candidate’s principal business or occupation must not be such as to place the candidate in competition with us or conflict with the dischargeof a director’s responsibilities to us or to our shareholders.In addition to the minimum qualifications for each nominee set forth above, the NCG Committee will recommend director candidates to the full Board fornomination, or present director candidates to the full Board for consideration, to help ensure that:•A majority of the Board of Directors shall be “independent” as defined by the NYSE rules;•Each of its Audit, Compensation and NCG Committees shall be comprised entirely of independent directors; and•At least one member of the Audit Committee shall have such experience, education and qualifications necessary to qualify as an “audit committeefinancial expert” as defined by the rules of the SEC.Consideration of Shareholder Nominated DirectorsThe NCG Committee’s current policy is to review and consider any director candidates who have been recommended by shareholders in compliance with theprocedures established from time to time by the NCG Committee. All shareholder recommendations for director candidates must be submitted in writing to ourSecretary at Sun Communities, Inc., 27777 Franklin Road, Suite 200, Southfield, MI 48034, who will forward all recommendations to the NCG Committee.All shareholder recommendations for director candidates for election at the 2015 annual meeting of shareholders must be submitted to our Secretary not earlierthan the 120th day and not later than the 90th day prior to the first anniversary of the 2014 annual meeting provided, however, that if the 2015 annual meetingis more than 30 days earlier or later than the first anniversary of the 2014 annual meeting, notice by the shareholder must be delivered not earlier than the 120thday and not later than the 90th day prior to the date of the 2015 annual meeting or, if the first public announcement of the date of the 2015 annual meeting isless than 100 days prior to the date of the 2014 annual meeting, the tenth day following the day on which public announcement of the date of the 2015 annualmeeting is first made by us. All shareholder recommendations for director candidates must include the following information:•The shareholder’s name, address, number of shares owned, length of period held and proof of ownership;•The name, age, business and residential address, educational background, current principal occupation or employment, and principal occupationor employment for the preceding five full fiscal years of the proposed director candidate;•A description of the qualifications and background of the proposed director candidate which addresses the minimum qualifications and othercriteria for Board membership as approved by the Board from time to time;•A description of all arrangements or understandings between the shareholder and the proposed director candidate;•The consent of the proposed director candidate (1) to be named in the proxy statement relating to our annual meeting of stockholders and (2) toserve as a director if elected at such annual meeting; and•Any other information regarding the proposed director candidate that is required to be included in a proxy statement filed pursuant to the rules ofthe SEC.Identifying and Evaluating NomineesThe NCG Committee may solicit recommendations for director nominees from any or all of the following sources: non-management directors, executiveofficers, third-party search firms or any other source it deems appropriate. The NCG Committee will review and evaluate the qualifications of any proposeddirector candidate that it is considering or has been recommended to it by a shareholder in compliance with the NCG Committee’s procedures for that purpose,and conduct inquiries it deems appropriate into the background of these proposed director candidates. When nominating a sitting director for re-election, theNCG Committee will consider the director’s performance on the Board and the director’s qualifications in respect to the criteria set forth above.61SUN COMMUNITIES, INC.Other than circumstances in which we are legally required by contract or otherwise to provide third parties with the ability to nominate directors, the NCGCommittee will evaluate all proposed director candidates based on the same criteria and in substantially the same manner, with no regard to the source of theinitial recommendation of the proposed director candidate.Board of DirectorsThe following list identifies each incumbent director and describes each person’s principal occupation for at least the past five years. Each of the directors hasserved continuously from the date of his or her election to the present time.Name Age OfficeGary A. Shiffman 59 Chairman, Chief Executive Officer and DirectorStephanie W. Bergeron 60 DirectorPaul D. Lapides 59 DirectorClunet R. Lewis 67 DirectorRobert H. Naftaly 75 DirectorRonald L. Piasecki 74 DirectorArthur A. Weiss 65 DirectorBrian M. Hermelin(1) 48 Director(1) Mr. Hermelin was appointed effective January 1, 2014. Gary A. Shiffman is our Chairman and Chief Executive Officer and has been an executive officer since our inception. He is a member of our ExecutiveCommittee. He has been actively involved in the management, acquisition, construction and development of MH communities and has developed an extensivenetwork of industry relationships over the past twenty years. He has overseen the acquisition, rezoning, development and marketing of numerousmanufactured home expansion projects, as well as other types of income producing real estate. Additionally, Mr. Shiffman has significant direct holdings invarious real estate asset classes, which include office, multi-family, industrial, residential and retail. Mr. Shiffman is an executive officer and a director ofSHS and all of our other corporate subsidiaries. Mr. Shiffman is also a director of Origen.Stephanie W. Bergeron has been a director since May 2007. She is currently a member of our Audit Committee. Ms. Bergeron, a certified public accountant,also serves as the President and Chief Executive Officer of Walsh College. Additionally, Ms. Bergeron serves as President and Chief Executive Officer ofBluepoint Partners, LLC, a firm providing financial consulting services. From December 1998 to December 2003, Ms. Bergeron served as Vice President andTreasurer and then Senior Vice President-Corporate Financial Operations of The Goodyear Tire & Rubber Company (“Goodyear”). Prior to joining Goodyear,Ms. Bergeron was a Vice President and Assistant Treasurer of DaimlerChrysler Corporation. She has also served on Audit Committees of several publiclytraded companies (including as chairman) and a number of not for profit organizations. During her business career, Ms. Bergeron directed staff responsiblefor accounting, treasury, investor relations and tax matters. Crain’s Detroit Business named Bergeron one of its “Most Influential Women” in 1997 and in2007.Paul D. Lapides has been a director since December 1993. He is currently the chairman of our NCG Committee and a member of our CompensationCommittee. Mr. Lapides is Director of the Corporate Governance Center in the Michael J. Coles College of Business at Kennesaw State University, where he isa professor of management and entrepreneurship. Mr. Lapides is a director of OnBoard, Inc., and a member of the advisory boards of the Newman Real EstateInstitute at Baruch College and the National Association of Corporate Directors. Mr. Lapides has extensive knowledge and experience in the areas of real estateand corporate governance. Mr. Lapides, a certified public accountant, has been involved in real-estate related activities including the management of a $3.0billion national portfolio of income-producing real estate. As a published author or co-author of more than 100 articles and twelve books, Mr. Lapides isconsidered a well-respected authority in management and corporate governance related issues.Clunet R. Lewis has been a director since December 1993. He is currently the chairman of our Audit Committee, a member of our Compensation Committeeand our NCG Committee, and he serves as the Lead Independent Director. Mr. Lewis has also chaired Special Committees of our Independent Directors formedto review and evaluate strategic alternatives. Mr. Lewis is a retired commercial lawyer. While in private practice, Mr. Lewis specialized in mergers andacquisitions, debt financings, issuances of equity and debt securities, and corporate governance and control issues. Mr. Lewis has also served as BoardMember, General Counsel, Chief Financial Officer, President, and Managing Director of other public and private companies.62SUN COMMUNITIES, INC.Robert H. Naftaly has been a director since October 2006. He is currently the chairman of our Compensation Committee and a member of our AuditCommittee. Mr. Naftaly is retired as President and Chief Executive Officer of PPOM, an independent operating subsidiary of Blue Cross Blue Shield ofMichigan (“BCBSM”) and as Executive Vice President and Chief Operating Officer of BCBSM. Previously, Mr. Naftaly served as Vice President and GeneralAuditor of Detroit Edison Company and was the Director of the Department of Management and Budget for the State of Michigan. He was a managing partnerand founder of Geller, Naftaly, Herbach & Shapiro, a certified public accounting firm. In addition, Mr. Naftaly has served as a director of MeadowbrookInsurance Group, Inc. (NYSE:MIG) since 2002 where he is currently the Chairman of the Compensation Committee and a member of the Capital Strategy andAcquisition Committee. Mr. Naftaly previously served as a director of Walsh College, a non-profit institution that offers business and technology degrees andprograms and since November 2013 has been a director emeritus of Walsh College. Mr. Naftaly also serves as a director and the chair of the Audit Committeeat Talmer Bancorp, Inc. (NASDAQ: TLMR). Mr. Naftaly, a certified public accountant, draws upon a wide experience of board membership and leadershipexperiences. Mr. Naftaly was appointed by Governor Jennifer Granholm, as Chairperson, State Tax Commission of the State of Michigan in 2002. Mr.Naftaly is a member of the American Institute of Certified Public Accountants and the Michigan Association of Certified Public Accountants. In 2002, hereceived the Distinguished Achievement Award from the Michigan Association of Certified Public Accountants.Ronald L. Piasecki has been a director since May 1996, upon completion of our acquisition of twenty-five MH communities (the “Aspen Properties”) ownedby affiliates of Aspen Enterprises, Ltd. (“Aspen”). He is currently a member of our NCG Committee. Mr. Piasecki was a director of Aspen Properties, whichhe co-founded in 1974. From 1974 until its sale to us in 1996, Mr. Piasecki was the managing partner in charge of property financing, legal and accountingrelationships, resident relations, lobbying and syndication and sale of registered private equity limited partnership and participating mortgage interests. Prior toour acquisition, Aspen was one of the largest privately-held developers and owners of manufactured housing communities in the U.S. Mr. Piasecki has beeninvolved in real estate development and management since 1968 when he began working in the tax department of the then accounting firm of Lybrand, RossBrothers and Montgomery in Detroit. Mr. Piasecki then practiced law, specializing in real estate development, syndication and management, until 1980 whenhe became a full time partner in Aspen. Mr. Piasecki is currently engaged in the financing, development and management of real estate properties.Arthur A. Weiss has been a director since October 1996. He is a member of our Executive Committee. Since 1976, Mr. Weiss has practiced law with the lawfirm of Jaffe, Raitt, Heuer & Weiss, Professional Corporation, which represents us in various matters. Mr. Weiss is currently Chairman of the firm and ashareholder of Jaffe, Raitt, Heuer & Weiss, Professional Corporation. Mr. Weiss practices law in the area of business planning, taxation, estate planning andreal estate law. Mr. Weiss is a director of several closely-held companies in the real estate industry, steel industry and technology industry and currently servesas a director of Talmer Bancorp, Inc. (NASDAQ: TLMR). Mr. Weiss is also a director and officer of a number of closely held public and private nonprofitcorporations, which include the Detroit Symphony Orchestra, where he is on the executive committee, and serves as a treasurer and board member. Mr. Weissreceived a MBA in finance and a post graduate LLM degree from New York University in taxation. In addition to being an author and frequent lecturer in theDetroit area, Mr. Weiss previously was an Adjunct Professor of Law at Wayne State University. Mr. Weiss was previously recognized as one of the nation’sTop 100 Attorneys by Worth magazine and has been chosen over the last 10 years as one of the Super Lawyers.Brian M. Hermelin was appointed, effective January 1, 2014, to serve as a director of the Company until the 2014 annual meeting of shareholders and untilhis successor is elected and qualifies. He is a member of our Audit Committee and Executive Committee. Mr. Hermelin is the Co-Founder and ManagingPartner since 2007 of Rockbridge Growth Equity LLC, a private equity investment firm focusing on companies in the business services, financial services,sports, media and entertainment, and consumer direct marketing industries. He is also a co-founder and General Partner of Detroit Venture Partners, LLC, aventure capital firm based in Detroit, Michigan. From December 2000 to May 2011, Mr. Hermelin served as Chairman and Chief Executive Officer of ActiveAero Group/USA Jet Airlines Inc., an air charter and logistics firm that also operates an air charter service for freight and passenger air transport. In addition,he is the chair of the Audit Committee of Rock Ohio Caesars LLC.63SUN COMMUNITIES, INC.In addition to each director’s qualifications, experience and skills outlined in their biographical data above and the minimum Board qualifications set forthabove, our NCG Committee looked for certain attributes in each director nominee and based on these attributes, and the mix of attributes of the otherincumbent directors, determined that each director nominee should serve on our Board. The NCG Committee does not require that each director nomineepossess all of these attributes but rather that the Board is comprised of directors that, taken together, provide us with a variety and depth of knowledge,judgment and experience necessary to provide effective oversight and vision. These attributes include: (a) significant leadership skills as a chief executiveofficer and/or relevant board member experience, (b) real estate industry experience, (c) transactional experience, especially within the real estate industry, (d)relevant experience in property operations, (e) financial expertise, and (f) legal or regulatory experience. The following table lists the attributes of each director,as determined by the NCG Committee:Director CEO/BoardExperience Real EstateIndustry TransactionalExperience PropertyOperations Financial Expertise Legal /RegulatoryGary A. Shiffman X X X X X Stephanie W. Bergeron X X X Paul D. Lapides X X X X X XClunet R. Lewis X X X X XRobert H. Naftaly X X X Ronald L. Piasecki X X X X X XArthur A. Weiss X X X X XBrian M. Hermelin(1) X X X (1) Mr. Hermelin was appointed effective January 1, 2014.To the best of our knowledge, as of the date of this Form 10-K, there are no material proceedings to which any director or nominee is currently a party, or has amaterial interest, adverse to the Company. Except as described below, to the best of our knowledge, during the past ten years: (i) there have been no eventsunder any bankruptcy act, no criminal proceedings and no judgments or injunctions that are material to the evaluation of the ability or integrity of any directoror nominee, (ii) no director or nominee has been the subject of a or a party to any judicial or administrative proceedings relating to an alleged violation of (a)mail or wire fraud; (b) fraud in connection with any business entity; (c) violations of federal or state securities, commodities, banking or insurance laws andregulations, and (iii) no director or nominee has been the subject of a or a party to any sanction or order of any self-regulatory organization, any registeredentity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinaryauthority over its members or persons associated with a member.As announced on February 27, 2006, the SEC completed its inquiry regarding the accounting for our SunChamp investment during 2000, 2001 and 2002,and the entry of an agreed-upon Administrative Order (the “Order”). The Order required us to cease and desist from violations of certain non-intent basedprovisions of the federal securities laws, without admitting or denying any such violations. On February 27, 2006, the SEC filed a civil action against Mr.Shiffman, in his capacity as our Chief Executive Officer, Jeffrey P. Jorissen, our then (and now former as of February 2008) Chief Financial Officer and aformer Controller in the United States District Court for the Eastern District of Michigan alleging various claims generally consistent with the SEC’s findingsset forth in the Order. On July 21, 2008, the U.S. District Court for the Eastern District of Michigan approved a settlement whereby the SEC dismissed itscivil lawsuit against Mr. Shiffman and our former Controller. The SEC concurrently reached a settlement with Mr. Jorissen.Executive OfficersThe persons listed below are our executive officers who served during the last completed fiscal year. Each is appointed by, and serves at the pleasure of, theBoard.Name Age OfficeGary A. Shiffman 59 Chairman and Chief Executive OfficerJohn B. McLaren 43 President and Chief Operating OfficerKaren J. Dearing 49 Executive Vice President, Treasurer, Chief Financial Officer and SecretaryJonathan M. Colman 58 Executive Vice PresidentBackground information for Gary A. Shiffman is provided above. Background information for the other three current executive officers is set forth below.64SUN COMMUNITIES, INC.John B. McLaren has been in the manufactured housing industry since 1995. He has served as our President since February 2014 and as our ChiefOperating Officer since February 2008. From February 2008 to February 2014, he served as an Executive Vice President of the Company. From August 2005to February 2008, he was Senior Vice President of SHS with overall responsibility for homes sales and leasing. Prior to that, Mr. McLaren was a Regional VicePresident for Apartment Investment & Management Company (“AIMCO”), a Real Estate Investment Trust engaged in leasing apartments. Prior to AIMCO,Mr. McLaren spent approximately three years as Vice President of Leasing & Service for SHS with responsibility for developing and leading our RentalProgram.Karen J. Dearing joined us in October 1998 as the Director of Finance where she worked extensively with accounting and finance matters related to ourground up developments and expansions. Ms. Dearing became our Corporate Controller in 2002, a Senior Vice President in 2006, and Executive Vice Presidentand Chief Financial Officer in February 2008. She is responsible for the overall management of our information technology, accounting and financedepartments, and all internal and external financial reporting. Prior to working for us, Ms. Dearing had eight years of experience as the Financial Controller ofa privately-owned automotive supplier and five years’ experience as a certified public accountant with Deloitte.Jonathan M. Colman joined us in 1994 as Vice President-Acquisitions and became a Senior Vice President in 1995 and an Executive Vice President inMarch 2003. A certified public accountant, Mr. Colman has over twenty years of experience in the manufactured housing community industry. He has beeninvolved in the acquisition, financing and management of over 75 manufactured housing communities for two of the 10 largest manufactured housingcommunity owners, including Uniprop, Inc. during its syndication of over $90.0 million in public limited partnerships in the late 1980s. Mr. Colman is alsoa Vice President of all of our corporate subsidiaries.To the best of our knowledge, as of the date of this Form 10-K, there are no material proceedings to which any executive officer is currently a party, or has amaterial interest, adverse to us. To the best of our knowledge, except with respect to Mr. Shiffman (as described above), during the past ten years: (i) therehave been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions that are material to the evaluation of the ability orintegrity of any executive officer, (ii) no executive officer has been the subject of a or a party to any judicial or administrative proceedings relating to an allegedviolation of (a) mail or wire fraud; (b) fraud in connection with any business entity; or (c) violations of federal or state securities, commodities, banking orinsurance laws and regulations, and (iii) no any executive officer has been the subject of a or a party to any sanction or order of any self-regulatoryorganization, any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity ororganization that has disciplinary authority over its members or persons associated with a member.Section 16(a) Beneficial Ownership Reporting ComplianceSection 16(a) of the Exchange Act, requires our directors, executive officers and beneficial owners of more than 10% of our capital stock to file reports ofownership and changes of ownership with the SEC and the NYSE. Based solely on our review of the copies of such reports received by us, and writtenrepresentations from certain reporting persons, we believe, that, during the year ended December 31, 2013, our directors, executive officers and beneficialowners of more than 10% of our common stock have complied with all filing requirements applicable to them, except that Mr. Arthur A. Weiss failed to timelyfile one report disclosing the sale of 1,368 shares of common stock by a trust of which he is a co-trustee.65SUN COMMUNITIES, INC.ITEM 11. EXECUTIVE COMPENSATIONCompensation Discussion and AnalysisCompensation Committee Composition and CharterThe Compensation Committee assists the Board in fulfilling its responsibilities for determining the compensation offered to our executive officers. TheCompensation Committee, among other functions:•consults with executive management in developing a compensation philosophy;•reviews and approves the goals and objectives relevant to the compensation of the Chief Executive Officer and other executive officers ensuringthose goals are aligned with our short and long-term objectives;•reviews and approves salary, annual and long-term incentive compensation performance objectives and payments for the executive officers;•evaluates the performance of the executives in light of the goals and objectives of our executive compensation plans and establishes futurecompensation levels based upon this evaluation;•reviews and approves grants and awards to the executive officers and other participants under our equity based compensation plans; and•reviews and approves any employment agreements and severance agreements to be made with any existing or prospective executive officer.The Compensation Committee has the authority to retain and terminate independent, third-party compensation consultants and to obtain independent adviceand assistance from internal and external legal, accounting and other advisors. The Compensation Committee did not engage a compensation consultant firmfor 2013 compensation year. Each member of the Compensation Committee is independent under NYSE rules. A copy of the Compensation Committee Charteris available under the “Investors-Officers and Directors” section of our website at www.suncommunities.com.In late 2010, the Compensation Committee engaged FPL Associates (“FPL”), a nationally recognized consulting firm specializing in the real estate industry, to:(1) assist the Compensation Committee with identifying a peer group; (2) assess the overall framework of our executive compensation program; (3) assess thecompensation levels compared to the selected peer group; and (4) provide guidance and recommendations in establishing the overall compensation structureand individual compensation opportunities that were in place during 2010 and those established for 2011. The compensation of our Chief Executive Officer,Chief Financial Officer and Chief Operating Officer were reviewed and compared to a Public REIT Peer Group (the “Peer Group”) generally comparable to Sunin terms of asset class, size and/or geography. The Peer Group contained the following companies:Associated Realty CorporationColonial Properties TrustEastGroup Properties, Inc.Equity LifeStyle Properties, Inc.Glimcher Realty TrustHome Properties, Inc.Mid-America Apartment Communities, Inc.Post Properties, Inc.Ramco-Gershenson Properties TrustUMH Properties, Inc.The compensation data for each company was reviewed over a three-year period and compared to our compensation data for the same period. Eachcompensation component and total compensation of our three officers generally ranked between the 25th percentile to median of the total compensation levels ofthe Peer Group. The Compensation Committee believed this to be an appropriate level of compensation, although the Compensation Committee does not set aspecific target level of compensation for our officers in relation to peers. As part of the review, FPL and the Compensation Committee discussed long-termequity plans with multi-year performance components including the types of programs being utilized in the marketplace, an analysis of all the peer long-termincentive plans, and key considerations with regards to such a plan for us. The Compensation Committee evaluated66SUN COMMUNITIES, INC.the possibility of adding a long-term equity plan with multi-year performance metrics as a component of our compensation program in future years. FPL hasnot provided any other services to us.Compensation Philosophy and ObjectivesThe goals and objectives of our executive compensation program are to attract and retain a skilled executive team to manage, lead and direct our personnel andcapital to obtain the best possible economic results.The executive compensation program supports our commitment to providing superior shareholder value. This program is designed to:•attract, retain and reward executives who have the motivation, experience and skills necessary to lead us effectively and encourage them to makecareer commitments to us;•base executive compensation levels on our overall financial and operational performance and the individual contribution of an executive officer toour success;•create a link between the performance of our stock and executive compensation; and•position executive compensation levels to be competitive with other similarly situated public companies including the real estate industry in generaland manufactured housing REITs in particular. Annual salary and incentive awards are intended to be competitive in the marketplace to attract and retain executives. Stock options and restricted stockawards are intended to provide longer-term motivation which has the effect of linking stock price performance to executive compensation. Restricted stock isalso intended to provide post-retirement financial security in lieu of other forms of more costly supplemental retirement programs. We have not implementedany policies related to stock ownership guidelines for our executive management or for members of the Board.Role of Executive Officers in Compensation DecisionsThe Compensation Committee makes all decisions regarding the compensation of executive officers, including cash-based and equity-based incentivecompensation programs. The Compensation Committee reviews the performance, and determines the annual incentive compensation, of the Chief ExecutiveOfficer. The Compensation Committee and the Chief Executive Officer annually review the performance metrics of the short and long-term performance plansand the performance of the other executive officers. The conclusions reached and recommendations based on the reviews of the other executive officers,including with respect to annual incentive and equity award amounts, are presented by the Chief Executive Officer to the Compensation Committee, which canexercise its discretion in modifying any recommended incentive or equity awards. From time to time, the Compensation Committee may request our SeniorVice President of Human Resources or Chief Financial Officer to collect publicly available information on compensation levels and programs for executives. Inaddition, our Chief Financial Officer analyzes implications of various executive compensation awards or plan designs.Compensation Components and ProcessesIn order to implement our executive compensation philosophy, the Compensation Committee exercises its independent discretion in reviewing and approving theexecutive compensation program as a whole, as well as specific compensation levels for each executive officer. Final aggregate compensation determinations foreach fiscal year are generally made after the end of the fiscal year, after financial statements for such year become available. At that time, the CompensationCommittee determines the annual incentive award, if any, for the past year’s performance, sets base salaries for those executive officers whose base salaries arenot bound by employment agreements for the following fiscal year and makes awards of equity-based compensation, if any. Prior to the engagement of FPL inlate 2010, the Compensation Committee did not formally benchmark executive compensation but did, on occasion, review salary and compensationinformation for companies with comparable market capitalization, number of employees and business sectors as published in the National Association of RealEstate Investment Trusts Compensation Survey (the “NAREIT Survey”) and various other compensation studies and surveys. The Compensation Committeeused this information to gain a general understanding of current compensation practices and guidelines and did not tie its compensation decisions to anyparticular target or level of compensation noted in the NAREIT Survey or other surveys. The Compensation Committee considers (a) internal equity amongexecutive officers, (b) market data for the positions held by these executives, (c) each executive’s duties, responsibilities, and experience level, (d) eachexecutive’s performance and contribution to our success, and (e) cost to us when determining levels of compensation.67SUN COMMUNITIES, INC.The Compensation Committee also considered the results of the advisory vote by shareholders on executive compensation, or the "say-on-pay" proposal,presented to shareholders at our July 23, 2013 Annual Meeting. As reported in our Form 8-K, filed with the SEC on July 29, 2013, approximately 98% of theshares that voted on the say-on-pay proposal approved our 2012 executive compensation. Based on the votes from our 2013 Annual Meeting, we will continueto offer an annual non-binding advisory vote on the executive compensation. Accordingly, the Compensation Committee made no direct changes to theCompany's executive compensation program as a result of the say-on-pay vote and our executive compensation program for the year ended December 31, 2013continued to focus on the factors and objectives described above.The key components of executive officer compensation are base salary, annual incentive awards, and long-term equity incentive awards. Base salary isgenerally based on factors such as an individual officer’s level of responsibility, prior years’ compensation, comparison to compensation of other officers, andcompensation provided at competitive companies and companies of similar size.Annual incentive awards are cash bonuses that motivate the executive officers to maximize our annual operating and financial performance and rewardparticipants based on annual performance. The Compensation Committee annually reviews the performance measures for determining award levels whichinclude individual performance, our performance against budget and growth in FFO and CNOI, in each case as measured against targets established by theCompensation Committee. A definition of FFO and NOI is included under the heading “Supplemental Measures” in Item 7 of this Form 10-K, and CNOI isdescribed further below. The Compensation Committee, in its sole discretion, may make adjustments to the NAREIT definition of FFO in determining FFOperformance targets and achievement. The specific performance measures of the 2013 annual incentive award plan are further enumerated below.Long-term equity incentive awards are provided to the executive officers in order to increase their personal stake in our success and motivate them to enhanceour long-term value while better aligning their interests with those of other shareholders. Equity awards are generally awarded in the form of restricted stockalthough stock options are utilized from time to time. The value of the restricted shares awarded is the price of a share of our stock as of the close of businesson the grant date. On an annual basis the Compensation Committee reviews and approves the equity incentives to be issued to each of the executive officers forthe prior year’s performance. There is no established target for long-term equity incentive awards for any of the executive officers either as a dollar value orpercentage of their total compensation. Rather, the Compensation Committee reviews this component of each executive officer’s total compensation on anannual basis. As such, during the year ended December 31, 2013, the Compensation Committee awarded 290,000, 15,000, 3,000 and 15,000 shares ofrestricted stock to Messrs. Shiffman, McLaren, Colman and Ms. Dearing, respectively. In February 2014, a grant of 8,000 shares of restricted stock wasawarded to Mr. Colman. Restricted stock awards generally begin to vest after three to four years from the date of grant and then vest over the following four tofive years. Our executive officers (as well as our employees that receive restricted stock awards) receive distributions on the restricted stock awards that havebeen granted to date, including restricted stock awards that have not vested.Employment AgreementsGary A. ShiffmanIn June 2013, we entered into an employment agreement with Gary A. Shiffman, under which he serves as our Chief Executive Officer. He also served as ourPresident until February 2014. We and Mr. Shiffman entered into a prior employment agreement in 2005, which expired on December 31, 2011 and wasautomatically renewed for a one-year term in both 2012 and 2013. This agreement supersedes the 2005 employment agreement. Mr. Shiffman's employmentagreement has an initial term ending June 20, 2018 and will be automatically renewed for successive one year terms thereafter unless either party timelyterminates the agreement. Pursuant to this employment agreement, Mr. Shiffman is paid an annual base salary of $671,000, which will be increased by anannual cost of living adjustment on January 1 of each year of the term, beginning in 2014. In addition to his base salary, we may pay Mr. Shiffman annualincentive compensation in an amount up to 100% of his then current base salary, as follows: (i) if, in the sole discretion of the Compensation Committee of ourBoard, Mr. Shiffman fulfills his annual individual goals and objectives as approved by the Compensation Committee, he will receive incentive compensationin the amount of 25% of his then current base salary; (ii) if, in the sole discretion of the Compensation Committee, the Company achieves the FFO andfinancial budget objectives approved by our Board at the beginning of the applicable year, Mr. Shiffman will receive incentive compensation in the amount of50% of his then current base salary; and (iii) the remaining 25% of the incentive compensation may be awarded to Mr. Shiffman in the sole discretion of theCompensation Committee for extraordinary performance during the applicable year. Incentive compensation paid or payable to Mr. Shiffman under theemployment agreement shall not be deemed to be fully earned and vested, and must be repaid to the extent such incentive compensation becomes subject toclawback pursuant to the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, any rules promulgated thereunder or the rules andregulations of the New York Stock Exchange. The non-competition clauses of Mr. Shiffman’s employment agreement preclude him from engaging, directly orindirectly: (a) in the real estate business or any other business competitive with our business during the period68SUN COMMUNITIES, INC.he is employed by us; and (b) in the manufactured housing community business or any other business competitive with our business for a period of 18months following the period he is employed by us. However, Mr. Shiffman’s employment agreement does allow him to make passive investments relating toreal estate in general. See "Change in Control and Severance Agreements" for a description of the terms of Mr. Shiffman's employment agreement relating tochange in control and severance payments.In connection with the execution of the employment agreement, and pursuant to a restricted stock award agreement, we also issued Mr. Shiffman 250,000restricted shares of our common stock.A copy of Mr. Shiffman’s employment agreement is attached as an exhibit to our periodic filings under the Exchange Act.Karen J. Dearing On March 7, 2011 with an effective date of January 1, 2011 (the “Effective Date”), we entered into an employment agreement with Karen J. Dearing pursuantto which Ms. Dearing serves as our Executive Vice President, Chief Financial Officer, Secretary, and Treasurer. Ms. Dearing’s employment agreement is foran initial term commencing on the Effective Date and ending on December 31, 2015. The employment agreement is automatically renewable for successive oneyear terms thereafter unless either party timely terminates the agreement. Pursuant to the employment agreement, Ms. Dearing is paid an annual base salary of$335,000 thereafter, subject to adjustments in accordance with the annual cost of living provided that if the base salary for the calendar year 2014 is less than115% of the base salary for calendar year 2011, for 2014 and 2015 only, the annual increase in the base salary shall be the greater of five percent or theotherwise applicable cost of living adjustment. Upon signing the employment agreement, Ms. Dearing was paid a one-time signing bonus of $150,000. Inaddition to her base salary and in accordance with the terms of her employment agreement and in sole discretion of the Compensation Committee, Ms. Dearingis eligible for annual incentive compensation of up to 50% of her base salary if certain annual individual and/or Company performance criteria, as establishedby the Compensation Committee in its sole discretion, are met and up to 50% of her base salary at the sole discretion of the Compensation Committee. Theclawback clause of Ms. Dearing’s employment agreement deems that the bonus payment or any other incentive compensation is not deemed fully earned andvested, and Ms. Dearing shall reimburse us if previously paid, to the extent such incentive compensation becomes subject to clawback pursuant to theprovisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act or NYSE rules. The non-competition clauses of Ms. Dearing’s employmentagreement preclude her from engaging, directly or indirectly, in the development, ownership, leasing, management, financing, or sales of manufacturedhousing communities or manufactured homes anywhere in the continental United States or Canada during the period she is employed by us and for a periodof up to twenty four months following the period she is employed by us; provided, however, that if Ms. Dearing is terminated without “cause” the period ofnon-competition shall be reduced to twelve months following the period she is employed by us. Notwithstanding, Ms. Dearing’s employment agreement doesallow her to make passive investments in publicly-traded entities engaged in our business during the period she is employed by us. See “Change in Controland Severance Payments” for a description of the terms of Ms. Dearing's employment agreement relating to change of control and severance payments.A copy of Ms. Dearing’s employment agreement is attached as an exhibit to our periodic filings under the Exchange Act.John B. McLaren On March 7, 2011 but effective as of the Effective Date, we entered into an employment agreement with John B. McLaren pursuant to which Mr. McLarenserves as our Chief Operating Officer. Since February 2014, he has also served as our President. Prior to that, he was our Executive Vice President.Mr. McLaren’s employment agreement is for an initial term commencing on the Effective Date and ending on December 31, 2015. The employment agreementis automatically renewable for successive one year terms thereafter unless either party timely terminates the agreement. Pursuant to the employment agreement,Mr. McLaren is paid an annual base salary of $345,000 in the first year, $375,000 in the second year, $400,000 in the third year, and $425,000 thereafter,subject to adjustments in accordance with the annual cost of living. Upon signing the employment agreement, Mr. McLaren was paid a one-time signing bonusof $150,000. In addition to his base salary and in accordance with the terms of his employment agreement and sole discretion of the Compensation Committee,Mr. McLaren is eligible for annual incentive compensation of up to 50% of his base salary if certain annual individual and/or Company performance criteria,as established by the Compensation Committee in its sole discretion, are met and up to 50% of his base salary at the sole discretion of the CompensationCommittee. The clawback clause of Mr. McLaren’s employment agreement deems that the bonus payment or any other incentive compensation is not deemedfully earned and vested, and Mr. McLaren shall reimburse us if previously paid, to the extent such incentive compensation becomes subject to clawbackpursuant to the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act or NYSE rules. The non-competition clauses of Mr.McLaren’s employment agreement preclude him from engaging, directly or indirectly, in the development, ownership, leasing, management, financing, orsales of manufactured housing communities or manufactured homes anywhere in the continental United States or Canada during the period he is employed byus and for a period of up to twenty four months following the period he is employed by us; provided, however, that if Mr. McLaren69SUN COMMUNITIES, INC.is terminated without “cause” the period of non-competition shall be reduced to twelve months following the period he is employed by us. Notwithstanding,Mr. McLaren’s employment agreement does allow him to make passive investments in publicly-traded entities engaged in our business during the period he isemployed by us. See “Change in Control and Severance Payments” for a description of the terms of Mr. McLaren's employment agreement relating to change ofcontrol and severance payments.A copy of Mr. McLaren’s employment agreement is attached as an exhibit to our periodic filings under the Exchange Act.2013 CompensationThe base salaries for the named executive officers for the year ended December 31, 2013, were paid in accordance with existing employment agreements orarrangements.For 2013, the Compensation Committee established the following targets for the executive officers in relation to annual incentive awards. The achievement ofsuch targets was used to determine a portion of the executive’s annual incentive award. As indicated in each executive’s employment agreement, the payment ofany or all of the incentive compensation, whether or not set targets are achieved, is in the sole discretion of the Compensation Committee. The structure of thebonus plans for Mr. Shiffman and Ms. Dearing are set forth in the tables below:CEO Bonus Plan % of Salary 30% 60% 100% Item Allocation of BaseSalary Met Exceed Excel MaximumDiscretionaryAward (2) Total BonusAwardedAchievement of individual goals $167,778 $50,333 $100,667 $167,778 $— $167,778Company achievement of FFO (1) 335,555 $100,667 $201,333 $335,555 $— —Compensation Committee Discretion (2) 167,778 $— $— $— $167,778 167,778Total $671,111 $335,556CFO Bonus Plan % of Salary 30% 60% 100% Item Allocation of BaseSalary Met Exceed Excel MaximumDiscretionaryAward (2) Total BonusAwardedAchievement of individual goals $88,245 $26,474 $52,947 $88,245 $— $88,245Company achievement of FFO (1) 176,490 $52,947 $105,894 $176,490 $— —Compensation Committee Discretion (2) 88,245 $— $— $— $88,245 88,245Total $352,980 $176,490(1) See Target Level Table below for achievement ranges.(2) The Compensation Committee has the discretion to award the CEO and CFO a cash bonus in any amount up to a maximum of 25% of their base salary.The individual goals for Mr. Shiffman were focused on strategic leadership of the organization and communication of our mission and values, implementationof systems and processes that assure physical, financial and human resources of our organization, providing strategic planning and guidance for growththrough acquisitions and expansions and opportunistically accessing capital markets to fund growth and strengthen the balance sheet. The individual goalsfor Ms. Dearing were focused on evaluation and implementation of strategies associated with our capital requirements and structure including debt and equitytransactions, effectively leading our accounting, tax and information technology departments, and creating and communicating along with the other executiveofficers, our strategic vision. The Compensation Committee determined that for fiscal year 2013 both Mr. Shiffman and Ms. Dearing “excelled” in theachievement of their individual goals and as such, achieved annual incentive awards of $167,778 and $88,245, respectively, for the achievement of thistarget.Based on the results achieved in 2013, including significant community acquisitions, financing transactions and diligent management of the Company'sbalance sheet, the Compensation Committee, elected to exercise its sole discretion to award Mr. Shiffman and Ms. Dearing additional discretionary amounts of$167,778 and $88,245, respectively, bringing their total annual incentive bonuses to $335,556 and $176,490, respectively.70SUN COMMUNITIES, INC.The following tables provide a summary of the various target levels that we established compared to the actual results to evaluate the achievement of certainexecutive goals: Target RangesAchievement Level FFO CNOI(2) Revenue Producing Sites (“RPS”)Met $3.19 - $3.23 $221,068,057 > 1,623Exceed $3.24 - $3.27 $222,173,397 > 1,673Excel $3.27 or greater $223,278,738 > 1,723 Company Results Revised FFO(1) CNOI(2) Revenue Producing Sites (“RPS”)Result $3.16 $219,673,284 1,885Achievement Level Not Achieved Not Achieved Excel(1) The reconciliation for Revised FFO as deemed by the Compensation Committee is below.(2) CNOI is comprised of NOI/Gross Profit excluding any Gross Profit (Loss) on fixed asset home sales.The following table provides information regarding the Compensation Committee’s calculation of Revised FFO (shown as diluted per share): Year Ended December 31, 2013 Funds from operations (FFO)$3.11 Acquisition related costs0.11Adjustment to reflect certain items including unbudgeted acquisitions and financing events(0.06) Revised FFO as deemed by the Compensation Committee$3.16Targets for FFO achievement were developed from the Company's budget including community acquisitions and common stock offerings completed throughMarch 31, 2013. Adjustments were made to remove the operating results of properties acquired after March 31, 2013 including the assumed interest chargeassociated with the purchase price of the communities, as well as certain financing charges related to unbudgeted financing transactions.We achieved Revised FFO/share of $3.16 as adjusted by the Compensation Committee and as such Messrs. Shiffman and McLaren and Ms. Dearing did notreceive an incentive payout with respect to this target.The structure of the annual incentive plan for Mr. McLaren is set forth in the table below:COO Bonus Plan % of Salary 30% 60% 100% Item Allocation of BaseSalary Minimum Target Maximum MaximumDiscretionaryAward (2) Total BonusAwardedCNOI(1) $100,000 $30,000 $60,000 $100,000 $— $—Company achievement of FFO 80,000 $24,000 $48,000 $80,000 $— —Achievement of Revenue Producing Sites (“RPS”) 20,000 $6,000 $12,000 $20,000 $— 20,000Compensation Committee Discretion (2) 200,000 $200,000 180,000Total $400,000 $200,000(1) See Target Ranges Table above for achievement ranges and definition of CNOI.(2) The Compensation Committee has the discretion to award the COO a cash bonus in any amount up to a maximum of 50% of his base salary.Combined net operating income for this purpose may not be the same as net operating income as disclosed in the accompanying financial statements as certainitems that are not under Mr. McLaren’s control or that are recorded solely for GAAP financial purposes are excluded from the computation of combined netoperating income. Mr. McLaren achieved the maximum award for the achievement of revenue producing sites and did not achieve an annual incentive awardfor CNOI or FFO. The Compensation71SUN COMMUNITIES, INC.Committee, in its sole discretion, elected to award Mr. McLaren a discretionary bonus of $180,000 due to his significant efforts with respect to our coreportfolio, acquired communities and leadership of the operations, sales and human resource departments.For Jonathan M. Colman:Mr. Colman’s annual incentive award is determined in the sole discretion of the CEO and recommended to the Compensation Committee after review of hisoverall responsibilities, his individual performance during the year, the annual incentives of the other executive officers and his overall compensation. For thefiscal year 2013, the CEO recommended and the Compensation Committee approved an annual incentive award of $135,000 related to his work on theacquisition of the 15 communities completed in 2013.Tax and Accounting ImplicationsDeductibility of Executive Compensation.Section 162(m) of the Code limits the deductibility on our tax return of compensation over $1.0 million to any of our named executive officers. We believe that,because we qualify as a REIT under the Code and therefore are not subject to federal income taxes on our income to the extent distributed, the payment ofcompensation that does not satisfy the requirements of section 162(m) has not and will not generally affect our net income. However, to the extent thatcompensation does not qualify for deduction of section 162(m), a larger portion of shareholder distributions may be subject to federal income taxation asdividend income rather than return of capital. We do not believe that section 162(m) has materially affected or will materially affect the taxability ofshareholder distributions, although no assurance can be given in this regard due to the variety of factors that affect the tax position of each shareholder. Forthese reasons, section 162(m) is not a significant factor in the Compensation Committee’s compensation policy and practices. In 2013, we did not pay anycompensation to any of our named executive officers that was subject to section 162(m).409A Considerations.We have also taken into consideration Code Section 409A in the design and implementation of our compensation programs. If an executive is entitled tononqualified deferred compensation benefits that are subject to Section 409A, and such benefits do not comply with Section 409A, then the benefits are taxablein the first year they are not subject to a substantial risk of forfeiture. In such case, the executive is subject to regular federal income tax, interest and anadditional federal income tax of 20% of the benefit includible in income.Risks Arising from Compensation Policies and PracticesOur senior management has assessed the enterprise-wide risks facing us and processes and procedures to mitigate such risks. In connection with suchenterprise risk management process, our compensation programs were assessed, including program features that could potentially encourage excessive orimprudent risk taking and the specific aspects of our compensation policies and procedures which mitigate some of the material risks that might otherwisearise from such policies and procedures. Following this review, our management, Compensation Committee and full Board of Directors affirmativelydetermined that there were no risks arising from the compensation policies and practices that are reasonably likely to have a material adverse effect on us.Director Compensation Tables Directors who are also employees receive no additional compensation for their services as directors. During 2013, we paid directors that are not our employeesthe following annual fees: Chairman MemberAnnual Retainer$— $60,000Audit Committee$32,500 $30,000Compensation Committee$10,000 $5,000NCG Committee$10,000 $5,000Executive Committee$5,000 $—72SUN COMMUNITIES, INC.The following tables provide compensation information for each member of the Board for the year ended on December 31, 2013.Name Fees Earned or Paid inCash February 2013 RestrictedStock Award(1) TotalStephanie W. Bergeron $90,000 $82,242 $172,242Paul D. Lapides $75,000 $82,242 $157,242Clunet R. Lewis $102,500 $82,242 $184,742Robert H. Naftaly $100,000 $82,242 $182,242Ronald L. Piasecki $65,000 $82,242 $147,242Arthur A. Weiss $65,000 $82,242 $147,242Brian M. Hermelin(2) $— $— $— (1) This column represents the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718,Compensation - Stock Compensation (“FASB ASC Topic 718”). For additional information on the valuation assumptions with respect to these grants, refer to Note 11 to ourfinancial statements.(2) Mr. Hermelin was appointed effective January 1, 2014.Name February 2013 Restricted StockAward(1) Aggregate number of options andrestricted stock outstanding at December 31, 2013Stephanie W. Bergeron $82,242 10,900Paul D. Lapides $82,242 14,400Clunet R. Lewis $82,242 10,900Robert H. Naftaly $82,242 6,400Ronald L Piasecki $82,242 7,900Arthur A. Weiss $82,242 6,400Brian M. Hermelin(2) $— —(1) This column represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. For additional information on the valuation assumptions with respectto these grants, refer to Note 11 of our financial statements.(2) Mr. Hermelin was appointed effective January 1, 2014.In February 2014, each of our non-employee directors was granted 2,000 shares of restricted stock as provided for in the First Amended and Restated 2004Non-Employee Director Option Plan. All of the shares will vest on February 12, 2017.73SUN COMMUNITIES, INC.Summary Compensation TableThe following table includes information concerning compensation for our named executive officers for the fiscal year ended December 31, 2013:Name and Principal Position Year Salary Bonus (1) Stock Awards (2) All OtherCompensation (3) TotalGary A. Shiffman, Chairman, 2013 $671,111 $335,556 $13,717,600 $49,249 $14,773,516Chief Executive Officer, and 2012 $657,500 $315,000 $769,200 $59,666 $1,801,366President (4) 2011 $637,385 $637,385 $1,882,000 $47,571 $3,204,341 Karen J. Dearing, Executive Vice 2013 $352,980 $176,490 $685,350 $3,753 $1,218,573President, Treasurer, Chief 2012 $345,720 $135,000 $204,000 $5,502 $690,222Financial Officer and Secretary 2011 $335,000 $402,925 $834,575 $5,145 $1,577,645 John B. McLaren, Executive Vice 2013 $400,000 $200,000 $685,350 $3,691 $1,289,041President and Chief Operating 2012 $375,000 $150,000 $408,000 $5,279 $938,279Officer (4) 2011 $345,000 $381,150 $1,113,925 $5,194 $1,845,269 Jonathan M. Colman, Executive 2013 $87,328 $265,000 $137,070 $2,759 $492,157Vice President 2012 $195,388 $175,000 $— $2,982 $373,370 2011 $191,521 $75,000 $— $2,210 $268,731(1) See “2013 Compensation” above for additional information regarding annual incentive payments awarded in 2013. Although the annual incentive payments were earned for 2013,2012 and 2011 such payments were made in 2014, 2013 and 2012, respectively. The bonus in 2013 for Mr. Coleman includes $130,000 of acquisition related commissions. Thebonus in 2011 for Ms. Dearing and Mr. McLaren includes the $150,000 signing bonus as provided for in their respective employment agreements.(2) This column represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. For additional information on the valuation assumptions with respectto these grants, refer to Note 11 of our financial statements for the year ended December 31, 2013.(3) Includes matching contributions to our 401(k) plan of $3,253, $3,412, $2,480 and $3,251 for each of Messrs. Shiffman, McLaren, Colman and Ms. Dearing, respectively; forthe year ended December 31, 2013. Includes matching contributions to our 401(k) plan of $5,000, $5,000, $2,703 and $5,000 for each of Messrs. Shiffman, McLaren, Colmanand Ms. Dearing, respectively, for the year ended December 31, 2012. Includes matching contributions to our 401(k) plan of $3,862, $4,900, $1,916 and $4,851 for each ofMessrs. Shiffman, McLaren, Colman and Ms. Dearing, respectively, for the year ended December 31, 2011. Also includes premiums for life insurance and accidental death anddisability insurance in the amount of $279 for each of Messrs. Shiffman, McLaren, Colman and Ms. Dearing for the year ended December 31, 2013; $279 for each ofMessrs. Shiffman, McLaren, Colman and Ms. Dearing for the year ended December 31, 2012; and $294 for each of Messrs. Shiffman, McLaren and Colman and Ms. Dearing forthe year ended December 31, 2011. Includes perquisites for sporting events valued in the amounts of $2,717 and $223 for Mr. Shiffman and Ms. Dearing, respectively, for theyear ended December 31, 2013. Includes perquisites for sporting events valued in the amounts of $8,637 and $223 for Mr. Shiffman and Ms. Dearing, respectively, for the yearended December 31, 2012. Includes perquisites for sporting events valued in the amounts of $3,415 for Mr. Shiffman for the year ended December 31, 2011. Includes $43,000,$45,750 and $40,000 paid to Mr. Shiffman by Origen Financial, Inc. for service on its Board of Directors for the years ended December 31, 2013, 2012 and 2011, respectively.(4) Mr. McLaren was appointed to replace Mr. Shiffman as President of the Company in February 2014.74SUN COMMUNITIES, INC.Grants of Plan Based AwardsWe made the following grants of restricted shares of our common stock to certain named executive officers in 2013. The shares granted on June 20, 2013 to Mr.Shiffman in connection with his employment agreement vest 35% on June 20, 2016, 35% on June 20, 2017, 20% on June 20, 2018 and 5% on each of June20, 2019 and June 20, 2020. The shares granted on February 15, 2013 to Messrs. McLaren and Colman and Ms. Dearing vest 20% on February 15, 2017,30% on February 15, 2018, 35% on February 15, 2019, 10% on February 15, 2020 and five percent on February 15, 2021. One-third of the shares grantedon February 15, 2013 to Mr. Shiffman vest on each of February 15, 2017, 2018 and 2019.Name Grant Date All Other Stock Awards: Number of Sharesof Stocks or Units (#) Grant Date Fair Value of Stock OptionAwards (1)Gary A. Shiffman 2/15/2013 40,000 $1,827,600 6/20/2013 250,000 $11,890,000 290,000 $13,717,600 Karen J. Dearing 2/15/2013 15,000 $685,350 John B. McLaren 2/15/2013 15,000 $685,350 Jonathan M. Colman 2/15/2013 3,000 $137,070(1) Pursuant to SEC rules, this column represents the total fair market value of restricted stock awards, in accordance with FASB ASC Topic 718.75SUN COMMUNITIES, INC.Outstanding Equity Awards at Fiscal Year-EndThe following table provides certain information with respect to the value of all restricted share awards previously granted our named executive officers. Noneof the named executive officers hold any unexercised options.Outstanding Equity Awards at Fiscal Year-End as of December 31, 2013 Share Awards (1) Name Number of Shares or Unitsof Stock that Have NotVested Market Value ofShares or Units ofStock that Have NotVested (2) Gary A. Shiffman 3,502 $149,325(3) 1,000 $42,640(4) 40,000 $1,705,600(6) 50,000 $2,132,000(8) 20,000 $852,800(10) 40,000 $1,705,600(11) 250,000 $10,660,000(13) Karen J. Dearing 350 $14,924(4) 3,000 $127,920(5) 6,667 $284,281(6) 7,500 $319,800(7) 10,000 $426,400(8) 5,000 $213,200(9) 15,000 $639,600(12) John B. McLaren 3,000 $127,920(5) 6,667 $284,281(6) 12,500 $533,000(7) 7,500 $319,800(8) 10,000 $426,400(9) 15,000 $639,600(12) Jonathan M. Colman 500 $21,320(4) 3,000 $127,920(12) (1) All share awards begin to vest after either the third or fourth anniversary of the date of grant.(2) Value based on $42.64, the closing price of our common stock on NYSE on December 31, 2013.(3) Shares will vest on July 15, 2014.(4) Shares will vest on May 10, 2014.(5) 2,000 shares vest on February 5, 2014 and the remaining 1,000 shares will vest in two equal installments on February 5, 2015 and February 5, 2018.(6) The shares will vest in equal installments on July 30, 2014 and July 31, 2015.(7) One-third of the shares will vest on each of January 1, 2015, January 1, 2016 and January 1, 2017.(8) One-third of the shares vest on each of May 6, 2015, May 6, 2016 and May 6, 2017.(9) Twenty percent of the shares vest on February 20, 2016, 30% of the shares vest on February 20, 2017, 35% of the shares vest on February 20, 2018, 10% of the shares vest onFebruary 20, 2019 and 5% of the shares vest on February 20, 2020.(10) One-third of the shares vest on each of December 14, 2016, December 14, 2017 and December 14, 2018.76SUN COMMUNITIES, INC.(11) One-third of the shares will vest on each of February 15, 2017, February 15, 2018 and February 15, 2019.(12) Twenty percent of the shares will vest on February 15, 2017, 30% of the shares will vest on February 15, 2018, 35% of the shares will vest on February 15, 2019, 10% of theshares will vest on February 15, 2020 and 5% of the shares will vest on on February 15, 2021.(13) Thirty-five percent of the shares will vest on June 20, 2016, 35% of the shares will vest on June 20, 2017, 20% of the shares will vest on June 20, 2018 and 5% of the shares willvest on each of June 20, 2019 and June 20, 2020. Option Exercises and Stock Vested During Last Fiscal YearThe following table sets forth certain information concerning shares held by our named executive officers that vested during the fiscal year ended on December31, 2013: Stock Awards Name Number of Shares Acquired on Vesting Value Realized on Vesting (1)Gary Shiffman 20,000 $1,019,500 Karen J. Dearing 3,500 $150,868 3,333 $169,900 John B. McLaren 3,500 $150,868 3,333 $169,900 (1) Value based on the average of the high and low of the share price on the vesting date, or the next business day if the vesting date was on a weekend.Change in Control and Severance Payments Under their employment agreements, we are obligated to make severance and change in control payments to Mr. Shiffman, Mr. McLaren and Ms. Dearingunder certain circumstances. If any such executive is terminated without “cause” as defined in his or her employment agreement, he or she is entitled to anyaccrued but unpaid salary, incentive compensation and benefits through the effective date of termination. In addition, subject to the execution of a generalrelease and continued compliance with his or her non-competition and confidentiality covenants, Mr. Shiffman is entitled to a continuation of salary for up to18 months after termination, and each of Ms. Dearing and Mr. McLaren is entitled to a continuation of salary for up to 12 months after termination. If Mr.Shiffman’s, Mr. McLaren’s or Ms. Dearing’s employment is terminated due to death or disability, he or she or his or her successors and assigns, is entitled toany accrued but unpaid salary, incentive compensation and benefits through the effective date of termination. In addition, Mr. Shiffman, Mr. McLaren andMs. Dearing are entitled to a continuation of salary for up to 24 months after death or disability.If there is a change of control of the Company and any of the following events has occurred: (i) we terminate the employment of Mr. Shiffman, Mr. McLaren orMs. Dearing within two years after the date of such change of control, (ii) the form of such change of control transaction is a sale by the Company of all orsubstantially all of its assets and the Company or its successor does not expressly assume the employment agreement of Mr. Shiffman, Mr. McLaren or Ms.Dearing, or (iii) in the case of Mr. Shiffman, less than two years remain under the term of his employment agreement, and in the case of Mr. McLaren or Ms.Dearing, less than 18 months remain under the term of his or her employment agreement, then we are obligated to pay Mr. Shiffman, Mr. McLaren or Ms.Dearing, as applicable, an amount equal to 2.99 times his or her then current base salary, and to continue to provide him or her health and insurance benefitsfor up to one year.Under any of the foregoing events of termination or change of control, all stock options and other stock based compensation awarded to the applicableexecutive shall become fully vested and immediately exercisable.77SUN COMMUNITIES, INC.The following tables describe the potential payments upon termination without cause, a termination due to death or disability or after a change of control (andassociated termination of the executives) for the following named executive officers: Termination Without CauseName Cash Payment (1) Acceleration of Vesting ofStock Awards (2) Benefits (3) TotalGary A. Shiffman $1,006,667 $17,247,965 $— $18,254,632Karen J. Dearing $352,980 $2,026,125 $— $2,379,105John B. McLaren $400,000 $2,331,001 $— $2,731,001Jonathan M. Colman $— $— $— $—Termination Due to Death or DisabilityName Cash Payment (1) Acceleration of Vesting ofStock Awards (2) Benefits (3) TotalGary A. Shiffman $1,342,222 $17,247,965 $— $18,590,187Karen J. Dearing $705,960 $2,026,125 $— $2,732,085John B. McLaren $600,000 $2,331,001 $— $2,931,001Jonathan M. Colman $— $149,240 $— $149,240Change of ControlName Cash Payment (1) Acceleration of Vesting ofStock Awards (2) Benefits (3) TotalGary A. Shiffman $2,006,622 $17,247,965 $10,899 $19,265,486Karen J. Dearing $1,055,410 $2,026,125 $279 $3,081,814John B. McLaren $1,196,000 $2,331,001 $10,899 $3,537,900Jonathan M. Colman $— $149,240 $— $149,240(1) Assumes a termination on December 31, 2013 and payments based on base salary without taking into account any accrued incentive based compensation as of December 31, 2013 foreach executive for the periods specified above.(2) Calculated based on a termination as of December 31, 2013 and the fair market value of our common stock on NYSE as of December 31, 2013.(3) Reflects continuation of health benefits, life insurance and accidental death and disability insurance for the periods specified above.Compensation Committee Interlocks and Insider ParticipationNone of the members of the Compensation Committee has been or will be one of our officers or employees. We do not have any interlocking relationshipsbetween our executive officers and the Compensation Committee and the executive officers and compensation committees of any other entities, nor has anysuch interlocking relationship existed in the past.Compensation Committee ReportThe Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K withmanagement and, based on such review and discussions, the Committee recommended to the Board that the Compensation Discussion and Analysis beincluded in this Form 10-K.Respectfully submitted,Members of the Compensation Committee:Robert H. NaftalyClunet R. LewisPaul D. Lapides78SUN COMMUNITIES, INC.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSSecurity Ownership of Certain Beneficial Owners and ManagementThe following table sets forth, based upon information available to us, as of February 14, 2014, the shareholdings of: (a) each person known to us to be the beneficial owner ofmore than five percent (5%) of our common stock; (b) each of our directors; (c) each named executive officer listed in the Summary Compensation Table; and (d) all of ournamed executive officers and directors as a group: Name and Address of Beneficial Owner Amount and Nature ofBeneficial Ownership Percent ofOutstanding Shares(1)Gary A. Shiffman27777 Franklin RoadSuite 200Southfield, Michigan 48034 2,159,898(2)5.89%John B. McLaren27777 Franklin RoadSuite 200Southfield, Michigan 48034 57,320 *Karen J. Dearing27777 Franklin RoadSuite 200Southfield, Michigan 48034 55,423 *Jonathan M. Colman27777 Franklin RoadSuite 200Southfield, Michigan 48034 40,206 *Paul D. Lapides27777 Franklin RoadSuite 200Southfield, Michigan 48034 18,874(3)*Clunet R. Lewis27777 Franklin RoadSuite 200Southfield, Michigan 48034 68,176(4)*Ronald L. Piasecki27777 Franklin RoadSuite 200Southfield, Michigan 48034 82,312(5)*Arthur A. Weiss27777 Franklin RoadSuite 200Southfield, Michigan 48034 754,777(6)2.08%Robert H. Naftaly27777 Franklin RoadSuite 2500Southfield, Michigan 48034 20,400(7)*Stephanie W. Bergeron27777 Franklin RoadSuite 200Southfield, Michigan 48034 18,400(8)*Brian M. Hermelin27777 Franklin RoadSuite 200Southfield, Michigan 48034 2,000 *FMR LLC and Edward C. Johnson 3d (9) 82 Devonshire Street Boston, MA 02109 5,417,384 14.98%The Vanguard Group, Inc. (10)100 Vanguard Blvd.Malvern, PA 19355 4,474,075 12.37%Vanguard Specialized Funds - Vanguard REIT Index Fund (11)100 Vanguard Blvd.Malvern, PA 19355 2,319,156 6.41%BlackRock, Inc. (12) 40 East 52nd Street New York, NY 10022 2,755,142 7.62%Anchor Capital Advisors LLC (13) One Post Office Square, Suite 3850 Boston, MA 02109 1,805,689 4.99%All executive officers and directors as a group (10 persons)(14) 2,682,151 7.30%79SUN COMMUNITIES, INC.* Less than one percent (1%) of the outstanding shares. (1)In accordance with SEC regulations, the percentage calculations are based on 36,168,663 shares of common stock issued and outstanding as of February 14, 2014 plusshares of common stock which may be acquired pursuant to options exercisable, common OP Units and Aspen preferred OP Units of Sun Communities Operating LimitedPartnership that are indirectly convertible into common stock, within 60 days of February 14, 2014, by each individual or group listed. As of February 14, 2014, eachAspen preferred OP Unit was indirectly convertible into 0.397 shares of common stock. (2)Includes: (a) 394,141 Common OP Units convertible into 394,141 shares of common stock; (b) 453,841 shares of common stock owned by certain limited liabilitycompanies of which Mr. Shiffman is a member and a manager, and (c) 141,794 Common OP Units convertible into 141,794 shares of common stock owned by certainlimited liability companies of which Mr. Shiffman is a member and a manager. (3)Includes 10,500 shares of common stock which may be acquired pursuant to options exercisable within 60 days of February 14, 2014. (4)Includes (a) 20,000 Common OP Units convertible into 20,000 shares of common stock, and (b) 7,000 shares of common stock which may be acquired pursuant to optionsexercisable within 60 days of February 14, 2014. (5)Includes: (a) 17,437 Common OP Units convertible into 17,437 shares of common stock, (b) 139,735 Series A-1 preferred OP Units convertible into 55,475 Common OPUnits, which in turn were convertible into 55,475 shares of common stock as of February 14, 2014, and (c) 4,000 shares of common stock which may be acquiredpursuant to options exercisable within 60 days of February 14, 2014. (6)Includes (a) 16,938 Common OP Units convertible into 16,938 shares of common stock, (b) 2,500 shares of common stock which may be acquired pursuant to optionsexercisable within 60 days of February 14, 2014, (c) 453,841 shares of common stock owned by certain limited liability companies of which Mr. Weiss is a manager, (d)141,794 Common OP Units convertible into 141,794 shares of common stock owned by a limited liability company of which Mr. Weiss is a manager, (e) 1,959 shares ofcommon stock held by the 1997 Shiffman Charitable Remainder Unitrust for which Mr. Weiss is a Co-Trustee, and (f) 86,810 shares of common stock and 40,287common OP Units convertible into 40,287 shares of common stock held by the Gary A. Shiffman 2012 Irrevocable Family Trust, of which Mr. Weiss is theTrustee. Mr. Weiss does not have a pecuniary interest in any of the 1997 Shiffman Charitable Remainder Unitrust, the Gary A. Shiffman 2012 Irrevocable Family Trustor the limited liability companies described above and, accordingly, Mr. Weiss disclaims beneficial ownership of the 542,610 shares of common stock and the 182,081common OP Units held by such entities. (7)Includes 2,500 shares of common stock which may be acquired pursuant to options exercisable within 60 days of February 14, 2014. (8)Includes 7,000 shares of common stock which may be acquired pursuant to options exercisable within 60 days of February 14, 2014. (9)According to the Schedule 13G/A for the year ended December 31, 2013 and filed with the SEC on February 14, 2014, both FMR LLC, in its capacity as a parentholding company or control person, and Edward C. Johnson 3d, the Chairman of FMR LLC, beneficially own 5,417,384 shares of our common stock. (10)According to the Schedule 13G/A for the year ended December 31, 2013 and filed with the SEC on February 12, 2014, The Vanguard Group, Inc., in its capacity asan investment advisor, beneficially owns 4,474,075 shares of our common stock. (11)According to the Schedule 13G/A for the year ended December 31, 2013 and filed with the SEC on February 4, 2014, Vanguard Specialized Funds- Vanguard REITIndex Fund, in its capacity as an investment advisor, beneficially owns 2,319,156 shares of our common stock. (12)According to the Schedule 13G/A for the year ended December 31, 2013 and filed with the SEC on January 30, 2014, BlackRock, Inc., in its capacity as a parentholding company or control person, beneficially owns 2,755,142 shares of our common stock. (13)According to the Schedule 13G/A for the year ended December 31, 2013 and filed with the SEC on February 6, 2014, Anchor Capital Advisors LLC, in its capacity asan investment advisor, beneficially owns 1,805,689 shares of our common stock. (14)Includes (a) 630,597 common OP Units convertible into 630,597 shares of common stock, (b) 139,735 Series A-1 preferred OP Units convertible into 55,475 common OPUnits, which in turn were convertible into 55,475 shares of common stock as of February 14, 2014, and (c) 33,500 shares of common stock which may be acquiredpursuant to options exercisable within 60 days of February 14, 2014. 80SUN COMMUNITIES, INC. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCERelationship with Equity AffiliatesWe have entered into the following transactions with Origen Financial Services, LLC (“OFS LLC”):•Investment in OFS LLC. We entered into an agreement with four unrelated companies and we contributed cash of approximately $0.6 milliontowards the formation of OFS LLC. OFS LLC purchased the loan origination platform of Origen. The purpose of the venture is to originatemanufactured housing installment contracts for its members. We accounted for our investment in OFS LLC using the equity method of accountingwhich we have since suspended. As of December 31, 2013, we had an ownership interest in the OFS LLC of 22.9%, and the carrying value of ourinvestment was zero.•Loan Origination, Sale and Purchase Agreement. OFS LLC agreed to fund loans that meet our underwriting guidelines and then transfer thoseloans to us pursuant to a Loan Origination, Sale and Purchase Agreement. We paid OFS LLC a fee of $650 per loan pursuant to a Loan Origination,Sale and Purchase Agreement which totaled approximately $0.1 million during the year ended December 31, 2013. We purchased, at par, $7.7million of these loans during the year ended December 31, 2013.We have entered into the following transactions with Origen:•Investment in Origen. We own 5,000,000 shares of Origen common stock and Shiffman Origen LLC (which is owned by the Milton M. ShiffmanSpouse's Marital Trust, Gary A. Shiffman (our Chairman and Chief Executive Officer), and members of Mr. Shiffman's family) owns 1,025,000shares of Origen common stock. Gary A. Shiffman is a member of the Board of Directors of Origen and Arthur A. Weiss, our director, is a trustee ofthe Milton M. Shiffman Spouse's Marital Trust. We accounted for our investment in Origen using the equity method of accounting which we havesince suspended. As of December 31, 2013 we had an ownership interest in Origen of approximately 19%, and the carrying value of our investmentwas zero.•Board Membership. Gary A. Shiffman, our Chairman and Chief Executive Officer is a board member of Origen. Lease of Principal Executive OfficesGary A. Shiffman, together with certain of his family members, indirectly owns a 21% equity interest in American Center LLC, the entity from which welease office space for our principal executive offices. Arthur A. Weiss owns a less than one percent indirect interest in American Center LLC. Under this leaseagreement, we lease approximately 48,200 rentable square feet. The term of the lease is until October 31, 2016, with an option to renew for an additional fiveyears. The base rent through October 31, 2014 is $18.12 per square foot (gross). From November 1, 2014 to August 31, 2015, the base rent will be $18.24per square foot (gross) and from September 1, 2015 to October 31, 2016, the base rent will be $17.92 per square foot (gross). As of May 2013, we also havea temporary lease through April 30, 2014 for approximately 10,500 rentable square feet with base rent equal to $14.33 per square foot (gross). Our annual rentexpense associated with the lease of our executive offices was approximately $1.0 million for the year ended December 31, 2013 and $0.7 million for each ofthe years ended December 31, 2012 and 2011. Our future annual rent expense will be approximately $0.9 million for 2014 and 2015 and $0.7 million for2016. Each of Mr. Shiffman and Mr. Weiss may have a conflict of interest with respect to his obligations as our officer and/or director and his ownershipinterest in American Center LLC.Loan Funding Agreement with Talmer BankEach of Robert H. Naftaly and Arthur A. Weiss, who serve on our board of directors, is also a director of each of Talmer Bancorp, Inc. and its primaryoperating subsidiary, Talmer Bank. Each of Mr. Naftaly, Mr. Weiss and Mr. Shiffman also owns less than one percent of Talmer Bancorp, Inc.'s commonstock. In January 2013, we entered into an agreement with Talmer Bank under which we could refer purchasers of homes in our communities to Talmer Bankto obtain loans to finance their home purchases. We did not receive referral fees or other cash compensation under the agreement. If Talmer Bank made loans topurchasers referred by us under the agreement, those purchasers defaulted on their loans and Talmer Bank repossessed the homes securing such loans, weagreed to purchase from Talmer Bank each such repossessed home for a price equal to 100% of the amount under each such loan, subject to certainadjustments; provided that the maximum outstanding principal amount of the loans subject to the agreement did not exceed $10.0 million. In addition, weagreed to waive all site rent that would otherwise have been due from Talmer Bank so81SUN COMMUNITIES, INC.long as it owned any homes on which loans were made pursuant to the agreement. The agreement expired November 1, 2013 and was not extended. Notransactions occurred under this agreement.Legal CounselDuring 2013, Jaffe, Raitt, Heuer, & Weiss, Professional Corporation acted as our general counsel and represented us in various matters. Arthur A. Weiss isthe Chairman of the Board of Directors and a shareholder of such firm. We incurred legal fees and expenses owed to Jaffe, Raitt, Heuer, & Weiss ofapproximately $3.2 million in the year ended December 31, 2013.Tax Consequences Upon Sale of PropertiesGary A. Shiffman holds limited partnership interests in the Operating Partnership which were received in connection with the contribution of 24 properties(four of which have been sold) from partnerships previously affiliated with him (the “Sun Partnerships”). Prior to any redemption of these limited partnershipinterests for our common stock, Mr. Shiffman will have tax consequences different from those on us and our public stockholders upon the sale of any of theSun Partnerships. Therefore, we and Mr. Shiffman may have different objectives regarding the appropriate pricing and timing of any sale of those properties.Policies and Procedures for Approval of Related Party TransactionsNone of our executive officers or directors (or any family member or affiliate of such executive officer or director) may enter into any transaction orarrangement with us that reasonably could be expected to give rise to a conflict of interest without the prior approval of the NCG Committee. Any suchtransaction or arrangement must be promptly reported to the NCG Committee or the full Board. Any such disclosure provided by an executive officer ordirector is reviewed by the NCG Committee and approved or disapproved. In determining whether to approve such a transaction or arrangement, the NCGCommittee takes into account, among other factors, whether the transaction was on terms no less favorable to us than terms generally available to third partiesand the extent of the executive officer’s or director’s involvement in such transaction or arrangement.The current policy was adopted and approved in 2004. All related party transactions disclosed above were approved by either the NCG Committee or the fullBoard.82SUN COMMUNITIES, INC.ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESFeesAggregate fees for professional services rendered by Grant Thornton, LLP, our independent auditors, for the years ended December 31, 2013 and 2012 were asfollows:Category December 31, 2013 December 31, 2012Audit Fees: For professional services rendered for the audit of the Company’s financial statements, theaudit of internal controls relating to Section 404 of the Sarbanes-Oxley Act, the reviews of the quarterlyfinancial statements and consents $569,376 $734,170Audit-Related Fees: For professional services rendered for accounting assistance with new accountingstandards and potential transactions and other SEC related matters $123,204 $7,019Tax Fees $— $—All Other Fees $— $—The Audit Committee has a policy concerning the pre-approval of audit and non-audit services to be provided by our independent auditors. The policy requiresthat all services provided by the independent auditors to us, including audit services, audit-related services, tax services and other services, must be pre-approved by the Audit Committee. In some cases, pre-approval is provided by the full Audit Committee for up to a year, and relates to a particular category orgroup of services and is subject to a particular budget. In other cases, specific pre-approval is required. All of the services provided by our independent auditorin 2013 and 2012 including services related to audit, audit-related fees, tax fees and all other fees described above, were approved by the Audit Committeeunder its pre-approval policies.83SUN COMMUNITIES, INC.PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESThe following documents are filed herewith as part of this Form 10-K:1. Financial Statements.A list of the financial statements required to be filed as a part of this Form 10‑K is shown in the “Index to the Consolidated Financial Statements andFinancial Statement Schedules” filed herewith.2. Financial SchedulesA list of the financial statement schedules required to be filed as a part of this Form 10‑K is shown in the “Index to the Consolidated FinancialStatements and Financial Statement Schedules” filed herewith.3. Exhibits.A list of the exhibits required by Item 601 of Regulation S‑K to be filed as a part of this Form 10-K is shown on the “Exhibit Index” filed herewith.84SUN COMMUNITIES, INC.SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalfby the undersigned, thereunto duly authorized. SUN COMMUNITIES, INC.(Registrant)February 20, 2014By/s/Gary A. Shiffman Gary A. ShiffmanChief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf ofthe registrant and in the capacities and on the dates indicated. Name Capacity Date/s/Gary A. Shiffman Chief Executive Officer and Chairman of the Board of Directors(Principal Executive Officer) February 20, 2014 Gary A. Shiffman /s/Karen J. Dearing Executive Vice President, Chief Financial Officer, Treasurer,Secretary (Principal Financial Officer and Principal AccountingOfficer) February 20, 2014 Karen J. Dearing /s/Stephanie W. Bergeron Director February 20, 2014 Stephanie W. Bergeron /s/Paul D. Lapides Director February 20, 2014 Paul D. Lapides /s/Clunet R. Lewis Director February 20, 2014 Clunet R. Lewis /s/Robert H. Naftaly Director February 20, 2014 Robert H. Naftaly /s/Ronald L. Piasecki Director February 20, 2014 Ronald L. Piasecki /s/Arthur A. Weiss Director February 20, 2014 Arthur A. Weiss /s/Brian M. Hermelin Director February 20, 2014 Brian M. Hermelin 85SUN COMMUNITIES, INC.EXHIBIT INDEXExhibitNumberDescriptionMethod of Filing3.1Amended and Restated Articles of Incorporation of Sun Communities, Inc.Incorporated by reference to Sun Communities,Inc.'s Registration Statement No. 33 693403.2Articles Supplementary, dated October 16, 2006Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedOctober 16, 20063.3Articles of Amendment dated June 13, 1997Incorporated by reference to Sun Communities,Inc.'s Registration Statement on Form 8-A datedNovember 9, 20123.4Articles Supplementary designating 7.125% Series A Cumulative Redeemable Preferred Stock dated November 9, 2012Incorporated by reference to Sun Communities,Inc.'s Registration Statement on Form 8-A datedNovember 9, 20123.5Articles of Amendment dated July 24, 2013Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K dated July23, 20133.6Second Amended and Restated BylawsIncorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K dated July23, 20134.1Articles Supplementary of Board of Directors of Sun Communities, Inc. Designating a Series of Preferred StockIncorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedSeptember 29, 19994.2Articles Supplementary of Board of Directors Classifying and Designating a Series of Preferred Stock as JuniorParticipating Preferred Stock and Fixing Distribution and Other Preferences and Rights of Such SeriesIncorporated by reference to Sun Communities,Inc.'s Registration Statement on Form 8-A datedJune 3, 20084.3Rights Agreement, dated as of June 2, 2008, between Sun Communities, Inc. and Computershare Trust Company,N.A., as Rights AgentIncorporated by reference to Sun Communities,Inc.'s Registration Statement on Form 8-A datedJune 3, 20084.4Sun Communities, Inc. Equity Incentive Plan#Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K dated July22, 20094.7Registration Rights Agreement dated June 23, 2011 among Sun Communities, Inc., and the holders of Series A-1Preferred Units that are parties theretoIncorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K dated June23, 20114.8First Amendment to Registration Rights Agreement dated as of February 3, 2014 among Sun Communities, Inc., andthe holders of Series A-1 Preferred Units that are parties theretoFiled herewith4.9Form of certificate evidencing common stockIncorporated by reference to Sun Communities,Inc.'s Registration Statement on Form 8-A datedNovember 9, 20124.10Form of certificate evidencing 7.125% Series A Cumulative Redeemable Preferred StockIncorporated by reference to Sun Communities,Inc.'s Registration Statement on Form 8-A datedNovember 9, 20124.11Articles Supplementary canceling and reclassifying 9.125% Series A Cumulative Redeemable Perpetual Preferred Stockdated November 9, 2012Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedNovember 9, 20124.12Registration Rights Agreement dated February 8, 2013 among Sun Communities, Inc., and the holders of Series A-3Preferred Units that are parties theretoIncorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedFebruary 6, 201310.1Form of Stock Option Agreement between Sun Communities, Inc. and certain directors, officers and other individuals#Incorporated by reference to Sun Communities,Inc.'s Registration Statement No. 33 6934010.2Amended and Restated 1993 Non-Employee Director Stock Option Plan#Incorporated by reference to Sun Communities,Inc.'s Registration Statement No. 33 8097210.3Form of Non-Employee Director Stock Option Agreement between Sun Communities, Inc. and certain directors#Incorporated by reference to Sun Communities,Inc.'s Registration Statement No. 33 8097210.4Second Amended and Restated Agreement of Limited Partnership of Sun Communities Operating Limited PartnershipIncorporated by reference to Sun Communities,Inc.'s Annual Report on Form 10-K for the yearended December 31, 199610.5Long Term Incentive Plan#Incorporated by reference to Sun Communities,Inc.'s Annual Report on Form 10-K for the yearended December 31, 199786SUN COMMUNITIES, INC.10.6Second Amended and Restated 1993 Stock Option Plan#Incorporated by reference to Sun Communities,Inc.'s Proxy Statement, dated April 20, 199910.7One Hundred Third Amendment to Second Amended and Restated Limited Partnership Agreement of the OperatingPartnershipIncorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedSeptember 29, 199910.8One Hundred Eleventh Amendment to Second Amended and Restated Limited Partnership Agreement of the OperatingPartnershipIncorporated by reference to Sun Communities,Inc.'s Annual Report on Form 10-K for the yearended December 31, 200110.9One Hundred Thirty-Sixth Amendment to Second Amended and Restated Limited Partnership Agreement of theOperating PartnershipIncorporated by reference to Sun Communities,Inc.'s Annual Report on Form 10-K for the yearended December 31, 200110.10One Hundred Forty-Fifth Amendment to Second Amended and Restated Limited Partnership Agreement of the OperatingPartnershipIncorporated by reference to Sun Communities,Inc.'s Annual Report on Form 10-K for the yearended December 31, 200110.11Lease, dated November 1, 2002, by and between the Operating Partnership as Tenant and American Center LLC asLandlordIncorporated by reference to Sun Communities,Inc.'s Annual Report on Form 10-K for the yearended December 31, December 31, 2002, asamended10.12Fixed Facility Note dated April 5, 2004 made by Sun Secured Financing LLC, Aspen - Ft. Collins Limited Partnershipand Sun Secured Financing Houston Limited Partnership, in favor of ARCS Commercial Mortgage Co., L.P., in theoriginal principal amount of $77,362,500Incorporated by reference to Sun Communities,Inc.'s Quarterly Report on Form 10-Q for thequarter ended June 30, 200410.13Fixed Facility Note dated April 28, 2004 made by Sun Secured Financing LLC, Sun Secured Financing HoustonLimited Partnership, Aspen - Ft. Collins Limited Partnership, Sun Communities Finance LLC, Sun Holly Forest LLCand Sun Saddle Oak LLC, in favor of ARCS Commercial Mortgage Co., L.P., in the original principal amount of$100,000,000Incorporated by reference to Sun Communities,Inc.'s Quarterly Report on Form 10-Q for thequarter ended June 30, 200410.14Variable Facility Note dated April 28, 2004 made by Sun Secured Financing LLC, Sun Secured Financing HoustonLimited Partnership, Aspen - Ft. Collins Limited Partnership, Sun Communities Finance LLC, Sun Holly Forest LLCand Sun Saddle Oak LLC, in favor of ARCS Commercial Mortgage Co., L.P., in the original principal amount of$60,275,000Incorporated by reference to Sun Communities,Inc.'s Quarterly Report on Form 10-Q for thequarter ended June 30, 200410.15One Hundred Seventy-Second Amendment to Second Amended and Restated Limited Partnership Agreement of theOperating PartnershipIncorporated by reference to Sun Communities,Inc.'s Annual Report on Form 10-K for the yearended December 31, 200410.16Form of Restricted Stock Award Agreement#Incorporated by reference to Sun Communities,Inc.'s Annual Report on Form 10-K for the yearended December 31, 200410.17Future Advance, Renewal and Consolidation Promissory Note dated November 15, 2006 made by Miami Lakes VentureAssociates in favor of Lehman Brothers Bank, FSB in the original principal amount of $54,000,000Incorporated by reference to Sun Communities,Inc.'s Quarterly Report on Form 10-Q for thequarter ended March 31, 200710.18Notice of Future Advance, Mortgage Modification, Extension and Spreader Agreement and Security Agreement datedNovember 15, 2006 made by Miami Lakes Venture Associates in favor of Lehman Brothers Bank, FSBIncorporated by reference to Sun Communities,Inc.'s Quarterly Report on Form 10-Q for thequarter ended March 31, 200710.19Promissory Note dated January 4, 2007 made by High Point Associates, L.P., in favor of Lehman Brothers Bank, FSBin the original principal amount of $17,500,000Incorporated by reference to Sun Communities,Inc.'s Quarterly Report on Form 10-Q for thequarter ended March 31, 200710.20Mortgage and Security Agreement dated January 4, 2007 made by High Point Associates, L.P., in favor of LehmanBrothers Bank, FSBIncorporated by reference to Sun Communities,Inc.'s Quarterly Report on Form 10-Q for thequarter ended March 31, 200710.21Promissory Note dated January 5, 2007 made by Sea Breeze Limited Partnership in favor of Lehman Brothers Bank,FSB in the original principal amount of $20,000,000Incorporated by reference to Sun Communities,Inc.'s Quarterly Report on Form 10-Q for thequarter ended March 31, 200710.22Mortgage and Security Agreement dated January 5, 2007 made by Sea Breeze Limited Partnership in favor of LehmanBrothers Bank, FSBIncorporated by reference to Sun Communities,Inc.'s Quarterly Report on Form 10-Q for thequarter ended March 31, 200710.23Restricted Stock Award Agreement between Sun Communities, Inc. and John B. McLaren, dated February 5, 2008#Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedFebruary 4, 200810.24Restricted Stock Award Agreement between Sun Communities, Inc. and Karen J. Dearing, dated February 5, 2008#Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedFebruary 4, 200810.25Loan Agreement dated March 1, 2011 among Sun Siesta Bay LLC, Sun Pheasant Ridge Limited Partnership,Sun/York L.L.C., Sun Richmond LLC, Sun Groves LLC, Sun Lake Juliana LLC, Sun Lake San Marino LLC,Sun Candlelight Village LLC, Sun Southfork LLC, Sun Four Seasons LLC and Sun Lafayette Place LLC, asBorrowers, and JPMorgan Chase Bank, National Association, as LenderIncorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K dated March1, 201187SUN COMMUNITIES, INC.10.26Promissory Note dated March 1, 2011 in the principal amount of $115,000,000 by Sun Siesta Bay LLC, Sun PheasantRidge Limited Partnership, Sun/York L.L.C., Sun Richmond LLC, Sun Groves LLC, Sun Lake Juliana LLC, SunLake San Marino LLC, Sun Candlelight Village LLC, Sun Southfork LLC, Sun Four Seasons LLC and SunLafayette Place LLC, as Borrowers, in favor of JPMorgan Chase Bank, National Association, as LenderIncorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K dated March1, 201110.27Employment Agreement dated March 7, 2011 among Sun Communities, Inc., Sun Communities Operating LimitedPartnership and John B. McLaren#Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K dated March7, 201110.28Employment Agreement dated March 7, 2011 among Sun Communities, Inc., Sun Communities Operating LimitedPartnership and Karen J. Dearing#Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K dated March7, 201110.29Two Hundred Seventy Fifth Amendment to the Second Amended and Restated Limited Partnership Agreement of SunCommunities Operating Limited Partnership dated as of June 23, 2011Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K dated June23, 201110.30First Amendment to Second Amended and Restated Master Credit Facility Agreement dated October 3, 2011, amongSun Secured Financing LLC, Aspen-Ft. Collins Limited Partnership, Sun Secured Financing Houston LimitedPartnership, Sun Communities Finance, LLC, Sun Holly Forest LLC, Sun Saddle Oak LLC, PNC Bank, NationalAssociation and Fannie MaeIncorporated by reference to Sun Communities,Inc.'s Quarterly Report on Form 10-Q for thequarter ended September 30, 201110.31Variable Facility Note dated January 3, 2012 made by Sun Secured Financing LLC, Aspen-Ft. Collins LimitedPartnership, Sun Secured Financing Houston Limited Partnership, Sun Communities Finance, LLC, Sun HollyForest LLC, and Sun Saddle Oak LLC in favor of PNC Bank, National Association, in the original principal amount of$152,362,500Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedJanuary 3, 201210.32Variable Facility Note dated January 3, 2012 made by Sun Secured Financing LLC, Aspen-Ft. Collins LimitedPartnership, Sun Secured Financing Houston Limited Partnership, Sun Communities Finance, LLC, Sun HollyForest LLC, and Sun Saddle Oak LLC in favor of PNC Bank, National Association, in the original principal amount of$10,000,000Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedJanuary 3, 201210.33Third Lease Modification dated October 31, 2011 by and between the Operating Partnership as Tenant and AmericanCenter LLC as LandlordIncorporated by reference to Sun Communities,Inc.'s Current Report on Form 10-K for the yearended December 31, 201110.34First Amended and Restated 2004 Non-Employee Director Option Plan#Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K dated July19, 201210.35Loan commitment letter dated October 3, 2012, among Sun Rudgate Lender LLC, Rudgate Village Company LimitedPartnership, Rudgate Clinton Company Limited Partnership and Rudgate Clinton Estates L.L.C and certain guarantorsnamed thereinIncorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedOctober 3, 201210.36Two Hundred Eighty Third Amendment to the Second Amended and Restated Limited Partnership Agreement of SunCommunities Operating Limited Partnership dated November 14, 2012Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedNovember 9, 201210.37Loan Agreement dated November 15, 2012 among Ladder Capital Finance LLC, Rudgate Village SPE, LLC, RudgateClinton SPE, LLC and Rudgate Clinton Estates SPE, LLCIncorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedNovember 14, 201210.38Promissory Note dated November 15, 2012 made by Rudgate Village SPE, LLC, Rudgate Clinton SPE, LLC andRudgate Clinton Estates SPE, LLC, in favor of Ladder Capital Finance LLC, in the original principal amount of$45,900,000Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedNovember 14, 201210.39Guaranty of Recourse Obligations dated November 15, 2012 made by Sun Communities Operating Limited Partnershipin favor of Ladder Capital Finance LLCIncorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedNovember 14, 201210.40Mezzanine Loan Agreement dated November 14, 2012 among Sun Rudgate Lender LLC, Rudgate Village Holdings,LLC, Rudgate Clinton Holdings, LLC and Rudgate Clinton Estates Holdings, LLCIncorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedNovember 14, 201210.41Promissory Note (Mezzanine) dated November 14, 2012 made by Rudgate Village Holdings, LLC, Rudgate ClintonHoldings, LLC and Rudgate Clinton Estates Holdings, LLC, in favor of Sun Rudgate Lender LLC, in the maximumprincipal amount of up to $25,000,000Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedNovember 14, 201210.42Future Advance Promissory Note (Mezzanine) dated November 14, 2012 made by Rudgate Village Holdings, LLC,Rudgate Clinton Holdings, LLC and Rudgate Clinton Estates Holdings, LLC, in favor of Sun Rudgate Lender LLC,in the maximum principal amount of up to $15,000,000Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedNovember 14, 201210.43Property Management Agreement dated November 14, 2012 between Rudgate Village SPE, LLC and Sun HomeServices, Inc.Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedNovember 14, 201210.44Property Management Agreement dated November 14, 2012 among Rudgate Clinton SPE, LLC, Rudgate ClintonEstates SPE, LLC and Sun Home Services, Inc.Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedNovember 14, 201210.45Credit Agreement, dated February 6, 2013, by and among Sun Communities Operating Limited Partnership, SunCommunities, Inc., certain of its wholly owned subsidiaries, Bank of Montreal, as administrative agent and lender, andBMO Capital Markets, as sole lead arranger and sole book managerIncorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedFebruary 6, 201310.46At the Market Offering Sales Agreement, dated May 10, 2012, among Sun Communities, Inc., Sun CommunitiesOperating Limited Partnership, BMO Capital Markets Corp. and Liquidnet, Inc.Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K dated May10, 201210.47Two Hundred Eighty Seventh Amendment to the Second Amended and Restated Limited Partnership Agreement of SunCommunities Operating Limited Partnership dated as of February 8, 2013Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedFebruary 6, 201388SUN COMMUNITIES, INC.10.48Employment Agreement dated June 20, 2013 among Sun Communities, Inc., Sun Communities Operating LimitedPartnership and Gary A. Shiffman#Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K dated June20, 201310.49Loan Agreement dated December 31, 2013 among Bank of America N.A., as lender, and Aspen-Alpine Project, LLC,Sun Cobus Green LLC, Aspen-Country Project, LLC, Sun Pool 3 LLC, Sun Rainbow RV LLC, Sun Tampa East,LLC, Country Hills Village Mobile Home Park, LLC, Dutton Mill Village, LLC and Sun Forest Meadows LLC, asborrowersIncorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedDecember 31, 201310.50Loan Agreement dated December 31, 2013 among Bank of America N.A., as lender, and Sun Big Timber RV LLC,Cider Mill Village Mobile Home Park, LLC, Sun Continental North LLC, Aspen-Byron Project, LLC, Sun CamelotVilla LLC, Sun Fisherman’s Cove LLC, Sun Gold Coaster LLC, Sun Pine Hills LLC and Aspen-Town & CountryAssociates II, LLC, as borrowersIncorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedDecember 31, 201310.51Promissory Note dated December 31, 2013 in the original principal amount of $72,438,339 made by Aspen-AlpineProject, LLC, Sun Cobus Green LLC, Aspen-Country Project, LLC, Sun Pool 3 LLC, Sun Rainbow RV LLC,Sun Tampa East, LLC, Country Hills Village Mobile Home Park, LLC, Dutton Mill Village, LLC and Sun ForestMeadows LLC in favor of Bank of America N.A.Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedDecember 31, 201310.52Promissory Note dated December 31, 2013 in the original principal amount of $69,061,661 made by Sun Big Timber RVLLC, Cider Mill Village Mobile Home Park, LLC, Sun Continental North LLC, Aspen-Byron Project, LLC, SunCamelot Villa LLC, Sun Fisherman’s Cove LLC, Sun Gold Coaster LLC, Sun Pine Hills LLC and Aspen-Town &Country Associates II, LLC in favor of Bank of America N.A.Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedDecember 31, 201310.53Master Loan Agreement, dated January 24, 2014, among Sun Ariana LLC, Sun Island Lakes LLC, Sun Kings LakeLLC, and Sun Indian Creek LLC, collectively as borrowers, and the Northwestern Mutual Life Insurance Company,as lenderIncorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedJanuary 30, 201410.54Amended and Restated Renewal Promissory Note dated January 24, 2014, made by Sun Ariana LLC, in favor of theNorthwestern Mutual Life Insurance Company in the original principal amount of $6,000,000Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedJanuary 30, 201410.55Amended and Restated Renewal Promissory Note dated January 24, 2014, made by Sun Island Lakes LLC, in favorof the Northwestern Mutual Life Insurance Company in the original principal amount of $13,000,000Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedJanuary 30, 201410.56Amended and Restated Renewal Promissory Note dated January 24, 2014, made by Sun Indian Creek LLC, in favorof the Northwestern Mutual Life Insurance Company in the original principal amount of $70,000,000Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedJanuary 30, 201410.57Amended and Restated Renewal Promissory Note dated January 24, 2014, made by Sun Kings Lake LLC, in favor ofthe Northwestern Mutual Life Insurance Company in the original principal amount of $10,000,000Incorporated by reference to Sun Communities,Inc.'s Current Report on Form 8-K datedJanuary 30, 201421.1List of Subsidiaries of Sun Communities, Inc.Filed herewith23.1Consent of Grant Thornton LLPFiled herewith23.2Consent of Baker Tilly Virchow Krause, LLPFiled herewith31.1Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Filed herewith31.2Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Filed herewith32.1Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Actof 2002Furnished herewith99.1Financial Statements of Origen Financial, Inc. for the year ended December 31, 2013Filed herewith101.1The following Sun Communities, Inc. financial information, formatted in XBRL (eXtensible Business ReportingLanguage): (i) Consolidated Balance Sheets as of December 31, 2013 and 2012, (ii) Consolidated Statements ofOperations for the Years Ended December 31, 2013, 2012 and 2011, (iii) Consolidated Statements of Stockholders'Equity (Deficit) and Comprehensive Loss for the Years Ended December 31, 2013, 2012 and 2011, (v) ConsolidatedStatements of Cash Flows, for the Years Ended December 31, 2013, 2012 and 2011; (v) Notes to ConsolidatedFinancial Statements, and (vi) Schedule III - Real Estate and Accumulated DepreciationFiled herewith#Management contract or compensatory plan or arrangement.89SUN COMMUNITIES, INC.INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS ANDFINANCIAL STATEMENT SCHEDULE PageManagement’s Report on Internal Control Over Financial ReportingF-2Reports of Independent Registered Public Accounting FirmF-3Financial Statements: Consolidated Balance Sheets as of December 31, 2013 and 2012F-5Consolidated Statements of Operations for the Years Ended December 31, 2013, 2012 and 2011F-6Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2013, 2012 and 2011F-7Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2013, 2012 and 2011F-8Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011F-9Notes to Consolidated Financial StatementsF-10Schedule III - Real Estate and Accumulated DepreciationF-44F - 1SUN COMMUNITIES, INC.Management’s Report on Internal Control Over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f)promulgated under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles and includes those policies and procedures that:•pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles;•provide reasonable assurance that receipts and expenditures are being made only in accordance with authorization of our management and directors;and•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have amaterial adverse effect on the financial statements.All internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable, not absolute, assurance that theobjectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits ofcontrols must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absoluteassurance that all control issues and instances of fraud, if any, within the Company have been detected. Even those systems determined to be effective canprovide only reasonable assurance with respect to financial statement preparation and presentation.Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, management usedthe criteria for effective internal control over financial reporting set forth in “Internal Control – Integrated Framework (1992)” issued by the Committee ofSponsoring Organizations of the Treadway Commission. Based on this assessment, management determined that, as of December 31, 2013, our internalcontrol over financial reporting was effective.Grant Thornton LLP, an independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting as ofDecember 31, 2013, and their report is included herein.F - 2SUN COMMUNITIES, INC.Report of Independent Registered Public Accounting FirmBoard of Directors and StockholdersSun Communities, Inc.We have audited the internal control over financial reporting of Sun Communities, Inc. (a Maryland corporation) and subsidiaries (the “Company”) as ofDecember 31, 2013, based on criteria established in the 1992 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations ofthe Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control OverFinancial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testingand evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control overfinancial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflectthe transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteriaestablished in the 1992 Internal Control-Integrated Framework issued by COSO.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financialstatements of the Company as of and for the year ended December 31, 2013, and our report dated February 20, 2014 expressed an unqualified opinion onthose financial statements./s/ GRANT THORNTON LLPGRANT THORNTON LLPSouthfield, MichiganFebruary 20, 2014F - 3SUN COMMUNITIES, INC.Report of Independent Registered Public Accounting FirmBoard of Directors and StockholdersSun Communities, Inc.We have audited the accompanying consolidated balance sheets of Sun Communities, Inc. (a Maryland corporation) and subsidiaries (the “Company”) as ofDecember 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income, stockholders’ equity (deficit), and cash flows foreach of the three years in the period ended December 31, 2013. Our audits of the basic consolidated financial statements included the financial statementschedule listed in the index appearing under Item 15. These financial statements and financial statement schedule are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sun Communities, Inc.and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period endedDecember 31, 2013 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financialstatement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, theinformation set forth therein.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal controlover financial reporting as of December 31, 2013, based on criteria established in the 1992 Internal Control-Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO), and our report dated February 20, 2014 expressed an unqualified opinion./s/ GRANT THORNTON LLPGRANT THORNTON LLPSouthfield, MichiganFebruary 20, 2014F - 4SUN COMMUNITIES, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except per share amounts) As of December 31, 2013 2012ASSETS Investment property, net (including $56,805 and $56,326 for consolidated variable interest entities atDecember 31, 2013 and December 31, 2012; see Note 8)$1,755,052 $1,518,136Cash and cash equivalents4,753 29,508Inventory of manufactured homes5,810 7,527Notes and other receivables, net164,685 139,850Other assets68,936 59,607TOTAL ASSETS$1,999,236 $1,754,628LIABILITIES Debt (including $45,209 and $45,900 for consolidated variable interest entities at December 31, 2013 andDecember 31, 2012; see Note 8)$1,311,437 $1,423,720Lines of credit181,383 29,781Other liabilities109,342 88,137TOTAL LIABILITIES$1,602,162 $1,541,638Commitments and contingencies STOCKHOLDERS’ EQUITY Preferred stock, $0.01 par value. Authorized: 10,000 shares; Issued and outstanding: 3,400 shares at December 31, 2013 and December 31, 2012$34 $34Common stock, $0.01 par value. Authorized: 90,000 shares;Issued and outstanding: 36,140 shares at December 31, 2013 and 29,755 shares at December 31, 2012361 298Additional paid-in capital1,141,590 876,620Accumulated other comprehensive loss(366) (696)Distributions in excess of accumulated earnings(761,112) (683,734)Total Sun Communities, Inc. stockholders' equity380,507 192,522Noncontrolling interests: Series A-1 preferred OP units45,548 45,548Series A-3 preferred OP units3,463 —Common OP units(31,907) (24,572)Consolidated variable interest entities(537) (508)Total noncontrolling interests16,567 20,468TOTAL STOCKHOLDERS’ EQUITY397,074 212,990TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$1,999,236 $1,754,628See accompanying Notes to Consolidated Financial Statements.F - 5SUN COMMUNITIES, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share amounts) Year Ended December 31, 2013 2012 2011REVENUES Income from real property$313,097 $255,761 $223,613Revenue from home sales54,852 45,147 32,252Rental home revenue32,500 26,589 22,290Ancillary revenues, net1,151 (180) 7Interest13,073 11,018 9,509Brokerage commissions and other income, net549 617 929Total revenues415,222 338,952 288,600COSTS AND EXPENSES Property operating and maintenance87,637 68,839 59,190Real estate taxes22,284 19,207 17,547Cost of home sales40,297 34,918 25,392Rental home operating and maintenance20,435 18,141 16,196General and administrative - real property25,941 20,037 19,704General and administrative - home sales and rentals9,913 8,316 7,571Acquisition related costs3,928 4,296 1,971Depreciation and amortization110,078 89,674 74,193Asset impairment charge— — 1,382Interest73,339 67,859 64,606Interest on mandatorily redeemable debt3,238 3,321 3,333Total expenses397,090 334,608 291,085Income (loss) before income taxes and distributions from affiliate18,132 4,344 (2,485)Provision for state income taxes(234) (249) (150)Distributions from affiliate2,250 3,900 2,100Net income (loss)20,148 7,995 (535)Less: Preferred return to Series A-1 preferred OP units2,598 2,329 1,222Less: Preferred return to Series A-3 preferred OP units166 — —Less: Amounts attributable to noncontrolling interests718 (318) (671)Net income (loss) attributable to Sun Communities, Inc.16,666 5,984 (1,086)Less: Series A preferred stock distributions6,056 1,026 —Net income (loss) attributable to Sun Communities, Inc. common stockholders$10,610 $4,958 $(1,086)Weighted average common shares outstanding: Basic34,732 27,255 21,147Diluted34,747 27,272 21,147Earnings (loss) per share: Basic$0.31 $0.18 $(0.05)Diluted$0.31 $0.18 $(0.05) See accompanying Notes to Consolidated Financial Statements.F - 6SUN COMMUNITIES, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In thousands) Year Ended December 31, 2013 2012 2011Net income (loss) $20,148 $7,995 $(535)Unrealized gain on interest rate swaps 362 643 1,048Total comprehensive income 20,510 8,638 513Less: Comprehensive income (loss) attributable to the noncontrolling interests 750 (252) (576)Comprehensive income attributable to Sun Communities, Inc. $19,760 $8,890 $1,089See accompanying Notes to Consolidated Financial Statements.F - 7SUN COMMUNITIES, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)(In thousands) 7.125% Series ACumulativeRedeemable PreferredStock Common Stock Additional Paid-InCapital Accumulated OtherComprehensiveIncome (Loss) Distributions in Excessof AccumulatedEarnings Non-ControllingInterests Total Stockholders'Equity (Deficit)Balance as of December 31, 2010$— $199 $431,749 $(2,226) $(549,625) $(12,481) $(132,384)Issuance of common stock from exercise ofoptions, net— — 841 — — — 841Issuance and associated costs of commonstock, net— 19 58,347 — — — 58,366Issuance of preferred OP units— — — — — 45,548 45,548Share-based compensation - amortizationand forfeitures— — 1,462 — 79 — 1,541Net income (loss)— — — — 136 (671) (535)Unrealized gain on interest rate swaps— — — 953 — 95 1,048Distributions— — — — (68,543) (6,537) (75,080)Balance as of December 31, 2011$— $218 $492,399 $(1,273) $(617,953) $25,954 $(100,655)Issuance of common stock from exercise ofoptions, net— — 166 — — — 166Issuance and associated costs of commonstock, net— 80 300,554 — — — 300,634Issuance and associated costs of Series Apreferred stock34 — 82,166 — — — 82,200Share-based compensation - amortizationand forfeitures— — 1,335 — 90 — 1,425Net income (loss)— — — — 8,313 (318) 7,995Unrealized gain on interest rate swaps— — — 577 — 66 643Distributions— — — — (74,184) (5,234) (79,418)Balance as of December 31, 2012$34 $298 $876,620 $(696) $(683,734) $20,468 $212,990Issuance of common stock from exercise ofoptions, net— — 201 — — — 201Issuance and associated costs of commonstock, net— 63 261,697 — — — 261,760Issuance of preferred OP units— — — — — 3,463 3,463Share-based compensation - amortizationand forfeitures— — 3,072 — 127 — 3,199Net income— — — — 19,430 718 20,148Unrealized gain on interest rate swaps— — — 330 — 32 362Distributions— — — — (96,935) (8,114) (105,049)Balance as of December 31, 2013$34 $361 $1,141,590 $(366) $(761,112) $16,567 $397,074See accompanying Notes to Consolidated Financial Statements.F - 8SUN COMMUNITIES, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Year Ended December 31, 2013 2012 2011OPERATING ACTIVITIES: Net income (loss)$20,148 $7,995 $(535)Adjustments to reconcile net income (loss) to net cash provided by operating activities: Gain (loss) from dispositions(867) (99) —Asset impairment charges— — 1,382(Gain) loss on valuation of derivative instruments— (4) 13Share-based compensation3,199 1,463 1,609Depreciation and amortization105,210 86,487 73,484Amortization of deferred financing costs2,713 1,619 1,707Distributions from affiliate(2,250) (3,900) (2,100)Change in notes receivable from financed sales of inventory homes, net of repayments(8,772) (8,583) (5,868)Change in inventory, other assets and other receivables, net(3,229) (1,211) (18,461)Change in other liabilities(1,469) 3,484 12,080NET CASH PROVIDED BY OPERATING ACTIVITIES114,683 87,251 63,311INVESTING ACTIVITIES: Investment in properties(179,413) (125,075) (87,720)Acquisitions of properties(122,176) (249,317) (77,171)Investment in note receivable of acquired properties(49,441) — —Proceeds related to affiliate dividend distribution2,250 3,900 2,100Proceeds related to disposition of land— 172 —Proceeds (financing) related to disposition of assets and depreciated homes, net(1,017) 936 3,859Issuance of notes and other receivables(3,841) (6,440) (1,192)Repayments of notes and other receivables1,226 605 796NET CASH USED FOR INVESTING ACTIVITIES(352,412) (375,219) (159,328)FINANCING ACTIVITIES: Issuance and associated costs of common stock, OP units, and preferred OP units, net261,760 300,634 58,366Net proceeds from stock option exercise201 166 841Net proceeds from issuance of Series A Preferred Stock— 82,200 —Distributions to stockholders, OP unit holders, and preferred OP unit holders(100,403) (73,371) (60,034)Payments to retire preferred operating partnership units(300) — —Borrowings on lines of credit415,410 253,195 214,631Payments on lines of credit(263,808) (352,448) (180,124)Proceeds from issuance of other debt175,507 192,278 200,615Payments on other debt(269,400) (89,004) (137,330)Payments for deferred financing costs(5,993) (2,031) (3,511)NET CASH PROVIDED BY FINANCING ACTIVITIES212,974 311,619 93,454Net change in cash and cash equivalents(24,755) 23,651 (2,563)Cash and cash equivalents, beginning of period29,508 5,857 8,420Cash and cash equivalents, end of period$4,753 $29,508 $5,857SUPPLEMENTAL INFORMATION: Cash paid for interest (net of capitalized interest of $678, $0 and $0, respectively)$61,268 $79,400 $55,560Cash paid for interest on mandatorily redeemable debt$3,238 $3,326 $3,331Cash paid for state income taxes$155 $320 $523Noncash investing and financing activities: Unrealized gain on interest rate swaps$362 $643 $1,048Reduction in secured borrowing balance$17,906 $13,680 $11,104Change in distributions declared and outstanding$4,646 $21,093 $15,046Noncash investing and financing activities at the date of acquisition: Acquisitions - Series A-1 preferred OP units issued$— $— $45,548Acquisitions - Series A-3 preferred OP units issued$3,463 $— $—Acquisitions - debt assumed$— $62,826 $52,398Acquisitions - other liabilities$— $880 $4,982Acquisitions - release of note receivable and accrued interest$49,441 $— $—See accompanying Notes to Consolidated Financial Statements.F - 9SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1.Summary of Significant Accounting PoliciesBusinessSun Communities, Inc., a Maryland corporation, together with the Sun Communities Operating Limited Partnership, a Michigan limited partnership (the“Operating Partnership”) and other consolidated subsidiaries are referred to herein as the “Company”, “us”, “we”, and “our”. We are a self-administered andself-managed real estate investment trust (“REIT”).We own, operate, and develop manufactured housing ("MH") and recreational vehicle ("RV") communities concentrated in the midwestern, southern,southeastern and northeastern United States. As of December 31, 2013, we owned and operated a portfolio of 188 properties located in 26 states (the“Properties”), including 150 MH communities, 27 RV communities, and 11 properties containing both MH and RV sites. As of December 31, 2013, theProperties contained an aggregate of 69,789 developed sites comprised of 54,168 developed manufactured home sites, 7,633 annual RV sites (inclusive ofboth annual and seasonal usage rights), 7,988 transient RV sites, and approximately 6,300 additional MH and RV sites suitable for development.Principles of ConsolidationThe accompanying financial statements include our accounts and all majority-owned and controlled subsidiaries, including entities in which we have acontrolling interest or have been determined to be the primary beneficiary of a variable interest entity ("VIE"). All inter-company transactions have beeneliminated in consolidation. Any subsidiaries, in which we have an ownership percentage equal to or greater than 50%, but less than 100%, representsubsidiaries with a noncontrolling interest. The noncontrolling interests in our subsidiaries are allocated their proportionate share of the subsidiaries’ financialresults. This allocation is recorded as the noncontrolling interest in our consolidated financial statements.Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management tomake estimates and assumptions related to the reported amounts included in our consolidated financial statements and accompanying footnote disclosures.Actual results could differ from those estimates.ReclassificationsCertain reclassifications have been made to prior periods’ financial statements in order to conform to current period presentation.Investment PropertyInvestment property is recorded at cost, less accumulated depreciation. We review the carrying value of long-lived assets to be held and used for impairmentquarterly or whenever events or changes in circumstances indicate a possible impairment. Circumstances that may prompt a test of recoverability may includea significant decrease in the anticipated market price, an adverse change to the extent or manner in which an asset may be used or in its physical condition orother such events that may significantly change the value of the long-lived asset. An impairment loss is recognized when a long-lived asset’s carrying value isnot recoverable and exceeds estimated fair value. We estimate the fair value of our long-lived assets based on discounted future cash flows and any potentialdisposition proceeds for a given asset. Forecasting cash flows requires management to make estimates and assumptions about such variables as the estimatedholding period, rental rates, occupancy and operating expenses during the holding period, as well as disposition proceeds. Management uses its best judgmentwhen developing these estimates and assumptions, but the development of the projected future cash flows is based on subjective variables. Future events couldoccur which would cause us to conclude that impairment indicators exist, and significant adverse changes in national, regional, or local market conditions ortrends may cause us to change the estimates and assumptions used in our impairment analysis. The results of an impairment analysis could be material to ourfinancial statements.We periodically receive offers from interested parties to purchase certain of our properties. These offers may be the result of an active program initiated by us tosell the property, or from an unsolicited offer to purchase the property. The typical sale process involves a significant negotiation and due diligence periodbetween us and the potential purchaser. As the intent of this process isF - 10SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1.Summary of Significant Accounting Policies, continuedto determine if there are items that would cause the purchaser to be unwilling to purchase or we would be unwilling to sell, it is not unusual for such potentialoffers of sale/purchase to be withdrawn as such issues arise. We classify assets as “held for sale” when it is probable, in our opinion, that a sale transactionwill be completed within one year. This typically occurs when all significant contingencies surrounding the closing have been resolved, which oftencorresponds with the closing date.We allocate the purchase price of properties to net tangible and identified intangible assets acquired based on their fair values. In making estimates of fairvalues for purposes of allocating purchase price, we utilize an independent third party to value the net tangible and identified intangible assets in connectionwith the acquisition of the respective property. We provide historical and pro forma financial information obtained about each property, as well as any otherinformation needed in order for the third party to ascertain the fair value of the tangible and intangible assets (including in-place leases) acquired.Other Capitalized CostsWe capitalize certain costs incurred in connection with the development, redevelopment, capital enhancement and leasing of our properties. Management isrequired to use professional judgment in determining whether such costs meet the criteria for immediate expense or capitalization. The amounts are dependenton the volume and timing of such activities and the costs associated with such activities. Maintenance, repairs and minor improvements to properties areexpensed when incurred. Renovations and improvements to properties are capitalized and depreciated over their estimated useful lives and construction costsrelated to the development of new community or expansion sites are capitalized until the property is substantially complete. Costs incurred to renovaterepossessed homes for our Rental Program are capitalized and costs incurred to refurbish the homes at turnover and repair the homes while occupied areexpensed. Certain expenditures to dealers and residents related to obtaining lessees in our communities are capitalized and amortized over a seven year periodbased on the anticipated term of occupancy of a resident. Costs associated with implementing our computer systems are capitalized and amortized over theestimated useful lives of the related software and hardware. Costs incurred to obtain new financing are capitalized and amortized over the terms of the relatedloan agreement using the straight-line method (which approximates the effective interest method).Cash and Cash EquivalentsWe consider all highly liquid investments with a maturity of three months or less from the date of purchase to be cash and cash equivalents. The maximumamount of credit risk arising from cash deposits in excess of federally insured amounts was approximately $5.7 million as of December 31, 2013. We had nocash deposits in excess of federally insured amounts as of December 31, 2012. From time to time, we may have cash deposits in excess of federally insuredamounts.InventoryInventory of manufactured homes is stated at lower of specific cost or market based on the specific identification method.Investments in AffiliatesInvestments in affiliates in which we do not have a controlling direct or indirect voting interest, but can exercise significant influence over the entity withrespect to its operations and major decisions, are accounted for using the equity method of accounting. The carrying value of our investment is adjusted forour proportionate share of the affiliate’s net income or loss and reduced by distributions received. We review the carrying value of our investment in affiliatesfor other than temporary impairment whenever events or changes in circumstances indicate a possible impairment. Financial condition, operationalperformance, and other economic trends are some of the factors we consider when we evaluate the existence of impairment indicators. When we have a carryingvalue of zero for our investment, we suspend the equity method of accounting until such time that the affiliate’s net income equals or exceeds the share of netlosses not recognized during the time in which the equity method of accounting was suspended. See Note 7 for additional information.Notes and Other ReceivablesWe provide financing to purchasers of manufactured homes generally located in our communities. The notes are collateralized by the underlying manufacturedhome sold. Notes receivable include both installment loans retained by the Company as well as transferred loans that have not met the requirements for saleaccounting which are presented herein as collateralized receivables (See Note 5 for additional information). For purposes of accounting policy, all notesreceivable are considered one homogenous segment, as the notes are typically underwritten using the same requirements and terms. Notes receivable arereported at theirF - 11SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1.Summary of Significant Accounting Policies, continuedoutstanding unpaid principal balance adjusted for an allowance for loan loss. Interest income is accrued based upon the unpaid principal balance of the loans.Past due status of our notes receivable is determined based upon the contractual terms of the note. When a note receivable becomes 60 days delinquent, we stopaccruing interest on the note receivable. The interest on nonaccrual loans is accounted for on the cashbasis until qualifying for return to accrual. Loans are returned to accrual when all principal and interest amounts contractually due are brought current andfuture payments are reasonably assured. Loans on a nonaccrual status were immaterial at December 31, 2013 and 2012. The ability to collect our notesreceivable is measured based on current and historical information and events. We consider numerous factors including: length of delinquency, estimated coststo lease or sell, and repossession history. Our experience supports a high recovery rate for notes receivable; however there is some degree of uncertainty aboutthe recoverability of our investment in these notes receivable. We are generally able to recover our recorded investment in uncollectible notes receivable byrepossessing the homes on the notes retained by us and repurchasing the homes on the collateralized receivables, and subsequently selling or leasing thesehomes to potential residents in our communities. We have established a loan loss reserve based on our estimated unrecoverable costs associated withrepossessed/repurchased homes. We estimate our unrecoverable costs to be the repurchase price of the home collateralizing the note receivable plus repair andremarketing costs in excess of the estimated selling price of the home being repossessed. A historical average of this excess cost is calculated based on priorrepossessions/repurchases and is applied to our estimated annual future repossessions to create the allowance for both installment and collateralized notesreceivable. See Note 5 for additional information.We evaluate the collectability of a loan based on our ability to collect the scheduled payments of principal and interest when due according to the contractualterms of the loan agreement. We generally see that if the obligor is delinquent on the loan they are also delinquent on site rent. If the scheduled payment isdelinquent more than five to seven days, dependent on state law, we begin the repossession and eviction process simultaneously. This process generally takes30 to 45 days; due to the short time frame from delinquent loan to repossession we do not evaluate the notes receivables for impairments. No loans wereconsidered impaired as of December 31, 2013 and 2012.We evaluate the credit quality of our notes receivable at the inception of the receivable. We consider the following factors in order to determine the credit qualityof the applicant - rental payment history; home debt to income ratio; total debt to income ratio; length of employment; previous landlord references; and creditscores.Other receivables are generally comprised of amounts due from residents for rent and related charges, home sale proceeds receivable from sales near year endand various other miscellaneous receivables. Accounts receivable from residents are typically due within 30 days and stated at amounts due from residents netof an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. We evaluate the recoverabilityof our receivables whenever events occur or there are changes in circumstances such that management believes it is probable that it will be unable to collect allamounts due according to the contractual terms of the loan and lease agreements. Receivables related to community rents are reserved when we believe thatcollection is less than probable, which is generally after a resident balance reaches 60 to 90 days past due.Restricted CashRestricted cash consists of amounts held in deposit at a financial institution to collateralize derivative instruments in a liability position and deposits for tax,insurance and repair escrows held by lenders in accordance with certain debt agreements. At December 31, 2013 and 2012, $9.4 million and $8.9 million ofrestricted cash, respectively, was included as a component of Other assets on the consolidated balance sheets.Identified Intangible AssetsThe Company amortizes identified intangible assets that are determined to have finite lives over the period the assets are expected to contribute directly orindirectly to the future cash flows of the property or business. At December 31, 2013 and 2012, the carrying amounts of the identified intangible assets areincluded in Other assets on the consolidated balance sheets. See Note 6 for additional information on our intangible assets.F - 12SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1.Summary of Significant Accounting Policies, continuedDeferred Tax AssetsWe are subject to certain state taxes that are considered to be income taxes and have certain subsidiaries that are taxed as regular corporations. Deferred taxassets or liabilities are recognized for temporary differences between the tax basis of assets and liabilities and their carrying amounts in the financial statementsand net operating loss carry forwards. Deferred tax assets and liabilities are measured using currently enacted tax rates. A valuation allowance is established if,based on the available evidence, it is considered more likely than not that some portion or all of the deferred tax assets will not be realized. See Note 13 foradditional information.Deferred Financing CostsDeferred financing costs include fees and costs incurred to obtain long-term financing. The costs are amortized over the terms of the respective loans.Unamortized deferred financing costs are written off when debt is retired before the maturity date. Upon amendment of the line of credit or refinancing ofmortgage debt, unamortized deferred financing costs are accounted for in accordance with Financial Accounting Standards Board ("FASB") AccountingStandards Codification ("ASC") 470-50-40, Modifications and Extinguishments. At December 31, 2013 and 2012, deferred financing costs are included as acomponent of Other assets on the consolidated balance sheets.Share-Based CompensationShare-based compensation cost for restricted stock awards is measured based on the closing share price of our common stock on the date of grant. Share-based compensation cost for stock options is estimated at the grant date based on each option’s fair-valueas calculated by the Binomial (lattice) option-pricing model. The Binomial (lattice) option-pricing model incorporates various assumptions including expectedvolatility, expected life, dividend yield, and interest rates. Share-based compensation cost for phantom share awards is re-measured based on the closing shareprice of our common stock at the end of each reporting period. See Note 11 for additional information.Fair Value of Financial InstrumentsOur financial instruments consist of cash and cash equivalents, accounts and notes receivable, accounts payable, derivative instruments, and debt. We utilizefair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures, pursuant to FASB ASC 820,Fair Value Measurements and Disclosures. See Note 17 for additional information regarding the estimates and assumptions used to estimate the fair value ofeach class of financial instrument.Revenue RecognitionRental income attributable to site and home leases is recorded on a straight-line basis when earned from tenants. Leases entered into by tenants are generally forone year terms but may range from month-to-month to two years and are renewable by mutual agreement from us and the resident, or in some cases, asprovided by state statute. Revenue from the sale of manufactured homes is recognized upon transfer of title at the closing of the sales transaction. Interestincome on notes receivable is recorded on a level yield basis over the life of the notes. We report certain taxes collected from the resident and remitted to taxingauthorities in revenue. These taxes include certain Florida property and fire taxes.Advertising CostsAdvertising costs are expensed as incurred. As of December 31, 2013, 2012, and 2011, we had advertising costs of $2.9 million, $2.5 million and $2.4million, respectively.Depreciation and AmortizationDepreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets. Useful lives are 30 years for landimprovements and buildings, 10 years for rental homes, seven to 15 years for furniture, fixtures and equipment, and seven to 15 years for intangible assets.F - 13SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1.Summary of Significant Accounting Policies, continuedDerivative Instruments and Hedging ActivitiesWe do not enter into derivative instruments for speculative purposes. We adjust our balance sheet on a quarterly basis to reflect the current fair market value ofour derivatives. For those hedges that qualify for cash flow hedge accounting, we adjust our balance sheet on a quarterly basis to reflect current fair marketvalue of our derivatives. Changes in the fair value of derivatives are recorded in earnings or comprehensive income, as appropriate. The ineffective portion ofthe hedge is immediately recognized in earnings to the extent that the change in value of a derivative does not perfectly offset the change in value of theinstrument being hedged. The effective portion of the hedge is recorded in accumulated other comprehensive income. We use standard market conventions todetermine the fair values of derivative instruments, including the quoted market prices or quotes from brokers or dealers for the same or similar instruments.All methods of assessing fair value result in a general approximation of value and such value may never actually be realized. See Note 16 for additionalinformation. Cash flows from derivative instruments are classified in the same category as the cash flows of the underlying hedged items, which are in theoperating activities section of the consolidated statements of cash flows.2. Real Estate Acquisitions2013 Activity:During the fourth quarter of 2013, we acquired Camelot Villa, an MH community with approximately 712 sites located in Macomb, Michigan, JellystonePark at Birchwood Acres ("Jellystone at Birchwood"), an RV community with approximately 269 sites located in Woodridge, New York, and Vines RVResort ("Vines"), an RV community with approximately 130 sites located in Paso Robles, California.During the second quarter of 2013, we acquired Big Timber Lake RV Resort ("Big Timber Lake"), an RV community with approximately 528 sites located inCape May, New Jersey, and Jellystone RV Resort ("Jellystone"), an RV community with approximately 299 sites located in North Java, New York.During the first quarter of 2013, we acquired 10 RV communities from Gwynns Island RV Resort LLC, Indian Creek RV Resort LLC, Lake Laurie RV ResortLLC, Newpoint RV Resort LLC, Peters Pond RV Resort Inc., Seaport LLC, Virginia Tent LLC,Wagon Wheel Maine LLC, Westward Ho RV Resort LLC and Wild Acres LLC (collectively, "Morgan RV Properties"), with approximately 3,700 sites locatedin Ohio, Virginia, Maine, Massachusetts, Connecticut, New Jersey and Wisconsin.2012 Activity:During the fourth quarter of 2012, we acquired (i) Palm Creek Golf & RV Resort ("Palm Creek"), a community with 283 manufactured home sites, 1,580 RVsites and expansion potential of approximately 550 MH sites or 990 RV sites located in Casa Grande, Arizona; (ii) Lake-In-Wood Camping Resort ("Lake InWood"), an RV community with approximately 425 sites located in Lancaster County, Pennsylvania; and (iii) Rainbow RV Resort ("Rainbow"), an RVcommunity with approximately 500 sites located in Frostproof, Florida. We also acquired four MH communities (the "Rudgate Acquisition Properties") withapproximately 1,996 sites located in southeast Michigan and entered into management agreements with Rudgate Village Company Limited Partnership,Rudgate Clinton Company Limited Partnership and Rudgate Clinton Estates L.L.C. under which we manage two MH communities (the "Rudgate ManagedProperties") with approximately 1,598 sites located in southeast Michigan. In addition, we provided mezzanine financing to the Rudgate Managed Properties.The Rudgate Managed Properties are accounted for as variable interest entities and are included in our 2012 acquisition activity (See Note 8 for details).During the third quarter of 2012, we acquired Blazing Star RV Resort ("Blazing Star"), an RV community with 260 sites located in San Antonio, Texas andNorthville Crossing Manufactured Home Community ("Northville Crossing"), an MH community with 756 sites located in Northville, Michigan.During the first quarter of 2012, we acquired Three Lakes RV Resort, Blueberry Hill RV Resort and Grand Lake Estates (collectively, the “Additional FloridaProperties”), one of which is located in Hudson, Florida, one of which is located in Bushnell, Florida and one of which is located in Orange Lake, Florida,comprised of 1,114 RV sites in the aggregate.F - 14SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS2. Real Estate Acquisitions, continuedThe following table summarizes the amounts of the assets acquired and liabilities assumed recognized at the acquisition dates and the consideration paid forthe 2013 acquisitions (in thousands): 2013At Acquisition Date Morgan RVProperties Jellystone Big TimberLake Camelot Villa Jellystone atBirchwood Vines TotalInvestment in property $109,122 $9,754 $21,898 $22,121 $6,087 $8,000 $176,982Inventory of manufactured homes — — — 2,324 — — 2,324Notes and other receivables — — — 852 — — 852In-place leases and other intangible assets 2,940 390 580 610 450 — 4,970Other assets 157 7 48 84 12 1 309Below market leases — — (3,490) (240) — — (3,730)Other liabilities (3,697) (930) (1,157) (546) (293) (4) (6,627)Total identifiable assets and liabilitiesassumed $108,522 $9,221 $17,879 $25,205 $6,256 $7,997 $175,080 Consideration Cash $55,618 $9,221 $17,879 $25,205 $6,256 $7,997 $122,176Series A-3 preferred OP units (1) 3,463 — — — — — 3,463Extinguishment of note receivable 49,441 — — — — — 49,441Fair value of total consideration transferred $108,522 $9,221 $17,879 $25,205 $6,256 $7,997 $175,080(1) Included in the total consideration paid for Morgan RV Properties was the issuance of 40,268 Series A-3 preferred OP units. In order to estimate the fair value of these units at thevaluation date, we utilized the income approach using estimated future discounted cash flows.The purchase price allocations for Jellystone, Big Timber Lake, Camelot Villa, Jellystone at Birchwood and Vines are preliminary and may be adjusted asfinal costs and final valuations are determined.The following unaudited pro forma financial information presents the results of our operations for the years ended December 31, 2013 and 2012 as ifacquisitions completed in 2013 were acquired on January 1, 2012. The unaudited pro forma results have been prepared for comparative purposes only and donot purport to be indicative of either the results of operations that would have actually occurred or the future results of operations (in thousands, except per-share data). (1) Year Ended December 31, (unaudited) 2013 2012Total revenues$423,490 $392,862Net income attributable to Sun Communities, Inc. shareholders$16,352 $23,833Net income per share attributable to Sun Communities, Inc. shareholders - basic$0.47 $0.87Net income per share attributable to Sun Communities, Inc. shareholders - diluted$0.47 $0.87(1) Below are nonrecurring expenses that have been adjusted for the pro forma results above:(a) Transaction costs related to the acquisitions are not expected to have a continuing impact and therefore have been excluded from 2013 and included in 2012 for acquisitions completedin 2013.F - 15SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS2. Real Estate Acquisitions, continuedThe following table summarizes the amounts of the assets acquired and liabilities assumed recognized at the acquisition dates and the consideration paid forthe 2012 acquisitions (in thousands): 2012At Acquisition Date Addtl FloridaProperties Blazing Star NorthvilleCrossing Rainbow RudgateAcquisition andManagedProperties Palm Creek Lake InWood TotalInvestment in property $25,384 $6,913 $30,814 $7,572 $123,754 $87,979 $14,457 $296,873Inventory of manufactured homes 112 220 187 679 2,978 — — 4,176Notes and other receivables — — 1,169 — 3,002 — — 4,171In-place leases and other intangibleassets 180 — 260 40 8,110 2,058 — 10,648Other assets — 193 — — 745 686 43 1,667Other liabilities (1,194) (179) (221) (331) (1,832) (880) (755) (5,392)Assumed debt — (4,104) — — (15,103) (43,619) — (62,826)Total identifiable assets andliabilities assumed $24,482 $3,043 $32,209 $7,960 $121,654 $46,224 $13,745 $249,317 Consideration Cash (1) $24,482 $3,043 $32,209 $7,351 $54,054 $10,247 $13,745 $145,131New debt proceeds (2) — — — 609 67,600 35,977 — 104,186Fair value of total considerationtransferred $24,482 $3,043 $32,209 $7,960 $121,654 $46,224 $13,745 $249,317(1) Subsequent to the acquisition, on March 30, 2012, the Additional Florida Properties were encumbered with a $19.0 million loan. On September 28, 2012, Northville Crossing wasencumbered with a $21.7 million loan. (See Note 9)(2) Subsequent to the acquisition, in January 2013, we paid off the $36.0 million sellers note for Palm Creek. (See Note 9)The following unaudited pro forma financial information presents the results of our operations for the years ended December 31, 2012 and 2011 as ifacquisitions completed in 2012 were acquired on January 1, 2011. The unaudited pro forma results have been prepared for comparative purposes only and donot purport to be indicative of either the results of operations that would have actually occurred or the future results of operations (in thousands, except per-share data). (1) Year Ended December 31, (unaudited) 2012 2011Total revenues$367,710 $323,473Net income attributable to Sun Communities, Inc. shareholders$13,666 $6,677Net income per share attributable to Sun Communities, Inc. shareholders - basic$0.50 $0.31Net income per share attributable to Sun Communities, Inc. shareholders - diluted$0.50 $0.30(1) Below are nonrecurring expenses that have been adjusted for the pro forma results above:(a) Certain sellers had management fees of $0.3 million for the year ended December 31, 2011 that have been excluded from above as these fees will not continue going forward.(b) Transaction costs related to the acquisitions are not expected to have a continuing impact and therefore have been excluded from 2012 and included in 2011 for acquisitions completedin 2012.F - 16SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS2. Real Estate Acquisitions, continuedThe amount of revenue and net income included in the consolidated statements of operations for the years ended December 31, 2013, 2012 and 2011 for allacquisitions described above is set forth in the following table (in thousands): Year Ended December 31, (unaudited) 2013 2012 2011Revenue$60,148 $38,557 $12,201Net income$5,914 $290 $1,247Acquisition related costs of approximately $3.9 million, $4.3 million and $2.0 million have been incurred for the years ended December 31, 2013, 2012 and2011, respectively, and are presented as “Acquisition related costs” in our consolidated statements of operations.3. Investment PropertyThe following table sets forth certain information regarding investment property (in thousands): December 31, 2013 December 31, 2012Land $194,404 $178,993Land improvements and buildings 1,806,546 1,608,825Rental homes and improvements 393,562 305,838Furniture, fixtures, and equipment 65,086 54,354Land held for future development 29,521 29,295Investment property 2,489,119 2,177,305Accumulated depreciation (734,067) (659,169)Investment property, net $1,755,052 $1,518,136Land improvements and buildings consist primarily of infrastructure, roads, landscaping, clubhouses, maintenance buildings and amenities.In December 2011, we recorded impairment charges of $1.4 million associated with a long-lived asset for our MH community in Reidsville, North Carolina.This community consists of 45 developed sites. Based on our impairment analysis, we reviewed the carrying value of the long-lived asset to be held and usedfor impairment which indicated a possible impairment. Circumstances that prompted this test of recoverability included a decrease in the net operating incomeand an adverse judgment that limits the number of rental homes in the community. We considered both of these factors and determined that we will not beexpanding the community. We recognized the impairment loss because the long-lived asset's carrying value was deemed not recoverable and exceeded estimatedfair value. We estimated the fair value of the long-lived asset based on discounted future cash flows and any potential disposition proceeds for the given asset.We used variables such as estimated holding period, rental rates, occupancy and operating expenses during the holding period, as well as disposition proceedsto forecast future cash flows. This transaction is classified as asset impairment charge within the consolidated statements of operations.See Note 2, "Real Estate Acquisitions", for details on acquisitions.F - 17SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS4. Transfers of Financial AssetsWe completed various transactions with an unrelated entity involving our notes receivable during 2013 and 2012 under which we received a total of $34.0million and $26.4 million, respectively, of cash proceeds in exchange for relinquishing our right, title and interest in certain notes receivable. We have nofurther obligations or rights with respect to the control, management, administration, servicing, or collection of the installment notes. However, we are subjectto certain recourse provisions requiring us to purchase the underlying homes collateralizing such notes, in the event of a note default and subsequentrepossession of the home by the unrelated entity. The recourse provisions are considered to be a form of continuing involvement, and therefore these transferredloans did not meet the requirements for sale accounting. We continue to recognize these transferred loans on our balance sheet and refer to them as collateralizedreceivables as a transfer of financial assets. The proceeds from the transfer have been recognized as a secured borrowing.In the event of note default, and subsequent repossession of a manufactured home by the unrelated entity, the terms of the agreement require us to repurchasethe manufactured home. Default is defined as the failure to repay the installment note according to contractual terms. The repurchase price is calculated as apercentage of the outstanding principal balance of the collateralized receivable, plus any outstanding late fees, accrued interest, legal fees, and escrow advancesassociated with the installment note. The percentage used to determine the repurchase price of the outstanding principal balance on the installment note isbased on the number of payments made on the note. In general, the repurchase price is determined as follows:Number of Payments Repurchase %Less than or equal to 15 100%Greater than 15 but less than 64 90%Equal to or greater than 64 but less than 120 65%120 or more 50%The transferred assets have been classified as collateralized receivables in Notes and Other Receivables (see Note 5) and the cash proceeds received from thesetransactions have been classified as a secured borrowing in Debt (see Note 9) within the consolidated balance sheets. The balance of the collateralizedreceivables was $109.8 million (net of allowance of $0.7 million) and $93.8 million (net of allowance of $0.6 million) as of December 31, 2013 andDecember 31, 2012, respectively. The outstanding balance on the secured borrowing was $110.5 million and $94.4 million as of December 31, 2013 andDecember 31, 2012, respectively.The balances of the collateralized receivables and secured borrowings fluctuate. The balances increase as additional notes receivable are transferred andexchanged for cash proceeds. The balances are reduced as the related collateralized receivables are collected from the customers, or as the underlying collateralis repurchased. The change in the aggregate gross principal balance of the collateralized receivables is as follows (in thousands): Year Ended December 31, 2013 December 31, 2012Beginning balance$94,409 $81,682Financed sales of manufactured homes34,007 26,406Principal payments and payoffs from our customers(7,930) (5,662)Principal reduction from repurchased homes(9,976) (8,017)Total activity16,101 12,727Ending balance$110,510 $94,409The collateralized receivables earn interest income and the secured borrowings accrue interest expense at the same interest rates. The amount of interest incomeand expense recognized was $10.6 million, $9.4 million and $8.5 million for the years ended December 31, 2013, 2012 and 2011, respectively. F - 18SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS5. Notes and Other ReceivablesThe following table sets forth certain information regarding notes and other receivables (in thousands): December 31, 2013 December 31, 2012Installment notes receivable on manufactured homes, net $25,471 $21,898Collateralized receivables, net (see Note 4) 109,821 93,834Other receivables, net 29,393 24,118Total notes and other receivables, net $164,685 $139,850Installment Notes Receivable on Manufactured HomesThe installment notes of $25.5 million (net of allowance of $0.1 million) and $22.0 million (net of allowance of $0.1 million) as of December 31, 2013 andDecember 31, 2012, respectively, are collateralized by manufactured homes. The notes represent financing provided by us to purchasers of manufacturedhomes primarily located in our communities and require monthly principal and interest payments. The notes have a net weighted average interest rate andmaturity of 8.9% and 11.9 years as of December 31, 2013, and 8.6% and 11.0 years as of December 31, 2012.The change in the aggregate gross principal balance of the installment notes is as follows (in thousands): Year Ended December 31, 2013 December 31, 2012Beginning balance$22,019 $13,545Financed sales of manufactured homes7,798 7,453Acquired notes (see Note 2)852 4,171Principal payments and payoffs from our customers(3,838) (2,292)Principal reduction from repossessed homes(1,256) (858)Total activity3,556 8,474Ending balance$25,575 $22,019Collateralized ReceivablesCollateralized receivables represent notes receivable that were transferred to a third party, but did not meet the requirements for sale accounting (see Note 4).The receivables have a balance of $109.8 million (net of allowance of $0.7 million) and $93.8 million(net of allowance of $0.6 million) as of December 31,2013 and December 31, 2012, respectively. The receivables have a net weighted average interest rate and maturity of 10.7% and 13.6 years as of December31, 2013, and 11.0% and 13.2 years as of December 31, 2012.Allowance for Losses for Collateralized and Installment Notes ReceivableThe following table sets forth the allowance for losses for collateralized and installment notes receivable as of December 31, 2013 and December 31, 2012 (inthousands): Year Ended December 31, 2013 December 31, 2012Beginning balance$(697) $(635)Lower of cost or market write-downs421 243Increase to reserve balance(517) (305)Total activity(96) (62)Ending balance$(793) $(697)F - 19SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS5. Notes and Other Receivables, continuedOther ReceivablesAs of December 31, 2013 other receivables were comprised of amounts due from residents for rent and water and sewer usage of $6.9 million (net of allowanceof $0.7 million), home sale proceeds of $5.7 million, insurance receivables of $2.0 million, insurance settlement of $3.7 million, rebates and other receivablesof $4.6 million and two notes receivable of $4.3 million and $2.2 million. The $4.3 million note bears interest at LIBOR plus 475 basis points, is secured bysenior mortgages on two RV communities, a pledge of $4.0 million in Series A-3 Preferred OP Units, a subordinated interest in a cash collateral account and anequity interest in another RV community and is due on May 31, 2014. The $2.2 million note bears interest at 8.0% for the first two years and 7.9% for theremainder of the loan, is secured by the senior mortgage on one MH community and a deed of land, and is due on December 31, 2016. As of December 31,2012 other receivables were comprised of amounts due from residents for rent and water and sewer usage of $4.1 million (net of allowance of $0.5 million),home sale proceeds of $6.1 million, insurance receivables of $1.7 million, insurance settlement of $3.7 million, note receivable of $5.0 million, and rebatesand other receivables of $3.5 million.6. Intangible AssetsOur intangible assets are in-place leases from acquisitions, capitalized costs in relation to leasing activities and franchise fees. These intangible assets arerecorded within Other assets on the consolidated balance sheet. The accumulated amortization and gross carrying amounts are as follows (in thousands): December 31, 2013 December 31, 2012Intangible Asset Useful Life Gross CarryingAmount AccumulatedAmortization Gross CarryingAmount AccumulatedAmortizationIn-place leases 7 years $26,961 $(8,239) $22,761 $(4,941)Capitalized leasing costs greater than 1 year 7 years 13,359 (6,757) 12,506 (6,854)Franchise fees 15 years 770 (29) — —Total $41,090 $(15,025) $35,267 $(11,795)During 2013, in connection with our acquisitions, we purchased intangible assets valued at approximately $5.0 million. Of this total, approximately $4.2million is classified as in-place leases with a useful life of seven years, and $0.8 million is classified as franchise fees with a useful life of 15 years.The aggregate net amortization expenses related to the intangible assets are as follows (in thousands): Year Ended December 31,Intangible Asset 2013 2012 2011In-place leases $3,297 $1,657 $975Capitalized leasing costs greater than 1 year 1,507 1,504 1,603Franchise fees 60 — —Total $4,864 $3,161 $2,578We anticipate the amortization expense for the existing intangible assets to be as follows for the next five years (in thousands): Year 2014 2015 2016 2017 2018Estimated expense $4,906 $4,689 $4,497 $4,299 $3,436F - 20SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS7. Investment in AffiliatesOrigen Financial Services, LLC (“OFS LLC”)At December 31, 2013 and 2012, we had a 22.9% ownership interest in OFS LLC, an entity formed to originate manufactured housing installmentcontracts. We have suspended equity accounting as the carrying value of our investment is zero.Origen Financial, Inc. (“Origen”)Through Sun OFI, LLC, a taxable REIT subsidiary, we own 5,000,000 shares of common stock of Origen which approximates an ownership interest of19.0%. Although it is no longer originating or servicing loans, Origen continues to manage an existing portfolio of manufactured home loans and asset backedsecurities. We have suspended equity accounting for this investment as the carrying value of our investment is zero. We do, however, receive income fromdividends on our shares of Origen common stock. Our investment in Origen had a market value of approximately $6.3 million based on a quoted marketclosing price of $1.25 per share as reported on the OTC Pink Marketplace as of December 31, 2013.In January 2013, we were advised by Origen that it would be restating their 2011 financial statements to correct its results from operations. This adjustmenthas no impact to our financial statements since we have suspended equity accounting.The following table sets forth certain summarized financial information for Origen (in thousands): Year Ended December 31, 2013 2012 2011Revenues $49,775 $64,838 $67,094Expenses (51,912) (66,215) (77,598)Net loss $(2,137) $(1,377) $(10,504) As of December 31,ASSETS2013 2012Loans receivable$463,254 $543,420Other assets15,529 19,824Total assets$478,783 $563,244LIABILITIES Warehouse and securitization financing$423,369 $491,720Other liabilities38,109 48,389Total liabilities$461,478 $540,109F - 21SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS8. Consolidated Variable Interest EntitiesOn November 14, 2012, we guaranteed certain non-recourse carveouts under a $45.9 million mortgage loan (the “Senior Loan”) from Ladder Capital FinanceLLC to Rudgate Village SPE, LLC, Rudgate Clinton SPE, LLC and Rudgate Clinton Estates SPE, LLC (the “Rudgate Borrowers”). The Senior Loan issecured by the Rudgate Managed Properties, which are located in southeast Michigan. In addition, we entered into a Mezzanine Loan Agreement with the solemembers of the Rudgate Borrowers under which we agreed to provide mezzanine financing in the amount of $15.1 million in respect of the Rudgate ManagedProperties, and entered into property management agreements to manage and operate these two communities. We believe these arrangements represent variableinterests in the Rudgate Managed Properties that were evaluated under the guidance set forth in the Financial FASB ASC Topic 810, Consolidation. As a resultof the qualitative and quantitative analysis performed, we determined that we are the primary beneficiary and hold a controlling financial interest in theseentities due to our power to direct the activities that most significantly impact the economic performance of the entities, as well as our obligation to absorb themost significant losses and our rights to receive significant benefits from these entities. As such, the transactions and accounts of these Variable InterestEntities ("VIEs") are included in our consolidated financial statements.Included in our consolidated financial statements after appropriate eliminations were amounts related to the VIEs at December 31, 2013 and December 31,2012 as follows (in thousands): December 31, 2013 December 31, 2012ASSETS Investment property, net$56,805 $56,326Other assets3,926 4,598 Total Assets$60,731 $60,924 LIABILITIES AND STOCKHOLDERS' EQUITY Debt$45,209 $45,900Other liabilities6,564 1,773Noncontrolling interests(537) (508) Total Liabilities and Stockholders' Equity$51,236 $47,165Investment property, net and other assets related to the consolidated VIEs comprised approximately 3.0% and 3.5% of our consolidated total assets and debtand other liabilities comprised approximately 3.2% and 3.1% of our consolidated total liabilities at December 31, 2013 and December 31, 2012, respectively.Noncontrolling interest related to the consolidated VIEs comprised less than 1.0% of our consolidated total equity at December 31, 2013 and December 31,2012.9. Debt and Lines of CreditThe following table sets forth certain information regarding debt (in thousands): PrincipalOutstanding Weighted AverageYears to Maturity Weighted AverageInterest Rates December 31, 2013 December 31,2012 December 31,2013 December 31,2012 December 31, 2013 December 31, 2012Collateralized term loans - CMBS$644,844 $725,951 6.1 4.5 5.4% 5.2%Collateralized term loans - FNMA366,019 369,810 8.1 10.3 3.6% 3.8%Aspen and Series B-3 preferred OP Units47,022 47,322 7.6 8.4 6.9% 6.9%Secured borrowing (see Note 4)110,510 94,409 13.5 12.8 10.7% 11.0%Mortgage notes, other143,042 186,228 6.0 6.2 4.6% 4.3%Total debt$1,311,437 $1,423,720 7.2 6.8 5.0% 5.2%Collateralized Term LoansIn December 2013, we and nine of our subsidiaries entered into a loan agreement with a lender for a $72.4 million term loan ("Pool A Loan"), and we and nineof our other subsidiaries entered into a loan agreement with the same lender for a $69.1 million termF - 22SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS9. Debt and Lines of Credit, continuedloan ("Pool B Loan", and collectively with the Pool A Loan, the "Loans"). Each Loan matures on January 1, 2024. The Pool A Loan accrues interest at 4.89%per year and is secured by eight MH communities and two RV communities. The Pool B Loan accrues interest at 4.90% per year and is secured by eight MHcommunities and one RV community. We used the proceeds of the Loans and $34.4 million to repay in full 11 loans previously made to subsidiaries of theCompany.In May 2013, we extended until May 1, 2023, $151.4 million of Fannie Mae (FNMA) debt, which had an original maturity date of May 1, 2013. The currentweighted average interest rate on this debt is 3.6%.In September 2012, we completed a secured debt agreement for $21.7 million bearing an interest rate of 3.89% and a maturity date of October 1, 2022. Thisloan is secured by Northville Crossing (See Note 2 for acquisition details).In July 2012, we assumed a collateralized mortgage backed security ("CMBS") agreement of $4.1 million, as a result of the Blazing Star acquisition (See Note2 for acquisition details), which has a maturity date of December 15, 2015 and bears an interest rate of 5.64%.The collateralized term loans totaling $1.0 billion as of December 31, 2013, are secured by 95 properties comprised of 38,002 sites representing approximately$682.7 million of net book value.Aspen preferred OP Units and Series B-3 preferred OP unitsThe Aspen preferred OP units are convertible into 526,212 common shares based on a conversion price of $68 per share with a redemption date ofJanuary 1, 2024. The current preferred rate is 6.5%.We redeemed $1.0 million of Series B-3 preferred OP units in May 2012.Secured BorrowingSee Note 4, "Transfers of Financial Assets", for additional information regarding our collateralized receivables and secured borrowing transactions.Mortgage NotesIn October 2013, two mortgage agreements were paid off upon maturity in the amounts of $3.5 million and $2.3 million which were secured by Dutton Milland Falcon Pointe, respectively.In May 2013, we paid off the entire $3.5 million mortgage agreement secured by Holiday West Village upon maturity.In April 2013, we paid off the sellers note associated with the acquisition of Rainbow RV Resort. The note had a principal balance of $0.6 million and did notincur any interest.In January 2013, we paid off the sellers note associated with the acquisition of Palm Creek. The note had a principal balance of $36.0 million and an interestrate of 2.0%. We also paid off the remaining $30.0 million outstanding under our $36.0 million variable financing loan from Bank of America, N.A. and ThePrivate Bank.In December 2012, we assumed secured debt with a principal balance of $41.7 million, as a result of the Palm Creek acquisition (See Note 2). This secureddebt was recorded at fair value on the date of the acquisition. The debt is secured by one property. The maturity date is July 1, 2022 and the interest rate is5.25%.In November 2012, we entered into a $21.7 million financing agreement to fund the acquisition of the Rudgate Acquisition Properties. The debt is secured byone property. The maturity date is September 6, 2022 and the interest rate is 4.65%.In November 2012, we also assumed secured debt of $15.4 million, as a result of the Rudgate acquisition (See Note 2). This secured debt was recorded at fairvalue on the date of the acquisition. The debt is secured by two properties. The maturity date is February 1, 2022 and the interest rate is 4.3%.F - 23SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS9. Debt and Lines of Credit, continuedIn September 2012, we paid off a mortgage loan of approximately $25.0 million secured by four properties which was due to mature on June 20, 2013.In June 2012, we completed a variable refinancing agreement for $14.1 million. This debt bears an interest rate of LIBOR plus a 2.0% margin (effective rate atDecember 31, 2013 was 2.16%) and has a maturity of September 1, 2016, assuming the election of the two successive one-year extensions at our option. Theloan is secured by two properties and refinanced $14.0 million of debt which matured in June 2012.In March 2012, we paid off a $2.7 million mortgage loan secured by an MH community in Belmont, Michigan which was due to mature on April 1, 2012.On February 1, 2012, we paid off $4.5 million of this agreement which was collateralized by Orange City. In September 2012, we paid off the remainingapproximately $18.1 million mortgage agreement which was due to mature on June 1, 2015.The mortgage notes totaling $143.0 million as of December 31, 2013, are collateralized by 18 properties comprised of 7,868 sites representing approximately$242.0 million of net book value.Lines of CreditIn May 2013, we entered into a credit agreement with Citibank, N.A. and certain other lenders consisting of a $350.0 million senior secured revolving creditfacility (the "Facility"). The Facility replaced our previous $150.0 million senior secured revolving credit facility, which was scheduled to mature on October1, 2014 and incurred interest at a floating rate based on the Eurodollar rate plus a margin that was determined based on our leverage ratio calculated inaccordance with the previous credit agreement, which ranged from 2.25% to 2.95%.The Facility has a four year term ending May 15, 2017, which can be extended for one additional year at our option, subject to the satisfaction of certainconditions as defined in the credit agreement. The credit agreement also provides for, subject to the satisfaction of certain conditions, additional commitmentsin an amount not to exceed $250.0 million. The Facility bears interest at a floating rate based on the Eurodollar rate plus a margin that is determined based onour leverage ratio calculated in accordance with the credit agreement, which can range from 1.65% to 2.90%. Based on our calculation of the leverage ratio asof December 31, 2013, the margin was 1.70%. At December 31, 2013, we had approximately $178.1 million outstanding under the Facility. There was noamount outstanding on the previous senior secured revolving credit facility at December 31, 2012. Approximately $2.7 million and $4.0 million of availabilitywas used to back standby letters of credit at December 31, 2013 and December 31, 2012, respectively. As of December 31, 2013 and December 31, 2012,$169.2 million and $146.0 million were available to be drawn under the Facility and our previous facility, respectively, based on the calculation of theborrowing base at each date.The Facility is secured by a first priority lien on all of our equity interests in each entity that owns all or a portion of the properties constituting the borrowingbase and collateral assignments of our senior and junior debt positions in certain borrowing base properties.In February 2013, we entered into a $61.5 million credit agreement to fund a portion of the purchase of the Morgan RV Properties acquisition (See Note 2 "RealEstate Acquisitions"). This loan was paid off in March 2013.We have a $20.0 million secured line of credit agreement collateralized by a portion of our rental home portfolio, which was reduced from $50.0 million in July2013. The net book value of the rental homes pledged as security for the loan must meet or exceed 200% of the outstanding loan balance. The terms of theagreement require interest only payments for the first five years, with the remainder of the term being amortized based on a 10 year term. The interest rate is theprime rate published in the Wall Street Journal adjusted the first day of each calendar month plus 200 basis points with a minimum rate of 5.5%. AtDecember 31, 2013, the effective interest rate was 5.5%, and there was no amount outstanding. At December 31, 2012, we had $25.0 million outstanding on$50.0 million of availability under this line of credit.Lastly, we have a $12.0 million manufactured home floor plan facility renewable indefinitely until our lender provides us at least twelve months notice of itsintent to terminate the agreement. The interest rate is 100 basis points over the greater of the prime rate published in the Wall Street Journal on the firstbusiness day of each month or 6.0%. At December 31, 2013 the effectiveinterest rate was 7.00%. The outstanding balance was $3.3 million and $4.8 million as of December 31, 2013 and December 31, 2012, respectively.F - 24SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS9. Debt and Lines of Credit, continuedLong-term Debt MaturitiesAs of December 31, 2013, the total of maturities and amortization of our debt (excluding premiums and discounts) and lines of credit during the next fiveyears are as follows (in thousands): Maturities and Amortization By Year Total Due 2014 2015 2016 2017 2018 ThereafterLines of credit$181,383 $3,283 $— $— $— $178,100 $—Mortgage loans payable: Maturities1,024,296 11,476 56,343 280,740 55,019 — 620,718Principal amortization128,238 15,327 15,831 14,256 13,282 13,258 56,284Aspen and Series B-3 preferred OP units47,022 11,240 — — — — 35,782Secured borrowing110,510 4,871 5,395 5,963 6,509 7,053 80,719Total$1,491,449 $46,197 $77,569 $300,959 $74,810 $198,411 $793,503CovenantsThe most restrictive of our debt agreements place limitations on secured borrowings and contain minimum fixed charge coverage, leverage, distribution and networth requirements. As of December 31, 2013, we were in compliance with all covenants.10. Equity TransactionsIn March 2013, we closed an underwritten registered public offering of 5,750,000 shares of common stock at a price of $45.25 per share. The net proceedsfrom the offering were $249.5 million after deducting underwriting discounts and the expenses related to the offering. We used a portion of the proceeds to paydown debt. We used the remaining net proceeds of the offering to fund the acquisition of properties and for working capital and general corporate purposes.In February 2013, we issued $4.0 million of Series A-3 preferred OP units in connection with the Morgan RV Properties acquisition (see Note 2). Series A-3preferred OP unit holders can convert the Series A-3 preferred OP units into shares of common stock based upon a conversion price of $53.75 per share. TheSeries A-3 preferred OP unit holders receive a preferred return of 4.5% per year.In November 2012, we closed an underwritten registered public offering of 3,400,000 shares of Series A preferred stock at a price of $25.00 per share. The netproceeds from the offering were $82.2 million after deducting the underwriting discounts and expenses related to the offering. We used $55.3 million of the netproceeds of the offering to fund the acquisition of the Rudgate Acquisition Properties. We used the remaining net proceeds of the offering for working capitaland general corporate purposes.In September 2012, we closed an underwritten registered public offering of 3,000,000 shares of common stock at a price of $44.06 per share. The net proceedsfrom the offering were $132.0 million after deducting the underwriting discounts and expenses relatedto the offering. We primarily used the net proceeds of the offering to repay $78.0 million of our senior secured revolving credit facility and we used $43.1million to repay single mortgages secured by nine communities.In May 2012, pursuant to a shelf registration statement on Form S-3, we registered with the SEC the sale of our common stock, preferred stock, debtsecurities, warrants and units consisting of two or more of the aforementioned securities. This shelf registration statement was effective upon filing andreplaced our previous shelf registration statement which was scheduled to expire in May 2012.In May 2012, we entered into an "at-the-market" sales agreement with BMO Capital Markets Corp and Liquidnet Inc. to issue and sell shares of commonstock from time to time. The current authorization allows for the sale of our common stock up to an aggregate amount of $100 million. There were 526,586shares of common stock sold through December 31, 2013. The shares of common stock were sold at the prevailing market price of our common stock at thetime of each sale with a weighted average sale price of $46.57 and we received net proceeds of approximately $24.2 million. The proceeds were used to paydown our line of credit.F - 25SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS10. Equity Transactions, continuedIn January 2012, we closed an underwritten registered public offering of 4,600,000 shares of common stock at a price of $35.50 per share. The net proceedsfrom the offering were $156.0 million after deducting underwriting discounts and the expenses related to the offering. The net proceeds of the offering wereprimarily used to repay $123.5 million of outstanding debt and to fund $25.0 million of the purchase price of the Additional Florida Properties (See Note 2 foradditional information), which were subsequently encumbered with a loan of $19.0 million.In November 2004, our Board of Directors authorized us to repurchase up to 1,000,000 shares of our common stock. We have 400,000 common sharesremaining in the repurchase program. No common shares were repurchased during 2013 or 2012. There is no expiration date specified for the buybackprogram. Common OP Unit holders can convert their Common OP units into an equivalent number of shares of common stock at any time. During the year endedDecember 31, 2013 and 2012, holders of Common OP Units converted zero and 2,400 units, respectively, to common stock.Under our previous shelf registration statement on Form S-3 we had an "at-the-market" sales agreement to issue and sell shares of common stock. We issued40,524 shares of common stock from January 1, 2012 through May 9, 2012, when the sales agreement was terminated. The shares of common stock weresold at the prevailing market price of our common stock at the time of each sale with a weighted average sale price of $37.22 and we received net proceeds ofapproximately $1.5 million. The proceeds were used to pay down our line of credit.Cash distributions of $0.63 per share were declared for the quarter ended December 31, 2013. On January 17, 2014 cash payments of approximately $24.1million for aggregate distributions and distribution equivalents were made to common stockholders, common OP unitholders and restricted stockholders ofrecord as of December 31, 2013. In addition, cash distributions of $0.4453 per share were declared on the Company's Series A cumulative redeemablepreferred stock for the quarter ended December 31, 2013. On January 15, 2014 cash payments of approximately $1.5 million for aggregate distributions weremade to Series A cumulative redeemable preferred stockholders of record as of January 2, 2014.The Company is incorporated in the state of Maryland and under the law of that state the concept of treasury shares does not exist. All shares repurchased areconsidered authorized but unissued. Accordingly, we have retrospectively reclassified $63.6 million from treasury stock to common stock and additional paidin capital on our consolidated balance sheet.11. Share-Based CompensationAs of December 31, 2013, we have two share-based compensation plans approved by stockholders: Sun Communities, Inc. Equity Incentive Plan (“2009Equity Plan”) and the First Amended and Restated 2004 Non-Employee Director Option Plan (“Director Plan”). We believe granting equity awards will providecertain key employees and directors additional incentives to promote our financial success, and promote employee and director retention by providing anopportunity to acquire or increase the direct proprietary interest of those individuals in our operations and future.2009 Equity PlanThe 2009 Equity Plan was approved by our stockholders at the Annual Meeting of Stockholders held on July 29, 2009. The 2009 Equity Plan replaced theSun Communities, Inc. Stock Option Plan adopted in 1993, as amended and restated in 1996 and 2000, and terminates automatically July 29, 2019.The types of awards that may be granted under the 2009 Equity Plan include stock options, stock appreciation rights, restricted stock, and other stock basedawards. The maximum number of shares of common stock that may be issued under the 2009 Equity Plan is 950,000 shares, with 312,500 sharesremaining for future issuance.In December 2013, we granted 500 shares of restricted stock to an employee under our 2009 Equity Plan. The restricted shares had a fair value of $40.74 pershare and will vest as follows: December 16, 2016: 35%; December 16, 2017: 35%; December 16, 2018: 20%, December 16, 2019: 5%; and December 16,2020: 5%. The fair value was determined using the closing price of our common stock on the date the shares were issued.F - 26SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS11. Share-Based Compensation, continuedIn August 2013, we granted 36,000 shares of restricted stock to employees under our 2009 Equity Plan. The restricted shares had a fair value of $48.22 pershare and will vest as follows: August 6, 2016: 35%; August 6, 2017: 35%; August 6, 2018: 20%; August 6, 2019: 5%; and August 6, 2020: 5%. The fair value wasdetermined using the closing price of our common stock on the date the shares were issued.In June 2013, we granted 250,000 shares of restricted stock to an executive officer under our 2009 Equity Plan. The restricted shares had a fair value of$47.56 per share and will vest as follows: June 20, 2016: 35%; June 20, 2017: 35%; June 20, 2018: 20%; June 20, 2019: 5%; and June 20, 2020: 5%. Thefair value was determined using the closing price of our common stock on the date the shares were issued.In March 2013, we granted 1,000 shares of restricted stock to employees under our 2009 Equity Plan. The awards vest on March 12, 2016, and had a fairvalue of $45.68 per share. The fair value was determined using the closing price of our common stock on the date the shares were issued.In February 2013, we granted 73,000 shares of restricted stock to our executive officers under our 2009 Equity Plan. The awards vest ratably over a six oreight year period beginning on the fourth anniversary of the grant date, and had a fair value of $45.69 per share. The fair value was determined by using theclosing share price of our common stock on the date the shares were issued.Director PlanThe Director Plan was approved by our stockholders at the Annual Meeting of Stockholders held on July 19, 2012. The Director Plan amended and restatedin its entirety our 2004 Non-Employee Director Stock Option Plan.The types of awards that may be granted under the Director Plans are options, restricted stock and OP units. Only non-employee directors are eligible toparticipate in the Director Plan. The maximum number of options, restricted stock and OP units that may be issued under the Director Plan is 175,000shares, with 79,600 shares remaining for future issuance.In February 2013, we granted a total of 10,800 shares of restricted stock to our directors under the Director Plan. The awards vest on February 15, 2016, andhad a fair value of $45.69 per share. The fair value was determined by using the closing share price of our common stock on the date the shares were issued.During the year ended December 31, 2013, 9,442 shares of common stock were issued in connection with the exercise of stock options and the net proceedsreceived were $0.2 million.We have recognized compensation costs associated with share based awards of $3.2 million, $1.5 million, and $1.6 million for the years ended December 31,2013, 2012, and 2011 respectively.Restricted StockThe majority of our share-based compensation is awarded as restricted stock grants to key employees. We have also awarded restricted stock to our non-employee directors. We measure the fair value associated with these awards using the closing price of our common stock as of the grant date to calculatecompensation cost. Employee awards typically vest over several years and are subject to continued employment by the employee. Award recipients receivedistribution payments on unvested shares of restricted stock.F - 27SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS11. Share-Based Compensation, continuedThe following table summarizes our restricted stock activity for the years ended December 31, 2013, 2012 and 2011: Number of Shares Weighted Average GrantDate Fair ValueUnvested restricted shares at January 1, 2011141,783 $21.11 Granted154,500 $37.15 Vested(20,412) $36.87 Forfeited— $—Unvested restricted shares at December 31, 2011275,871 $28.93 Granted44,600 $40.93 Vested(8,750) $19.92 Forfeited(1,214) $37.04Unvested restricted shares at December 31, 2012310,507 $30.88 Granted371,300 $47.19 Vested(37,291) $16.87 Forfeited(12,560) $38.47Unvested restricted shares at December 31, 2013631,956 $41.14Total compensation cost recognized for restricted stock was $3.2 million, $1.4 million, and $1.5 million for the years ended December 31, 2013, 2012, and2011, respectively. The total fair value of shares vested was $0.6 million, $0.2 million, and $0.8 million for the years ended December 31, 2013, 2012 and2011, respectively. The remaining net compensation cost related to ourunvested restricted shares outstanding as of December 31, 2013 is approximately $19.9 million. That expense is expected to be recognized $3.9 million in2014, $3.7 million in 2015, $3.3 million in 2016 and $9.0 million thereafter.OptionsWe have granted stock options to certain employees and non-employee directors. Option awards are generally granted with an exercise price equal to the marketprice of our common stock as of the grant date. Stock options generally vest over a 3 years period from the date of grant and have a maximum term of 10years. We granted 10,500 options to our non-employee directors during the year ended December 31, 2011 and no grants were made in 2012 or 2013. We issuenew shares at the time of share option exercise (or share unit conversion).F - 28SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS11. Share-Based Compensation, continuedThe weighted average fair value of the options issued is estimated on the date of the grant using the Binomial (lattice) option pricing model, with the followingweighted average assumptions used for the grants in the periods indicated: July 2011 AwardEstimated fair value per share of options granted$9.70Number of options granted10,500 Assumptions: Annualized dividend yield6.70% Common stock price volatility45.20% Risk-free rate of return1.52% Expected option terms (in years)5.0The options outstanding as of December 31, 2013 consist of 46,250 non-employee director options. There are zero employee options outstanding. Thecompensation expense associated with non-vested stock option awards was not significant for the year ended December 31, 2013, 2012, and 2011.The following table summarizes our option activity during the years ended December 31, 2013, 2012 and 2011: Number ofOptions WeightedAverageExercise Price(per common share)Options outstanding at January 1, 2011140,177 $29.20Granted10,500 $37.35Exercised(64,641) $29.43Forfeited or expired(8,950) $33.33Options outstanding at December 31, 201177,086 $29.64Granted— $—Exercised(16,256) $30.12Forfeited or expired(4,880) $33.16Options outstanding at December 31, 201255,950 $29.19Granted— $—Exercised(9,700) $21.67Forfeited or expired— $—Options outstanding at December 31, 201346,250 $30.77The following table summarizes our options outstanding and options currently exercisable at December 31, 2013: December 31, 2013 Number ofOptions WeightedAverageExercise Price(per common share) WeightedAverageContractualTerm(in years) AggregateIntrinsicValue(in 000's)Options vested and expected to vest46,250 $30.77 4.7 $549 Options vested and exercisable42,750 $30.23 4.4 $530F - 29SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS11. Share-Based Compensation, continuedAggregate intrinsic value represents the value of our closing share price as of the end of the year in excess of the exercise price multiplied by the number ofoptions outstanding or exercisable. The aggregate intrinsic value excludes the effect of stock options that have a zero or negative intrinsic value. For the yearsended December 31, 2013, 2012 and 2011, the intrinsic value of exercised options was $0.2 million, $0.2 million and $0.5 million, respectively. For the yearsended December 31, 2013, 2012 and 2011, the intrinsic value of vested and exercisable options was $0.5 million, $0.5 million and $0.3 million, respectively.Phantom AwardsPhantom awards can be granted to certain key employees. Employee awards typically vest over several years and are subject to continued employment by theemployee. A cash bonus is paid when the awards vest which is based on a 10 day average of our closing stock price prior to the vesting date. The awards alsopay cash bonuses per unvested share equal to the amount of distribution paid per share of common stock.The value of the awards is re-measured at each reporting date. As our stock price rises, the phantom awards increase in value, along with the associatedcompensation expense. Accordingly, as our stock price declines, the phantom awards decrease in value, along with the associated compensation expense.For the year ended December 31, 2013 we had zero phantom award activity and therefore did not record any compensation expense related to phantom awards.For the years ended December 31, 2012 and 2011, we recorded compensation expense of less than $0.1 million related to phantom awards.F - 30SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS12. Segment ReportingWe group our operating segments into reportable segments that provide similar products and services. Each operating segment has discrete financialinformation evaluated regularly by the Company's chief operating decision maker in evaluating and assessing performance. We have two reportable segments:(i) Real Property Operations and (ii) Home Sales and Rentals. The Real Property Operations segment owns, operates, and develops MH communities and RVcommunities and is in the business of acquiring, operating, and expanding MH and RV communities. The Home Sales and Rentals segment offersmanufactured home sales and leasing services to tenants and prospective tenants of our communities. Transactions between our segments are eliminated in consolidation. Transient RV revenue is included in Real Property Operations’ revenues and isapproximately $17.4 million for the year ended December 31, 2013. This transient revenue was recognized 40% in the first quarter, 15% in the second quarter,30% in the third quarter and 15% in the fourth quarter of 2013.A presentation of segment financial information is summarized as follows (in thousands): Year Ended December 31, 2013 Real Property Operations Home Sales and HomeRentals ConsolidatedRevenues$313,097 $87,352 $400,449Operating expenses/Cost of home sales109,921 60,732 170,653Net operating income/Gross profit203,176 26,620 229,796Adjustments to arrive at net income (loss): Ancillary, interest and other income, net14,773 — 14,773General and administrative(25,941) (9,913) (35,854)Acquisition related costs(3,928) — (3,928)Depreciation and amortization(73,729) (36,349) (110,078)Interest(73,001) (338) (73,339)Interest on mandatorily redeemable debt(3,238) — (3,238)Distributions from affiliate2,250 — 2,250Provision for state income taxes(234) — (234)Net income (loss)40,128 (19,980) 20,148Less: Preferred return to Series A-1 preferred OP units2,598 — 2,598Less: Preferred return to Series A-3 preferred OP units166 — 166Less: Amounts attributable to noncontrolling interests2,450 (1,732) 718Net income (loss) attributable to Sun Communities, Inc.34,914 (18,248) 16,666Less: Series A preferred stock distributions6,056 — 6,056Net income (loss) attributable to Sun Communities, Inc. commonstockholders$28,858 $(18,248) $10,610F - 31SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS12. Segment Reporting, continued Year Ended December 31, 2012 Real Property Operations Home Sales and HomeRentals ConsolidatedRevenues$255,761 $71,736 $327,497Operating expenses/Cost of home sales88,046 53,059 141,105Net operating income/Gross profit167,715 18,677 186,392Adjustments to arrive at net income (loss): Ancillary, interest and other income, net11,455 — 11,455General and administrative(20,037) (8,316) (28,353)Acquisition related costs(4,296) — (4,296)Depreciation and amortization(61,039) (28,635) (89,674)Interest(67,756) (103) (67,859)Interest on mandatorily redeemable debt(3,321) — (3,321)Distributions from affiliate3,900 — 3,900Provision for state income taxes(249) — (249)Net income (loss)26,372 (18,377) 7,995Less: Preferred return to Series A-1 preferred OP units2,329 — 2,329Less: Amounts attributable to noncontrolling interests1,640 (1,958) (318)Net income (loss) attributable to Sun Communities, Inc.22,403 (16,419) 5,984Less: Series A preferred stock distributions1,026 — 1,026Net income (loss) attributable to Sun Communities, Inc. commonstockholders$21,377 $(16,419) $4,958F - 32SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS12. Segment Reporting, continued Year Ended December 31, 2011 Real Property Operations Home Sales and HomeRentals ConsolidatedRevenues$223,613 $54,542 $278,155Operating expenses/Cost of home sales76,737 41,588 118,325Net operating income/Gross profit146,876 12,954 159,830Adjustments to arrive at net income (loss): Ancillary, interest and other income, net10,445 — 10,445General and administrative(19,704) (7,571) (27,275)Acquisition related costs(1,971) — (1,971)Depreciation and amortization(51,063) (23,130) (74,193)Asset impairment charge(1,382) — (1,382)Interest(63,616) (990) (64,606)Interest on mandatorily redeemable debt(3,333) — (3,333)Distributions from affiliate2,100 — 2,100Provision for state income taxes(150) — (150)Net income (loss)18,202 (18,737) (535)Less: Preferred return to Series A-1 preferred OP units1,222 — 1,222Less: Amounts attributable to noncontrolling interests1,003 (1,674) (671)Net income (loss) attributable to Sun Communities, Inc. commonstockholders$15,977 $(17,063) $(1,086) December 31, 2013 December 31, 2012 Real PropertyOperations Home Sales andHome Rentals Consolidated Real PropertyOperations Home Sales andHome Rentals ConsolidatedIdentifiable assets: Investment property, net$1,460,628 $294,424 $1,755,052 $1,296,753 $221,383 $1,518,136Cash and cash equivalents5,336 (583) 4,753 29,071 437 29,508Inventory of manufactured homes— 5,810 5,810 — 7,527 7,527Notes and other receivables, net154,524 10,161 164,685 131,000 8,850 139,850Other assets64,342 4,594 68,936 54,959 4,648 59,607Total assets$1,684,830 $314,406 $1,999,236 $1,511,783 $242,845 $1,754,62813. Income TaxesWe have elected to be taxed as a real estate investment trust (“REIT”) as defined under Section 856 of the Internal Revenue Code of 1986 (“Code”), asamended. In order for us to qualify as a REIT, at least ninety-five percent (95%) of our gross income in any year must be derived from certain-specifiedqualifying sources and at least seventy-five percent (75%) of our gross income must be dervied from income qualifying as real estate income under the Code.In addition, a REIT must distribute at least ninety percent (90%) of its REIT ordinary taxable income to its stockholders and meet other tests.Qualification as a REIT involves the satisfaction of numerous requirements (some on an annual and quarterly basis) established under highly technical andcomplex Code provisions for which there are only limited judicial or administrative interpretations, and involves the determination of various factual mattersand circumstances not entirely within our control. In addition, frequentF - 33SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS13. Income Taxes, continuedchanges occur in the area of REIT taxation which requires us to continually monitor our tax status. We analyzed the various REIT tests and determined that wecontinued to qualify as a REIT for the year ended December 31, 2013.As a REIT, we generally will not be subject to U.S. federal income taxes at the corporate level on the ordinary taxable income we distribute to our stockholdersas dividends. If we fail to qualify as a REIT in any taxable year, our taxable income could be subject to U.S. federal income tax at regular corporate rates(including any applicable alternative minimum tax). Even if we qualify as a REIT, we may be subject to certain state and local income taxes and to U.S.federal income and excise taxes on our undistributed income.For income tax purposes, distributions paid to common stockholders consist of ordinary income, capital gains, and return of capital. For the years endedDecember 31, 2013, 2012, and 2011, distributions paid per share were taxable as follows (unaudited): Years Ended December 31, 2013 2012 2011 Amount Percentage Amount Percentage Amount PercentageOrdinary income$0.87 34.6% $0.92 48.7% $0.74 23.5%Capital gain— —% — —% — —%Return of capital1.65 65.4% 0.97 51.3% 2.41 76.5%Total distributions declared$2.52 100.0% $1.89 100.0% $3.15 100.0%Sun Home Services, Inc. ("SHS"), our taxable REIT subsidiary, is subject to U.S. federal income taxes. Our deferred tax assets and liabilities reflect theimpact of temporary differences between the amounts of assets and liabilities for financial reporting purposes and the bases of such assets and liabilities asmeasured by tax laws. Deferred tax assets are reduced, if necessary, by a valuation allowance to the amount where realization is more likely than not assuredafter considering all available evidence. Our temporary differences primarily relate to net operating loss carryforwards and depreciation.The deferred tax assets included in the consolidated balance sheets are comprised of the following tax effects of temporary differences (in thousands): As of December 31, 2013 2012Deferred tax assets: Net operating loss carryforwards$24,237 $22,340Real estate assets23,999 19,512Amortization of intangibles(128) (128)Gross deferred tax assets48,108 41,724Valuation allowance(47,108) (40,724)Net deferred tax assets$1,000 $1,000SHS has net operating loss carry forwards of approximately $71.3 million at December 31, 2013. The loss carryforwards will begin to expire in 2021 through2031 if not offset by future taxable income. Management believes its net deferred tax asset will be realized but realization is continuously subject to anassessment as to recoverability in the future. The deferred tax asset will be used when we generate sufficient taxable income. No federal tax expense wasrecognized in the years ended December 31, 2013, 2012, and 2011.We had no unrecognized tax benefits as of December 31, 2013 and 2012. We expect no significant increases or decreases in unrecognized tax benefits due tochanges in tax positions within one year of December 31, 2013.We classify certain state taxes as income taxes for financial reporting purposes. We record Texas Margin Tax as income tax in our financial statements. In2011, we were also subject to Michigan Business Tax. We recorded a provision for state income taxes ofF - 34SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS13. Income Taxes, continuedapproximately $0.2 million, for each of the years ended December 31, 2013, 2012, and 2011. No deferred tax liability is recorded in relation to the TexasMargin Tax as of December 31, 2013 and 2012.We and our subsidiaries are subject to income taxes in the U.S. and various state jurisdictions. Tax regulations within each jurisdiction are subject to theinterpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, we are no longer subject to U.S. federal,state and local, examinations by tax authorities for the tax years ended December 31, 2008 and prior.Our policy is to report income tax penalties and income tax related interest expense as a component of income tax expense. No interest or penalty associatedwith any unrecognized income tax benefit or provision was accrued, nor was any income tax related interest or penalty recognized during the years endedDecember 31, 2013, 2012 and 2011.14. Earnings (Loss) Per ShareWe have outstanding stock options and unvested restricted shares, and our Operating Partnership has Common OP units, convertible Series A-1 preferred OPunits, Series A-3 preferred OP units and Aspen preferred OP Units, which if converted or exercised, may impact dilution. Computations of basic and diluted earnings (loss) per share from continuing operations were as follows (in thousands, except per share data): Year Ended December 31,Numerator 2013 2012 2011Net income (loss) attributable to common stockholders $10,610 $4,958 $(1,086)Denominator Weighted average common shares outstanding 34,228 26,970 21,147Weighted average unvested restricted stock outstanding 504 285 —Basic weighted average common shares and unvested restricted stock outstanding 34,732 27,255 21,147Add: dilutive stock options 15 17 —Diluted weighted average common shares and securities 34,747 27,272 21,147Earnings (loss) per share available to common stockholders: Basic $0.31 $0.18 $(0.05)Diluted $0.31 $0.18 $(0.05)We excluded certain securities from the computation of diluted earnings (loss) per share because the inclusion of these securities would have been anti-dilutivefor the periods presented. The following table presents the number of outstanding potentially dilutive securities that were excluded from the computation ofdiluted earnings (loss) per share for the years ended December 31, 2013, 2012 and 2011 (amounts in thousands): Year Ended December 31, 2013 2012 2011Stock options— — 77Unvested restricted stock— — 276Common OP units2,069 2,071 2,072Series A-1 preferred OP units455 455 455Series A-3 preferred OP units40 — —Aspen preferred OP units1,325 1,325 1,325Total securities3,889 3,851 4,205F - 35SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS14. Earnings (Loss) Per Share, continuedThe figures above represent the total number of potentially dilutive securities, and do not necessarily reflect the incremental impact to the number of dilutedweighted average shares outstanding that would be computed if the impact to us had been dilutive to the calculation of earnings per share available to commonstockholders.F - 36SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS15. Quarterly Financial Information (Unaudited)The following is a condensed summary of our unaudited quarterly results for years ended December 31, 2013 and 2012. Income (loss) per share for the yearmay not equal the sum of the fiscal quarters' income (loss) per share due to changes in basic and diluted shares outstanding. Quarters 1st(2) 2nd 3rd 4th (In thousands, except per share amounts)2013 Total revenues $102,913 $100,151 $107,201 $104,957Total expenses 94,983 97,290 101,841 102,976Income before income taxes and distributions from affiliates $7,930 $2,861 $5,360 $1,981 Distributions from affiliate (1) $400 $450 $700 $700Net income attributable to Sun Communities, Inc. common stockholders $5,744 $1,035 $3,749 $82 Earnings per share: Basic $0.19 $0.03 $0.10 $—Diluted $0.19 $0.03 $0.10 $— 2012 Total revenues $82,917 $82,223 $83,018 $90,794Total expenses 77,221 81,591 83,809 91,987Income (loss) before income taxes and distributions from affiliates $5,696 $632 $(791) $(1,193) Distributions from affiliate (1) $750 $1,900 $600 $650Net income (loss) attributable to Sun Communities, Inc. common stockholders $5,377 $1,663 $(650) $(1,432) Earnings (loss) per share: Basic $0.21 $0.06 $(0.02) $(0.05)Diluted $0.21 $0.06 $(0.02) $(0.05)(1) Refer to Note 7 for more information regarding distributions from affiliates.(2) Financial information includes certain reclassifications to conform to current period presentation.F - 37SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS16. Derivative Instruments and Hedging ActivitiesOur objective in using interest rate derivatives is to manage exposure to interest rate movements thereby minimizing the effect of interest rate changes and theeffect it could have on future cash flows. Interest rate swaps and caps are used to accomplish this objective. We require hedging derivative instruments to behighly effective in reducing the risk exposure that they are designated to hedge. We formally designate any instrument that meets these hedging criteria as ahedge at the inception of the derivative contract. We do not enter into derivative instruments for speculative purposes.The following table provides the terms of our interest rate derivative contracts that were in effect as of December 31, 2013:Type Purpose Effective Date Maturity Date Notional (in millions) Based on Variable Rate Fixed Rate Spread Effective FixedRateSwap Floating to FixedRate 1/1/2009 1/1/2014 $20.0 3 Month LIBOR 0.3585% 2.1450% 1.8700% 4.0150%Cap Cap Floating Rate 4/1/2012 4/1/2015 $152.4 3 Month LIBOR 0.3585% 11.2650% —% N/ACap Cap Floating Rate 10/3/2011 10/3/2016 $10.0 3 Month LIBOR 0.3585% 11.0200% —% N/AIn accordance with ASC Topic 815, Derivatives and Hedging, we have recorded the fair value of our derivative instruments designated as cash flow hedges onthe balance sheet. See Note 17 for information on the determination of fair value for the derivative instruments. The following table summarizes the fair valueof derivative instruments included in our consolidated balance sheets as of December 31, 2013 and December 31, 2012 (in thousands): Asset Derivatives Liability Derivatives Balance Sheet Location Fair Value Balance Sheet Location Fair ValueDerivatives designated as hedginginstruments December 31,2013 December 31,2012 December 31,2013 December 31,2012Interest rate swap and capagreementsOther assets $— $— Other liabilities $97 $459Total derivatives designated ashedging instruments $— $— $97 $459These valuation adjustments will only be realized under certain situations. For example, if we terminate the swaps prior to maturity or if the derivatives fail toqualify for hedge accounting, we would need to amortize amounts currently included in other comprehensive income into interest expense over the terms of thederivative contracts. We do not intend to terminate the swaps prior to maturity and, therefore, the net of valuation adjustments through the various maturitydates will approximate zero, unless the derivatives fail to qualify for hedge accounting.Our hedges were highly effective and had minimal effect on income. The following table summarizes the impact of derivative instruments for the year endedDecember 31, 2013 and 2012 as recorded in the consolidated statements of operations (in thousands):Derivatives incash flow hedging relationship Amount of gain or (loss)recognized in OCI(effective portion) Location of gain or(loss) reclassified fromaccumulated OCI into income(effective portion) Amount of gain or (loss) reclassified fromaccumulated OCI into income (effective portion) Year Ended December 31, Year Ended December 31, 2013 2012 2011 2013 2012 2011Interest rate swap and cap agreements $362 $643 $1,048 Interest expense $— $— $—Our financial derivative instruments are designated and qualify as cash flow hedges and the effective portion of the gain or loss on such hedges are reported asa component of accumulated other comprehensive income (loss) in our consolidated balance sheets. To the extent that the hedging relationship is not effective ordoes not qualify as a cash flow hedge, the ineffective portion is recorded in interest expense. Hedges that received designated hedge accounting treatment areevaluated for effectiveness at the time that they are designated as well as through the hedging period. No gain or loss was recognized in the consolidatedfinancial statements related to hedge ineffectiveness or to amounts excluded from effectiveness testing on our cash flow hedge during the year ended December31, 2013. A gain of $4.0 thousand and a loss of $13.0 thousand were recognized during the years ended December 31, 2012 and December 31, 2011,respectively.F - 38SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS16. Derivative Instruments and Hedging Activities, continuedCertain of our derivative instruments contain provisions that require us to provide ongoing collateralization on derivative instruments in a liability position. Asof December 31, 2013 and December 31, 2012, we had collateral deposits recorded in other assets of approximately $0.7 million and $1.2 million,respectively.17. Fair Value of Financial InstrumentsOur financial instruments consist primarily of cash and cash equivalents, accounts and notes receivable, accounts payable, derivative instruments, and debt.ASC Topic 820, Fair Value Measurements and Disclosures, establishes guidance for the fair value hierarchy that requires the use of observable market data,when available, and prioritizes the inputs to valuation techniques used to measure fair value in the following categories:Level 1—Quoted unadjusted prices for identical instruments in active markets.Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all observable inputs and significant value drivers are observable in active markets.Level 3—Model derived valuations in which one or more significant inputs or significant value drivers are unobservable, including assumptions developed byus.We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The followingmethods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.Derivative InstrumentsThe derivative instruments held by us are interest rate swap and cap agreements for which quoted market prices are indirectly available. For those derivatives,we use model-derived valuations in which all observable inputs and significant value drivers are observable in active markets provided by brokers or dealersto determine the fair values of derivative instruments on a recurring basis (Level 2).Installment Notes on Manufactured HomesThe net carrying value of the installment notes on manufactured homes estimates the fair value as the interest rates in the portfolio are comparable to currentprevailing market rates (Level 2).Long Term Debt and Lines of CreditThe fair value of long term debt (excluding the secured borrowing) is based on the estimates of management and on rates currently quoted and rates currentlyprevailing for comparable loans and instruments of comparable maturities (Level 2).Collateralized Receivables and Secured BorrowingThe fair value of these financial instruments offset each other as our collateralized receivables represent a transfer of financial assets and the cash proceedsreceived from these transactions have been classified as a secured borrowing in the consolidated balance sheets. The net carrying value of the collateralizedreceivables estimates the fair value as the interest rates in the portfolio are comparable to current prevailing market rates (Level 2).Other Financial InstrumentsThe carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximate their fair market values due to the short-term natureof these instruments.F - 39SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS17. Fair Value of Financial Instruments, continuedThe table below sets forth our financial assets and liabilities that required disclosure of their fair values on a recurring basis as of December 31, 2013. Thetable presents the carrying values and fair values of our financial instruments as of December 31, 2013 and December 31, 2012 that were measured using thevaluation techniques described above (in thousands). The table excludes other financial instruments such as cash and cash equivalents, accounts receivable,and accounts payable because the carrying values associated with these instruments approximate fair value since their maturities are less than one year. December 31, 2013 December 31, 2012Financial assets Carrying Value Fair Value Carrying Value Fair ValueInstallment notes receivable on manufactured homes, net $25,471 $25,471 $21,898 $21,898Collateralized receivables, net $109,821 $109,821 $93,834 $93,834Financial liabilities Derivative instruments $97 $97 $459 $459Debt (excluding secured borrowing) $1,200,927 $1,211,821 $1,329,311 $1,355,331Secured borrowing $110,510 $110,510 $94,409 $94,409Lines of credit $181,383 $181,383 $29,781 $29,781The table below sets forth, by level, our financial assets and liabilities that were required to be carried at fair value in the consolidated balance sheets as ofDecember 31, 2013 (in thousands). Description Frequency Asset/(Liability) Level 1 Level 2 Level 3December 31, 2013Derivative instruments Recurring $(97) $— $(97) —December 31, 2012Derivative instruments Recurring $(459) $— $(459) —The derivative instruments are the only financial liabilities that were required to be carried at fair value in the consolidated balance sheets for the periodsindicated, and we have no financial assets that are required to be carried at fair value.F - 40SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS18. Recent Accounting PronouncementsIn July 2013, the FASB issued Accounting Standards Update (“ASU”) 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax BenefitWhen a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). ASU 2013-11 requires an entity topresent its unrecognized tax benefits net of its deferred tax assets when settlement in this manner is available under the tax law, which would be based on factsand circumstances as of the balance sheet reporting date and would not consider future events. Gross presentation in the notes to the financial statements willstill be required. ASU 2013-11 will apply on a prospective basis to all unrecognized tax benefits that exist at the effective date, with the option to apply itretrospectively. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of thispronouncement will not have any impact on our consolidated financial statements.In February 2013, the FASB issued ASU 2013-02, “Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other ComprehensiveIncome” (“ASU 2013-02”). ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensiveincome by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significantamounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is requiredunder GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassifiedin their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about thoseamounts. The provisions of ASU 2013-02 were effective for annual reporting periods beginning after December 15, 2012. The adoption of this pronouncementdid not have any impact on our consolidated financial statements.In January 2013, the FASB issued ASU 2013-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” ("ASU 2013-01") whichamends ASC Topic 210, Balance Sheet. The updated guidance in ASC Topic 210 clarifies that ordinary trade receivables are not in the scope of ASU No.2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. Specifically, ASU 2011-11 applies only to derivatives, repurchaseagreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specificcriteria contained in the ASC or subject to a master netting arrangement or similar agreement. An entity is required to apply the amendments for fiscal yearsbeginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively forall comparative periods presented. The effective date is the same as the effective date of ASU 2011-11, which was January 1, 2013. Early adoption was notpermitted. The adoption of this pronouncement did not have any impact on our results of operations or financial condition.In April 2011, the FASB issued ASU 2011-03, “Reconsideration of Effective Control for Repurchase Agreements” (ASU 2011-03) which amends ASC Topic860, Transfers and Servicing. The updated guidance in ASC Topic 860 removes from the assessment of effective control (1) the criterion requiring thetransferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and(2) the collateral maintenance implementation guidance related to that criterion. The updated guidance in ASC Topic 860 is effective for the first interim orannual period beginning on or after December 15, 2011. Early adoption was not permitted. The adoption of this guidance did not have any impact on ourresults of operations or financial condition.In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP andIFRSs” (ASU 2011-04) which amends ASC Topic 820, Fair Value Measurement. The updated guidance in ASC Topic 820 changes the wording used todescribe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The updated guidance inASC Topic 820 is effective during interim and annual periods beginning after December 15, 2011. Early adoption was not permitted. The adoption of thisguidance did not have any impact on our results of operations or financial condition.F - 41SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS19. Commitments and ContingenciesOn June 4, 2010 we settled all of the claims arising out of the litigation filed in 2004 by TJ Holdings, LLC in the Superior Court of Guilford County, NorthCarolina and the associated arbitration proceeding commenced by TJ Holdings in Southfield, Michigan. Under the terms of the settlement agreement, in whichneither party admitted any liability whatsoever, we paid TJ Holdings $360,000. In addition, pursuant to this settlement, TJ Holdings’ percentage ownershipinterest in Sun/Forest, LLC will be increased on a one time basis, in the event of a sale or refinance of all of the SunChamp Properties, to between 9.03% and28.99% depending on our average closing stock price as reported by the NYSE during the 30 days preceding the sale or refinance of all the SunChampProperties. Once this percentage ownership interest has been adjusted, there will be no further adjustments from subsequent sales or refinances of theSunChamp Properties. The likelihood of a sale or refinancing of all of the SunChamp properties is not probable as these properties continue to see growthpotential nor do we have a need to refinance all of the properties, so we do not expect it to have a material adverse impact on our results of operations orfinancial condition.We are involved in various other legal proceedings arising in the ordinary course of business. All such proceedings, taken together, are not expected to have amaterial adverse impact on our results of operations or financial condition.20. Related Party TransactionsWe have entered into the following transactions with OFS LLC:Investment in OFS LLC. We entered into an agreement with four unrelated companies and we contributed cash of approximately $0.6 million towards theformation of OFS LLC. OFS LLC purchased the loan origination platform of Origen. The purpose of the venture is to originate manufactured housinginstallment contracts for its members. We accounted for our investment in OFS LLC using the equity method of accounting which we have since suspended.As of December 31, 2013, we had an ownership interest in the OFS LLC of 22.9%, and the carrying value of our investment was zero.Loan Origination, Sale and Purchase Agreement. OFS LLC agreed to fund loans that meet our underwriting guidelines and then transfer those loans to uspursuant to a Loan Origination, Sale and Purchase Agreement. We paid OFS LLC a fee of $650 per loan pursuant to a Loan Origination, Sale and PurchaseAgreement which totaled approximately $0.1 million during the years ended December 31, 2013 and 2012, respectively. We purchased, at par, $7.7 millionand $6.4 million of these loans during the years ended December 31, 2013 and 2012, respectively.We have entered into the following transactions with Origen:Investment in Origen. We own 5,000,000 shares of Origen common stock and Shiffman Origen LLC (which is owned by the Milton M. Shiffman Spouse'sMarital Trust, Gary A. Shiffman (our Chairman and Chief Executive Officer), and members of Mr. Shiffman's family) owns 1,025,000 shares of Origencommon stock. Gary A. Shiffman is a member of the Board of Directors of Origen and Arthur A. Weiss, our director, is a trustee of the Milton M. ShiffmanSpouse's Marital Trust. We accounted for our investment in Origen using the equity method of accounting which we have since suspended. As of December31, 2013 we had an ownership interest in Origen of approximately 19%, and the carrying value of our investment was zero.Board Membership. Gary A. Shiffman, our Chairman and Chief Executive Officer, is a board member of Origen.In addition to the transactions with Origen described above, Gary A. Shiffman and his affiliates and/or Arthur A. Weiss, one of our directors, have enteredinto the following transactions with us:Lease of Executive Offices. Gary A. Shiffman, together with certain of his family members, indirectly owns a 21% equity interest in American Center LLC,the entity from which we lease office space for our principal executive offices. Arthur A. Weiss owns a less than one percent indirect interest in AmericanCenter LLC. Under this lease agreement, we lease approximately 48,200 rentable square feet. The term of the lease is until October 31, 2016, with an option torenew for an additional five years. The base rent through October 31, 2014 is $18.12 per square foot (gross). From November 1, 2014 to August 31, 2015,the base rent will be $18.24 per square foot (gross) and from September 1, 2015 to October 31, 2016, the base rent will be $17.92 per square foot (gross). Asof May 2013, we also have a temporary lease through April 30, 2014 for approximately 10,500 rentable square feet with base rent equal to $14.33 per squarefoot (gross). Our annual rent expense associated with the lease of our executive offices was approximately $1.0 million for the year ended December 31, 2013and $0.7 million for each of the years ended December 31, 2012 and 2011. Our future annual rent expense will be approximately $0.9 million for 2014 and2015 and $0.7 million for 2016. Each of Mr. Shiffman and Mr. Weiss may have a conflict of interest with respect to his obligations as our officer and/ordirector and his ownership interest in American Center LLC.F - 42SUN COMMUNITIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS20. Related Party Transactions, continuedLoan Funding Agreement with Talmer Bank. Each of Robert H. Naftaly and Arthur A. Weiss, who serve on our board of directors, is also a director of eachof Talmer Bancorp, Inc. and its primary operating subsidiary, Talmer Bank. Each of Mr. Naftaly, Mr. Weiss and Mr. Shiffman also owns less than onepercent of Talmer Bancorp, Inc.'s common stock. In January 2013, we entered into an agreement with Talmer Bank under which we could refer purchasers ofhomes in our communities to Talmer Bank to obtain loans to finance their home purchases. We did not receive referral fees or other cash compensation underthe agreement. If Talmer Bank made loans to purchasers referred by us under the agreement, those purchasers defaulted on their loans and Talmer Bankrepossessed the homes securing such loans, we had agreed to purchase from Talmer Bank each such repossessed home for a price equal to 100% of theamount under each such loan, subject to certain adjustments; provided that the maximum outstanding principal amount of the loans subject to the agreementdid not exceed $10.0 million. In addition, we agreed to waive all site rent that would otherwise be due from Talmer Bank so long as it owned any homes onwhich loans were made pursuant to the agreement. The agreement expired November 1, 2013 and was not extended. No transactions occurred under thisagreement.Legal Counsel. During 2011-2013, Jaffe, Raitt, Heuer, & Weiss, Professional Corporation acted as our general counsel and represented us in various matters.Arthur A. Weiss is the Chairman of the Board of Directors and a shareholder of such firm. We incurred legal fees and expenses owed to Jaffe, Raitt, Heuer, &Weiss of approximately $3.2 million, $3.4 million and $2.5 million in the years ended December 31, 2013, 2012 and 2011, respectively.Tax Consequences Upon Sale of Properties. Gary A. Shiffman holds limited partnership interests in the Operating Partnership which were received inconnection with the contribution of 24 properties (four of which have been sold) 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 on us andour public stockholders upon the sale of any of the Sun Partnerships. Therefore, we and Mr. Shiffman may have different objectives regarding the appropriatepricing and timing of any sale of those properties.21. Subsequent EventsWe have evaluated our financial statements for subsequent events through the date that this Form 10-K was issued.AcquisitionsIn February 2014, we acquired Driftwood Camping Resort, an RV community with approximately 698 sites located in Clermont, New Jersey, for a purchaseprice of approximately $31.9 million. We also acquired Seashore Campsites RV and Campground, an RV community with approximately 685 sites located inCape May, New Jersey, for a purchase price of approximately $24.6 million.In January 2014, we acquired Castaways RV Resort & Campground, an RV community with approximately 369 sites located in Worcester County,Maryland, for a purchase price of approximately $35.9 million. We also acquired Wine Country RV Resort, an RV community with approximately 166 siteslocated in Paso Robles, California, for a purchase price of approximately $13.3 million.The initial accounting and purchase price allocations for these business acquisitions will be completed during the first quarter of 2014.Mortgage LoansOn January 30, 2014, we and four of our subsidiaries obtained four mortgage loans (each, an “Individual Loan” and, together, the “Loan”) in the aggregateamount of $99.0 million from The Northwestern Mutual Life Insurance Company (“NM”) pursuant to a Master Loan Agreement with NM. Each IndividualLoan accrues interest at the rate of 4.20% per year. The borrower under each Individual Loan is required to make monthly principal and interest paymentscalculated based on a 30 days amortization period. Each Individual Loan matures and all outstanding principal and interest under each Individual Loan willbe payable on February 13, 2026. We and each of the four borrowers have guaranteed the Loan. The Loan is secured by a mortgage and assignment of leasesand rents on the four MH/RV communities owned by the borrowers. An event of default under any Individual Loan will cause an event of default under theentire Loan and all four mortgaged properties secure the repayment of the entire Loan. The proceeds of the Loan were used to repay a portion of our seniorsecured line of credit.F - 43SUN COMMUNITIES, INC.REAL ESTATE AND ACCUMULATED DEPRECIATION, SCHEDULE IIIDECEMBER 31, 2013(amounts in thousands) Initial Cost toCompany Costs CapitalizedSubsequent toAcquisition(Improvements) Gross Amount Carriedat December 31, 2013 Property Name Location Encumbrance Land Depreciable Assets Land DepreciableAssets Land Depreciable Assets Total AccumulatedDepreciation Date Acquired (A)orConstructed(C)Academy/Westpoint Canton, MI B 1,485 14,278 — 7,647 1,485 21,925 23,410 (8,765) 2000 (A)Allendale Allendale, MI B 366 3,684 — 9,801 366 13,485 13,851 (6,068) 1996 (A)Alpine Grand Rapids,MI E 729 6,692 — 9,065 729 15,757 16,486 (6,805) 1996 (A)Apple Carr Village Muskegon,MI 3,663 800 6,172 — 2,743 800 8,915 9,715 (840) 2011 (A)Apple Creek Amelia, OH C 543 5,480 — 1,901 543 7,381 7,924 (3,010) 1999 (A)Arbor Terrace Bradenton, FL A 456 4,410 — 2,183 456 6,593 7,049 (2,860) 1996 (A)Ariana Village Lakeland, FL — 240 2,195 — 1,117 240 3,312 3,552 (1,728) 1994 (A)Autumn Ridge Ankeny, IA B 890 8,054 (34) 2,898 856 10,952 11,808 (5,352) 1996 (A)Bedford Hills Battle Creek,MI C 1,265 11,562 — 3,194 1,265 14,756 16,021 (7,987) 1996 (A)Bell Crossing Clarksville,TN C 717 1,916 (12) 8,348 705 10,264 10,969 (3,490) 1999 (A)Big Timber LakeRV Resort Cape May, NJ E 590 21,308 — 324 590 21,632 22,222 (399) 2013 (A)Blazing Star San Antonio,TX 3,996 750 6,163 — 789 750 6,952 7,702 (371) 2012 (A)Blueberry Hill Bushnell, FL C 3,830 3,240 — 956 3,830 4,196 8,026 (266) 2012 (A)Boulder Ridge Pflugerville,TX B 1,000 500 3,323 23,933 4,323 24,433 28,756 (10,247) 1998 (C)Branch Creek Austin, TX B 796 3,716 — 5,333 796 9,049 9,845 (4,644) 1995 (A)Brentwood Kentwood, MI A 385 3,592 — 2,285 385 5,877 6,262 (3,004) 1996 (A)Brookside Manor Goshen, IN B 260 1,080 385 12,309 645 13,389 14,034 (6,352) 1985 (A)Brookside Village Kentwood, MI 2,474 170 5,564 — 654 170 6,218 6,388 (570) 2011 (A)Buttonwood Bay Sebring, FL A 1,952 18,294 — 4,721 1,952 23,015 24,967 (9,180) 2001 (A)Byrne Hill Village Toledo, OH — 383 3,903 — 1,919 383 5,822 6,205 (2,335) 1999 (A)Byron Center Byron Center,MI E 253 2,402 — 2,376 253 4,778 5,031 (2,167) 1996 (A)Camelot Villa Macomb, MI E 910 21,211 — 2,197 910 23,408 24,318 (381) 2013 (A)Candlelight Village Sauk Village,IL D 600 5,623 — 6,582 600 12,205 12,805 (5,423) 1996 (A)Candlewick Court Owosso, MI A 125 1,900 131 2,890 256 4,790 5,046 (2,502) 1985 (A)Carrington Pointe Ft. Wayne, IN B 1,076 3,632 (1) 7,344 1,075 10,976 12,051 (4,901) 1997 (A)Casa Del Valle Alamo, TX — 246 2,316 — 1,482 246 3,798 4,044 (1,417) 1997 (A)Catalina Middletown,OH A 653 5,858 — 4,016 653 9,874 10,527 (5,410) 1993 (A)Cave Creek Evans, CO 5,607 2,241 15,343 — 7,952 2,241 23,295 25,536 (6,292) 2004 (A)Chisholm Point Pflugerville,TX B 609 5,286 — 5,664 609 10,950 11,559 (5,628) 1995 (A)Cider MillCrossings Fenton, MI C 520 1,568 — 8,956 520 10,524 11,044 (1,013) 2011 (A)Cider Mill Village Middleville, MI E 250 3,590 — 1,982 250 5,572 5,822 (549) 2011 (A)F - 44SUN COMMUNITIES, INC.REAL ESTATE AND ACCUMULATED DEPRECIATION, SCHEDULE IIIDECEMBER 31, 2013(amounts in thousands) Initial Cost to Company Costs CapitalizedSubsequent toAcquisition(Improvements) Gross Amount Carriedat December 31, 2013 PropertyName Location Encumbrance Land Depreciable Assets Land DepreciableAssets Land Depreciable Assets Total AccumulatedDepreciation Date Acquired (A)orConstructed(C)ClearwaterVillage South Bend, IN B 80 1,270 60 5,183 140 6,453 6,593 (2,545) 1986 (A)Club Naples Naples, FL C 5,780 4,952 — 780 5,780 5,732 11,512 (531) 2011 (A)Cobus Green Osceola, IN E 762 7,037 — 5,061 762 12,098 12,860 (6,149) 1993 (A)College ParkEstates Canton, MI C 75 800 174 9,003 249 9,803 10,052 (4,737) 1978 (A)ComalFarms New Braunfels,TX C 1,455 1,732 — 8,711 1,455 10,443 11,898 (3,702) 2000 (A&C)ContinentalEstates Davison, MI — 1,625 16,581 150 1,636 1,775 18,217 19,992 (9,898) 1996 (A)ContinentalNorth (1) Davison, MI E — — — 10,001 — 10,001 10,001 (4,795) 1996 (A)CorporateHeadquarters Southfield, MI — — — — 17,600 — 17,600 17,600 (9,682) VariousCountryAcres Cadillac, MI E 380 3,495 — 2,748 380 6,243 6,623 (2,906) 1996 (A)CountryHills Village Hudsonville, MI E 340 3,861 — 3,001 340 6,862 7,202 (736) 2011 (A)CountryMeadows Flat Rock, MI B 924 7,583 296 17,627 1,220 25,210 26,430 (12,257) 1994 (A)CountryMeadowsVillage Caledonia, MI C 550 5,555 — 3,244 550 8,799 9,349 (887) 2011 (A)CountrysideAtlanta Lawrenceville,GA 12,950 1,274 10,957 — 1,552 1,274 12,509 13,783 (4,101) 2004 (A)CountrysideGwinnett Buford, GA 10,341 1,124 9,539 — 4,208 1,124 13,747 14,871 (4,717) 2004 (A)CountrysideLake Lanier Buford, GA 16,810 1,916 16,357 — 6,983 1,916 23,340 25,256 (7,180) 2004 (A)CountrysideVillage Perry, MI C 275 3,920 185 4,479 460 8,399 8,859 (4,639) 1987 (A)Creekside Reidsville, NC C 350 1,423 (331) (1,179) 19 244 263 (36) 2000 (A&C)CreekwoodMeadows Burton, MI D 808 2,043 404 12,246 1,212 14,289 15,501 (6,976) 1997 (C)CutlerEstates Grand Rapids,MI C 749 6,941 — 3,123 749 10,064 10,813 (5,055) 1996 (A)DavisonEast (1) Davison, MI — — — — 1,177 — 1,177 1,177 (717) 1996 (A)DeerfieldRun Anderson, IN C 990 1,607 — 5,214 990 6,821 7,811 (2,719) 1999 (A)Desert ViewVillage West Wendover,NV C 1,119 — (1,042) 231 77 231 308 (113) 1998 (C)Dutton MillVillage Caledonia, MI E 370 8,997 — 1,441 370 10,438 10,808 (982) 2011 (A)Eagle Crest Firestone, CO B 2,015 150 — 37,439 2,015 37,589 39,604 (12,840) 1998 (C)East Fork Batavia, OH C 1,280 6,302 — 9,193 1,280 15,495 16,775 (5,350) 2000 (A&C)East VillageEstates WashingtonTwp., MI 21,373 1,410 25,413 — 2,903 1,410 28,316 29,726 (1,481) 2012 (A)Edwardsville Edwardsville,KS C 425 8,805 541 7,767 966 16,572 17,538 (8,152) 1987 (A)Falcon Pointe East Lansing,MI — 450 4,049 (300) (2,529) 150 1,520 1,670 (318) 2003 (A)Fisherman'sCove Flint, MI E 380 3,438 — 3,245 380 6,683 7,063 (3,536) 1993 (A)ForestMeadows Philomath, OR E 1,031 2,050 — 827 1,031 2,877 3,908 (1,332) 1999 (A)FourSeasons Elkhart, IN D 500 4,811 — 2,613 500 7,424 7,924 (2,958) 2000 (A)Glen Laurel Concord, NC C 1,641 453 — 12,981 1,641 13,434 15,075 (4,100) 2001 (A&C)Goldcoaster Homestead, FL E 446 4,234 172 3,854 618 8,088 8,706 (3,535) 1997 (A)Grand Grand Rapids,MI A 374 3,587 — 2,126 374 5,713 6,087 (2,869) 1996 (A)F - 45SUN COMMUNITIES, INC.REAL ESTATE AND ACCUMULATED DEPRECIATION, SCHEDULE IIIDECEMBER 31, 2013(amounts in thousands) Initial Cost to Company Costs CapitalizedSubsequent toAcquisition(Improvements) Gross Amount Carriedat December 31, 2013 PropertyName Location Encumbrance Land Depreciable Assets Land DepreciableAssets Land Depreciable Assets Total AccumulatedDepreciation Date Acquired (A)orConstructed(C)Grand Lakes Citra, FL C 5,280 4,501 — 1,332 5,280 5,833 11,113 (346) 2012 (A)Groves Ft. Myers, FL D 249 2,396 — 1,789 249 4,185 4,434 (1,770) 1997 (A)Gwynn'sIsland Gwynn, VA C 760 595 — 886 760 1,481 2,241 (36) 2013 (A)Hamlin Webberville, MI A 125 1,675 536 9,693 661 11,368 12,029 (4,282) 1984 (A)Hickory HillsVillage Battle Creek,MI 4,367 760 7,697 — 1,969 760 9,666 10,426 (925) 2011 (A)Hidden Ridge Hopkins, MI C 440 893 — 281 440 1,174 1,614 (115) 2011 (A)High Point Frederica, DE 17,500 898 7,031 — 5,393 898 12,424 13,322 (4,587) 1997 (A)Holiday Village Elkhart, IN B 100 3,207 143 3,412 243 6,619 6,862 (3,386) 1986 (A)Holiday WestVillage Holland, MI C 340 8,067 — 1,463 340 9,530 9,870 (923) 2011 (A)Holly/HawaiianGardens Holly, MI A 1,514 13,596 — 2,637 1,514 16,233 17,747 (4,955) 2004 (A)Holly Forest Holly Hill, FL B 920 8,376 — 581 920 8,957 9,877 (4,813) 1997 (A)HuntersCrossing Capac, MI C 430 1,092 — 431 430 1,523 1,953 (85) 2012 (A)Hunters Glen Wayland, MI C 1,102 11,926 — 4,950 1,102 16,876 17,978 (5,292) 2004 (A)Indian Creek Ft. MyersBeach, FL — 3,832 34,660 — 6,655 3,832 41,315 45,147 (21,515) 1996 (A)Indian Creek Geneva on theLake, OH C 420 20,791 — 731 420 21,522 21,942 (399) 2013 (A)Island Lake Merritt Island,FL — 700 6,431 — 531 700 6,962 7,662 (4,077) 1995 (A)Jellystone North Java, NY — 870 8,884 — 592 870 9,476 10,346 (233) 2013 (A)Jellystone atBirchwoodAcres Woodridge, NY — 560 5,527 — (36) 560 5,491 6,051 (83) 2013 (A)KensingtonMeadows Lansing, MI B 250 2,699 — 8,336 250 11,035 11,285 (5,007) 1995 (A)Kenwood La Feria, TX C 145 1,842 — 520 145 2,362 2,507 (969) 1999 (A)King's Court Traverse City,MI B 1,473 13,782 (11) 3,927 1,462 17,709 19,171 (9,659) 1996 (A)King's Lake Debary, FL — 280 2,542 — 2,918 280 5,460 5,740 (2,685) 1994 (A)KnollwoodEstates Allendale, MI 2,706 400 4,061 — 2,967 400 7,028 7,428 (2,840) 2001 (A)Lafayette Place Warren, MI D 669 5,979 — 4,568 669 10,547 11,216 (4,775) 1998 (A)Lake In Wood Narvon, PA C 7,360 7,097 — 439 7,360 7,536 14,896 (426) 2012 (A)Lake Juliana Auburndale, FL D 335 3,048 — 1,713 335 4,761 5,096 (2,532) 1994 (A)Lake LaurieRV Resort Cape May, NJ C 650 7,736 — 1,593 650 9,329 9,979 (218) 2013 (A)Lake SanMarino Naples, FL D 650 5,760 — 2,229 650 7,989 8,639 (3,691) 1996 (A)Lakeview Ypsilanti, MI C 1,156 10,903 — 4,191 1,156 15,094 16,250 (4,800) 2004 (A)Leisure Village Belmont, MI C 360 8,219 — 216 360 8,435 8,795 (735) 2011 (A)Liberty Farms Valparaiso, IN A 66 1,201 116 2,928 182 4,129 4,311 (2,192) 1985 (A)LincolnEstates Holland, MI A 455 4,201 — 2,881 455 7,082 7,537 (3,337) 1996 (A)MaplewoodMobile Indianapolis, IN A 275 2,122 — 2,164 275 4,286 4,561 (2,390) 1989 (A)F - 46SUN COMMUNITIES, INC.REAL ESTATE AND ACCUMULATED DEPRECIATION, SCHEDULE IIIDECEMBER 31, 2013(amounts in thousands) Initial Cost to Company Costs CapitalizedSubsequent toAcquisition(Improvements) Gross Amount Carriedat December 31, 2013 PropertyName Location Encumbrance Land Depreciable Assets Land DepreciableAssets Land Depreciable Assets Total AccumulatedDepreciation Date Acquired (A)orConstructed(C)Meadow LakeEstates White Lake,MI B 1,188 11,498 127 8,429 1,315 19,927 21,242 (10,738) 1994 (A)Meadowbrook Charlotte, NC C 1,310 6,570 — 7,792 1,310 14,362 15,672 (5,405) 2000 (A&C)MeadowbrookEstates Monroe, MI E 431 3,320 379 11,750 810 15,070 15,880 (7,431) 1986 (A)MeadowbrookVillage Tampa, FL A 519 4,728 — 644 519 5,372 5,891 (3,387) 1994 (A)Meadows Nappanee, IN A 287 2,300 (1) 4,050 286 6,350 6,636 (3,534) 1987 (A)NaplesGardens Naples, FL C 3,640 2,020 — 710 3,640 2,730 6,370 (240) 2011 (A)New Point RVResort New Point, VA C 1,550 5,259 — 2,828 1,550 8,087 9,637 (173) 2013 (A)North LakeEstates Moore Haven,FL C 4,150 3,486 — 595 4,150 4,081 8,231 (378) 2011 (A)North PointEstates Pueblo, CO C 1,582 3,027 1 4,775 1,583 7,802 9,385 (2,518) 2001 (C)NorthvilleCrossing Northville, MI 21,101 1,250 29,564 (13) 6,335 1,237 35,899 37,136 (1,967) 2012 (A)Oak Crest Austin, TX C 4,311 12,611 — 6,302 4,311 18,913 23,224 (6,750) 2002 (A)Oak IslandVillage East Lansing,MI 3,398 320 6,843 — 1,962 320 8,805 9,125 (811) 2011 (A)OakwoodVillage Miamisburg,OH B 1,964 6,401 (1) 12,850 1,963 19,251 21,214 (7,785) 1998 (A)Orange City Orange City,FL C 920 5,540 — 860 920 6,400 7,320 (564) 2011 (A)Orange Tree Orange City,FL — 283 2,530 15 951 298 3,481 3,779 (2,033) 1994 (A)Orchard Lake Milford, OH C 395 4,025 (15) 755 380 4,780 5,160 (2,046) 1999 (A)Palm Creek Casa Grande,AZ 41,150 11,836 76,143 — 3,312 11,836 79,455 91,291 (4,607) 2012 (A)Pebble Creek Greenwood, IN C 1,030 5,074 — 6,467 1,030 11,541 12,571 (4,818) 2000 (A&C)Pecan Branch Georgetown,TX C 1,379 — 235 5,113 1,614 5,113 6,727 (2,157) 1999 (C)Peter's PondRV Resort Sandwich, MA C 4,700 22,840 — 1,479 4,700 24,319 29,019 (511) 2013 (A)PheasantRidge Lancaster, PA D 2,044 19,279 — 461 2,044 19,740 21,784 (7,586) 2002 (A)Pin Oak Parc O'Fallon, MO B 1,038 3,250 467 9,043 1,505 12,293 13,798 (5,403) 1994 (A)Pine Hills Middlebury, IN E 72 544 60 2,991 132 3,535 3,667 (1,792) 1980 (A)Pine Ridge Prince George,VA A 405 2,397 — 3,506 405 5,903 6,308 (2,905) 1986 (A)Pine Trace Houston, TX 8,069 2,907 17,169 (7) 8,683 2,900 25,852 28,752 (6,480) 2004 (A)PinebrookVillage Grand Rapids,MI C 130 5,692 — 895 130 6,587 6,717 (614) 2011 (A)Presidential Hudsonville,MI B 680 6,314 — 5,911 680 12,225 12,905 (5,531) 1996 (A)Rainbow RV Frostproof, FL E 1,890 5,682 — 816 1,890 6,498 8,388 (362) 2012 (A)Richmond Richmond, MI D 501 2,040 — 1,773 501 3,813 4,314 (1,778) 1998 (A)River Haven Grand Haven,MI C 1,800 16,967 — 5,598 1,800 22,565 24,365 (8,927) 2001 (A)River Ranch Austin, TX C 4,690 843 (4) 28,220 4,686 29,063 33,749 (4,062) 2000 (A&C)River Ridge Austin, TX 9,783 3,201 15,090 (2,351) 7,577 850 22,667 23,517 (7,586) 2002 (A)River RidgeRiver RidgeExpansion Austin, TX — — — 2,351 4,476 2,351 4,476 6,827 (316) 2010 (C)Roxbury Goshen, IN B 1,057 9,870 1 3,847 1,058 13,717 14,775 (5,052) 2001 (A)F - 47SUN COMMUNITIES, INC.REAL ESTATE AND ACCUMULATED DEPRECIATION, SCHEDULE IIIDECEMBER 31, 2013(amounts in thousands) Initial Cost to Company Costs CapitalizedSubsequent toAcquisition(Improvements) Gross Amount Carriedat December 31, 2013 PropertyName Location Encumbrance Land Depreciable Assets Land DepreciableAssets Land Depreciable Assets Total AccumulatedDepreciation Date Acquired (A)orConstructed(C)RoyalCountry Miami, FL 54,000 2,290 20,758 — 1,649 2,290 22,407 24,697 (14,357) 1994 (A)RudgateClinton ClintonTownship, MI 28,285 1,090 23,664 — 3,487 1,090 27,151 28,241 (1,405) 2012 (A)RudgateManor SterlingHeights, MI 16,924 1,440 31,110 — 4,508 1,440 35,618 37,058 (1,823) 2012 (A)Saddle OakClub Ocala, FL B 730 6,743 — 1,223 730 7,966 8,696 (4,738) 1995 (A)Saddlebrook San Marcos,TX C 1,703 11,843 — 6,710 1,703 18,553 20,256 (6,709) 2002 (A)Scio Farms Ann Arbor, MI A 2,300 22,659 (11) 13,125 2,289 35,784 38,073 (17,931) 1995 (A)Sea Air RehobothBeach, DE 20,000 1,207 10,179 — 1,922 1,207 12,101 13,308 (4,638) 1997 (A)Seaport RVResort Mystic, CT C 120 290 — 1,282 120 1,572 1,692 (56) 2013 (A)Sheffield Auburn Hills,MI 6,625 778 7,165 — 1,145 778 8,310 9,088 (2,320) 1986 (A)ShermanOaks Jackson, MI C 200 2,400 240 7,049 440 9,449 9,889 (4,830) 1986 (A)Siesta Bay Ft. MyersBeach, FL D 2,051 18,549 — 3,068 2,051 21,617 23,668 (11,436) 1996 (A)SilverSprings ClintonTownship, MI 8,339 861 16,595 — 3,877 861 20,472 21,333 (1,073) 2012 (A)Silver Star Orlando, FL A 1,022 9,306 — 936 1,022 10,242 11,264 (5,654) 1996 (A)Snow toSun Weslaco, TX — 190 2,143 13 1,608 203 3,751 3,954 (1,550) 1997 (A)Southfork Belton, MO D 1,000 9,011 — 5,141 1,000 14,152 15,152 (6,030) 1997 (A)SouthwoodVillage Grand Rapids,MI 5,694 300 11,517 — 1,386 300 12,903 13,203 (1,172) 2011 (A)St. ClairPlace St. Clair, MI E 501 2,029 — 1,292 501 3,321 3,822 (1,740) 1998 (A)Stonebridge San Antonio,TX C 2,515 2,096 (615) 8,666 1,900 10,762 12,662 (4,150) 2000 (A&C)Stonebridge Richfield Twp.,MI — 2,044 — 2,227 — 4,271 — 4,271 — 1998 (C)SummitRidge Converse, TX C 2,615 2,092 (883) 14,761 1,732 16,853 18,585 (4,053) 2000 (A&C)Sun Villa Reno, NV 18,300 2,385 11,773 (1,100) 857 1,285 12,630 13,915 (6,350) 1998 (A)SunsetRidge Kyle, TX C 2,190 2,775 — 7,192 2,190 9,967 12,157 (3,953) 2000 (A&C)SunsetRidge Portland, MI C 2,044 — (9) 15,586 2,035 15,586 17,621 (6,254) 1998 (C)SycamoreVillage Mason, MI 6,048 390 13,341 — 3,049 390 16,390 16,780 (1,481) 2011 (A)TamaracVillage Ludington, MI 5,586 300 12,028 85 1,604 385 13,632 14,017 (1,154) 2011 (A)Tampa East Dover, FL E 734 6,310 — 3,178 734 9,488 10,222 (2,538) 2005 (A)Three Lakes Hudson, FL C 5,050 3,361 — 1,123 5,050 4,484 9,534 (253) 2012 (A)TimberRidge Ft. Collins, CO B 990 9,231 — 5,853 990 15,084 16,074 (7,317) 1996 (A)Timberbrook Bristol, IN C 490 3,400 101 8,386 591 11,786 12,377 (6,833) 1987 (A)TimberlineEstates Coopersville, MI B 535 4,867 1 4,780 536 9,647 10,183 (4,554) 1994 (A)Town andCountry Traverse City,MI E 406 3,736 — 1,508 406 5,244 5,650 (2,761) 1996 (A)Valley Brook Indianapolis, IN B 150 3,500 1,277 14,043 1,427 17,543 18,970 (9,256) 1989 (A)Village Trails Howard City,MI — 988 1,472 (50) 2,065 938 3,537 4,475 (1,773) 1998 (A)Vines RVResort Paso Robles,CA — 890 7,110 — (2) 890 7,108 7,998 (127) 2013 (A)F - 48SUN COMMUNITIES, INC.REAL ESTATE AND ACCUMULATED DEPRECIATION, SCHEDULE IIIDECEMBER 31, 2013(amounts in thousands) Initial Cost to Company Costs CapitalizedSubsequent toAcquisition(Improvements) Gross Amount Carriedat December 31, 2013 PropertyName Location Encumbrance Land Depreciable Assets Land DepreciableAssets Land Depreciable Assets Total AccumulatedDepreciation Date Acquired (A)orConstructed(C)WagonWheel Old OrchardBeach, ME C 590 7,703 — 1,426 590 9,129 9,719 (233) 2013 (A)WarrenDunesVillage Bridgman, MI 2,571 310 3,350 — 1,644 310 4,994 5,304 (508) 2011 (A)Water Oak Lady Lake,FL B 2,834 16,706 101 14,448 2,935 31,154 34,089 (15,707) 1993 (A)WaverlyShoresVillage Holland, MI 5,119 340 7,267 — 575 340 7,842 8,182 (709) 2011 (A)West GlenVillage Indianapolis,IN A 1,100 10,028 — 6,286 1,100 16,314 17,414 (8,115) 1994 (A)West VillageEstates Romulus, MI 6,710 884 19,765 — 1,853 884 21,618 22,502 (1,164) 2012 (A)Westbrook Toledo, OH B 1,110 10,462 — 3,350 1,110 13,812 14,922 (6,103) 1999 (A)WestbrookSenior Toledo, OH B 355 3,295 — 306 355 3,601 3,956 (1,472) 2001 (A)WestwardHo RVResort Glenbeulah,WI C 1,050 5,642 — 944 1,050 6,586 7,636 (144) 2013 (A)White Lake White Lake,MI B 672 6,179 1 8,762 673 14,941 15,614 (6,761) 1997 (A)White Oak Mt. Morris,MI B 782 7,245 112 7,164 894 14,409 15,303 (6,900) 1997 (A)Wild Acres OrchardBeach, ME C 1,640 26,786 — 2,002 1,640 28,788 30,428 (712) 2013 (A)Willowbrook Toledo, OH B 781 7,054 1 3,452 782 10,506 11,288 (4,520) 1997 (A)WindhamHills Jackson, MI B 2,673 2,364 — 13,719 2,673 16,083 18,756 (6,726) 1998 (A)WindsorWoodsVillage Wayland, MI C 270 5,835 — 2,525 270 8,360 8,630 (788) 2011 (A)WoodhavenPlace Woodhaven,MI B 501 4,541 — 3,519 501 8,060 8,561 (3,516) 1998 (A)WoodlakeEstates Yoder, IN — 632 3,674 (283) 498 349 4,172 4,521 (1,087) 1998 (A)WoodlakeTrails San Antonio,TX C 1,186 287 (56) 10,466 1,130 10,753 11,883 (2,197) 2000 (A&C)WoodlandPark Estates Eugene, OR 2,489 1,592 14,398 1 1,143 1,593 15,541 17,134 (7,868) 1998 (A)Woods Edge WestLafayette, IN — 100 2,600 3 10,338 103 12,938 13,041 (6,245) 1985 (A)WoodsideTerrace Holland, OH B 1,064 9,625 (1) 4,857 1,063 14,482 15,545 (6,814) 1997 (A)WorthingtonArms Lewis Center,OH B 376 2,624 — 2,792 376 5,416 5,792 (2,697) 1990 (A) $216,613 $1,396,410 $7,284 $868,812 $223,897 $2,265,222 $2,489,119 $(734,067) A These communities collateralize $161.9 million of secured debt.B These communities collateralize $366.0 million of secured debt.C These communities collateralize $178.1 million of secured debt.D These communities collateralize $111.1 million of secured debt.E These communities collateralize $141.5 million of secured debt.(1) The initial cost for this property is included in the initial cost reported for Continental Estates.F - 49SUN COMMUNITIES, INC.REAL ESTATE AND ACCUMULATED DEPRECIATION, SCHEDULE IIIDECEMBER 31, 2013(amounts in thousands)The change in investment property for the years ended December 31, 2013, 2012, and 2011 is as follows: Years Ended December 31, 2013 2012 2011 Beginning balance$2,177,305 $1,794,605 $1,580,544 Community and land acquisitions, including immediate improvements192,660 302,487 167,326 Community expansion and development17,985 13,424 5,931 Improvements, other145,916 110,029 78,844 Asset impairment— — (1,584) Dispositions and other(44,747) (43,240) (36,456) Ending balance$2,489,119 $2,177,305 $1,794,605The change in accumulated depreciation for the years ended December 31, 2013, 2012, and 2011 is as follows: Years Ended December 31, 2013 2012 2011 Beginning balance$659,169 $597,999 $548,218 Depreciation for the period96,499 80,124 67,286 Asset impairment— — (202) Dispositions and other(21,601) (18,954) (17,303) Ending balance$734,067 $659,169 $597,999F - 50FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENTTHIS FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (this “Amendment”) by and among SUNCOMMUNITIES, INC., a Maryland corporation (the “Company”) and the undersigned holders (the “Holders”) of Series A-1 PreferredUnits of Sun Communities Operating Limited Partnership is made and entered into effective as of February 3, 2014.RecitalsA. The Company and the Initial Holders previously entered into that certain Registration Rights Agreement, dated June 23,2011 (the “Registration Rights Agreement”).B. The Company and the Holders now desire to make certain modifications to the Registration Rights Agreement as set forthin this Amendment.AgreementsNOW, THEREFORE, the parties agree as follows:1. All capitalized terms used but not defined in this Amendment have the meanings ascribed to them in the Registration RightsAgreement.2. Section 5.04 of the Registration Rights Agreement is hereby deleted in its entirety and replaced with the following:“Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in aparticular instance and either retroactively or prospectively) only by the written consent of the holders of at least amajority of the Series A-1 Preferred Units and Registrable Shares (voting together on an as-if-converted to RegistrableShares basis). Any such amendment or waiver shall be binding on all Holders and their respective legal representatives,successors and permitted assigns.”3. This Amendment shall be binding upon and shall inure to the benefit of the parties hereto, their respective legalrepresentatives, successors and assigns.4. Unless otherwise modified by this Amendment, all provisions of the Registration Rights Agreement shall remain in fullforce and effect.5. This Amendment may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to bean original, but all such counterparts together shall constitute one and the same instrument. Copies (facsimile, photostatic or otherwise)of signatures to this Amendment shall be deemed to be originals and may be relied on to the same extent as the originals.6. If and to the extent there are any inconsistencies between the Registration Rights Agreement and this Amendment, theterms of this Amendment shall control.[Signatures to follow on next page] IN WITNESS WHEREOF, the undersigned have executed this First Amendment to Registration Rights Agreement as of the datefirst set forth above.HOLDERS:Apple Carr Village MHP Holding Company #2, LLCBrookside Village MHP Holding Company #2, LLCCider Mill Village MHP Holding Company #2, LLCCountry Hills Village MHP Holding Company #2, LLCCountry Meadows Village MHP Holding Company #2, LLCDutton Mill Village MHP Holding Company #2, LLCHickory Hills Village MHP Holding Company #2, LLCHidden Ridge RV Park Holding Company #2, LLCHoliday West Village MHP Holding Company #2, LLCLeisure Village MHP Holding Company #2, LLCOak Island Village MHP Holding Company #2, LLCPinebrook Parent, Inc.Southwood Village MHP Holding Company #2, LLCSycamore Village MHP Holding Company #2, LLCTamarac Village MHP Holding Company #2, LLCWarren Dunes Village MHP Holding Company #2, LLCWaverly Shores Village MHP Holding Company #2, LLCWindsor Woods Village MHP Holding Company #2, LLCBy: /s/ Wilbur A. Lettinga__________Name: Wilbur A. LettingaTitle: Manager and PresidentWilbur A. Lettinga Trust u/a/d 2/10/98By: /s/ Wilbur A. Lettinga__________Name: Wilbur A. LettingaTitle: TrusteeWilliam B. Lettinga Trust u/a/d 1/20/93By: /s/ William B. Lettinga__________Name: William B. LettingaTitle: Trustee[Signature page to First Amendment to Registration Rights Agreement]Michael P. Lettinga Trust u/a/d 8/7/07By: /s/ William B. Lettinga__________Name: William B. LettingaTitle: TrusteeTHE COMPANY:Sun Communities, Inc.By: /s/ Karen J. Dearing__________Name: Karen J. DearingTitle: Executive Vice President and Chief Financial OfficerSUN COMMUNITIES, INC.Exhibit 21.1 - List of SubsidiariesMain operating subsidiary:Sun Communities Operating Limited Partnership, a Michigan limited partnershipOther subsidiaries:Apple Carr Village MHP Holding Company #1, LLC, a Michigan limited liability companyApple Carr Village Mobile Home Park, LLC, a Michigan limited liability companyApple Orchard, L.L.C., a Michigan limited liability companyAspen-Alpine Project, LLC, a Michigan limited liability companyAspen-Brentwood Project, LLC, a Michigan limited liability companyAspen-Byron Project, LLC, a Michigan limited liability companyAspen-Country Project, LLC, a Michigan limited liability companyAspen-Ft. Collins Limited Partnership, a Michigan limited partnershipAspen-Grand Project, LLC, a Michigan limited liability companyAspen-Holland Estates, LLC, a Michigan limited liability companyAspen-Town & Country Associates II, LLC, a Michigan limited liability companyBright Insurance Agency, Inc., a Michigan corporationBrookside Village MHP Holding Company #1, LLC, a Michigan limited liability companyBrookside Village Mobile Home Park, LLC, a Michigan limited liability companyCider Mill Village Mobile Home Park, LLC, a Michigan limited liability companyComal Farms Manager LLC, a Michigan limited liability companyCountry Hills Village Mobile Home Park, LLC, a Michigan limited liability companyCountry Meadows Village MHP Holding Company #1, LLC, a Michigan limited liability companyCountry Meadows Village Mobile Home Park, LLC, a Michigan limited liability companyCP Comal Farms Limited Partnership, a Michigan limited partnershipCP Creekside LLC, a Michigan limited liability companyCP Woodlake Limited Partnership, a Michigan limited partnershipCreekside Manager LLC, a Michigan limited liability companyDutton Mill Village, LLC, a Michigan limited liability companyEast Fork Crossing Manager LLC, a Michigan limited liability companyFC East Fork Crossing LLC, a Michigan limited liability companyFC Glen Laurel LLC, a Michigan limited liability companyFC Meadowbrook LLC, a Michigan limited liability companyFC Pebble Creek LLC, a Michigan limited liability companyFC River Ranch Limited Partnership, a Michigan limited partnershipFC Stonebridge Limited Partnership, a Michigan limited partnershipFC Summit Ridge Limited Partnership, a Michigan limited partnershipFC Sunset Ridge Limited Partnership, a Michigan limited partnershipGlen Laurel Manager LLC, a Michigan limited liability companyHickory Hills Village, LLC, a Michigan limited liability companyHickory Hills Village MHP Holding Company #1, LLC, a Michigan limited liability companyHidden Ridge An RV Community, LLC, a Michigan limited liability companyHidden Ridge RV Park Holding Company #1, LLC, a Michigan limited liability companyHigh Point Associates, L.P., a Delaware limited partnershipHigh Point GP One LLC, a Michigan limited liability companyHoliday West Village MHP Holding Company #1, LLC, a Michigan limited liability companyHoliday West Village Mobile Home Park, LLC, a Michigan limited liability companyLeisure Village MHP Holding Company #1, LLC, a Michigan limited liability companySUN COMMUNITIES, INC.Exhibit 21.1 - List of Subsidiaries, ContinuedLeisure Village Mobile Home Park, LLC, a Michigan limited liability companyLIW Limited Partnership, a Michigan limited partnershipMcIntosh Utilities, Inc., a Florida non-profit corporationMeadow Lake Development Company LLC, a Michigan limited liability companyMeadowbrook Manager LLC, a Michigan limited liability companyMiami Lakes GP One LLC, a Michigan limited liability companyMiami Lakes GP Two LLC, a Michigan limited liability companyMiami Lakes QRS, Inc., a Michigan corporationMiami Lakes Venture Associates, a Florida general partnershipOak Island Village MHP Holding Company #1, LLC, a Michigan limited liability companyOak Island Village Mobile Home Park, LLC, a Michigan limited liability companyPalm Creek Holdings LLC, an Arizona limited liability companyPebble Creek Manager LLC, a Michigan limited liability companyPinebrook Village Mobile Home Park, LLC, a Michigan limited liability companyRiver Haven Operating Company LLC, a Michigan limited liability companyRiver Ranch Manager LLC, a Michigan limited liability companyRiver Ridge Equities LLC, a Michigan limited liability companyRiver Ridge Investments LLC, a Michigan limited liability companySCA2 LLC, a Michigan limited liability companySCF Manager Inc., a Michigan corporationSea Breeze GP One LLC, a Michigan limited liability companySea Breeze Limited Partnership, a Delaware limited partnershipSheffield MHP, LLC, a Michigan limited liability companySnowbird Concessions, Inc., a Texas corporationSouthwood Village MHP Holding Company #1, LLC, a Michigan limited liability companySouthwood Village Mobile Home Park, LLC, a Michigan limited liability companySR East LLC, a Delaware limited liability companySR Hunters Crossing LLC, a Michigan limited liability companySR Silver Springs LLC, a Michigan limited liability companySR West LLC, a Michigan limited liability companyStonebridge Manager LLC, a Michigan limited liability companySUI TRS, Inc., a Michigan corporationSummit Ridge Manager LLC, a Michigan limited liability companySun ACQ LLC, a Michigan limited liability companySun Arbor Terrace LLC, a Michigan limited liability companySun Ariana LLC, a Michigan limited liability companySun Bell Crossing LLC, a Michigan limited liability companySun Big Timber RV LLC, a Michigan limited liability companySun Blazing Star LLC, a Delaware limited liability companySun Blueberry Hill LLC, a Michigan limited liability companySun Byrne Hill Village LLC (f/k/a Sun Pool 5 LLC), a Michigan limited liability companySun Camelot Villa LLC, a Michigan limited liability companySun Candlelight Village LLC, a Michigan limited liability companySun Candlewick LLC, a Michigan limited liability companySun Castaways RV LLC, a Michigan limited liability companySun Cave Creek LLC, a Michigan limited liability companySunChamp Holdings LLC, a Michigan limited liability companySunChamp LLC, a Michigan limited liability companySun Cider Mill Crossings LLC, a Michigan limited liability companySun Club Naples LLC, a Michigan limited liability companySUN COMMUNITIES, INC.Exhibit 21.1 - List of Subsidiaries, ContinuedSun Cobus Green LLC, a Michigan limited liability companySun Communities Acquisitions, LLC, a Michigan limited liability companySun Communities Finance, LLC, a Michigan limited liability companySun Communities Financial LLC, a Michigan limited liability companySun Communities Funding GP L.L.C., a Michigan limited liability companySun Communities Funding II LLC, a Michigan limited liability companySun Communities Funding Limited Partnership, a Michigan limited partnershipSun Communities Mezzanine Lender, LLC, a Michigan limited liability companySun Communities Texas Limited Partnership, a Michigan limited partnershipSun Communities Texas Mezzanine Lender Limited Partnership, a Michigan limited partnershipSun Continental Estates LLC, a Michigan limited liability companySun Continental North LLC, a Michigan limited liability companySun Countryside Atlanta LLC, a Michigan limited liability companySun Countryside Lake Lanier LLC, a Michigan limited liability companySun Davison East LLC, a Michigan limited liability companySun Deerfield Run LLC, a Michigan limited liability companySun Financial, LLC, a Michigan limited liability companySun Financial Texas Limited Partnership, a Michigan limited partnershipSun Fisherman’s Cove LLC, a Michigan limited liability companySun/Forest Holdings LLC, a Michigan limited liability companySun/Forest LLC, a Michigan limited liability companySun Forest Meadows LLC, a Michigan limited liability companySun Four Seasons LLC, a Michigan limited liability companySun Gold Coaster LLC, a Michigan limited liability companySun GP L.L.C., a Michigan limited liability companySun Grand Lake Golf, Inc., a Michigan corporationSun Grand Lake LLC, a Michigan limited liability companySun Groves LLC, a Michigan limited liability companySun Gwinnett LLC, a Michigan limited liability companySun Gwynn’s Island RV LLC, a Michigan limited liability companySun Gypsum Mill Development LLC, a Michigan limited liability companySun Gypsum Mill East LLC, a Michigan limited liability companySun Gypsum Mill West LLC, a Michigan limited liability companySun HG Limited Partnership, a Michigan limited partnershipSun High Point QRS, Inc., a Michigan corporationSun Holly Forest LLC, a Michigan limited liability companySun Home Services, Inc., a Michigan corporationSun Hunters Glen LLC, a Michigan limited liability companySun Indian Creek LLC, a Michigan limited liability companySun Indian Creek RV LLC, a Michigan limited liability companySun Island Lakes LLC, a Michigan limited liability companySun Jelly-Birchwood NY RV LLC, a Michigan limited liability companySun Jelly-WNY RV LLC, a Michigan limited liability companySun Kings Lake LLC, a Michigan limited liability companySun Knollwood LLC, a Michigan limited liability companySun Lafayette Place LLC, a Michigan limited liability companySun Lake Juliana LLC, a Michigan limited liability companySun Lake Laurie RV LLC, a Michigan limited liability companySun Lake San Marino LLC, a Michigan limited liability companySun Lakeview LLC, a Michigan limited liability companySUN COMMUNITIES, INC.Exhibit 21.1 - List of Subsidiaries, ContinuedSun Lender RV LLC, a Michigan limited liability companySun Life Associates Limited Partnership, an Arizona limited partnershipSun Life Trailer Resort Limited Partnership, an Arizona limited partnershipSun LIW GP LLC, a Michigan limited liability companySun MA LLC, a Michigan limited liability companySun Meadowbrook FL LLC, a Michigan limited liability companySun MHC Development LLC, a Michigan limited liability companySun Naples Gardens LLC, a Michigan limited liability companySun Newpoint RV LLC, a Michigan limited liability companySun North Lake Estates LLC, a Michigan limited liability companySun Northville Crossing LLC, a Michigan limited liability companySun Oakcrest Limited Partnership, a Michigan limited partnershipSUNOA, LLC, a Michigan limited liability companySun OFI, LLC, a Michigan limited liability companySun Orange City LLC, a Michigan limited liability companySun Orange Tree LLC, a Michigan limited liability companySun Palm Creek SPC, LLC, a Delaware limited liability companySun Peters Pond RV LLC, a Michigan limited liability companySun Pheasant Ridge Limited Partnership, a Michigan limited partnershipSun Pine Hills LLC, a Michigan limited liability companySun Pine Trace Limited Partnership, a Michigan limited partnershipSun Pool 1 LLC, a Michigan limited liability companySun Pool 3 LLC, a Michigan limited liability companySun Pool 8 LLC, a Michigan limited liability companySun Pool 12 LLC, a Michigan limited liability companySun QRS Countryside Manager, Inc., a Michigan corporationSun QRS Gwinnett, Inc., a Michigan corporationSun QRS, Inc., a Michigan corporationSun QRS Knollwood, Inc., a Michigan corporationSun QRS Pool 1, Inc., a Michigan corporationSun QRS Pool 2, Inc., a Michigan corporationSun QRS Pool 4, Inc., a Michigan corporationSun QRS Pool 8, Inc., a Michigan corporationSun QRS Pool 9, Inc., a Michigan corporationSun QRS Pool 11, Inc., a Michigan corporationSun QRS Pool 12, Inc., a Michigan corporationSun QRS Pool 13, Inc., a Michigan corporationSun QRS Pool A, Inc., a Michigan corporationSun QRS Pool B, Inc., a Michigan corporationSun QRS River Ridge, Inc., a Michigan corporationSun QRS Sheffield, Inc., a Michigan corporationSun Rainbow RV LLC, a Michigan limited liability companySun Receivables LLC, a Delaware limited liability companySun Richmond Industrial LLC, a Michigan limited liability companySun Richmond LLC, a Michigan limited liability companySun River Ridge II LLC, a Michigan limited liability companySun River Ridge Limited Partnership, a Michigan limited partnershipSun Rudgate Lender LLC, a Michigan limited liability companySun Saddle Brook Limited Partnership, a Michigan limited partnershipSun Saddle Oak LLC, a Michigan limited liability companySUN COMMUNITIES, INC.Exhibit 21.1 - List of Subsidiaries, ContinuedSun Scio Farms LLC, a Michigan limited liability companySun Sea Breeze QRS, Inc., a Michigan corporationSun Seaport RV LLC, a Michigan limited liability companySun Secured Financing GP, Inc., a Michigan corporationSun Secured Financing Houston Limited Partnership, a Michigan limited partnershipSun Secured Financing LLC, a Michigan limited liability companySunset Ridge Manager LLC, a Michigan limited liability companySun Siesta Bay LLC, a Michigan limited liability companySun Silver Star LLC, a Michigan limited liability companySun Southfork LLC, a Michigan limited liability companySun Sylvan Lender LLC, a Michigan limited liability companySun Tampa East, LLC, a Michigan limited liability companySun Texas Pool Limited Partnership, a Michigan limited partnershipSun Texas QRS, Inc., a Michigan corporationSun Three Lakes LLC, a Michigan limited liability companySun TRS Big Timber LLC, a Michigan limited liability companySun TRS Castaways LLC, a Michigan limited liability companySun TRS Gwynn’s Island LLC, a Michigan limited liability companySun TRS, Inc., a Michigan corporationSun TRS Indian Creek LLC a Michigan limited liability companySun TRS Jelly-Birchwood NY LLC, a Michigan limited liability companySun TRS Jelly-WNY LLC, a Michigan limited liability companySun TRS Lake Laurie LLC, a Michigan limited liability companySun TRS LL Castaways LLC, a Michigan limited liability companySun TRS Newpoint LLC, a Michigan limited liability companySun TRS Palm Creek LLC, a Michigan limited liability companySun TRS Peters Pond LLC, a Michigan limited liability companySun TRS Seaport LLC, a Michigan limited liability companySun TRS Vines LLC, a Michigan limited liability companySun TRS Virginia Park LLC, a Michigan limited liability companySun TRS Wagon Wheel LLC, a Michigan limited liability companySun TRS Westward Ho LLC, a Michigan limited liability companySun TRS Wild Acres LLC, a Michigan limited liability companySun TRS Wine Country RV LLC, a Michigan limited liability companySun Vacation Rentals LLC, a Michigan limited liability companySun Village Trails LLC, a Michigan limited liability companySun Villa MHC LLC, a Michigan limited liability companySun Vines RV LLC, a Michigan limited liability companySun Virginia Park RV LLC, a Michigan limited liability companySun Wagon Wheel RV LLC, a Michigan limited liability companySun Water Oak Golf, Inc., a Michigan corporationSun Westward Ho RV LLC, a Michigan limited liability companySun Wild Acres RV LLC, a Michigan limited liability companySun Wine Country RV LLC, a Michigan limited liability companySun Woodlake Estates LLC, a Michigan limited liability companySun Woods Edge LLC, a Michigan limited liability companySun/York L.L.C., a Michigan limited liability companySycamore Village MHP Holding Company #1, LLC, a Michigan limited liability companySycamore Village Mobile Home Park, LLC, a Michigan limited liability companyTamarac Village MHP Holding Company #1, LLC, a Michigan limited liability companySUN COMMUNITIES, INC.Exhibit 21.1 - List of Subsidiaries, ContinuedTamarac Village Mobile Home Park, LLC, a Michigan limited liability companyWarren Dunes Village MHP Holding Company #1, LLC, a Michigan limited liability companyWarren Dunes Village MHP, LLC, a Delaware limited liability companyWaverly Shores Village MHP Holding Company #1, LLC, a Michigan limited liability companyWaverly Shores Village Mobile Home Park, LLC, a Michigan limited liability companyWindsor Woods Village MHP Holding Company #1, LLC, a Michigan limited liability companyWindsor Woods Village Mobile Home Park, LLC, a Michigan limited liability companyWoodlake Manager LLC, a Michigan limited liability companyConsent of Independent Registered Public Accounting FirmWe have issued our reports dated February 20, 2014, with respect to the consolidated financial statements, schedule, and internal controlover financial reporting included in the Annual Report of Sun Communities, Inc. on Form 10-K for the year ended December 31,2013. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Sun Communities, Inc. onForms S-3 (File No. 333-181315, effective May 10, 2012) and on Form S-8 (File No. 333‑162216, effective September 30, 2009)./s/ GRANT THORNTON LLPSouthfield, MichiganFebruary 20, 2014CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the inclusion of our report on our audit of the basic financial statements of Origen Financial Inc. as of and for the period endingDecember 31, 2013 (the “Report”) with the Annual Report of Sun Communities, Inc., for the fiscal year ended December 31, 2013 on Form 10-K and theincorporation by reference of our Report in the registration statements of Sun Communities, Inc. and its subsidiaries on Forms S-3 (File No. 333 -181315,effective May 10, 2012; File No. 333 -158623, effective May 14, 2009; File No. 333 -156618, effective March 31, 2009; File No. 333 -149016, effectiveMarch 10, 2008); and on Form S-8 (File No. 333 -162216), effective September 30, 2009. Our Report appears on page 1. That audit was conducted for thepurpose of forming an opinion on the basic financial statements of Origen Financial Inc. taken as a whole./s/ BAKER TILLY VIRCHOW KRAUSE LLPSouthfield, MichiganFebruary 19, 2014Exhibit 31.1CERTIFICATIONS(As Adopted Under Section 302 of the Sarbanes-Oxley Act of 2002)I, Gary A. Shiffman, certify that:1.I have reviewed this annual report on Form 10-K of Sun Communities, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer(s) and I am responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant's ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controlover financial reporting.Dated: February 20, 2014/s/ Gary A. Shiffman Gary A. Shiffman, Chief Executive OfficerExhibit 31.2CERTIFICATIONS(As Adopted Under Section 302 of the Sarbanes-Oxley Act of 2002)I, Karen J. Dearing, certify that:1.I have reviewed this annual report on Form 10-K of Sun Communities, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I am responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Dated: February 20, 2014/s/ Karen J. Dearing Karen J. Dearing, Chief Financial OfficerExhibit 32.1CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350(Adopted Under Section 906 of the Sarbanes-Oxley Act of 2002)The undersigned officers, Gary A. Shiffman and Karen J. Dearing, hereby certify that to the best of their knowledge: (a) this Annual Report on Form 10-K ofSun Communities, Inc., for the period ended December 31, 2013, fully complies with the requirements of Section 13(a) or 15(d) of the Securities ExchangeAct of 1934, as amended; and (b) the information contained in this Form 10-K fairly presents, in all material respects, the financial condition and results ofoperations of the Company.SignatureDate/s/ Gary A. ShiffmanFebruary 20, 2014Gary A. Shiffman, Chief Executive Officer /s/ Karen J. DearingFebruary 20, 2014Karen J. Dearing, Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to Sun Communities, Inc. and will be retained by Sun Communities,Inc. and furnished to the Securities and Exchange Commission or its staff upon request.ORIGEN FINANCIAL, INC.Southfield, MichiganCONSOLIDATED FINANCIAL STATEMENTSIncluding Independent Auditors' ReportDecember 31, 2013 and 2012TABLE OF CONTENTS Independent Auditors' Report1Financial Statements Consolidated Balance Sheets2Consolidated Statements of Operations3Consolidated Statements of Comprehensive Income (Loss)4Consolidated Statements of Changes in Stockholders' Equity5Consolidated Statements of Cash Flows6Notes to Consolidated Financial Statements7 - 36 INDEPENDENT AUDITORS’ REPORTStockholders and Board of DirectorsOrigen Financial, Inc.Southfield, MichiganReport on the Financial StatementsWe have audited the accompanying consolidated financial statements of Origen Financial, Inc., which comprise the balance sheets as ofDecember 31, 2013 and 2012, and the related statements of operations, comprehensive income (loss), stockholders' equity, and cash flowsfor the years then ended, and the related notes to the consolidated financial statements.Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accountingprinciples generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal controlrelevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due tofraud or error.Auditors' ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits inaccordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform theaudits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An auditinvolves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. Theprocedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the consolidatedfinancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to theentity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we expressno such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significantaccounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of OrigenFinancial, Inc. as of December 31, 2013 and 2012 and the results of its operations and its cash flows for the years then ended in accordancewith accounting principles generally accepted in the United States of America./s/ BAKER TILLY VIRCHOW KRAUSE, LLPSouthfield, MichiganFebruary 19, 2014ORIGEN FINANCIAL, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except share data)As of December 31, 2013 and 2012 2013 2012ASSETS Cash and cash equivalents$774 $826 Restricted cash 8,516 11,110 Investments 1,191 1,442 Loans receivable, net 463,254 543,420 Furniture, fixtures and equipment, net 35 33 Repossessed houses, net 1,401 2,180 Other assets 3,612 4,233 TOTAL ASSETS$478,783 $563,244 LIABILITIES AND STOCKHOLDERS' EQUITY Securitization financing$423,369 $491,720 Derivative liabilities 29,552 37,454 Other liabilities 8,557 10,935 Total Liabilities 461,478 540,109 STOCKHOLDERS' EQUITY Preferred stock, $.01 par value per share 125 125 10,000,000 shares authorized 125 shares issued and outstanding $1,000 per share liquidation preference Common stock, $.01 par value per share 259 259 125,000,000 shares authorized 25,926,149 shares issued and outstanding Additional paid in capital 225,230 225,230 Accumulated other comprehensive loss(29,413) (37,403) Distributions in excess of earnings(178,896) (165,076) Total Stockholders' Equity 17,305 23,135 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$478,783 $563,244See accompanying notes to consolidated financial statements and independent auditors' report.ORIGEN FINANCIAL, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except share data)For the Years Ended December 31, 2013 and 2012 2013 2012INTEREST INCOME Interest income$47,670 $55,486 Interest expense(32,476) (37,440) Net Interest Income Before Loan Losses and Impairment15,194 18,046 Provision for loan losses10,169 17,415 Reversal of prior impairment on purchased loan pool(1,017) — Net Interest Income After Loan Losses and Impairment6,042 631 NON‑INTEREST INCOME Realized gain on derivative— 6,278 Other 2,105 3,073 Total Non‑Interest Income 2,105 9,351 NON‑INTEREST EXPENSE Personnel 1,376 1,428 Loan servicing 6,764 7,870 State business taxes 253 279 Other operating 1,857 1,782 Total Non‑Interest Expense 10,250 11,359 Loss Before Income Taxes(2,103) (1,377)INCOME TAX EXPENSE 34 — NET LOSS$(2,137) $(1,377)Weighted average common shares outstanding, basic and diluted 25,926,149 25,926,149 NET LOSS – per common share, basic and fully diluted:$(0.08) $(0.05)See accompanying notes to consolidated financial statements and independent auditors' report.ORIGEN FINANCIAL, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In thousands)For the Years Ended December 31, 2013 and 2012 2013 2012Net loss$(2,137) $(1,377)Other comprehensive income: Net unrealized gains on interest rate swaps, designated as cash flow hedges 7,902 4,208 Reclassification adjustment for net realized gains included in net loss 87 (45) Total Other Comprehensive Income 7,989 4,163 COMPREHENSIVE INCOME$5,852 $2,786See accompanying notes to consolidated financial statements and independent auditors' report.ORIGEN FINANCIAL, INC.CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITYFor the Years Ended December 31, 2013 and 2012(In thousands, except share data) Preferred Stock Common Stock Additional Paid inCapital Accumulated OtherComprehensiveIncome (Loss) Distributions InExcess of Earnings Total Stockholders' EquityBALANCES,January 1, 2012 $125 $259 $225,230 $(41,566) $(143,461) $40,587Net loss — — — — (1,377) (1,377)Other comprehensiveincome — — — 4,163 — 4,163Cash distribution paid($0.78 per commonshare) — — — — (20,238) (20,238)BALANCES,December 31, 2012 125 259 225,230 (37,403) (165,076) 23,135Net loss — — — — (2,137) (2,137)Other comprehensiveincome — — — 7,989 — 7,989Cash distribution paid($0.45 per commonshare) — — — — (11,682) (11,682)BALANCES,December 31, 2013 $125 $259 $225,230 $(29,414) $(178,895) $17,305See accompanying notes to consolidated financial statements and independent auditors' report.ORIGEN FINANCIAL, INC.STATEMENTS OF CASH FLOWSFor the Years Ended December 31, 2013 and 2012 2013 2012CASH FLOWS FROM OPERATING ACTIVITIES Net loss$(2,137) $(1,377) Adjustments to reconcile to net cash flows from operating activities Provision for loan losses 10,169 17,415 Depreciation and amortization 1,536 1,501 Purchased loan pool allowances (reversals)(1,017) — Increase in other assets(966) (1,662) (Decrease) increase in other liabilities(2,378) 972 Net Cash Flows from Operating Activities 5,207 16,849CASH FLOWS FROM INVESTING ACTIVITIES (Increase) Decrease in restricted cash 2,594 (1,343) Principal collections on loans 62,295 57,887 Proceeds from sale of repossessed houses 9,975 11,246 Expenditures on capital assets (20) (3) Net Cash Flows from Investing Activities 74,844 67,787CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid(11,682) (20,238) (Gain) loss on derivatives— (6,278) Decrease (increase) in derivative assets— 6,750 Repayment of securitization financing(68,421) (67,784) Net Cash Flows from Financing Activities(80,103) (87,550) Net Change in Cash and Cash Equivalents(52) (2,914) CASH AND CASH EQUIVALENTS ‑ BEGINNING OF YEAR 826 3,740 CASH AND CASH EQUIVALENTS ‑ END OF YEAR 774 826Supplemental cash flow disclosures Cash paid for interest$31,621 $36,616 Cash paid for income taxes$25 $—Noncash investing activities Loans transferred to repossessed assets$17,940 $24,639Noncash operating activities Decrease in derivative liability$7,902 $4,208See accompanying notes to consolidated financial statements and independent auditors' report.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 1 - Organization and Summary of Significant Accounting PoliciesNature of OperationsOrigen Financial, Inc., a Delaware corporation (the “Company”) is a real estate investment trust (“REIT”). Through March 2008 theCompany’s business was to originate, purchase and service manufactured housing loans. The Company’s manufactured housing loans areamortizing loans that range in amounts from $10,000 to $250,000 and have terms of seven to thirty years and are located throughout theUnited States. The Company generally securitized or placed the manufactured housing loans it originated with institutional investors andretained the right to service the loans on behalf of those investors.In March 2008, because of the lack of a reliable source for a loan warehouse facility and the unavailability of a profitable exit in thesecuritization market, the Company ceased originating loans for its own account and sold its portfolio of unsecuritized loans at a substantialloss. The proceeds from the loan sale were used to pay off its existing loan warehouse line of credit, which was not renewed.In April 2008, the Company completed a secured financing transaction with a related party and used the proceeds, combined with otherfunds, to pay off the outstanding balance of a supplemental advance credit facility which would have expired in June 2008.At the Company’s annual stockholders meeting on June 25, 2008, the Company’s stockholders approved an Asset Disposition andManagement Plan. Pursuant to this plan, the company executed a number of transactions and took several actions, as follow:•On June 30, 2008, the Company completed a transaction for the sale of its loan servicing platform assets and ceased allloan servicing operations.•In July 2008, the Company completed the sale of certain assets of its loan origination and insurance business and used theproceeds to reduce its related party debt.On January 14, 2009, the Company completed the sale of all the issued and outstanding stock of Origen Servicing, Inc ("Origen Servicing”)to Prime RF Holdings LLC. The purchase price was $175,000 and proceeds from the sale were used to reduce the Company’s related partydebt. Origen Servicing was a wholly owned subsidiary of the Company that prior to the sale of substantially all of Origen Servicing’s assetsto Green Tree in July 2008, conducted all of the Company’s servicing operations. Currently, most of the Company’s activities are conducted through Origen Financial L.L.C., which is a wholly owned subsidiary. After thesale of the servicing and origination assets as described above, the Company’s business essentially consists of actively managing itsresidual interests in its securitized loan portfolios.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 1 - Organization and Summary of Significant Accounting Policies (cont.)Basis of Financial Statement PresentationThese consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United Statesof America (“GAAP”). The accompanying consolidated financial statements include the financial position, results of operations and cashflows of the Company, its wholly owned qualified REIT and taxable REIT subsidiaries. All intercompany amounts have been eliminated.Use of Estimates in the Preparation of Financial StatementsThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and thereported amounts of revenues and expenses during the reporting period. Included in these financial statements are the following significantestimates: allowance for loan losses, valuation of repossessed houses, valuation of derivatives, and valuation of investments in loan poolsand debt securities acquired with evidence of deterioration of credit quality. Actual results could materially differ from those estimates.Cash and Cash EquivalentsCash and cash equivalents represent short-term highly liquid investments with original maturities of three months or less and include cashand interest bearing deposits at banks. The Company has restricted cash related to securitized loans that are held in trust. The restricted cashrepresents principal and interest payments on manufactured housing loans that will be remitted to securitized trusts for distribution to bondholders. Cash balances may be in excess of amounts insured by the Federal Deposit Insurance Corporation.InvestmentsAll investments outstanding at December 31, 2013 and 2012 are debt securities acquired with evidence of deterioration of credit quality sinceorigination, and are accounted for as described below.All investments are regularly measured for impairment. Management uses its judgment to determine whether an investment has sustainedan other‑than‑temporary decline in value. If management determines that an investment has sustained an other‑than‑temporary decline inits value, the investment is written down to its fair value by a charge to earnings, and a new cost basis is established for the investment. Anevaluation of an other‑than‑temporary decline is dependent on the specific facts and circumstances. Factors considered in determiningwhether an other‑than‑temporary decline in value has occurred include: the estimated fair value of the investment in relation to its cost basis;the financial condition of the related entity; and the intent and ability to retain the investment for a sufficient period of time to allow for recoveryin the fair value of the investment.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 1 - Organization and Summary of Significant Accounting Policies (cont.)Loan Pools and Debt Securities Acquired with Evidence of Deterioration of Credit QualityThe Company accounts for its investments in loan pools and debt securities acquired with evidence of deterioration of credit quality at thetime of acquisition in accordance with ASC Topic 310, "Receivables, Loans, and Debt Securities Acquired with Deteriorated Credit Quality."The carrying values of such acquired loan pools and debt securities were approximately $10.7 million and $1.2 million, respectively, atDecember 31, 2013 and $11.3 million and $1.4 million, respectively, at December 31, 2012, and are included in loans receivable andinvestments, respectively, in the consolidated balance sheets.Under the provisions of ASC Topic 310, each static pool of loans and debt securities is statistically modeled to determine its projected cashflows. The Company considers historical cash collections for loan pools and debt securities with similar characteristics as well as expectedprepayments and estimates the amount and timing of undiscounted expected principal, interest and other cash flows for each pool of loansand debt securities. An internal rate of return is calculated for each static pool of loans and debt securities based on the projected cash flowsand applied to the balance of the static pool. The resulting revenue recognized is based on the internal rate of return applied to the remainingbalance of each static pool of loans and debt securities. Each static pool is analyzed at least quarterly to assess the actual performancecompared to the expected performance. To the extent there are differences in actual performance versus expected performance, the internalrate of return is adjusted prospectively to reflect the revised estimate of cash flows over the remaining life of the static pool. BeginningJanuary 2005, if revised cash flow estimates are less than the original estimates, ASC Topic 310 requires that the internal rate of returnremain unchanged and an immediate impairment be recognized. For loans and debt securities acquired with evidence of deterioration ofcredit quality, if cash flow estimates increase subsequent to recording an impairment, ASC Topic 310 requires reversal of the previouslyrecognized impairment before any increases to the internal rate of return are made. For any remaining increases in estimated future cashflows for loan pools or debt securities acquired with evidence of deterioration of credit quality, the Company adjusts the amount of accretableyield recognized on a prospective basis over the remaining life of the loan pool or debt security.Application of the interest method of accounting requires the use of estimates to calculate a projected internal rate of return for each pool.These estimates are based on historical cash collections. If future cash collections are materially different in amount or timing than projectedcash collections, earnings could be affected, either positively or negatively. Higher collection amounts or cash collections that occur soonerthan projected will have a favorable impact on yields and revenues. Lower collection amounts or cash collections that occur later thanprojected will have an unfavorable impact and result in an immediate impairment being recognized.Loans ReceivableLoans receivable consist of manufactured housing loans under contracts collateralized by the borrowers’ manufactured houses and in someinstances, related land. Generally, loans receivable are classified as held for investment and are carried at amortized cost, except for loanspurchased with evidence of deterioration of credit quality since origination, which are accounted for as described above, under “Loan Poolsand Debt Securities Acquired with Evidence of Deterioration of Credit Quality.” Interest on loans is credited to income when earned. Loansheld for investment include accrued interest and are presented net of deferred loan origination fees and costs and an allowance for estimatedloan losses. All of the Company’s loans receivable were classified as held for investment at December 31, 2013 and 2012.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 1 - Organization and Summary of Significant Accounting Policies (cont.)Allowance for Loan LossesThe allowance for possible loan losses is maintained at a level believed adequate by management to absorb losses on loans in theCompany’s loan portfolio. In accordance with ASC 805-20-25, “Pre-acquisition Contingencies” (formerly Statement of Financial AccountingStandards No. 5, “Accounting for Contingencies”), the Company provides an allowance for loan losses when it is probable that a loan assethas been impaired and the amount of such loss can be reasonably estimated. The Company’s loan portfolio is comprised of homogenousmanufactured housing loans with average loan balances of approximately $38,000 at December 31, 2013 and $40,000 at December 31,2012. The allowance for loan losses is developed at a portfolio level and the amount of the allowance is determined by establishing acalculated range of probable losses. A range of probable losses is calculated by applying historical loss rate factors to the loan portfolio on astratified basis using the Company’s current portfolio performance and delinquency levels (0‑30 days, 31‑60 days, 61‑90 days and morethan 90 days delinquent) and by the extrapolation of probable loan impairment based on the correlation of historical losses by vintage year oforigination. The Company makes a determination of the best estimate within the calculated range of loan losses. Such determination mayinclude, in addition to historical charge off experience, the impact of changed circumstances on current impairment of the loan portfolio. Theaccrual of interest is discontinued when a loan becomes more than 90 days past due. Cash receipts on impaired loans are applied first toaccrued interest and then to principal. Impaired loans, or portions thereof, are charged off when deemed uncollectible. The allowance for loanlosses represents an unallocated allowance. There are no elements of the allowance allocated to specific individual loans or to impairedloans.Furniture, Fixtures and EquipmentFurniture, fixtures and equipment are stated at cost less accumulated depreciation. Depreciation is recognized on a straight-line basis over theestimated useful lives of the assets as follows:Furniture and fixtures7 yearsComputers5 yearsSoftware3 yearsLeasehold improvementsShorter of useful life or lease termRepossessed HousesManufactured houses acquired through foreclosure or similar proceedings are recorded at the lesser of the related loan balance or theestimated fair value of the house. Other AssetsOther assets are comprised of prepaid expenses, deferred financing costs and other miscellaneous receivables. Prepaid expenses areamortized over the expected service period. Deferred financing costs are capitalized and amortized over the life of the corresponding obligation.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 1 - Organization and Summary of Significant Accounting Policies (cont.)Derivative Instruments and Hedging ActivitiesDerivative instruments are carried at fair value on the consolidated balance sheets. The accounting for changes in the fair value (i.e., gains orlosses) of a derivative instrument is determined by whether it has been designated and qualifies as part of a hedging relationship. For thosederivative instruments that are designated and qualify as hedging instruments, the Company designates the hedging instrument, basedupon the exposure being hedged. For derivative instruments that are designated and qualify as cash flow hedges (i.e., hedging the exposureto variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivativeinstrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods duringwhich the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative changein the present value of future cash flows of the hedged item (i.e., the ineffective portion), if any, is recognized in current earnings during theperiod of change. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings duringthe period of change.For derivatives designated as hedging instruments at inception, the Company performs an analysis to assess effectiveness. Each derivativedesignated as a hedge has been and is expected to be highly effective in offsetting changes in cash flows of the hedged item. All componentsof each derivative instrument's gain or loss are included in the assessment of hedge effectiveness. Net hedge ineffectiveness is recorded in"interest expense" on the consolidated statements of income. On January 1, 2009, the Company adopted new guidance relating to disclosures about derivative instruments and hedging activities. Thisnew guidance requires entities to provide greater transparency about (a) how and why an entity uses derivative instruments, (b) howderivative instruments and related hedged items are accounted for, and (c) how derivative instruments and related hedged items affect anentity's financial position, results of operations and cash flows. To meet those objectives, the guidance requires (1) qualitative disclosuresabout objectives for using derivatives by primary underlying risk exposure (e.g., interest rate, credit or foreign exchange rate) and by purposeor strategy (fair value hedge, cash flow hedge, net investment hedge and non‑hedges), (2) information about the volume of derivative activityin a flexible format that the preparer believes is the most relevant and practicable, (3) tabular disclosures about balance sheet location andgross fair value amounts of derivative instruments, income statement and other comprehensive income, location of gain and loss amountson derivative instruments by type of contract, and (4) disclosures about credit‑risk‑related contingent features in derivative agreements. Seefootnote 8 for additional information.Securitizations Structured as FinancingsPrior to year 2008, the Company engaged in securitizations of its manufactured housing loan receivables. The Company structured all loansecuritizations occurring from 2003 through 2008 as financings for accounting purposes under ASC Topic 860, "Transfers and Servicing."When a loan securitization is structured as a financing, the financed asset remains on the Company’s books along with the recorded liabilitythat evidences the financing, typically bonds. Income from the loan interest spread received on the securitized loans is recorded into incomeas earned. An allowance for credit losses is maintained on the loans. Deferred debt issuance costs and discount related to the bonds areamortized on a level yield basis over the estimated life of the bonds.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 1 - Organization and Summary of Significant Accounting Policies (cont.)Income TaxesThe Company has elected to be taxed as a REIT as defined under Section 856(c)(1) of the Internal Revenue Code of 1986, as amended (the“Code”). In order for the Company to qualify as a REIT, at least ninety-five percent (95%) of the Company’s gross income in any year mustbe derived from qualifying sources. In addition, a REIT must distribute at least ninety percent (90%) of its REIT taxable net income to itsstockholders. Qualification as a REIT involves the satisfaction of numerous requirements (some on an annual and quarterly basis) established underhighly technical and complex Code provisions for which there are only limited judicial or administrative interpretations, and involves thedetermination of various factual matters and circumstances not entirely within the Company’s control. In addition, frequent changes occur inthe area of REIT taxation, which requires the Company continually to monitor its tax status.As a REIT, the Company generally will not be subject to U.S. federal income taxes at the corporate level on the ordinary taxable income itdistributes to its stockholders as dividends. If the Company fails to qualify as a REIT in any taxable year, its taxable income will be subject toU.S. federal income tax at regular corporate rates (including any applicable alternative minimum tax). Even if the Company qualifies as aREIT, it may be subject to certain state and local income taxes and to U.S. federal income and excise taxes on its undistributed taxableincome. In addition, taxable income from non‑REIT activities managed through taxable REIT subsidiaries, if any, is subject to federal andstate income taxes. An income tax allocation is required to be estimated on the Company’s taxable income generated by its taxable REITsubsidiaries. Deferred tax components arise based upon temporary differences between the book and tax basis of items such as theallowance for loan losses, accumulated depreciation, share based compensation and goodwill.The provision for income taxes is based on amounts reported in the consolidated statements of operations and includes deferred incometaxes on temporary differences between the income tax basis and financial accounting basis of assets and liabilities. Deferred tax assets areevaluated for realization based on available evidence of loss carry back capacity, future reversals of existing taxable temporary differences, andassumptions made regarding future events. A valuation allowance is provided when it is more‑likely-than‑not that some portion of thedeferred tax asset will not be realized. There is a valuation allowance recorded to the extent of net deferred tax assets (primarily net operatinglosses) on the Company’s taxable REIT subsidiaries. The amounts are not material to the financial statements.The Company classifies interest and penalties on income tax liabilities in income tax expense on the consolidated statements of operations.The provision (benefit) for income taxes is computed by applying the effective federal income tax rate to income (loss) before income taxes asreported in the consolidated financial statements after deducting non‑taxable items, principally income from a qualified REIT subsidiary, thenadding interest (tax related), penalties, and state taxes .The Company does not believe that it has any uncertainty in its tax returns. Therefore, there are no accruals for interest and penalties oruncertain tax positions included in the Company’s tax accrual. The Company and its subsidiaries file income tax returns in the U.S. federaljurisdiction and in various state and local jurisdictions. With few exceptions, the Company and its subsidiaries are no longer subject to U.S.federal or state and local income tax examinations by tax authorities for years before 2010.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 1 - Organization and Summary of Significant Accounting Policies (cont.)For income tax purposes, distributions paid to common stockholders consist of ordinary income and return of capital. Distributions paid weretaxable as follows for the years ended December 31 (dollars in thousands): 2013 2012 Amount Percentage Amount PercentageOrdinary income$— — $— —Return of capital11,667 100.00 20,222 100.00Total$11,667 100.00 $20,222 100.00A portion of the Company’s income from a qualified REIT subsidiary that would otherwise be classified as a taxable mortgage pool may betreated as “excess inclusion income,” which would be subject to the distribution requirements that apply to the Company and could thereforeadversely affect its liquidity. Generally, a stockholder’s share of excess inclusion income would not be allowed to be offset by any operatinglosses otherwise available to the stockholder. Tax exempt entities that own shares in a REIT must treat their allocable share of excessinclusion income as unrelated business taxable income. Any portion of a REIT dividend paid to foreign stockholders that is allocable to excessinclusion income will not be eligible for exemption from the 30% withholding tax (or reduced treaty rate) on dividend income. For the yearended December 31, 2013, 1.9% of distributions paid represented excess inclusion income.Fair Value of Financial InstrumentsFair values of financial instruments are based upon estimates at the balance sheet date of the price that would be received in an orderlytransaction between market participants. The Company uses quoted market prices and observable inputs when available. However, theseinputs are often not available in the markets for many of the Company’s assets. In these cases management typically performs discountedcash flow analysis using its best estimates of key assumptions such as credit losses, prepayment speeds and discount rates based on bothhistorical experience and its interpretation of how comparable market data in more active markets should be utilized. These estimates aresubjective in nature and involve uncertainties and significant judgment in the interpretation of current market data. Therefore, the fair valuespresented may differ from amounts the Company could realize or settle currently.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 1 - Organization and Summary of Significant Accounting Policies (cont.)Recent Accounting PronouncementsDuring February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02,“Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The amendments in ASU No. 2013-02 require anentity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, ASUNo. 2013-02 requires an entity to present, either on the face of the statement where net income is presented or in the notes, significantamounts reclassified out of accumulated other comprehensive income by the respective line items in net income if the amounts beingreclassified are required under accounting principles generally accepted in the United States of America (U.S. GAAP) to be reclassified in theirentirety to net income in the same reporting period. For amounts not required under U.S. GAAP to be reclassified in their entirety to netincome in the same reporting period, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provideadditional detail about those amounts. ASU No. 2013-02 is effective prospectively for reporting periods beginning after December 15, 2013.Early adoption is permitted. The adoption of the guidance is not expected to have a material impact on the Company's Consolidated FinancialStatements or the Notes thereto.The amendments in the ASU No. 2014-04 - Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40) clarify when an insubstance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession ofresidential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the realestate property recognized. This Accounting Standards Update is the final version of Proposed Accounting Standards Update EITF-13E-Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40), which has been deleted. The adoption of the guidance is notexpected to have a material impact on the Company's Consolidated Financial Statements or the Notes thereto.ReclassificationsCertain amounts for prior periods have been reclassified to conform with current financial statement presentation.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 2 - Earnings Per ShareBasic earnings per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period.Diluted earnings per share incorporates the potential dilutive effect of common stock equivalents outstanding on an average basis during theperiod. Potential dilutive common shares primarily consist of employee stock options, non‑vested common stock awards, stock purchasewarrants and convertible notes. The following table presents a reconciliation of basic and diluted loss per share for the years ended December31, 2013 and 2012 (in thousands, except share and per share data): 2013 2012Numerator: Net loss$(2,137) $(1,377)Preferred stock dividends(16) (16)Loss available to common shareholders, basic$(2,153) $(1,393)Loss available to common shareholders, diluted$(2,153) $(1,393)Denominator: Weighted average basic common shares outstanding 25,926,149 25,926,149Effect of dilutive securities: Incremental share ‑ non‑vested stock awards— —Weighted average diluted common shares outstanding 25,926,149 25,926,149Net loss for common stockholders per share: Basic$(0.08) $(0.05)Diluted$(0.08) $(0.05)NOTE 3 - InvestmentsThe Company follows the provisions of ASC Topics 310 in reporting its investments. The investments are carried on the Company’s balancesheet at $1.2 million and $1.4 million at December 31, 2013 and 2012, respectively. See “Note 5 - Loan pools and Debt Securities Acquiredwith Evidence of Deterioration of Credit Quality” for further discussion related to the Company’s debt securities accounted for under theprovisions of ASC Topic 310.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 4 - Loans ReceivableThe carrying amounts and fair value of loans receivable consisted of the following at December 31 (in thousands): 2013 2012Manufactured housing loans ‑ securitized$475,785 $558,831Manufactured housing loans ‑ unsecuritized 1,037 1,351Accrued interest receivable 3,259 3,729Deferred loan origination costs 954 1,322Discount on originated loans (1)(9,292) (10,916)Discount on purchased loans(208) (409)Allowance for purchased loans(1,672) (2,689)Allowance for loan losses(6,609) (7,799)Total$463,254 $543,420(1) Represents the fair market value of servicing rights sold in July 2008 which are related to loans held‑for‑investment. The discount isaccreted into interest income over the life of the loans on a level yield method.The following table sets forth the average per loan balance, weighted average loan yield, and weighted average initial term at December 31(dollars in thousands): 2013 2012Number of loans receivable 12,415 13,849Average loan balance$38 $40Weighted average loan yield9.32% 9.34% Weighted average initial term21 years 20 years ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 4 - Loans Receivable (cont.)The following table sets forth the concentration by state of the manufactured housing loan portfolio at December 31 (dollars in thousands): 2013 2012 Principal Percent Principal PercentCalifornia$190,688 40.0 $227,201 40.6Texas40,200 8.4 46,452 8.3New York24,638 5.2 28,266 5.1Florida16,309 3.4 18,746 3.3Alabama15,727 3.3 18,435 3.3Other189,260 39.7 221,082 39.4Total$476,822 100.0 $560,182 100.0The following table sets forth the number and value of loans for various original terms for the manufactured housing loan portfolio atDecember 31 (dollars in thousands): 2013 2012 Original Term in Years Number of Loans Principal Balance Number of Loans Principal Balance5 or less 29 $1,378 32 $1,5296‑10 477 3,178 708 5,98011‑12 86 992 102 1,43413‑15 3,051 56,346 3,393 70,32216‑20 7,001 310,238 7,680 362,80721‑25 718 33,957 785 38,77926‑30 1,053 70,733 1,149 79,331Total 12,415 $476,822 13,849 $560,182Delinquency statistics for the manufactured housing loan portfolio are as follows at December 31 (dollars in thousands): 2013 2012 Days Delinquent Number ofLoans PrincipalBalance % of Portfolio Number ofLoans PrincipalBalance % of Portfolio31‑60 105 $3,780 0.8 127 $4,787 0.961‑90 43 1,390 0.3 43 1,842 0.3Greater than 90 92 4,209 0.9 109 5,218 0.9The Company defines non‑performing loans as those loans that are greater than 90 days delinquent in contractual principal payments. Theaverage balance of all non‑performing loans as a group was $4.3 million and $5.3 million for the years ended December 31, 2013 and 2012,respectively.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 5 - Loan Pools and Debt Securities Acquired with Evidence of Deterioration of Credit QualityThe Company has loan pools and debt securities that were acquired, for which there was at acquisition, evidence of deterioration of creditquality, and for which it was probable, at acquisition, that all contractually required payments would not be collected. These loan pools anddebt securities are accounted for under the provisions of ASC Topic 310.Loan Pools Acquired with Evidence of Deterioration of Credit QualityThe carrying amount of loan pools acquired with evidence of deterioration of credit quality was as follows at December 31 (in thousands): 2013 2012Outstanding balance$11,791 $13,585 Carrying amount, net of allowance of $1,672 and $2,689, respectively$10,687 $11,340Accretable yield represents the excess of expected future cash flows over the remaining carrying value of the purchased portfolio, which isrecognized as interest income on a level yield basis over the life of the loan portfolio. Nonaccretable yield represents the difference betweenthe remaining expected cash flows and the total contractual obligation outstanding of the purchased receivables. Changes in accretable yieldfor the years ended December 31 were as follows (in thousands): 2013 2012Beginning balance$6,684 $7,568Accretion$(904) $(1,052)Reversal of prior impairment$(1,017) $—Change in estimate of future cash flows(231) 168Ending balance$4,532 $6,684Under the provisions of ASC Topic 310, if cash flow estimates increase subsequent to recording an impairment, a reversal of the previouslyrecognized impairment is required before an increase to the internal rate of return is made. The Company reversed approximately $1.0million and $0 of the impairment allowance during the years ended December 31, 2013 and 2012, respectively.During the years ended December 31, 2013 and 2012, there were no loans acquired for which it was probable at acquisition that allcontractually required payments would not be collected.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 5 - Loan Pools and Debt Securities Acquired with Evidence of Deterioration of Credit Quality (cont.)Debt Securities Acquired with Evidence of Deterioration of Credit QualityThe carrying amount of debt securities acquired with evidence of deterioration of credit quality was as follows at December 31 (in thousands): 2013 2012Outstanding balance $ 8,593 $ 8,598 $ 1,191 $ 1,442Carrying amount, netAccretable yield represents the excess of expected future cash flows over the remaining carrying value of the debt securities, which isrecognized as interest income on a level yield basis over the life of the debt securities. Nonaccretable difference represents the differencebetween the remaining expected cash flows and the total contractual obligation outstanding of the debt securities. Changes in accretable yieldfor the years ended December 31 were as follows (in thousands): 2013 2012Beginning balance$2,649 $2,695Accretion(238) (283)Change in estimate of future cash flows 2,561 237Ending balance$4,972 $2,649During the years ended December 31, 2013 and 2012 the Company recognized no other‑than‑temporary impairment on the principalbalance of the security.During the years ended December 31, 2013 and 2012, there were no debt securities acquired for which it was probable at acquisition that allcontractually required payments would not be collected.NOTE 6 - Allowance for Loan LossesThe allowance for loan losses and related additions and deductions to the allowance for the years ended December 31 were as follows (inthousands): 2013 2012Balance at beginning of period$11,802 $15,088Provision for loan losses 10,169 17,415Gross charge offs(21,574) (29,955)Recoveries 8,308 9,254Balance at end of period$8,705 $11,802Allocation to carrying value of repossessed houses(2,096) (4,003)Net Allowance$6,609 $7,799ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 7 - Property and EquipmentFurniture, fixtures and equipment are summarized as follows at December 31 (in thousands): 2013 2012Furniture and fixtures$278 $355Leasehold improvements 47 49Computer equipment 199 180Total 524 584Less: accumulated depreciation(489) (551)Net Property and Equipment$35 $33Depreciation expense was approximately $18,000 and $19,000, for the years ended December 31, 2013 and 2012, respectively. NOTE 8 - DerivativesIn the normal course of business, the Company enters into various transactions involving derivatives to manage exposure to fluctuations ininterest rates. These financial instruments involve, to varying degrees, elements of credit and market risk.Credit risk is the possible loss that may occur in the event of nonperformance by the counterparty to a financial instrument. The Companyattempts to minimize credit risk arising from financial instruments by evaluating the creditworthiness of each counterparty, adhering to thesame credit approval process used for traditional lending activities. Counterparty risk limits and monitoring procedures also facilitate themanagement of credit risk. The Company generally does not receive collateral when it enters into a derivative contract.Market risk is the potential loss that may result from movements in interest rates that cause an unfavorable change in the value of a financialinstrument. Market risk arising from derivative instruments is reflected in the consolidated financial statements. The Company manages thisrisk by establishing monetary exposure limits and monitoring compliance with those limits. Market risk inherent in derivative instrumentsheld or issued for risk management purposes is typically offset by changes in the fair value of the assets or liabilities being hedged.When hedge accounting is discontinued because the Company determines that the derivative no longer qualifies as a hedge, the derivativewill continue to be recorded on the consolidated balance sheet at its fair value. Any change in the fair value of a derivative no longer qualifyingas a hedge is recognized in current period earnings. For terminated cash flow hedges or cash flow hedges that no longer qualify as highlyeffective, the effective portion previously recorded in accumulated other comprehensive income is recorded in earnings when the hedged itemaffects earnings.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 8 - Derivatives (cont.)Derivative InstrumentsDerivative instruments are traded over an organized exchange or negotiated over-the-counter. Credit risk associated with exchange tradedcontracts is typically assumed by the organized exchange. Over-the-counter contracts are tailored to meet the needs of the counterpartiesinvolved and, therefore, contain a greater degree of credit risk and liquidity risk than exchange traded contracts, which have standardizedterms and readily available price information. The Company reduces exposure to credit and liquidity risks from over-the-counter derivativeinstruments entered into for risk management purposes, by conducting such transactions with investment grade domestic financialinstitutions and subjecting counterparties to credit approvals, limits and monitoring procedures similar to those used in making otherextensions of credit.Detailed discussions of each class of derivative instruments held or issued by the Company for both risk management are as follows.Interest Rate SwapsInterest rate swaps are agreements in which two parties periodically exchange fixed cash payments for variable payments based on adesignated market rate or index, or variable payments based on two different rates or indices, applied to a specified notional amount until astated maturity. The Company's swap agreements are structured such that variable payments are primarily based on one month LIBOR orthree-month LIBOR. These instruments are principally negotiated over-the-counter and are subject to credit risk, market risk and liquidityrisk. All interest rate swaps entered into by the Company were entered with the intent to offset potential increases in interest expense andpotential variability in cash flows under various interest rate environments. The Company does not speculate on interest rates. All interestrate swaps were entered into for the purpose of hedging the Company’s exposure to interest rate risk. When it is determined that a derivativeis not highly effective as a hedge or that it has ceased to be a highly effective hedge the Company discontinues hedge accounting and allchanges in value in the derivative instrument are recorded in interest expense in the statement of operations.Documents governing interest rate swap agreements contain certain restrictive covenants. One of the Company’s interest rate swapagreements contained a minimum net worth covenant that the Company did not meet. This entitled the counterparty to initiate an earlytermination of the interest rate swap agreement. On May 2, 2012, the Company executed an interest rate swap termination transaction withits counterparty in three existing interest rate swap agreements. These interest rate swap agreements, since inception, had been classified bythe Company as derivatives not designated as hedging instruments. The termination transactions settled on May 3, 2012 and a realized gainof approximately $6.2 million was recorded.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 8 - Derivatives (cont.)The following table presents the composition of the Company's derivative instruments at December 31, 2013 and 2012 (in thousands): December 31, 2013 Fair Value Asset Liability Notional/ Derivatives Derivatives Contract (Unrealized (Unrealized Amount Gains) Losses)Derivatives designated as hedging instruments: Interest rate contracts: Swaps - cash flow - receive floating/pay fixed$243,928 $— $29,522 Total Derivatives$243,928 $— $29,522 December 31, 2012 Fair Value Asset Liability Notional/ Derivatives Derivatives Contract (Unrealized (Unrealized Amount Gains) Losses)Derivatives designated as hedging instruments: Interest rate contracts: Swaps - cash flow - receive floating/pay fixed$283,393 $— $37,454 Total Derivatives$283,393 $— $37,454By entering into derivative contracts, the Company is exposed to credit risk if the counterparties fail to perform. The Company minimizescredit risk through credit approvals, limits, monitoring procedures and collateral requirements. Nonperformance risk, including credit risk, isincluded in the determination of net fair value.As part of a cash flow hedging strategy, the Company entered into interest rate swap agreements (weighted average original maturity of 5.24years) that effectively converts a portion of existing floating rate debt to a fixed rate basis, thus reducing the impact of interest rate changes onfuture interest expense over the life of the agreements.If interest rates, interest yield curves and notional amounts remain consistent with current projections, the Company expects to reclassify$10.3 million of comprehensive income to interest expense on derivative instruments designated as cash flow hedges during the next twelvemonths due to receipt of variable interest associated with floating rate debt.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 8 - Derivatives (cont.)The following table summarizes the notional amount of interest rate swaps and the weighted average interest rates associated with amountsexpected to be received or paid on interest rate swap agreements as of December 31, 2013 and 2012 (in thousands). December 31, 2013 Weighted Average Notional/ Contract Receive Pay Amount Rate RateInterest rate contracts: Swaps - cash flow - receive floating/pay fixed rate - Designated as hedging instruments$243,928 — 5.28% Total$243,928 — 5.28% December 31, 2012 Weighted Average Notional/ Contract Receive Pay Amount Rate RateInterest rate contracts: Swaps - cash flow - receive floating/pay fixed rate - Designated as hedging instruments$283,393 — 5.28% Total$283,393 — 5.28%Management believes these hedging strategies achieve the desired relationship between the fixed cash flow requirements of the derivativecontracts and the variable cash flow requirements of its securitization financing which, in turn, reduce the overall exposure of net interestexpense to interest rate risk, although there can be no assurance that such strategies will be successful.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 9 - Loan SecuritizationsHistorically the Company securitized manufactured housing loans. The Company recorded each transaction based on its legal structure. TheCompany exchanged manufactured housing loans it originated and purchased with a trust for cash. The trust then issued ownershipinterests to investors in asset backed bonds secured by the loans. The Company structured all loan securitizations occurring from 2003 through 2008 as financings for accounting purposes. Whensecuritizations are structured as financings no gain or loss is recognized, nor is any allocation made to residual interests or servicing rights.Rather, the loans securitized continue to be carried by the Company as assets, and the asset backed bonds secured by the loans are carriedas a liability. The Company records interest income on securitized loans and interest expense on the bonds issued in the securitizations overthe life of the securitizations. Deferred debt issuance costs and discount related to the bonds are amortized on a level yield basis over theestimated life of the bonds.Prior to 2003, the Company sold loan pools that were treated as true sales in accordance with the accounting guidance within ASC Topic860, "Transfers and Servicing."Whenever the Company sells loans, it makes customary representations and warranties to purchasers about various characteristics of eachloan, such as the manner of origination, the nature and extent of underwriting standards applied, and the types of documentation beingprovided. Typically these representations and warranties are in place for the life of the loan. If a loan does not perform, and a defect in theorigination process is identified, the Company may be required to either repurchase the loan or indemnify the purchaser for losses it mayincur on such loan. To date, the Company has not experienced any claims on it representations and warranties for loan pool sales that wereaccounted for as true sales. The Company has an insurance contract in place against losses in excess of $250,000 relating to representationand warranty claims. The Company does not believe that it has any exposure to representation and warranty claims; therefore it has notcreated an accrual for potential claims.Loan securitization transactions are subject to certain restrictive covenants as detailed in the governing transaction documents. The Companymonitors compliance with these covenants on a continuing basis.NOTE 10 - DebtTotal debt outstanding was as follows at December 31 (in thousands): 2013 2012Securitization financing$423,369 $491,720ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 10 - Debt (cont.)Securitization Financing - 2004‑A SecuritizationOn February 11, 2004, the Company completed a securitization of approximately $238.0 million in principal balance of manufacturedhousing loans. The securitization was accounted for as a financing. As part of the securitization the Company, through a special purposeentity, issued $200.0 million in notes payable. The notes are stratified into six different classes and pay interest at a duration weightedaverage rate of approximately 5.12%. The notes had a contractual maturity date of October 2013 with respect to the Class A‑1 notes; August2017, with respect to the Class A‑2 notes; and December 2020, with respect to the Class A‑3 notes. All three classes (A-1, A-2 and A-3) havebeen paid in full. The Class A‑4, Class M‑1 and Class M‑2 notes have a contractual maturity date of January 2035. The outstanding balanceon the 2004‑A securitization notes was approximately $43.1 million and $50.3 million at December 31, 2013 and 2012, respectively.Securitization Financing - 2004‑B SecuritizationOn September 29, 2004, the Company completed a securitization of approximately $200.0 million in principal balance of manufacturedhousing loans. The securitization was accounted for as a financing. As part of the securitization the Company, through a special purposeentity, issued $169.0 million in notes payable. The notes are stratified into seven different classes and pay interest at a duration‑weightedaverage rate of approximately 5.27%. The notes had a contractual maturity date of June 2013 with respect to the Class A‑1 notes; December2017, with respect to the Class A‑2 notes; and August 2021, with respect to the Class A‑3 notes. All three classes (A-1, A-2 and A-3) havebeen paid in full. The Class A‑4, Class M‑1, Class M‑2 and Class B‑1 notes have a contractual maturity date of November 2035. Theoutstanding balance on the 2004‑B securitization notes was approximately $41.4 million and $49.2 million at December 31, 2013 and 2012,respectively.Securitization Financing - 2005‑A SecuritizationOn May 12, 2005, the Company completed a securitization of approximately $190.0 million in principal balance of manufactured housingloans. The securitization was accounted for as a financing. As part of the securitization the Company, through a special purpose entity, issued$165.3 million in notes payable. The notes are stratified into seven different classes and pay interest at a duration‑weighted average rate ofapproximately 5.30%. The notes had a contractual maturity date of July 2013 with respect to the Class A‑1 notes; and May 2018, with respectto the Class A‑2 notes. Both the A-1 and A-2 classes have been paid in full. The remaining notes have a contractual maturity date of October2021, with respect to the Class A‑3 notes; and June 2036, with respect to the Class A‑4, Class M‑1, Class M‑2 and Class B notes. Theoutstanding balance on the 2005‑A securitization notes was approximately $46.1 million and $54.3 million at December 31, 2013 and 2012,respectively.Securitization Financing - 2005‑B SecuritizationOn December 15, 2005, the Company completed a securitization of approximately $175.0 million in principal balance of manufacturedhousing loans. The securitization was accounted for as a financing. As part of the securitization the Company, through a special purposeentity, issued $156.2 million in notes payable. The notes are stratified into eight different classes and pay interest at a duration‑weightedaverage rate of approximately 6.15%. The notes had a contractual maturity date of February 2014 with respect to the Class A‑1 notes; andDecember 2018, with respect to the Class A‑2 notes. Both the A-1 and A-2 classes have been paid in full. The remaining notes have acontractual maturity date of May 2022, with respect to the Class A‑3 notes; and January 2037, with respect to the Class A‑4, Class M‑1,ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 10 - Debt (cont.)Class M‑2, Class B‑1 and Class B‑2 notes. The outstanding balance on the 2005‑B securitization notes was approximately $51.5 millionand $59.1 million at December 31, 2013 and 2012, respectively.Securitization Financing - 2006‑A SecuritizationOn August 25, 2006, the Company completed a securitization of approximately $224.2 million in principal balance of manufactured housingloans. The securitization was accounted for as a financing. As part of the securitization the Company, through a special purpose entity, issued$200.6 million in notes payable. The notes are stratified into two different classes. The Class A‑1 notes paid interest at one month LIBORplus 15 basis points and had a contractual maturity date of November 15, 2018. The Class A-1 notes have been paid in full. The Class A‑2notes pay interest (as specified in the Indenture) at a rate equal to the least of the applicable Auction Rate, the Net Contract Rate and themaximum cap rate of 18.00% per annum and have a contractual maturity date of October 2037. Additional credit enhancement was providedthrough the issuance of a financial guaranty insurance policy by Ambac Assurance Corporation. The outstanding balance on the 2006‑Asecuritization notes was approximately $86.3 million and $98.0 at December 31, 2013 and 2012, respectively.Securitization Financing - 2007‑A SecuritizationOn May 2, 2007, the Company completed a securitization of approximately $200.4 million in principal balance of manufactured housingloans. The securitization was accounted for as a financing. As part of the securitization the Company, through a special purpose entity, issued$184.4 million in notes payable. The notes are stratified into two different classes. The Class A‑1 notes pay interest at one month LIBORplus 19 basis points and have a contractual maturity date of April 2037. The Class A‑2 notes pay interest (as specified in the Indenture) at arate equal to the least of the applicable Auction Rate, the Net Contract Rate and the maximum cap rate of 18.00% per annum and have acontractual maturity date of April 2037. Additional credit enhancement was provided through the issuance of a financial guaranty insurancepolicy by Ambac Assurance Corporation. The outstanding balance on the 2007‑A securitization notes was approximately $89.0 million and$103.0 at December 31, 2013 and 2012, respectively.Securitization Financing - 2007‑B SecuritizationOn October 16, 2007, the Company completed a securitization of approximately $140.0 million in principal balance of manufactured housingloans. The securitization was accounted for as a financing. As part of the securitization the Company, through a special purpose entity, issued$126.7 million of a single AAA rated floating rate class of asset backed notes to a single qualified institutional buyer pursuant to Rule 144Aunder the Securities Act of 1933. The notes pay interest at one month LIBOR plus 120 basis points and have a contractual maturity date ofSeptember 2037. Additional credit enhancement was provided by a guaranty from Ambac Assurance Corporation. The outstanding balanceon the 2007‑B securitization notes was approximately $66.1 million and $77.7 at December 31, 2013 and 2012, respectively.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 10 - Debt (cont.)The average balance and average interest rate of outstanding debt was as follows at December 31 (dollars in thousands): 2013 2012 AverageBalance AverageRate AverageBalance AverageRateSecuritization financing — 2004‑A securitization46,943 6.2 54,024 6.2Securitization financing — 2004‑B securitization45,560 6.7 53,943 6.4Securitization financing — 2005‑A securitization50,495 5.9 59,087 5.8Securitization financing — 2005‑B securitization55,670 6.2 64,850 6.2Securitization financing — 2006‑A securitization92,419 8.3 104,233 8.5Securitization financing — 2007‑A securitization96,627 7.5 110,690 7.7Securitization financing — 2007‑B securitization72,362 7.1 82,950 7.0The duration weighted average rate on the notes differ from the average rate of outstanding debt at December 31, 2013 and 2012,respectively due to the varying degrees of duration for each class and the amortization of transactions costs.At December 31, 2013, the total of maturities and amortization of debt during the next five years and thereafter are approximately as follows:2014 - $69.7 million; 2015 - $116.1 million; 2016 - $65.4 million; 2017 - $57.7 million; 2018 - $21.4 million and $93.3 million thereafter.NOTE 11 - Employee BenefitsThe Company maintains a 401(k) plan covering all employees who meet certain minimum requirements. Participating employees canmake salary contributions to the plan up to Internal Revenue Code limits. The Company matches $1.00 for each dollar contributed by eacheligible participant in the plan up to the first 1% of each eligible participant’s annual compensation and $0.50 for each dollar contributed byeach eligible participant in the plan up to the next 5% of each eligible participant’s annual compensation. The Company’s related expensewas approximately $33,000 and $32,000, respectively for the years ended December 31, 2013 and 2012.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 12 - Stockholders' EquityOn October 8, 2003, the Company completed a private placement of $150.0 million of its common stock to certain institutional and accreditedinvestors.Effective January 1, 2004, the Company sold 125 shares of its Series A Cumulative Redeemable Preferred Stock directly to 125 investors ata per share price of $1,000. The transaction resulted in net proceeds to the Company of $95,000. These shares pay dividends quarterly at anannual rate of 12.5%.On February 4, 2004, the Company completed a private placement of 1,000,000 shares of its common stock to one institutional investor. Theoffering provided net proceeds to the Company of approximately $9.4 million.On May 6, 2004, the Company completed an initial public offering of 8.0 million shares of its common stock. In June 2004 the underwritersof the initial public offering purchased an additional 625,900 shares of the Company’s common stock pursuant to an underwriter’sover‑allotment option. Net proceeds from these transactions were $72.2 million after discount and expenses.In September 2005, the Securities and Exchange Commission declared effective the Company’s shelf registration statement on Form S‑3for the proposed offering, from time to time, of up to $200 million of its common stock, preferred stock and debt securities. In addition to suchdebt securities, preferred stock and common stock the Company could sell under the registration statement from time to time, the Companyregistered for sale 1,540,000 shares of its common stock pursuant to a sales agreement entered into with Brinson Patrick SecuritiesCorporation. Sales under the agreement commenced on June 5, 2007. There were no sales under this agreement during the years endedDecember 31, 2013 and 2012. The Company sold 50,063 shares of common stock under the sales agreement with Brinson PatrickSecurities Corporation during the year ended December 31, 2007, at the price of the Company’s common stock prevailing at the time of eachsale. The Company received proceeds, net of commissions, of $296,000 during the year ended December 31, 2007, as a result of thesesales.In December 2008, the Company voluntarily delisted its common stock from the NASDAQ Global Market, deregistered its common stockunder the Securities Act of 1934 and terminated its shelf registration statement on Form S‑3 and its registration statement on Form S‑8.Data pertaining to the Company’s distributions declared and paid to common stockholders during the years ended December 31, 2013 and2012 are as follows: Declaration Date Record Date Date Paid Distributionper Share Total Distribution(thousands) December 16, 2013 December 26, 2013 December 31, 2013 $ 0.14 $ 3,630 August 29, 2013 September 9, 2013 September 16, 2013 $ 0.14 $ 3,630 May 14, 2013 May 27, 2013 June 3, 2013 $ 0.09 $ 2,333 February 20, 2013 March 4, 2013 March 11, 2013 $ 0.08 $ 2,074 December 13, 2012 December 24, 2012 December 28, 2012 $ 0.13 $ 3,370 September 6, 2012 September 17, 2012 September 25, 2012 $ 0.12 $ 3,111 June 4, 2012 June 15, 2012 June 22, 2012 $ 0.38 $ 9,852 March 14, 2012 March 26, 2012 April 2, 2012 $ 0.15 $ 3,889ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 13 - Liquidity Risks and UncertaintiesThe risks associated with the Company’s business become more acute in any economic slowdown or recession. Periods of economicslowdown or recession may be accompanied by decreased demand for consumer credit and declining asset values. In the manufacturedhousing business, any material decline in collateral values increases the loan‑to‑value ratios of loans previously made, thereby weakeningcollateral coverage and increasing the size of losses in the event of default. Delinquencies, repossessions, foreclosures and losses generallyincrease during economic slowdowns or recessions. For the Company’s finance customers, loss of employment, increases in cost‑of‑livingor other adverse economic conditions would impair their ability to meet their payment obligations. Higher industry inventory levels ofrepossessed manufactured houses may affect recovery rates and result in future impairment charges and provision for losses. In addition, inan economic slowdown or recession, servicing and litigation costs generally increase. Any sustained period of increased delinquencies,repossessions, foreclosures, losses or increased costs would adversely affect the Company’s financial condition, results of operations andliquidity. The Company bears the risk of delinquency and default on securitized loans in which it has a residual or retained ownershipinterest. The Company also reacquires the risks of delinquency and default for loans that it is obligated to repurchase. Repurchase obligationsare typically triggered in sales or securitizations if the loan materially violates the Company’s representations or warranties.The availability of sufficient sources of capital to allow the Company to continue its operations is dependent on numerous factors, many ofwhich are outside its control. Relatively small amounts of capital are required for the Company’s ongoing operations and cash generatedfrom operations should be adequate to fund the continued operations. ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 14 - Lease CommitmentsThe Company leases office facilities and equipment under leasing agreements that expire at various dates. These leases generally containscheduled rent increases or escalation clauses and/or renewal options. Future minimum rental payments under agreements classified asoperating leases with non‑ cancelable terms at December 31, 2013 were as follows (in thousands):2014$1132015 1162016 49Thereafter—Total$278For the years ended December 31, 2013 and 2012, rental and operating lease expense amounted to approximately $109,000 and $108,000,respectively. The Company did not pay any contingent rental expense and received no sublease income during the years ended December31, 2013 and 2012, respectively.NOTE 15 - Fair Value MeasurementsOn January 1, 2008, the Company adopted guidance related to fair value measurements and additional guidance for financial instruments.This guidance establishes a framework for measuring fair value and expands disclosures about fair value measurements. The updatedguidance was issued to establish a uniform definition of fair value. The definition of fair value under this guidance is market based asopposed to company specific and includes the following:Defines fair value as the price that would be received to sell an asset or paid to transfer a liability, in either case through an orderlytransaction between market participants at a measurement date, and establishes a framework for measuring fair value;Establishes a three level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset orliability as of the measurement date;Nullifies previous fair value guidance, which required the deferral of profit at inception of a transaction involving a derivative financialinstrument in the absence of observable data supporting the valuation technique;Eliminates large position discounts for financial instruments quoted in active markets and requires consideration of the company’screditworthiness when valuing liabilities; andExpands disclosures about instruments that are measured at fair value. The accounting guidance for financial instruments provides an option to elect fair value as an alternative measurement for selected financialassets, financial liabilities, unrecognized Company commitments and written loan commitments not previously recorded at fair value. TheCompany has not elected to apply the fair value option for any financial instruments.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 15 - Fair Value Measurements (cont.) Determination of Fair Value The Company has an established process for determining fair values. Fair value is based upon quoted market prices, where available. Iflisted prices or quotes are not available, fair value is based upon internally developed models that use primarily market‑based orindependently‑sourced market parameters, including interest rate yield curves and option volatilities. Valuation adjustments may be made toensure that financial instruments are recorded at fair value. These adjustments include amounts to reflect counterparty credit quality,creditworthiness, liquidity and unobservable parameters that are applied consistently over time. Any changes to the valuation methodologyare reviewed by management to determine appropriateness of the changes. As markets develop and the pricing for certain products becomesmore transparent, the Company expects to continue to refine its valuation methodologies. The methods described above may produce a fair value estimate that may not be indicative of net realizable value or reflective of future fairvalues. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, theuse of different methodologies or assumptions to determine the fair value of certain financial instruments could result in different estimates offair values of the same financial instruments at the reporting date.Valuation HierarchyThe accounting guidance for fair value measurements and disclosures establishes a three‑level valuation hierarchy for disclosure of fairvalue measurements. The valuation hierarchy favors the transparency of inputs to the valuation of an asset or liability as of themeasurement date and thereby favors use of Level 1 if appropriate information is available, and otherwise Level 2 and finally Level 3 if Level2 input is not available. The three levels are defined as follows.Level 1 - Fair value is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets in which theCompany can participate.Level 2 - Fair value is based upon quoted prices for similar (i.e., not identical) assets and liabilities in active markets, and otherinputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.Level 3 - Fair value is based upon financial models using primarily unobservable inputs.A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input within the valuation hierarchythat is significant to the fair value measurement.The following is a description of the valuation methodologies used by the Company for instruments measured at fair value, as well as thegeneral classification of such instruments pursuant to the valuation hierarchy.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 15 - Fair Value Measurements (cont.)AssetsInvestments ‑ "SOP - 03-3" - These securities are comprised of mortgage‑backed securities that have evidence of deterioration of creditquality at purchase. The fair values are determined by using a third party discounted cash flow model based on observable market prices andare classified within Level 2 of the valuation hierarchy.Loans receivableThe Company does not record these loans at fair value on a recurring basis. However, from time to time a loan is considered impaired andan allowance for loan losses is established. Loans are considered impaired if it is probable that payment of interest and principal will not bemade in accordance with the contractual terms of the loan agreement. Once a loan is identified as impaired, the fair value of the impairedloan is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, and liquidationvalue or discounted cash flows. Impaired loans do not require an allowance if the fair value of the expected repayments or collateral exceedthe recorded investments in such loans. At December 31, 2013, substantially all of the total impaired loans were evaluated based on the fairvalue of the collateral rather than on discounted cash flows. Impaired loans where an allowance is established based on the fair value ofcollateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or acurrent appraised value, the Company records the impaired loan as a nonrecurring Level 2 valuation.Repossessed housesLoans on which the underlying collateral has been repossessed are adjusted to fair value upon transfer to repossessed assets. Subsequently,repossessed assets are carried at the lower of carrying value or fair value, less anticipated marketing and selling costs. Fair value is basedupon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fairvalue of the collateral is based on an observable market price or a current appraised value, the Company records the repossessed asset as anonrecurring Level 2 valuation.Liabilities Derivative Financial InstrumentsThe Company's derivative contracts include only interest rate swaps. Where possible, such contracts are valued by comparing similarcontracts in an active market with inputs that are observable and are classified within Level 2 of the valuation hierarchy. Where observableactive market inputs are not available, the Company utilizes internal financial models using inputs derived from forecasts based on historicalresults and the Company’s estimates. These valuations are classified within Level 3 of the valuation hierarchy.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 15 - Fair Value Measurements (cont.)Assets and liabilities measured at fair value on a recurring basis are summarized below (dollars in thousands): December 31, 2013 Fair Value Measurement Using Level 1 Level 2 Level 3 Assets/Liabilitiesat Fair ValueDerivative liabilities$— $— $29,552 $29,552Total liabilities$— $— $29,552 $29,552 December 31, 2012 Fair Value Measurement Using Level 1 Level 2 Level 3 Assets/Liabilitiesat Fair ValueDerivative liabilities$— $— $37,454 $37,454Total liabilities$— $— $37,454 $37,454Changes in assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the yearsended December 31 were as follows (in thousands): 2013 2012Beginning balance$37,454 $41,662 Net unrealized gains on interest rate swaps, designated as cash flow hedges(7,902) (4,208)Ending balance$29,552 $37,454ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 15 - Fair Value Measurements (cont.)The Company also has assets that under certain conditions are subject to measurement at fair value on a non‑recurring basis. These includeassets that are measured at the lower of cost or market and had a fair value below cost at the end of the period as summarized below: December 31, 2013 Fair Value on a Non‑recurring Basis Level 1 Level 2 Level 3 Asset/Liabilityat Fair ValueInvestments-SOP – 03-3$— $1,192 $— $1,192Impaired loans— 1,683 — 1,683Repossessed assets— 1,401 — 1,401Total Asset$— $4,276 $— $4,276 December 31, 2012 Fair Value on a Non‑recurring Basis Level 1 Level 2 Level 3 Asset/Liabilityat Fair ValueInvestment-SOP – 03-3$— $1,442 $— $1,442Impaired loans— 1,826 — 1,826Repossessed houses— 2,180 — 2,180Total Asset$— $5,448 $— $5,448ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 15 - Fair Value Measurements (cont.)Required Financial Disclosure about Financial InstrumentsThe accounting guidance for financial instruments requires disclosures of the estimated fair value of certain financial instruments and themethods and significant assumptions used to estimate their fair values. Certain financial instruments and all nonfinancial instruments areexcluded from the scope of this guidance. Accordingly, the fair value disclosures required by this guidance are only indicative of the value ofindividual financial instruments as of the dates indicated and should not be considered an indication of the fair value of the Company. 2013 2012 Carrying Amount EstimatedFair Value Carrying Amount EstimatedFair ValueAssets Cash and cash equivalents$774 $774 $826 $826Restricted cash 8,516 8,516 11,110 11,110Investments 1,191 1,191 1,442 1,442Loans receivable 463,254 436,353 543,420 492,598 Liabilities Securitization financing 423,369 380,086 491,720 413,479Derivatives 29,552 29,552 37,454 37,454The methods and assumptions that were used to estimate the fair value of financial assets and financial liabilities that are measured at fairvalue on a recurring or non‑recurring basis are discussed above. The following methods and assumptions were used to estimate the fairvalue for other financial instruments for which it is practicable to estimate that value:•Cash, cash equivalents and restricted cash ‑ Due to their short term in nature, the carrying amount of cash, cash equivalents,and restricted cash approximates fair value.•Investment‑Held‑to‑Maturity ‑ The fair value of investments, classified as held to maturity, is estimated by management using aninternally developed cash flow model using market interest rates inputs as well as management's best estimates of spreads forsimilar collateral.•Loans Receivable ‑ The fair value of loans is estimated by using internally developed discounted cash flow models using marketinterest rate inputs as well as management's best estimate of spreads for similar collateral.•Securitized Financing ‑ The fair value of securitized financing is estimated based on a discounted cash flow model that incorporatesthe current borrowing rates of the notes or similar types of borrowing arrangements.ORIGEN FINANCIAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of and For the Years Ended December 31, 2013 and 2012NOTE 16 - Related Party TransactionsThe Company leases its executive offices in Southfield, Michigan from an entity in which Mr. Gary A. Shiffman, a director of the Company,and certain of his affiliates beneficially own approximately a 21% interest. Ronald A. Klein, a director and the Chief Executive Officer of theCompany, owns less than a 1% interest in the landlord entity. The Company recorded rental expense for these offices of approximately$104,000 and $103,000 for the years ended December 31, 2013 and 2012, respectively.NOTE 17 - Subsequent EventsThe Company has evaluated subsequent events occurring through February 19, 2014, the date that the financial statements were availableto be issued for events requiring recording or disclosure in the Company’s financial statements.On February 19, 2014, the Company declared a dividend of $0.08 per common share payable to holders of record as of March 3, 2014. Thedividend will be paid on March 13, 2014 and will approximate $2.1 million.

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