UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
Commission file number 1-12616
SUN COMMUNITIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Maryland
(State of Incorporation)
27777 Franklin Rd.
Suite 200
Southfield, Michigan
(Address of Principal Executive Offices)
38-2730780
(I.R.S. Employer Identification No.)
48034
(Zip Code)
(248) 208-2500
(Registrant’s telephone number, including area code)
Common Stock, Par Value $0.01 per Share
New York Stock Exchange
Securities Registered Pursuant to Section 12(b) of the Act
Name of each exchange on which registered
7.125% Series A Cumulative Redeemable Preferred Stock, Par Value
$0.01 per Share
New York Stock Exchange
Securities Registered Pursuant to Section 12(b) of the Act
Name of each exchange on which registered
Securities Registered Pursuant to Section 12(g) of the Act: 6.50% Series A-4
Cumulative Convertible Preferred Stock, par value $0.01 per Share
Indicate 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 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [ X ] No [ ]
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 and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes [ 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’s knowledge, 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, 2016, the aggregate market value of the Registrant’s stock held by non-affiliates was $5,092,903,276 (computed by reference to
the closing sales price of the Registrant’s common stock as of June 30, 2016). For this computation, the Registrant has excluded the market value
of all shares of common stock reported as beneficially 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 the Registrant.
Number of shares of common stock, $0.01 par value per share, outstanding as of February 16, 2017: 73,507,706
Documents Incorporated By Reference
Unless provided in an amendment to this Annual Report on Form 10-K, the information required by Part III is incorporated by reference to the
registrant’s proxy statement to be filed pursuant to Regulation 14A, with respect to the registrant’s 2017 annual meeting of stockholders.
SUN COMMUNITIES, INC.
Table of Contents
Item
Description
Part I.
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
Part II.
Item 5.
Item 6.
Item 7.
Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Part III.
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 12.
Item 13.
Item 14.
Part IV.
Item 15.
Exhibits and Financial Statement Schedules
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SUN COMMUNITIES, INC.
PART I
ITEM 1. BUSINESS
GENERAL
Sun Communities, Inc., a Maryland corporation, and all wholly-owned or majority-owned and controlled subsidiaries, including
Sun Communities Operating Limited Partnership, a Michigan limited partnership (the “Operating Partnership”) and Sun Home
Services, Inc. ("SHS") are referred to herein as the “Company,” “us,” “we,” and “our”. We are a self-administered and self-managed
real estate investment trust (“REIT”).
We are a fully integrated real estate company which, together with our affiliates and predecessors, have been in the business of
acquiring, operating, developing, and expanding manufactured housing ("MH") and recreational vehicle ("RV") communities since
1975. We lease individual parcels of land (“sites”) with utility access for placement of manufactured homes and RVs to our
customers. We are also engaged through a taxable subsidiary, SHS, in the marketing, selling, and leasing of new and pre-owned
homes to current and future residents in our communities. The operations of SHS support and enhance our occupancy levels,
property performance, and cash flows.
We own, operate, or have an interest in a portfolio of MH and RV communities. As of December 31, 2016, we owned, operated
or had an interest in a portfolio of 341 properties in 29 states and Ontario, Canada (collectively, the “Properties”), including 226
MH communities, 87 RV communities, and 28 Properties containing both MH and RV sites. As of December 31, 2016, the Properties
contained an aggregate of 117,376 developed sites comprised of 80,166 developed MH sites, 20,916 annual RV sites (inclusive
of both annual and seasonal usage rights), and 16,294 transient RV sites. There are approximately 10,616 additional MH and RV
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 number is (248) 208-2500. We have regional property management offices located in Austin, Texas; Grand
Rapids, Michigan; Denver, Colorado; Ft. Myers, Florida; and Orlando, Florida; and we employed an aggregate of 2,679 full and
part time employees as of December 31, 2016.
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 our Annual Reports 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 reports with the Securities and Exchange Commission (the "SEC").
STRUCTURE OF THE COMPANY
The Operating Partnership is structured as an umbrella partnership REIT, or UPREIT. In 1993, we contributed our net assets to
the Operating Partnership in exchange for the sole general partner interest in the Operating Partnership and the majority of all the
Operating Partnership’s initial capital. We substantially conduct our operations through the Operating Partnership. The Operating
Partnership owns, either directly or indirectly through other 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 acquire MH and
RV communities in transactions that defer some or all of the sellers’ tax consequences. The financial results of the Operating
Partnership and our other subsidiaries are consolidated in our Consolidated Financial Statements. The financial results include
certain activities that do not necessarily qualify as REIT activities under the Internal Revenue Code of 1986, as amended (the
“Code”). We have formed taxable REIT subsidiaries, as defined in the Code, to engage in such activities. We use taxable REIT
subsidiaries to offer certain services to our residents and engage in activities that would not otherwise be permitted 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.
Under the partnership agreement, the Operating Partnership is structured to make distributions with respect to certain of the
Operating Partnership units ("OP units") at the same time that distributions are made to our common stockholders. The Operating
Partnership is structured to permit limited partners holding certain classes or series of OP units to exchange those OP units for
shares of our common stock (in a taxable transaction) and achieve liquidity for their investment.
As the sole general partner of the Operating Partnership, we generally have the power to manage and have complete control over
the conduct of the Operating Partnership's affairs and all decisions or actions made or taken by us as the general partner pursuant
to the partnership agreement are generally binding upon all of the partners and the Operating Partnership.
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SUN COMMUNITIES, INC.
We do not own all of the OP units. As of December 31, 2016, the Operating Partnership had issued and outstanding:
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75,964,439 common OP units;
1,283,819 preferred OP units ("Aspen preferred OP units");
367,290 Series A-1 preferred OP units;
40,268 Series A-3 preferred OP units;
2,315,978 Series A-4 preferred OP units;
3,400,000 7.125% Series A Cumulative Redeemable Preferred OP Units (“7.125% Series A OP units”);
112,400 Series B-3 preferred OP units; and
333,163 Series C preferred OP units.
As of December 31, 2016, we held:
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73,205,576 common OP units, or approximately 96% of the issued and outstanding common OP units;
1,681,849 Series A-4 preferred OP units, or approximately 73% of the issued and outstanding Series A-4 preferred
OP units;
all of the 7.125% Series A OP units; and
no Aspen preferred OP units, Series A-1 preferred OP units, Series A-3 preferred OP units, Series B-3 preferred OP
units, or Series C preferred OP units.
Ranking and Priority
The various classes and series of OP units issued by the Operating Partnership rank as follows with respect to rights to the payment
of distributions and the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up
of the Operating Partnership:
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first, the 7.125% Series A OP units;
next, the Series A-4 preferred OP units, Aspen preferred OP units and Series A-1 preferred OP units, on parity with
each other;
next, the Series C preferred OP units;
next, the Series B-3 preferred OP units;
next, the Series A-3 preferred OP units; and
finally, the common OP units.
Common 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 common stock. Holders of common OP units are entitled to receive distributions from the Operating Partnership
as and when declared by the general partner, provided that all accrued distributions payable on OP units ranking senior to the
common OP units have been paid. The holders of common OP units generally receive distributions on the same dates and in
amounts equal to the distributions paid to holders of our common stock.
Aspen Preferred OP Units
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 preferred OP unit into: (a) if the average closing price of our common stock for the preceding ten trading days
is $68.00 per share or less, 0.397 common OP units, or (b) if the average closing price of our common stock for the preceding ten
trading days is greater than $68.00 per share, the number of common OP units determined by dividing (i) the sum of (A) $27.00
plus (B) 25% of the amount by which the average closing price of our common stock for the preceding ten trading days exceeds
$68.00 per share, by (ii) the average closing price of our common stock for the preceding ten trading days. The holders of Aspen
preferred OP units are entitled to receive distributions not less than quarterly. Distributions on Aspen preferred OP units are generally
paid on the same dates as distributions are paid to holders of common OP units. Each Aspen preferred OP unit is entitled 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 U.S. Treasury
bond 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 Aspen preferred OP units of any holder thereof within five days after receipt of
a written demand during the existence of certain uncured Aspen preferred OP unit defaults, including our failure to pay distributions
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SUN COMMUNITIES, INC.
on the Aspen preferred OP units when due and our failure to provide certain security for the payment of distributions 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.
Series A-1 Preferred OP Units
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 into approximately 2.4390 shares of our common stock (which exchange rate is subject to adjustment upon
stock splits, recapitalizations, and similar events). The holders of Series A-1 preferred OP units are entitled to receive distributions
not less than quarterly. Distributions on Series A-1 preferred OP units are generally paid on the last day of each quarter. 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
equal to 6.0%. Series A-1 preferred OP units do not have any voting or consent rights on any matter requiring the consent or
approval of the Operating Partnership's limited partners.
Series A-3 Preferred OP Units
Subject to certain limitations, the holder of each Series A-3 preferred OP unit at its option may exchange such Series A-3 preferred
OP unit at any time into approximately 1.8605 shares of our common stock (which exchange rate is subject to adjustment upon
stock splits, recapitalizations, and similar events). The holders of Series A-3 preferred OP units are entitled to receive distributions
not less than quarterly. Each Series A-3 preferred OP unit is entitled to receive distributions in an amount equal to the product of
$100.00 multiplied by an annual rate equal to 4.5%. Series A-3 preferred OP units do not have any voting or consent rights on any
matter requiring the consent or approval of the Operating Partnership's limited partners.
Series A-4 Preferred OP Units
In connection with the issuance of our 6.50% Series A-4 Cumulative Convertible Preferred Stock (the "Series A-4 Preferred Stock”)
in November 2014, the Operating Partnership created the Series A-4 preferred OP units as a new class of OP units. Series A-4
preferred OP units have economic and other rights and preferences substantially similar to those of the Series A-4 Preferred Stock,
including rights to receive distributions at the same time and in the same amounts as distributions paid on Series A-4 Preferred
Stock. Each Series A-4 preferred OP unit is exchangeable into approximately 0.4444 shares of common stock or common OP units
(which exchange rate is subject to adjustment upon stock splits, recapitalizations, and similar events). The Operating Partnership
issued Series A-4 preferred OP units to us in connection with our acquisition of the American Land Lease ("ALL") portfolio of
MH communities from Green Courte Real Estate Partners, LLC, Green Courte Real Estate Partners II, LLC, Green Courte Real
Estate Partners III, LLC and certain of their affiliated entities (collectively, the "Green Courte parties" or the "Green Courte
entities"). In 2014, we issued 669,449 Series A-4 preferred OP units to the sellers as consideration for the ALL acquisition. In
January 2015, we issued 200,000 Series A-4 Preferred OP units in a private placement in connection with the ALL acquisition. In
June 2015, we issued 34,219 Series A-4 preferred OP units to GCP Fund III Ancillary Holding, LLC. In July 2015, we repurchased
4,066,586 Series A-4 preferred OP units. At December 31, 2016 we held 1,681,849 Series A-4 preferred OP units. The rights of
the 1,681,849 Series A-4 preferred OP units held by us mirror the economic rights of the Series A-4 preferred OP units issued to
the Green Courte entities, but certain voting, consent, and other rights do not apply to the Series A-4 preferred OP units held by
us.
If certain change of control transactions occur or if our common stock ceases to be listed or quoted on an exchange or quotation
system, then at any time after November 26, 2019, we or the holders of shares of Series A-4 Preferred Stock and Series A-4
preferred OP units may cause all or any of those shares or units to be redeemed for cash at a redemption price equal to the sum of
(i) the greater of (x) the amount that the redeemed shares of Series A-4 Preferred Stock and Series A-4 preferred OP units would
have received in such transaction if they had been converted into shares of our common stock immediately prior to such transaction,
or (y) $25.00 per share, plus (ii) any accrued and unpaid distributions thereon to, but not including, the redemption date.
7.125% Series A OP Units
In connection with the issuance of our 7.125% Series A Cumulative Redeemable Preferred Stock ("Series A Preferred Stock") in
November 2012, the Operating Partnership created 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 same amounts as distributions paid on Series
A Preferred Stock. The Operating Partnership issued the 7.125% Series A OP units to us in consideration of our contributing to
the Operating Partnership the net proceeds of our November 2012 offering of shares of Series A Preferred Stock.
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SUN COMMUNITIES, INC.
Series B-3 Preferred OP Units
Series B-3 preferred OP units are not convertible. The holders of Series B-3 preferred OP units generally receive distributions on
the last day of each quarter. Each Series B-3 preferred OP unit is entitled to receive distributions in an amount equal to the product
of $100.00 multiplied by an annual rate equal to 8.0%. As of December 31, 2016, there were outstanding 36,700 Series B-3 preferred
OP units which were issued on December 1, 2002, 33,450 Series B-3 preferred OP units which were issued on January 1, 2003,
and 42,250 Series B-3 preferred OP units which were issued on January 5, 2004. Subject to certain limitations, (x) during the 90-
day period beginning on each of the tenth through fifteenth anniversaries 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 applicable Series 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-3 preferred 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 time after 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 OP units of any holder thereof at the redemption price of $100.00 per unit. Series B-3
preferred OP units do not have any voting or consent rights on any matter requiring the consent or approval of the Operating
Partnership's limited partners.
Series C Preferred OP Units
Subject to certain limitations, the holder of each Series C preferred OP unit at its option may exchange such Series C preferred
OP unit at any time into 1.11 shares of our common stock (which exchange rate is subject to adjustment upon stock splits,
recapitalizations, and similar events). The holders of Series C preferred OP units are entitled to receive distributions not less than
quarterly. Each Series C preferred OP unit is entitled to receive distributions in an amount equal to the product of $100.00 multiplied
by an annual rate equal to (i) 4.0% until April 1, 2017, (ii) 4.5% from April 2, 2017 until April 1, 2020, and (iii) 5.0% after April
2, 2020. Series C preferred OP units do not have any voting or consent rights on any matter requiring the consent or approval of
the Operating Partnership's limited partners.
REAL PROPERTY OPERATIONS
Properties are designed and improved for several home options of various sizes and designs and consist of both MH communities
and RV communities.
A MH community is a residential subdivision designed and improved with sites for the placement of manufactured homes, related
improvements, and amenities. Manufactured homes are detached,
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.
homes which are produced of
Modern manufactured housing communities contain improvements similar to other
residential developments,
including centralized entrances, paved streets, curbs and gutters, and parkways. In addition, these communities also often provide
a number of amenities, such as a clubhouse, a swimming pool, shuffleboard courts, tennis courts, and laundry facilities.
A 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 provide vacation rental homes. RV communities include a number of amenities such as restaurants, golf courses, swimming
pools, tennis courts, 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. In five of our 341 communities, we do not own the underlying land, but
operate the communities pursuant to ground leases. Certain of the Properties provide water and sewer service through public or
private utilities, while others provide these services to residents from
facilities. Each owner of a home within our Properties
is responsible for the maintenance of the home and leased site. As a result, our capital expenditure needs tend to be less significant
relative to
rental apartment complexes.
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SUN COMMUNITIES, INC.
PROPERTY MANAGEMENT
Our property management strategy emphasizes intensive,
district and community
management by dedicated,
focus enables us to continually monitor and address resident concerns, the performance of
managers. We believe that this
competitive properties, and local market conditions. As of December 31, 2016, we employed 2,679 full and part time employees,
of which 2,303 were located
as property managers, support staff, or maintenance personnel.
Our community managers are overseen by John B. McLaren, our President and Chief Operating Officer, who has been in the
manufactured housing industry since 1995, three Senior Vice Presidents of Operations and Sales, eight Divisional Vice Presidents
and 33 Regional Vice Presidents. The Regional Vice Presidents are responsible for semi-annual market surveys of competitive
communities, interaction with local manufactured home dealers, regular property inspections, and oversight of property operations
and sales functions for seven to 14 properties.
Each district or community manager performs regular inspections in order to continually monitor the Property’s physical condition
and to effectively address tenant 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 effectively and professionally. All of our property
management personnel participate in on-going training to ensure that changes to management policies and procedures are
implemented consistently. We offer 147 courses for our team members through our Sun University, which has led to increased
knowledge and accountability for daily operations and policies and procedures.
HOME SALES AND RENTALS
SHS is engaged in the marketing, selling and leasing of new and pre-owned homes to current and future residents in our communities.
Since tenants often purchase a home already on-site within a community, such services enhance occupancy and property
performance. Additionally, because many of the homes on the Properties are sold through SHS, better control of home quality in
our communities can be maintained than if sales services were conducted solely through third-party brokers. SHS also leases
homes to prospective tenants. At December 31, 2016, SHS had 10,733 occupied leased homes in its portfolio. New and pre-owned
homes are purchased for the Rental Program. Leases associated with the Rental Program generally have a term of one year. The
Rental Program 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 46,000 applications during 2016 to
live in our Properties, providing a significant "resident boarding" system allowing us to market purchasing a home to the best
applicants 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 INSURANCE
General
MH and RV community properties are subject to various laws, ordinances and regulations, including regulations relating to
recreational facilities such as swimming pools, clubhouses, and other common areas. We believe that each Property has the necessary
operating permits and approvals.
Insurance
Our management believes that the Properties are covered by adequate fire, property, business interruption, general liability, and
(where appropriate) flood and earthquake insurance provided by reputable companies with commercially reasonable deductibles
and limits. We maintain a blanket policy that covers all of our Properties. We have obtained title insurance insuring fee title to the
Properties in an aggregate amount which we believe to be adequate. Claims made to our insurance carriers that are determined to
be recoverable are classified in other receivables as incurred.
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SUN COMMUNITIES, INC.
SITE LEASES OR USAGE RIGHTS
The typical lease we enter into with a tenant for the rental of a manufactured home site is
,
renewable upon the consent of both parties, or, in some instances, as provided by statute. Certain of our leases, mainly Florida and
California properties, are tied to consumer price index or other indices as it relates to rent increases. Generally, market rate
adjustments are made on an annual basis. These leases are cancelable for
of rent, violation of community rules and
regulations or other specified defaults. During the five calendar years ended December 31, 2016, on average 2.3% of the homes
in our communities have been removed by their owners and 5.3% of the homes have been sold by their owners to a new owner
who then assumes rental obligations as a community resident. The average cost to move a home is approximately $4,000 to $10,000.
The average resident remains in our communities for approximately 13 years, while the average home, which gives rise to the
rental stream, remains in our communities for over 40 years.
or
Please see the Risk Factors in Item 1A, and our accompanying Consolidated Financial Statements and related notes thereto beginning
on page F-1 of this Annual Report on Form 10-K for more detailed information.
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SUN COMMUNITIES, INC.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains various “forward-looking statements” within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and we
intend that such forward-looking statements 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 facts are 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,” "guidance" 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 and financial performance, but involve known and
unknown risks and uncertainties, both general and specific to the matters discussed in this filing. These risks and uncertainties
may cause our actual results to be materially different from any future results expressed or implied by such forward-looking
statements. In addition 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 and uncertainties include but are not limited to:
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changes in general economic conditions, the real estate industry, and the markets in which we operate;
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;
changes in foreign currency exchange rates, specifically between the U.S. dollar and Canadian dollar;
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;
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 undertake no obligation to publicly update or revise any forward-looking statements included or incorporated by
reference into this filing, whether as a result of new information, future events, changes in our expectations or otherwise, except
as required by law.
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 by these cautionary statements.
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SUN COMMUNITIES, INC.
ITEM 1A. RISK FACTORS
Our prospects are subject to certain uncertainties and risks. Our future results could differ materially from current results, and
statements as a result of certain risk factors.
our actual results could differ materially from those projected in
These risk factors include, but are not limited to, those set forth below, other
events, and important factors disclosed
previously and from time to time in our other filings with the SEC.
REAL ESTATE RISKS
General economic conditions and the concentration of our properties in Florida, Michigan, Texas, and California may
affect our ability to generate sufficient revenue.
The market and economic conditions in our current markets generally, and specifically in metropolitan areas of our current markets,
may significantly affect manufactured home occupancy or rental rates. Occupancy and rental rates, in turn, may significantly affect
our revenues, and if our communities do not generate revenues sufficient to meet our operating expenses, including debt service
and capital expenditures, our cash flow and ability to pay or refinance our debt obligations could be adversely affected. We derive
significant amounts of our rental income from properties located in Florida, Michigan, Texas, and California. As of December 31,
2016, 121 properties, representing approximately 35.9% of developed sites, are located in Florida; 67 properties, representing
approximately 24.2% of developed sites, are located in Michigan; 21 properties, representing approximately 6.1% of developed
sites, are located in Texas; and 22 properties, representing approximately 4.8% of developed sites, are located in California. As a
result of the geographic concentration of our Properties in Florida, Michigan, Texas, and California, we are exposed to the risks
of downturns in the local economy or other local real estate market conditions which could adversely affect occupancy rates, rental
rates, and property values of properties in these markets.
Our income would also be adversely affected if tenants were unable to pay rent or if sites were unable to be rented on favorable
terms. If we were unable to promptly relet or renew the leases for a significant number of the sites, or if the rental rates upon such
renewal or reletting were significantly lower than expected rates, then our business and results of operations could be adversely
affected. In addition, certain expenditures associated with each Property (such as real estate taxes and maintenance costs) generally
are not reduced when circumstances cause a reduction in income from the Property. Furthermore, real estate investments are
relatively illiquid and, therefore, will tend to limit our ability to vary our portfolio promptly in response to changes in economic
or other conditions.
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;
changes in foreign currency exchange rates, specifically between the U.S. dollar and Canadian dollar;
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
homes);
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SUN COMMUNITIES, INC.
•
•
•
our ability to effectively manage, maintain and insure the Properties;
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.
Our Properties are located in developed areas that include other MH and RV community properties. The number of competitive
MH and RV community properties 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 newly acquired properties. We may be competing with others with greater resources and
whose officers and directors have more experience than our officers and directors. In addition, other forms of
residential properties, such as private and federally funded or assisted
provide housing alternatives to potential tenants of MH and RV communities.
housing projects and
housing,
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 home sales.
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.
The cyclical and seasonal nature of the MH and the RV industries may lead to fluctuations in our operating results.
The MH and RV markets can experience cycles of growth and downturn due to seasonality patterns. In the MH market, certain
properties maintain higher occupancy during the summer months, while certain other properties maintain higher occupancy during
the winter months. The RV market typically shows a decline in demand over the winter months, yet usually produces higher growth
in the spring and summer months due to higher use by vacationers. Our results on a quarterly basis can fluctuate due to this
cyclicality and seasonality.
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 properties on a select basis. Our acquisition activities and their
success are subject to the following risks:
• we may be unable to acquire a desired property because of competition from other well-capitalized real estate investors,
including both publicly traded REITs 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 due diligence 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;
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SUN COMMUNITIES, INC.
•
•
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 local economy, 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 existing operations.
If any of the above risks 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 a result, 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 could adversely affect our cash flow.
Increases in taxes and regulatory compliance costs may reduce our results of operations.
Costs resulting from changes in real estate laws, income taxes, service or other taxes, generally are not passed through to tenants
under leases and may adversely affect our results of operations and financial condition. Similarly, changes in laws increasing the
potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions
may result in significant unanticipated expenditures, which would adversely affect our business and results of operations.
We may not be able to integrate or finance our 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 in the development and construction business in the future. Our construction and development pipeline
may be exposed to the following risks which are in addition 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 the development;
• we may be unable to obtain, or face delays in obtaining, necessary zoning, building and other governmental permits and
authorizations, which could result in increased costs and delays, and even require us to abandon development of the
community entirely if we are unable to obtain such permits or authorizations;
• we may abandon development opportunities that we have already begun to explore and as a result we may not recover
expenses already incurred in connection with exploring such development opportunities;
• we may be unable to complete construction and
of a community on schedule resulting in increased debt service
expense and construction costs;
• we may incur construction and development costs for a community which exceed our original estimates due to increased
materials, labor or other costs, which could make completion of the community uneconomical and we may not be able
to increase rents to compensate for the increase in development costs which may impact our profitability;
• we may be unable to secure
lower profitability; and
financing on completion of development resulting in increased debt service 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 risks 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 of capital improvements. Enactment of such laws has been considered from time to time in other jurisdictions.
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SUN COMMUNITIES, INC.
Certain Properties are located, and we may purchase additional properties, in markets that are either subject to rent control or in
which rent-limiting legislation exists or may be enacted.
We may be subject to environmental liability.
Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate is liable for the costs
of removal or remediation of certain hazardous substances at, on, under or in such property. Such laws often impose such liability
without regard to whether the owner knew of, or was responsible for, the presence of such hazardous substances. The presence of
such substances, or the failure to properly remediate such substances, may adversely affect the owner’s ability to sell or rent such
property, to borrow using such property as collateral or to develop such property. Persons who arrange for the disposal or treatment
of hazardous substances also may be liable for the costs of removal or remediation of such substances at a disposal or treatment
facility owned or operated by another person. In addition, certain environmental laws impose liability for the management and
materials and for the release of such materials into the air. These laws may provide for third parties
disposal of
to seek recovery from owners or operators of real properties for personal injury associated with
materials. In
connection with the ownership, operation, management, and development of real properties, we may be considered an owner or
operator of such properties and, therefore, are potentially liable for removal or remediation costs, and also may be liable for
governmental fines and injuries to persons and property. When we arrange for the treatment or disposal of hazardous substances
at landfills or other facilities owned by other persons, we may be liable for the removal or remediation costs at such facilities.
All of the Properties have been subject to a Phase I or similar environmental audit (which involves general inspections without
soil sampling or ground water analysis) completed by independent environmental consultants. These environmental audits have
not revealed any significant environmental liability that would have a material adverse effect on our business. These audits cannot
reflect conditions arising after the studies were completed, and no assurances can be given that existing environmental studies
reveal all environmental liabilities, that any prior owner or operator of a property or neighboring owner or operator did not create
any material environmental condition not known to us, or that a material environmental condition does not otherwise exist as to
any one or more Properties.
Losses in excess of our insurance coverage or uninsured losses could adversely affect our cash flow.
We maintain comprehensive liability, fire, property, business interruption, general liability, and (where appropriate) flood and
earthquake insurance, provided by reputable companies with commercially reasonable deductibles and limits. Certain types of
losses including, but not limited to, riots or acts of war, may be either uninsurable or not economically insurable. In the event an
uninsured loss occurs, we could lose both our investment in and anticipated profits and cash flow from the affected property. Any
loss could adversely affect our ability to repay our debt.
FINANCING AND INVESTMENT RISKS
Our significant amount of debt could limit our operational flexibility or otherwise adversely affect our financial condition.
We have a significant amount of debt. As of December 31, 2016, we had approximately $3.1 billion of total debt outstanding,
consisting of approximately $2.8 billion in debt that is collateralized by mortgage liens on 189 of the Properties, $144.5 million
that is secured by collateralized receivables, $100.1 million on our lines of credit, and $45.9 million that is unsecured debt. If we
fail to meet our obligations under our secured debt, 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 our ability to make expected distributions, and could
threaten our continued viability.
We are subject to the risks normally associated with debt financing, including the following risks:
•
•
•
our cash flow may be insufficient to meet required payments of principal and interest, or require us to dedicate a substantial
portion of our cash flow to pay our debt and the interest associated with our debt rather than to other areas of our business;
our existing indebtedness may limit our operating flexibility due to financial and other restrictive covenants, including
restrictions on incurring additional debt;
it may be more difficult for us to obtain additional financing in the future for our operations, working capital requirements,
capital expenditures, debt service or other general requirements;
• we may be more vulnerable in the event of adverse economic and industry conditions or a downturn in our business;
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SUN COMMUNITIES, INC.
• 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 greater portion 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 the risk of a default on our indebtedness.
TAX RISKS
We may suffer adverse tax consequences and be unable to attract capital if we fail to qualify as a REIT.
We believe that since our taxable year ended December 31, 1994, we have been organized and operated, and intend to continue
to operate, so as to qualify for taxation as a REIT under the Code. Although we believe that we have been and will continue to be
organized and have operated and will continue to operate so as to qualify for taxation as a REIT, we cannot be assured that we
have been or will continue to be organized or operated in a manner to so qualify or remain so qualified. Qualification as a REIT
involves the satisfaction of numerous requirements (some on an annual and quarterly basis) established under highly technical
and complex Code provisions for which there are only limited judicial or administrative interpretations, and involves the
determination of various factual matters and circumstances not entirely within our control. In addition, frequent changes occur in
the area of REIT taxation, which require us to continually monitor our tax status.
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). Moreover, unless entitled to relief under certain statutory
provisions, we also would be disqualified from treatment as a REIT for the four taxable years following the year during which
qualification was lost. This treatment would reduce our net earnings available for investment or distribution to stockholders because
of the additional tax liability to us for the years involved. In addition, distributions to stockholders would no longer be required
to be made.
Federal, state and foreign income tax laws governing REITs and related interpretations may change at any time, and any such
legislative or other actions affecting REITs could have a negative effect on us.
Federal, state and foreign income tax laws governing REITs or the administrative interpretations of those laws may be amended
at any time. Federal, state, and foreign tax laws are under constant review by persons involved in the legislative process, at the
Internal Revenue Service and the U.S. Department of the Treasury, and at various state and foreign tax authorities. Changes to tax
laws, regulations, or administrative interpretations, which may be applied retroactively, could adversely affect us. We cannot predict
whether, when, in what forms, or with what effective dates, the tax laws, regulations, and administrative interpretations applicable
to us may be changed. Accordingly, we cannot assert that any such change will not significantly affect either our ability to qualify
for taxation as a REIT or the income tax consequences to us.
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 Operating Partnership is deemed to be a “publicly traded partnership,” it will be treated as a corporation
instead of a partnership for federal income tax purposes unless at least 90% of its income is qualifying income as defined in the
Code. The income requirements applicable to REITs and the definition of “qualifying income” for purposes of this 90% test are
similar in most respects. Qualifying income for the 90% test generally includes passive income, such as specified types of real
property rents, dividends, and interest. We believe that the Operating Partnership has and will continue to meet this 90% test, but
we cannot guarantee that it has 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 REIT for federal income tax purposes, and our ability to raise additional
capital could be significantly impaired.
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SUN COMMUNITIES, INC.
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 dividends paid and excluding net capital gain) and to avoid federal income taxation, our distributions must not
be less than 100% of our REIT taxable income, including capital gains. As a result of the distribution requirements, we do not
expect to accumulate significant amounts of cash. Accordingly, these distributions could significantly reduce the cash available
to us in subsequent periods to fund our operations and future growth.
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 not comparable to similar arrangements between unrelated parties. The Internal Revenue Service may
successfully assert that the economic arrangements of any of our 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%. Dividends payable by REITs, however, are generally not eligible for this reduced rate. Although this rule does not
adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular qualified corporate
dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less
competitive than investments in stock of non-REIT corporations that pay dividends, which could adversely affect the comparative
value of the stock of REITs, including our common stock and 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 other things, 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 rather than invest in attractive opportunities
or hold larger liquid reserves. Therefore, compliance with the REIT requirements may hinder our ability to operate solely to
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 if taxable 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 equity ownership 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 in the 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 RISKS
Some of our directors and officers may have conflicts of interest with respect to certain related party transactions and other
business interests.
Lease of Executive Offices. Gary A. Shiffman, together with certain of his family members, indirectly owns a 16.75% equity
interest in American Center LLC, the entity from which we lease office space for our principal executive offices. Each of Brian
M. Hermelin, Ronald A. Klein and Arthur A. Weiss indirectly owns a less than one percent interest in American Center LLC. Mr.
Shiffman is our Chief Executive Officer and Chairman of the Board. Each of Mr. Hermelin, Mr. Klein and Mr. Weiss is a director
of the Company. Under this agreement, we lease approximately 71,513 rentable square feet of permanent space, and 9,140 rentable
square feet of temporary space. The initial term of the lease is until October 31, 2026, and the base rent is $17.45 per square foot
(gross) until October 31, 2017, for both permanent and temporary space, with graduated rental increases thereafter. Each of Mr.
Shiffman, Mr. Hermelin, Mr. Klein and Mr. Weiss may have a conflict of interest with respect to his obligations as our officer and/
or director and his ownership interest in American Center LLC.
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SUN COMMUNITIES, INC.
Legal Counsel. During 2016, 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 to Jaffe, Raitt, Heuer, & Weiss of approximately $8.0 million, $4.6 million and
$7.5 million in the years ended December 31, 2016, 2015 and 2014, respectively.
Tax Consequences Upon Sale of Properties. Gary A. Shiffman holds limited partnership interests in the Operating Partnership
which were received in connection with the contribution of properties from partnerships previously affiliated with him. Prior to
any redemption of these limited partnership interests 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 these partnerships. Therefore, we and Mr. Shiffman may have
different objectives regarding the appropriate pricing 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. The loss of services of one or more of these executive officers could have a temporary adverse effect on our operations.
We do not currently maintain or contemplate obtaining any “key-man” life insurance on the 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 may be 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 and outstanding shares of our capital stock by any single stockholder has been restricted,
with certain exceptions, for the purpose of maintaining our qualification as 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, personal representatives 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 preferences over the common stock), may discourage a change of control of the Company and may also: (1) deter
tender offers for the common stock, which offers may be advantageous to stockholders; and (2) limit the opportunity for stockholders
to receive a premium for their common stock that might otherwise exist if an investor were attempting to assemble a block of
common stock in excess of 9.8% of our outstanding shares or otherwise effect a change of control of the Company.
Preferred Stock. Our charter authorizes the Board of Directors to issue up to 20,000,000 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.
Our charter designates 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 of such shares of stock. Our charter designates 6,364,770 shares of preferred stock as
6.50% Series A-4 Cumulative Convertible Preferred Stock, $0.01 par value per share of which 1,681,849 shares were issued and
outstanding as of December 31, 2016. The power to issue preferred stock could have the effect of delaying or preventing a change
in control of the Company even if a change in control were in the stockholders' interest.
Upon 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 or surviving entity (or ADRs representing such securities) are not listed on the New York Stock Exchange
(“NYSE”), the NYSE MKT or NASDAQ or listed or quoted 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 will have 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 equivalent value of alternative
consideration) and under these circumstances we will also have a special optional redemption right to redeem the shares of Series
A Preferred 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 common stock. If our common stock price, as determined in accordance with our charter for these purposes, is
less than $20.97, subject to adjustment, the holders will 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 is less than the liquidation preference of the Series A
Preferred Stock.
Subject to certain limitations, upon written notice to us, each holder of shares of Series A-4 Preferred Stock at its option may
convert each share of Series A-4 Preferred Stock held by it for that number of shares of our common stock equal to the quotient
obtained by dividing $25.00 by the then-applicable conversion price. The initial conversion price is $56.25, so initially each share
of Series A-4 Preferred Stock is convertible into approximately 0.4444 shares of common stock. The conversion price is subject
to adjustment upon various events. At our option, instead of issuing the shares of common stock to the converting holder of Series
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SUN COMMUNITIES, INC.
A-4 Preferred Stock as described above, we may make a cash payment to the converting holder with respect to each share of Series
A-4 Preferred Stock the holder desires to convert equal to the fair market value of one share of our common stock. If, at any time
after November 26, 2019, the volume weighted average of the daily volume weighted average price of a share of our common
stock on the NYSE equals or exceeds 115.5% of the then prevailing conversion price for at least 20 trading days in a period of 30
consecutive trading days, then, within 10 days thereafter, upon written notice to the holders thereof, we may convert each outstanding
share of Series A-4 Preferred Stock into that number of shares of common stock equal to the quotient obtained by dividing $25.00
by the then prevailing conversion price.
These features of the Series A Preferred Stock and Series A-4 Preferred Stock may have the effect of inhibiting a third-party from
making an acquisition proposal for the Company or of delaying, deferring or preventing a change of control of the Company under
circumstances that otherwise could provide the holders of our common stock and preferred stock with the opportunity to realize
a premium over the then-current market price or that 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 greater interest 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 plan could 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 a change 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 or seeking other change of control transactions that could involve a premium price for our common stock or that
our stockholders otherwise believe to be in their best interest.
Certain provisions of the Maryland General Corporation Law, ("MGCL"), may have the effect of inhibiting a third-party from
making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide the holders
of shares of our capital stock with the opportunity to realize a 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 associate of 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 time within the two-year period immediately
prior to the date in question) for five years after the most recent date on which the stockholder becomes an interested
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 by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting
power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of
ownership or control of issued and outstanding “control shares”) have no voting rights except 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 Board of Directors prior to the time that the interested stockholder becomes an interested stockholder. As
permitted by the statute, our Board of Directors has by resolution exempted Milton M. Shiffman, Robert B. Bayer, and Gary A.
Shiffman, their affiliates and all persons acting in concert or as a group with the foregoing, from the business combination provisions
of the MGCL and, consequently, the five-year prohibition and the supermajority vote requirements will not 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 may not be in the best interests of our stockholders without compliance by our Company with the supermajority vote
requirements and the other provisions of the statute.
Also, pursuant to a provision in our bylaws, we have exempted any acquisition of our stock from the control share provisions of
the MGCL. However, our Board 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 in our charter or bylaws, to elect to be subject to certain provisions relating to corporate governance
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that may have the effect of delaying, deferring or preventing a transaction 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 of Directors;
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 majority requirement 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 director and a majority requirement for the calling by
stockholders of special meetings, we are already subject to these provisions, either by provisions of our charter and 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, REIT status, and operating policies, are determined by our Board of Directors. Although the Board
of Directors has no present intention to do so, these policies may be amended or revised from time to time at the discretion of the
Board of Directors without notice to or a vote of our stockholders. Accordingly, stockholders may not have control over changes
in our policies and changes in our policies may not fully serve the interests of all stockholders.
Substantial sales of our common stock could cause our stock price to fall.
The sale or issuance of substantial amounts of our common stock or preferred stock, whether directly by us or in the secondary
market, the perception that such sales could occur or the availability of future issuances of shares of our common stock, preferred
stock, OP units or other securities convertible into or exchangeable or exercisable for our common stock or preferred stock, could
materially and adversely affect the market price of our common stock or preferred 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 our operations 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 16, 2017, in the future we may issue to the limited partners
of the Operating Partnership, up to approximately 2.8 million shares of our common stock in exchange for their OP units. The
limited partners may sell such shares pursuant to registration rights, if available, or an available exemption from registration. As
of February 16, 2017, options to purchase 3,000 shares of our common stock were outstanding under our equity incentive plans.
We currently have the authority to issue restricted stock awards or options to purchase up to an additional 1,570,934 shares of our
common stock pursuant to our equity incentive plans. In addition, we entered into an At-the-Market Offering Sales Agreement in
June 2015 to issue and sell shares of common stock. As of February 16, 2017, our Board of Directors had authorized us to sell
approximately an additional $144.5 million of common stock under this agreement. No prediction can be made regarding the effect
that future sales of shares of 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 the prevailing market price of the common stock. An increase in market interest rates may tend to make
the common stock less attractive relative to other investments, which could adversely affect the market price of our common stock.
We may be adversely impacted by fluctuations in foreign currency exchange rates.
Our investments in and operations of Canadian properties are exposed to the effects of changes in the Canadian dollar against the
U.S. dollar. Changes in foreign currency exchange rates cannot always be predicted; as a result, substantial unfavorable changes
in exchange rates could have a material adverse effect on our financial condition and results of operations.
The volatility in economic conditions and the financial markets may adversely affect our industry, business and financial
performance.
The U.S. interest rate environment, oil price fluctuations, a new U.S. President, uncertain tax and economic plans in Congress,
and turmoil in emerging markets have created uncertainty and volatility in the U.S. and global economies. Continued economic
uncertainty, both nationally and internationally, causes increased volatility in investor confidence thereby creating similar volatility
in the availability of both debt and equity capital in the financial markets. The other risk factors presented in this Annual Report
16
SUN COMMUNITIES, INC.
on Form 10-K discuss some of the principal risks inherent in our business, including liquidity risks, operational risks, and credit
risks, among others. Turbulence in financial markets accentuates each of these risks and magnifies their potential effect on us. If
such volatility is experienced in future periods, 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 may adjust our common stock distribution policy.
Our ability to make distributions on our common stock and preferred stock, and payments on our indebtedness and to fund planned
capital expenditures will depend on our ability to generate cash in the future. We cannot assure you that our business will generate
sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to make
distributions on our common stock or 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 future distributions, will be at the sole discretion of our Board of Directors in light of conditions then
existing, including our earnings, financial condition, capital requirements, debt maturities, the availability of debt and equity capital,
applicable REIT and legal restrictions and the general overall economic conditions and 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 preferred stock is limited by the laws of Maryland. Under Maryland
law, a Maryland corporation 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 become due 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 charter provides otherwise, the amount that would be needed, if the
corporation were dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of stockholders whose
preferential rights are superior to those receiving the distribution, provided, however, that a Maryland corporation may make 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) the sum 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
preferred stock if, after giving effect to the distribution, we would not 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 described above, 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 amount that
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, with preferential rights upon dissolution senior to those of our common stock or currently outstanding 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 our common stock and preferred stock.
Our 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 volume fluctuations. As a result, the market price of our common stock and preferred stock could be similarly
volatile, and investors in our common stock and 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 preferred stock could be subject
to wide fluctuations in response to a number of factors, including:
•
•
•
issuances of other equity securities in the future, including new series or classes of preferred stock;
our operating performance and the performance of other similar companies;
our ability to maintain compliance with covenants contained in our debt facilities;
17
SUN COMMUNITIES, INC.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
actual or anticipated variations in our operating results, funds from operations, cash flows or liquidity;
changes in expectations of future financial performance or 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 foreign currency exchange rates, specifically between the U.S. dollar and Canadian dollar;
changes in market valuations of similar companies;
increases in market interest rates that lend purchases of our common stock and preferred stock to demand a higher
dividend yield;
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 and our 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;
equity issuances by us, or share resales by our stockholders or the perception that such issuances or resales may
occur;
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 or preferred
stock to decline significantly, regardless of our financial condition, results of operations and prospects. It is impossible to provide
any assurance that the market price of our common stock or preferred stock will not fall in the future, and it may be difficult for
holders to resell shares of our common stock or preferred stock at prices they find attractive, or at all. In the past, securities class
action litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation
could result in substantial costs and divert our management's attention and resources.
Our Series A Preferred Stock and Series A-4 Preferred Stock has not been rated.
We have not sought to obtain a rating for our Series A Preferred Stock or Series A-4 Preferred Stock. No assurance can be given,
however, that one or more rating agencies might not independently 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 or Series A-4 Preferred Stock. In addition, we may
elect in the future to obtain a rating of the Series A Preferred Stock or Series A-4 Preferred Stock, which could adversely affect
the market price of such preferred stock. Ratings only reflect the views of the rating agency or agencies issuing the ratings and
such ratings could be revised downward, placed on a watch list or withdrawn entirely at the discretion of the issuing rating agency
if in its judgment circumstances so warrant. Any such downward revision, placing on a watch list or withdrawal of a rating could
have an adverse effect on the market price of the Series A Preferred Stock or Series A-4 Preferred Stock.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our
business and reputation 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 clients and personally identifiable information of our employees, in our facilities and on our network. Despite
our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to
employee error, malfeasance or other disruptions. Any such breach could compromise our network and the information stored
there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in
18
SUN COMMUNITIES, INC.
legal claims or proceedings, disrupt our operations, damage our reputation, and cause a loss of confidence, which could adversely
affect our business.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
19
SUN COMMUNITIES, INC.
ITEM 2. PROPERTIES
As of December 31, 2016, the Properties were located throughout the US and in Ontario, Canada and consisted of 226 MH
communities, 87 RV communities, and 28 properties containing both MH and RV sites. As of December 31, 2016, the Properties
contained an aggregate of 117,376 developed sites comprised of 80,166 developed manufactured home sites, 20,916 annual RV
sites (inclusive of both annual and seasonal usage rights), and 16,294 transient RV sites. There are approximately 10,616 additional
MH and RV sites suitable for development. Most of the Properties include amenities oriented toward family and retirement living.
Of the 341 Properties, 162 have more than 300 developed sites, with the largest having 2,072 developed MH and RV sites. See
"Real Estate and Accumulated Depreciation, Schedule III", included in our Consolidated Financial Statements, for detail on
Properties that are encumbered.
As of December 31, 2016, the Properties had an occupancy rate of 96.2% excluding transient RV sites. Since January 1, 2016, the
Properties have averaged an aggregate annual turnover of homes (where the home is moved out of the community) of approximately
2.0% 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 6.1%. The average renewal rate for residents in our Rental
Program was 64.2% for the year ended December 31, 2016.
We believe that our Properties’ high amenity levels contribute to low turnover and generally high occupancy rates. All of the
Properties provide residents with attractive amenities with most offering a clubhouse, a swimming pool, and laundry facilities.
Many of the Properties offer additional amenities such as sauna/whirlpool spas, tennis, shuffleboard, basketball courts, and/or
exercise rooms. Many RV communities offer incremental amenities including golf, pro shops, restaurants, zip lines, waterparks,
watersports, and thematic experiences.
We have concentrated our communities within certain geographic areas in order to achieve economies of scale in management
and operation. The Properties are principally concentrated in the Midwestern, Southern, Northeastern, Southeastern U.S. and
Ontario, Canada. We believe that geographic diversification helps to insulate the portfolio from regional economic influences.
The following tables set forth certain information relating to the Properties as of December 31, 2016. The occupancy percentage
includes MH sites and annual/seasonal RV sites, and excludes transient RV sites.
Property
MH/
RV
City
State
MH and
Annual/
Seasonal
RV Sites
as of
12/31/16
Transient
RV Sites
as of
12/31/16
Occupancy as
of 12/31/16
Occupancy as
of 12/31/15
UNITED STATES
Midwest
Michigan
Academy/West Pointe
MH Canton
Allendale Meadows Mobile Village
MH Allendale
Alpine Meadows Mobile Village
MH Grand Rapids
Apple Carr Village
Brentwood Mobile Village
Brookside Village
MH Muskegon
MH Kentwood
MH Kentwood
Byron Center Mobile Village
MH Byron Center
Camelot Villa
Cider Mill Crossings
Cider Mill Village
Continental North
Country Acres Mobile Village
Country Hills Village
Country Meadows Mobile Village
Country Meadows Village
MH Macomb
MH Fenton
MH Middleville
MH Davison
MH Cadillac
MH Hudsonville
MH Flat Rock
MH Caledonia
20
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
441
352
403
529
195
196
143
712
282
258
474
182
239
577
312
— 98.9%
— 98.0%
— 96.8%
— 94.0%
— 100.0%
— 100.0%
— 100.0%
— 99.3%
— 91.1% (1)
— 96.9%
— 65.6%
— 95.6%
— 99.2%
— 95.7%
— 99.7% (1)
97.3%
98.9%
99.0%
89.6%
100.0%
100.0%
97.9%
95.2%
97.7%
96.1%
61.6%
90.7%
99.6%
96.0%
99.0%
SUN COMMUNITIES, INC.
MH and
Annual/
Seasonal
RV Sites
as of
12/31/16
Transient
RV Sites
as of
12/31/16
City
State
Occupancy as
of 12/31/16
Occupancy as
of 12/31/15
Property
Creekwood Meadows
MH/
RV
MH Burton
Cutler Estates Mobile Village
MH Grand Rapids
Dutton Mill Village
East Village Estates
Egelcraft
Fisherman’s Cove
MH Caledonia
Washington
Township
MH
MH Muskegon
MH Flint
Frenchtown Villa/Elizabeth Woods
MH Newport
Grand Mobile Estates
Hamlin
Hickory Hills Village
Hidden Ridge RV Resort
Holiday West Village
Holly Village / Hawaiian Gardens
Hunters Crossing
Hunters Glen
Kensington Meadows
Kimberley Estates
MH Grand Rapids
MH Webberville
MH Battle Creek
RV Hopkins
MH Holland
MH Holly
MH Capac
MH Wayland
MH Lansing
MH Newport
Kings Court Mobile Village
MH Traverse City
Knollwood Estates
Lafayette Place
Lakeview
Leisure Village
Lincoln Estates
Meadow Lake Estates
Meadowbrook Estates
Meadowlands of Gibraltar
Northville Crossings
Oak Island Village
Petoskey RV Resort
Pinebrook Village
MH Allendale
MH Warren
MH Ypsilanti
MH Belmont
MH Holland
MH White Lake
MH Monroe
MH Rockwood
MH Northville
MH East Lansing
RV Petoskey
MH Grand Rapids
Presidential Estates Mobile Village
MH Hudsonville
Richmond Place
River Haven Village
Rudgate Clinton
Rudgate Manor
Scio Farms Estates
Sheffield Estates
Silver Springs
Southwood Village
St. Clair Place
Sunset Ridge
MH Richmond
MH Grand Haven
MH Clinton Township MI
MH Sterling Heights
MH Ann Arbor
MH Auburn Hills
MI
MI
MI
MH Clinton Township MI
MH Grand Rapids
MH St. Clair
MH Portland
MI
MI
MI
21
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
336
259
307
708
458
162
1,060
219
230
283
163
341
425
114
280
290
387
639
161
254
392
238
191
425
453
320
756
250
—
185
364
117
721
667
931
913
228
547
394
100
249
— 95.8%
— 98.8%
88.1%
98.1%
— 99.0%
100.0%
— 98.3%
— 97.2%
— 93.8%
— 84.9%
— 96.8%
— 89.1% (1)
— 98.6%
114
100.0% (2)
— 99.7%
— 93.6%
— 97.4%
— 96.1%
— 91.0%
— 80.4%
— 98.9%
— 99.4%
— 88.2%
— 98.7%
— 99.6%
— 99.5%
— 94.6%
— 94.9%
— 95.9%
— 99.2%
— 97.6%
78
N/A (2)
— 98.4%
— 98.4%
— 88.9%
— 72.3%
— 95.7%
— 98.3%
— 97.9%
— 96.9%
— 98.2%
— 98.7%
— 93.0%
— 76.7% (1)
99.3%
95.9%
96.3%
77.8%
94.5%
91.4%
99.6%
100.0% (2)
99.1%
96.7%
100.0%
96.8%
99.0%
N/A
99.8%
96.9%
79.9%
98.5%
100.0%
100.0%
96.0%
93.6%
83.8%
99.0%
98.0%
N/A
98.9%
98.6%
85.5%
70.3%
97.6%
98.8%
99.1%
96.5%
98.2%
99.5%
78.0%
97.9%
SUN COMMUNITIES, INC.
MH and
Annual/
Seasonal
RV Sites
as of
12/31/16
Transient
RV Sites
as of
12/31/16
City
State
Occupancy as
of 12/31/16
Occupancy as
of 12/31/15
Property
Sycamore Village
Tamarac Village
Tamarac Village RV Resort
Timberline Estates
Town & Country Mobile Village
Warren Dunes Village
Waverly Shores Village
West Village Estates
MH/
RV
MH Mason
MH Ludington
RV Ludington
MH Coopersville
MH Traverse City
MH Bridgman
MH Holland
MH Romulus
White Lake Mobile Home Village
MH White Lake
Windham Hills Estates
Windsor Woods Village
Woodhaven Place
Michigan Total
Indiana
MH Jackson
MH Wayland
MH Woodhaven
Brookside Mobile Home Village
MH Goshen
Carrington Pointe
Clear Water Mobile Village
Cobus Green Mobile Home Park
Deerfield Run
Four Seasons
Lake Rudolph RV Campground & RV
Resort
Liberty Farms
Pebble Creek
Pine Hills
Roxbury Park
Indiana Total
Ohio
Apple Creek
East Fork
MH Ft. Wayne
MH South Bend
MH Osceola
MH Anderson
MH Elkhart
RV Santa Claus
MH Valparaiso
MH Greenwood
MH Middlebury
MH Goshen
MH Amelia
MH Batavia
Indian Creek RV & Camping Resort
RV
Geneva on the
Lake
Oakwood Village
Orchard Lake
Westbrook Senior Village
Westbrook Village
Willowbrook Place
Woodside Terrace
Ohio Total
MH Miamisburg
MH Milford
MH Toledo
MH Toledo
MH Toledo
MH Holland
22
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
OH
OH
OH
OH
OH
OH
OH
OH
OH
396
298
105
296
192
188
326
628
315
422
314
220
176
350
370
511
147
112
344
266
439
— 99.2%
— 99.3%
12
100.0% (2)
— 99.3%
— 97.4%
— 98.4%
99.7%
99.0%
100.0% (2)
99.3%
99.0%
99.5%
— 100.0%
100.0%
— 98.1%
— 98.1%
— 91.2% (1)
— 96.5%
— 97.7%
98.4%
96.8%
95.0%
97.8%
92.7%
95.3%
77.0%
93.4%
93.8%
89.1%
86.9%
91.7%
N/A (2)
95.9%
97.3%
99.2%
98.5%
92.3%
24,512
204
94.8%
570
320
227
386
175
218
—
220
257
129
398
— 83.0%
— 98.1%
— 94.7%
— 96.4%
— 90.3%
— 95.0%
502
N/A (2)
— 99.1%
— 96.9%
— 96.1%
— 99.0%
2,900
502
93.9%
— 97.7%
— 88.9% (1)
95.5%
84.6% (1)
198
100.0% (2)
— 99.2%
— 95.2%
— 98.2%
— 96.2%
— 96.2%
— 90.7%
100.0% (2)
98.0%
98.0%
99.1%
94.5%
97.0%
90.3%
95.2%
2,715
198
95.6%
SUN COMMUNITIES, INC.
Property
MH/
RV
City
State
MH and
Annual/
Seasonal
RV Sites
as of
12/31/16
Transient
RV Sites
as of
12/31/16
Occupancy as
of 12/31/16
Occupancy as
of 12/31/15
SOUTH
Texas
Austin Lone Star RV Resort
Blazing Star
Boulder Ridge
Branch Creek Estates
Chisholm Point Estates
Comal Farms
RV Austin
RV San Antonio
MH Pflugerville
MH Austin
MH Pflugerville
MH New Braunfels
Hill Country Cottage and RV Resort
RV New Braunfels
La Hacienda RV Resort
Oak Crest
Pecan Branch
Pine Trace
River Ranch
River Ridge
Saddlebrook
Sandy Lake
Sandy Lake RV Resort
Stonebridge
Summit Ridge
Sunset Ridge
Traveler's World RV Resort
Treetops RV Resort
Woodlake Trails
Texas Total
SOUTHEAST
Florida
Arbor Terrace RV Park
Ariana Village
Bahia Vista Estates
Baker Acres RV Resort
Big Tree RV Resort
Blue Heron Pines
Blue Jay
Blue Jay RV Resort
Blueberry Hill
Brentwood Estates
Buttonwood Bay
Buttonwood Bay RV Resort
Candlelight Manor
Carriage Cove
RV Austin
MH Austin
MH Georgetown
MH Houston
MH Austin
MH Austin
MH San Marcos
MH Carrolton
RV Carrolton
MH San Antonio
MH Converse
MH Kyle
RV San Antonio
RV Arlington
MH San Antonio
RV Bradenton
MH Lakeland
MH Sarasota
RV Zephyrhills
RV Arcadia
MH Punta Gorda
MH Dade City
RV Dade City
RV Bushnell
MH Hudson
MH Sebring
RV Sebring
MH South Daytona
MH Sanford
23
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
12
112
526
392
417
355
—
—
433
69
680
848
515
562
54
—
335
446
171
22
11
226
143
150
100.0% (2)
100.0% (2)
— 97.0%
N/A
100.0% (2)
99.0%
— 99.5%
100.0%
— 100.0%
— 99.7% (1)
N/A (2)
356
N/A (2)
243
— 97.7%
— 91.3%
— 94.4% (1)
— 96.2% (1)
— 98.8%
— 68.5% (1)
— 100.0%
218
N/A (2)
— 96.1%
— 98.2%
— 99.4%
144
153
100.0% (2)
100.0% (2)
— 93.8%
98.1%
97.7% (1)
N/A
N/A (2)
98.8%
94.2%
91.9% (1)
90.4% (1)
99.0%
60.5% (1)
N/A
N/A
97.3%
92.8%
98.8%
N/A
N/A
90.7% (1)
93.9%
6,186
1,407
94.8%
157
207
250
281
326
387
206
37
240
190
407
364
128
464
204
100.0% (2)
— 96.6%
— 100.0%
71
84
100.0% (2)
100.0% (2)
— 98.2%
— 98.5%
18
165
100.0% (2)
100.0% (2)
— 92.6%
— 99.8%
168
100.0% (2)
— 90.6%
— 99.4%
100.0% (2)
96.1%
N/A
N/A
N/A
96.1%
N/A
N/A
100.0% (2)
85.3%
99.8%
100.0% (2)
N/A
97.2%
SUN COMMUNITIES, INC.
MH and
Annual/
Seasonal
RV Sites
as of
12/31/16
Transient
RV Sites
as of
12/31/16
State
Occupancy as
of 12/31/16
Occupancy as
of 12/31/15
Property
Central Park
Central Park RV Resort
Citrus Hill RV Resort
Club Naples
Club Wildwood
Country Squire
Country Squire RV Resort
Cypress Greens
Daytona Beach RV Resort
Deerwood
Dunedin RV Resort
Ellenton Gardens RV Resort
Fairfield Village
Forest View
Glen Haven
Glen Haven RV Resort
Gold Coaster
Gold Coaster RV Resort
Grand Bay
Grand Lakes
Grove Ridge RV Resort
Groves RV Resort
Gulfstream Harbor
The Hamptons
The Hideaway
The Hills
Hidden River RV Resort
Holly Forest Estates
MH/
RV
City
MH Haines City
RV Haines City
RV Dade City
RV Naples
MH Hudson
MH Paisley
RV Paisley
MH Lake Alfred
RV Port Orange
MH Orlando
RV Dunedin
RV Ellenton
MH Ocala
MH Homosassa
MH Zephyrhills
RV Zephyrhills
MH Homestead
RV Homestead
MH Dunedin
RV Citra
RV Dade City
RV Ft. Myers
MH Orlando
MH Auburndale
MH Key West
MH Apopka
RV Riverview
MH Holly Hill
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
Homosassa River RV Resort
RV Homosassa Springs FL
Horseshoe Cove RV Resort
RV Bradenton
Indian Creek Park
Indian Creek RV Park
Island Lakes
Kings Lake
Kings Manor
King's Pointe
Kissimmee Gardens
Kissimmee South
Kissimmee South RV Resort
La Costa Village
Lake Josephine
Lake Juliana Landings
MH Ft. Myers Beach
RV Ft. Myers Beach
MH Merritt Island
MH DeBary
MH Lakeland
MH Lake Alfred
MH Kissimmee
MH Davenport
RV Davenport
MH Port Orange
RV Sebring
MH Auburndale
24
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
110
198
134
184
478
96
6
259
105
569
172
146
293
300
52
153
493
7
137
262
143
195
974
829
13
100
226
402
92
325
353
970
301
245
239
226
239
143
70
658
101
274
— 90.9%
169
49
120
100.0% (2)
100.0% (2)
100.0% (2)
— 99.0%
— 78.1%
19
100.0% (2)
— 95.8%
125
100.0% (2)
— 94.6%
69
48
100.0% (2)
100.0% (2)
— 97.6%
— 94.3%
— 100.0%
65
100.0% (2)
N/A
N/A
N/A
100.0% (2)
N/A
N/A
N/A
95.8%
N/A
92.4%
N/A
N/A
97.3%
92.4%
N/A
N/A
— 100.0%
45
100.0% (2)
100.0%
100.0%
— 94.2%
142
103
74
100.0% (2)
100.0% (2)
100.0% (2)
— 91.9%
— 99.2%
— 100.0%
— 94.0%
87
100.0% (2)
N/A
100.0% (2)
N/A
100.0% (2)
90.0%
98.6%
N/A
N/A
N/A
— 99.5%
98.8%
131
152
100.0% (2)
100.0% (2)
— 100.0%
107
100.0% (2)
— 100.0%
N/A
N/A
100.0%
100.0% (2)
100.0%
— 100.0%
100.0%
— 74.9%
— 98.2%
— 95.4%
— 90.9%
130
100.0% (2)
— 99.5%
77
100.0% (2)
— 97.4%
N/A
98.2%
N/A
N/A
N/A
99.8%
N/A
97.4%
SUN COMMUNITIES, INC.
Property
Lakeland RV Resort
Lake Pointe Village
Lake San Marino RV Park
Lakeshore Landings
Lakeshore Villas
Lamplighter
Majestic Oaks RV Resort
Marco Naples RV Resort
Meadowbrook Village
Mill Creek
Mill Creek RV Resort
Naples RV Resort
New Ranch
North Lake
Oakview Estates
Ocean Breeze
MH/
RV
RV Lakeland
City
MH Mulberry
RV Naples
MH Orlando
MH Tampa
MH Port Orange
RV Zephyrhills
RV Naples
MH Tampa
MH Kissimmee
RV Kissimmee
RV Naples
MH Clearwater
RV Moore Haven
MH Arcadia
MH Marathon
Ocean Breeze Jenson Beach
MH Jensen Beach
Ocean Breeze Jenson Beach RV Resort
RV Jensen Beach
Orange City
Orange City RV Resort
Orange Tree Village
Paddock Park South
Palm Key Village
Palm Village
Park Place
Park Royale
Pecan Park RV Resort
Pelican Bay
Pelican RV Resort & Marina
Plantation Landings
Pleasant Lake RV Resort
Rainbow
Rainbow RV Resort
Rainbow Village of Largo
MH Orange City
RV Orange City
MH Orange City
MH Ocala
MH Davenport
MH Bradenton
MH Sebastian
MH Pinellas Park
RV Jacksonville
MH Micco
RV Marathon
MH Haines City
RV Bradenton
MH Frostproof
RV Frostproof
RV Largo
Rainbow Village of Zephyrhills
RV Zephyrhills
Red Oaks
Red Oaks RV Resort
Regency Heights
The Ridge
Riptide RV Resort & Marina
Riverside Club
MH Bushnell
RV Bushnell
MH Clearwater
MH Davenport
RV Key Largo
MH Ruskin
Rock Crusher Canyon RV Park
RV Crystal River
25
MH and
Annual/
Seasonal
RV Sites
as of
12/31/16
State
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
163
362
222
306
280
260
196
217
257
31
70
108
94
205
119
46
151
12
4
263
246
188
204
146
474
309
—
216
73
394
249
37
385
200
323
103
439
390
481
16
728
95
Transient
RV Sites
as of
12/31/16
67
Occupancy as
of 12/31/16
100.0% (2)
— 99.2%
185
100.0% (2)
— 98.4%
— 97.1%
— 96.9%
56
74
100.0% (2)
100.0% (2)
— 99.6%
— 100.0%
87
59
100.0% (2)
100.0% (2)
— 97.9%
67
100.0% (2)
— 95.8%
— 82.6%
— 76.2%
87
100.0% (2)
— 100.0%
258
100.0% (2)
— 100.0%
— 72.9%
— 99.0%
— 98.6%
— 89.0%
— 97.7%
183
N/A (2)
— 88.9%
12
100.0% (2)
— 99.5%
92
100.0% (2)
— 100.0%
77
108
59
100.0% (2)
100.0% (2)
100.0% (2)
— 92.2%
478
100.0% (2)
— 93.8%
— 94.2%
24
100.0% (2)
Occupancy as
of 12/31/15
N/A
98.9%
100.0% (2)
96.7%
96.1%
96.5%
N/A
N/A
99.2%
N/A
N/A
100.0% (2)
N/A
100.0% (2)
N/A
N/A
N/A
N/A
100.0%
100.0% (2)
100.0%
N/A
96.1%
N/A
87.4%
96.4%
N/A
84.3%
N/A
98.7%
N/A
100.0%
100.0% (2)
N/A
N/A
N/A
N/A
N/A
92.7%
N/A
— 76.4%
297
100.0% (2)
75.8%
100.0% (2)
SUN COMMUNITIES, INC.
MH and
Annual/
Seasonal
RV Sites
as of
12/31/16
Transient
RV Sites
as of
12/31/16
City
State
Occupancy as
of 12/31/16
Occupancy as
of 12/31/15
MH/
RV
MH Miami
MH Haines City
MH Ocala
MH Islamorada
RV Islamorada
MH Sarasota
MH Port St. Lucie
MH Islamorada
RV Islamorada
MH North Fort Myers
RV Zephyrhills
MH Hudson
MH Ocala
MH Punta Gorda
RV Punta Gorda
RV Ft. Myers
RV Zephyrhills
MH Bradenton
MH Zephyrhills
MH Thonotasassa
RV Thonotasassa
MH Homosassa
MH Port Richey
MH Zephyrhills
MH Grand Island
RV Sarasota
MH Key West
RV Zephyrhills
MH Coconut Creek
MH Dover
RV Dover
RV Hudson
MH Apopka
MH Bradenton
RV Bradenton
MH Port Charlotte
MH Homosassa
MH Homosassa
MH Lady Lake
RV Zephyrhills
MH Auburndale
MH Davenport
26
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
864
395
376
18
20
202
1,068
31
62
338
299
157
130
54
147
729
397
107
544
56
140
215
173
332
407
881
77
212
273
31
222
202
148
136
21
113
213
213
1,195
131
219
509
— 99.9%
— 77.7%
— 99.7%
— 94.4%
6
100.0% (2)
— 100.0%
— 97.2%
— 93.5%
8
100.0% (2)
— 99.1%
78
100.0% (2)
— 98.7%
— 58.5%
— 100.0%
38
68
99
100.0% (2)
100.0% (2)
100.0% (2)
— 91.6%
— 98.5%
— 92.9%
137
100.0% (2)
— 89.3%
— 83.8%
— 100.0%
— 93.1%
638
100.0% (2)
— 98.7%
77
100.0% (2)
— 96.3%
— 100.0%
447
105
100.0% (2)
100.0% (2)
— 96.6%
— 94.9%
18
100.0% (2)
— 78.8%
— 100.0%
— 98.1%
— 94.5% (1)
100.0% (2)
86
— 98.6%
— 98.0%
99.8%
74.2%
99.7%
N/A
N/A
N/A
97.1%
N/A
N/A
92.0%
N/A
N/A
N/A
N/A
N/A
100.0% (2)
N/A
N/A
98.2%
N/A
N/A
89.4%
N/A
99.7%
91.3%
N/A
N/A
N/A
N/A
100.0%
100.0% (2)
100.0% (2)
N/A
N/A
N/A
71.7%
100.0%
99.1%
100.0%
N/A
100.0%
98.0%
Property
Royal Country
Royal Palm Village
Saddle Oak Club
San Pedro
San Pedro RV Resort & Marina
Saralake Estates
Savanna Club
Sea Breeze Resort
Sea Breeze RV Resort
Serendipity
Settler's Rest RV Resort
Shadow Wood Village
Shady Road Villas
Shell Creek
Shell Creek RV Resort & Marina
Siesta Bay RV Park
Southern Charm RV Resort
Southern Pines
Southport Springs
Spanish Main
Spanish Main RV Resort
Stonebrook
Suncoast Gateway
Sundance
Sunlake Estates
Sun-N-Fun RV Resort
Sunset Harbor at Cow Key Marina
Sweetwater RV Resort
Tallowwood Isle
Tampa East
Tampa East RV Resort
Three Lakes
The Valley
Vista del Lago
Vista del Lago RV Resort
Vizcaya Lakes
Walden Woods I
Walden Woods II
Water Oak Country Club Estates
Waters Edge RV Resort
Westside Ridge
Windmill Village
SUN COMMUNITIES, INC.
MH/
RV
MH Groveland
City
State
FL
MH and
Annual/
Seasonal
RV Sites
as of
12/31/16
Transient
RV Sites
as of
12/31/16
Occupancy as
of 12/31/16
Occupancy as
of 12/31/15
291
— 67.4%
36,326
6,497
96.4%
66.6%
96.0%
Property
Woodlands at Church Lake
Florida Total
SOUTHWEST
California
Alta Laguna
The Colony
Friendly Village of La Habra
Friendly Village of Modesto
Friendly Village of Simi
Friendly Village of West Covina
Heritage
Indian Wells RV Resort
Lakefront
Lemon Wood
Napa Valley
Oak Creek
Palos Verdes Shores MH & Golf
Community
Pembroke Downs
Rancho Alipaz
Rancho Cabellero
Royal Palms
Royal Palms RV Resort
Vallecito
Victor Villa
Vines RV Resort
Vista del Lago
Wine Country RV Resort
California Total
Arizona
Rancho
Cucamonga
MH
MH Oxnard
MH La Habra
MH Modesto
MH Simi Valley
MH West Covina
MH Temecula
RV Indio
MH Lakeside
MH Ventura
MH Napa
MH Coarsegold
MH San Pedro
MH Chino
San Juan
MH
Capistrano
MH Riverside
MH Cathedral City
RV Cathedral City
MH Newbury Park
MH Victorville
RV Paso Robles
MH Scotts Valley
RV Paso Robles
Blue Star/Lost Dutchman
MH Apache Junction
Blue Star/Lost Dutchman RV Resort
RV Apache Junction
Brentwood West
Desert Harbor
Fiesta Village
Fiesta Village RV Resort
La Casa Blanca
Mountain View
Palm Creek Golf
Palm Creek Golf & RV Resort
MH Mesa
MH Apache Junction
MH Mesa
RV Mesa
MH Apache Junction
MH Mesa
MH Casa Grande
RV Casa Grande
27
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
AZ
AZ
AZ
AZ
AZ
AZ
AZ
AZ
AZ
AZ
295
150
329
289
222
157
196
136
295
231
257
198
242
163
132
303
439
36
303
287
—
202
—
4,862
169
37
350
205
154
3
198
170
333
866
— 99.7%
— 100.0%
— 99.4%
— 90.7%
— 100.0%
— 100.0%
— 99.5%
178
— 100.0%
— 100.0%
— 100.0%
— 96.0%
100.0% (2)
— 99.6%
— 100.0%
100.0% (2)
— 100.0%
— 99.7%
— 96.8%
2
— 99.7%
— 95.5%
130
— 100.0%
203
513
N/A (2)
98.6%
N/A (2)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
97.0%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
97.0%
— 94.1%
169
100.0% (2)
— 97.7%
80.8%
100.0% (2)
96.6%
— 100.0%
100.0%
— 81.2%
7
100.0% (2)
— 100.0%
— 100.0%
— 70.0% (1)
100.0% (2)
873
77.8%
100.0% (2)
98.0%
98.2%
72.6% (1)
100.0% (2)
Property
Rancho Mirage
Reserve at Fox Creek
Sun Valley
Verde Plaza
Arizona Total
Colorado
Cave Creek
Eagle Crest
The Grove at Alta Ridge
Jellystone Park at Larkspur
North Point Estates
Skyline
Swan Meadow Village
Timber Ridge
Colorado Total
OTHER
Seaport RV Resort
High Pointe
Sea Air Village
Sea Air Village RV Resort
Countryside Atlanta (3)
Countryside Gwinnett
Countryside Lake Lanier
Autumn Ridge
Candlelight Village
Maple Brook
Oak Ridge
Wildwood Community
Campers Haven RV Resort
Peter's Pond RV Resort
SUN COMMUNITIES, INC.
MH/
RV
MH Apache Junction
City
MH Bullhead City
MH Apache Junction
MH Tucson
State
AZ
AZ
AZ
AZ
MH and
Annual/
Seasonal
RV Sites
as of
12/31/16
Transient
RV Sites
as of
12/31/16
Occupancy as
of 12/31/16
Occupancy as
of 12/31/15
312
311
268
189
— 100.0%
— 93.2%
— 91.0%
— 81.5%
3,565
1,049
93.6%
99.4%
91.0%
88.1%
N/A
92.5%
MH Evans
MH Firestone
MH Thornton
RV Larkspur
MH Pueblo
MH Fort Collins
MH Dillon
MH Fort Collins
RV Old Mystic
MH Frederica
MH Rehoboth Beach
RV Rehoboth Beach
MH Lawrenceville
MH Buford
MH Buford
MH Ankeny
MH Sauk Village
MH Matteson
MH Manteno
MH Sandwich
RV Dennisport
RV Sandwich
CO
CO
CO
CO
CO
CO
CO
CO
CT
DE
DE
DE
GA
GA
GA
IA
IL
IL
IL
IL
MA
MA
MD
MD
MD
ME
ME
ME
ME
447
441
409
—
108
170
175
585
— 99.1% (1)
— 100.0%
98.0%
98.9%
— 99.8%
100.0%
148
N/A (2)
— 97.2%
— 100.0%
— 100.0%
— 99.7%
N/A
99.1%
99.4%
99.4%
99.5%
99.2%
100.0% (2)
97.3%
97.8%
100.0% (2)
100.0%
99.1%
98.7%
99.0%
94.8%
99.8%
87.1%
99.8%
N/A
100.0% (2)
100.0% (2)
N/A
N/A
98.0%
81.4%
N/A
91.7%
100.0% (2)
100.0% (2)
92.6%
2,335
148
99.6%
51
409
373
123
170
331
548
413
309
441
426
476
236
321
5
—
—
296
43
—
144
208
275
426
98
100.0% (2)
— 97.1%
— 98.4%
11
100.0% (2)
— 100.0%
— 99.7%
— 98.7%
— 98.8%
— 95.5%
— 99.3%
— 90.1%
— 99.8%
38
85
388
238
584
100.0% (2)
100.0% (2)
100.0% (2)
N/A (2)
N/A (2)
— 99.7%
— 97.7%
127
N/A (2)
— 99.3%
73
100.0% (2)
100.0% (2)
355
— 94.1% (1)
Castaways RV Resort & Campground
RV Berlin
Fort Whaley
Frontier Town
Maplewood Manor
Merrymeeting
Saco/Old Orchard Beach KOA
Town & Country Village
RV Whaleyville
RV Ocean City
MH Brunswick
MH Brunswick
RV Saco
MH Lisbon
Wagon Wheel RV Resort & Campground RV Old Orchard Beach ME
Wild Acres RV Resort & Campground
RV Old Orchard Beach ME
Southern Hills/Northridge Place
MH Stewartville
MN
28
SUN COMMUNITIES, INC.
Property
Pin Oak Parc
Southfork
Countryside Village
MH/
RV
MH O’Fallon
City
MH Belton
MH Great Falls
Fort Tatham RV Resort & Campground
RV Sylva
Glen Laurel
Meadowbrook
Big Timber Lake RV Resort
Cape May Crossing
Cape May KOA
Driftwood Camping Resort (3)
Long Beach RV Resort & Campground
Seashore Campsites RV Park and
Campground
Shady Pines
Shady Pines RV Resort
Sun Villa Estates
Adirondack Gateway RV Resort &
Campground
Jellystone Park(TM) at Birchwood Acres
Jellystone Park(TM) at Birchwood Acres
Jellystone Park(TM) of Western New York
Parkside Village
Sky Harbor
The Villas at Calla Pointe
Forest Meadows
Woodland Park Estates
Countryside Estates
Lake In Wood
Pheasant Ridge
Lakeside Crossing
Bell Crossing
Gwynn's Island RV Resort &
Campground
New Point RV Resort
Sunset Beach RV Resort (4)
Pine Ridge
Thunderhill Estates
MH Concord
MH Charlotte
RV Cape May
MH Cape May
RV Cape May
RV Clermont
RV Barnegat
RV Cape May
Galloway
Township
Galloway
Township
MH
RV
MH Reno
RV Gansevoort
MH Greenfield Park
RV Greenfield Park
RV North Java
MH Cheektowaga
MH Cheektowaga
MH Cheektowaga
MH Philomath
MH Eugene
MH Mckean
RV Narvon
MH Lancaster
MH Conway
MH Clarksville
RV Gwynn
RV New Point
RV Cape Charles
MH Prince George
MH Sturgeon Bay
Westward Ho RV Resort & Campground RV Glenbeulah
State
MO
MO
MT
NC
NC
NC
NJ
NJ
NJ
NJ
NJ
NJ
NJ
NJ
NV
NY
NY
NY
NY
NY
NY
NY
OR
OR
PA
PA
PA
SC
TN
VA
VA
VA
VA
WI
WI
502
474
226
54
260
321
293
28
340
611
155
434
40
59
324
—
1
86
6
156
522
116
75
398
304
278
553
418
237
101
225
N/A
245
226
221
MH and
Annual/
Seasonal
RV Sites
as of
12/31/16
Transient
RV Sites
as of
12/31/16
Occupancy as
of 12/31/16
Occupancy as
of 12/31/15
— 93.6%
— 66.2%
— 99.1%
37
100.0% (2)
— 99.2%
— 99.7% (1)
100.0% (2)
235
— 100.0%
379
96
53
100.0% (2)
100.0% (2)
100.0% (2)
91.8%
65.2%
96.9%
N/A
98.5%
99.1%
100.0% (2)
N/A
100.0% (2)
100.0% (2)
N/A
242
100.0% (2)
100.0% (2)
— 97.5%
N/A
37
100.0% (2)
— 100.0%
N/A
99.1%
N/A (2)
347
— 100.0% (2)
100.0% (2)
188
100.0% (2)
295
— 100.0%
— 92.7%
— 100.0%
— 100.0%
— 100.0%
— 99.0%
142
100.0% (2)
— 99.5%
— 96.2%
— 98.3%
28
99
N/A
100.0% (2)
100.0% (2)
N/A
— 95.9%
— 98.7%
101
100.0% (2)
97.2%
N/A
100.0% (2)
100.0% (2)
100.0% (2)
100.0%
90.6%
99.1%
100.0%
100.0%
97.7%
100.0% (2)
99.8%
89.0%
98.3%
100.0% (2)
100.0% (2)
N/A
97.1%
93.4%
100.0% (2)
96.9%
Other Total
14,313
4,276
US TOTAL / AVERAGE
97,714
14,794
96.0%
95.0%
29
SUN COMMUNITIES, INC.
Property
MH/
RV
City
State
CANADA
Arran Lake RV Resort & Campground
RV Allenford
Craigleith RV Resort & Campground
RV Clarksburg
Deer Lake RV Resort & Campground
RV Huntsville
Grand Oaks RV Resort & Campground
RV Cayuga
Gulliver's Lake RV Resort & Campground RV Millgrove
Hidden Valley RV Resort & Campground RV Normandale
Lafontaine RV Resort & Campground
RV Penetanguishene
Lake Avenue RV Resort & Campground
RV Cherry Valley
Pickerel Park RV Resort & Campground
RV Napanee
Sherkston Shores Beach Resort &
Campground
RV Sherkston
Silver Birches RV Resort & Campground RV Lambton Shores
Trailside RV Resort & Campground
RV Seguin
Willow Lake RV Resort & Campground
RV Scotland
Willowood RV Resort & Campground
RV Amherstburg
Woodland Lake RV Resort &
Campground
CANADA TOTAL / AVERAGE
RV Bornholm
ON
ON
ON
ON
ON
ON
ON
ON
ON
ON
ON
ON
ON
ON
ON
MH and
Annual/
Seasonal
RV Sites
as of
12/31/16
Transient
RV Sites
as of
12/31/16
Occupancy as
of 12/31/16
Occupancy as
of 12/31/15
128
55
143
211
191
189
167
112
111
59
55
97
45
9
56
95
13
98
1,284
435
113
171
272
74
147
49
63
98
252
76
3,368
1,500
100.0% (2)
100.0% (2)
100.0% (2)
100.0% (2)
100.0% (2)
100.0% (2)
100.0% (2)
100.0% (2)
100.0% (2)
100.0% (2)
100.0% (2)
100.0% (2)
100.0% (2)
100.0% (2)
100.0% (2)
100.0%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
COMPANY TOTAL / AVERAGE
101,082
16,294
96.2%
95.0%
(1) Occupancy in these Properties reflects the fact that these communities are in a lease-up phase following an expansion.
(2) 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 is occupied 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 utility access which is zoned and licensed (if required) for use as a home site.
(3) The number of developed sites and occupancy percentage at this property includes sites that have been covered under our comprehensive insurance coverage
(subject to deductibles and certain limitations) for both property damage and business interruption from a flood that caused substantial damage to this
property.
(4) We have an ownership interest in Sunset Beach but do not maintain and operate the property. Refer to Note 2, "Real Estate Acquisitions and Dispositions" in
our accompanying Consolidated Financial Statements for additional information.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various legal proceedings arising in the ordinary course of business. All such proceedings, taken together, are
not expected to have a material adverse impact on our results of operations or financial condition.
ITEM 4. MINE SAFETY DISCLOSURES
None.
30
SUN COMMUNITIES, INC.
EXECUTIVE OFFICERS OF THE REGISTRANT
The persons listed below are our executive officers.
Name
Gary A. Shiffman
John B. McLaren
Karen J. Dearing
Jonathan M. Colman
Age
62
46
52
61
Title
Chairman and Chief Executive Officer
President and Chief Operating Officer
Executive Vice President, Treasurer, Chief Financial Officer and Secretary
Executive Vice President
Gary A. Shiffman is our Chairman and Chief Executive Officer and has been a director and an executive officer since our inception
in 1993. He is a member of the Executive Committee of our board of directors. He has been actively involved in the management,
acquisition, construction and development of MH communities and has developed an extensive network of industry relationships
over the past thirty years. He has overseen the acquisition, rezoning, development, expansion and marketing of numerous
manufactured home communities, as well as RV communities. Additionally, Mr. Shiffman, through his family-related interests,
has had significant direct holdings in various real estate asset classes, which include office, multi-family, industrial, residential
and retail. Mr. Shiffman is an executive officer and a director of SHS and all of our other corporate subsidiaries.
John B. McLaren has been in the manufactured housing industry since 1995. He has served as our President since 2014 and as
our Chief Operating Officer since 2008. From 2008 to 2014, he served as an Executive Vice President of the Company. From 2005
to 2008, he was Senior Vice President of SHS with overall responsibility for home sales and leasing. Mr. McLaren spent
approximately three years as Vice President of Leasing & Service for SHS with responsibility for developing and leading our
Rental Program and also has experience in the multi-family REIT segment and the chattel lending industry.
Karen J. Dearing has served as our Chief Financial Officer and Executive Vice President since 2008. She joined us in 1998 as
the Director of Finance where she worked extensively with accounting and finance matters related to our ground-up developments
and expansions. Ms. Dearing became our Corporate Controller in 2002 and Senior Vice President in 2006. She is responsible for
the overall management of our information technology, accounting, tax and finance departments, and all internal and external
financial reporting. Prior to working for us, Ms. Dearing had eight years of experience as the Financial Controller of a privately-
owned automotive supplier and five years' experience as a certified public accountant with Deloitte & Touche LLP.
Jonathan M. Colman has served as an Executive Vice President since 2003. He joined us in 1994 as Vice President-Acquisitions
and became a Senior Vice President in 1995. A certified public accountant, Mr. Colman has over thirty years of experience in the
MH community industry. He has been involved in the acquisition, financing and management of over 75 MH communities for
two of the 10 largest MH community owners, including Uniprop, Inc. during its syndication of over $90.0 million in public limited
partnerships in the late 1980s. Mr. Colman is also a Vice President of all of our corporate subsidiaries.
31
SUN COMMUNITIES, INC.
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our 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 and low 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 to each period:
Year Ended December 31, 2016
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Year Ended December 31, 2015
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
High
Low
71.76 $
76.69 $
85.98 $
79.32 $
62.58 $
66.73 $
74.23 $
69.90 $
Distributions
0.65
0.65
0.65
0.65
(1)
High
Low
71.40 $
67.35 $
70.56 $
72.92 $
60.74 $
60.29 $
61.61 $
61.65 $
Distributions
0.65
0.65
0.65
0.65
(2)
$
$
$
$
$
$
$
$
(1) Paid on January 20, 2017, to stockholders of record on December 31, 2016.
(2) Paid on January 15, 2016, to stockholders of record on December 31, 2015.
On February 16, 2017, the closing share price of our common stock was $80.99 per share on the NYSE, and there were 201 holders
of record for the 73,507,706 million outstanding shares of common stock. On February 16, 2017, the Operating Partnership had
(i) 2,754,371 common OP units issued and outstanding, not held by us, which were convertible into an equal number of shares of
our common stock, (ii) 1,283,819 Aspen preferred OP units issued and outstanding which were exchangeable for 481,798 shares
of our common stock, (iii) 366,290 Series A-1 preferred OP units issued and outstanding which were exchangeable for 893,390
shares of our common stock, (iv) 40,268 Series A-3 preferred OP units issued and outstanding which were exchangeable for 74,917
shares of our common stock, (v) 633,129 Series A-4 preferred OP units issued and outstanding, not held by us, which were
exchangeable for 281,391 shares of our common stock, and (vi) 329,990 Series C preferred OP units issued and outstanding which
were exchangeable for 366,289 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 make distributions to holders of shares of Series A Preferred Stock, Series A-4 Preferred Stock, Aspen preferred
OP units, Series A-1 preferred OP units, Series A-3 preferred OP units, Series A-4 preferred OP units, Series B-3 preferred OP
units and Series C preferred OP units. See “Structure of the Company” under Part I, Item 1 of this Annual Report on Form 10-K.
Our ability to make distributions on our common and preferred stock and OP units, payments on our indebtedness, and to fund
planned capital expenditures will depend on our ability to generate cash in the future. The decision to declare and pay distributions
on shares of our common stock and common OP units in the future, as well as the timing, amount, and composition of any such
future distributions, will be at the sole discretion of our Board of Directors in light of conditions then existing, including our
earnings, financial condition, capital requirements, debt maturities, the availability of debt and equity capital, applicable REIT and
legal restrictions, general overall economic conditions, and other factors.
32
SUN COMMUNITIES, INC.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table reflects information about the securities authorized for issuance under our equity compensation plans as of
December 31, 2016.
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of shares of
common stock
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column a)
Plan Category
(a)
(b)
(c)
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
Total
4,500
—
4,500
$
$
32.27
—
32.27
1,585,974
—
1,585,974
Issuer Purchases of Equity Securities
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 shares remaining in the repurchase program. No common shares were repurchased under this program during
2016 or 2015. There is no expiration date specified for the repurchase program.
Recent Sales of Unregistered Securities
From 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 in accordance with the terms and provisions of the limited partnership agreement of the Operating Partnership.
Such shares are issued based on the exchange ratios and formulas described in “Structure of the Company” under Part I, Item 1
of this Annual Report on Form 10-K.
Holders of common OP units converted 104,106 units, 99,851 units, and 9,110 units to common stock for the years ended December
31, 2016, 2015, and 2014, respectively.
Holders of Series A-1 preferred OP units converted 20,691 units into 50,458 shares of common stock during the year ended
December 31, 2016, 41,116 units into 100,277 shares of common stock during the year ended December 31, 2015, and 26,379
units into 64,335 shares of common stock during the year end December 31, 2014.
Holders of Series A-4 preferred OP units converted 120,906 units into 53,733 shares of common stock during the year ended
December 31, 2016, and 114,414 units into 50,848 shares of common stock during the year ended December 31, 2015. No Series
A-4 preferred OP units were converted into common stock during 2014.
Holders of Series A-4 preferred stock converted 385,242 shares into 171,218 shares of common stock during the year ended
December 31, 2016. During the year ended December 31, 2015, holders of Series A-4 preferred stock converted 231,093 shares
into 102,708 shares of common stock. No Series A-4 preferred stock was converted into common stock during 2014.
Holders of Series C preferred OP unit holders converted 7,043 units into 7,815 shares of common stock during the year ended
December 31, 2016. There were no conversions of Series C preferred OP units during the year ended December 31, 2015.
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 promulgated thereunder, based on certain investment representations made by the parties to whom the securities
were issued. No underwriters were used in connection with any of such issuances.
33
SUN COMMUNITIES, INC.
Performance Graph
Set forth below is a line graph comparing the yearly percentage change in the cumulative total shareholder return on our common
stock against the cumulative total return of a broad market index composed of all issuers listed on the NYSE and an industry index
comprised of thirteen publicly traded residential real estate investment trusts, for the five year period ending on December 31,
2016. This line graph assumes a $100 investment on December 31, 2011, a reinvestment of distributions and actual increase of
the market value of our common stock relative to an initial investment of $100. The comparisons in this table are required by the
SEC and are not intended to forecast or be indicative of possible future performance of our common stock.
Index
Sun Communities, Inc.
SNL US REIT Residential
NYSE Market Index
SUI Peer Group (1)
Period Ending
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
$
$
$
$
100.00 $
100.00 $
100.00 $
100.00 $
115.87 $
106.40 $
116.15 $
108.31 $
130.87 $
103.40 $
146.80 $
99.94 $
195.21 $
141.51 $
156.87 $
138.33 $
230.05 $
164.64 $
150.64 $
157.12 $
266.22
172.85
168.63
165.79
(1) Includes American Campus Communities, Inc., American Capital Agency Corp., Apartment Investment and Management Company, AvalonBay Communities,
Inc., Camden Property Trust, Education Realty Trust, Inc., Equity Lifestyles Properties, Inc., Equity Residential, Essex Property Trust, Inc., MAA, Senior Housing
Properties Trust and UDR, 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 not incorporated 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 this Annual Report on Form 10-K.
34
SUN COMMUNITIES, INC.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating information on a historical basis. The historical financial data has
been derived from our historical financial statements. The following information should be read in conjunction with the information
included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Consolidated
Financial Statements and the Notes thereto. In addition to the results presented in accordance with GAAP below, we have provided
net operating income ("NOI") and funds from operations ("FFO") as supplemental performance measures. Refer to Non-GAAP
Financial Measures in Item 7 below for additional information.
OPERATING DATA:
Revenues
Net income attributable to Sun Communities, Inc.
common stockholders
Earnings per share - basic
Earnings per share - diluted
Cash distributions declared per common share
$
$
$
$
$
Year Ended December 31,
2016
2015 (1)
2014 (1)
2013 (1)
2012 (1)
(In thousands, except for share related data)
833,778 $
674,731 $
484,259 $
422,713 $
341,400
17,369 $
0.27 $
137,325 $
2.53 $
0.26
$
2.52
$
22,376 $
0.54 $
$
0.54
10,610 $
0.31 $
$
0.31
4,958
0.19
0.18
2.60 $
2.60 $
2.60 $
2.52 $
2.52
BALANCE SHEET DATA:
Investment property before accumulated depreciation
Total assets
Total debt and lines of credit
Total stockholders’ equity
NON-GAAP FINANCIAL MEASURES:
NOI from:
Real property operations
Home sales and home rentals
$ 6,496,339 $ 4,573,522 $ 3,363,917 $ 2,489,119 $ 2,177,305
$ 5,870,776 $ 4,181,799 $ 2,925,546 $ 1,987,742 $ 1,749,396
$ 3,110,042 $ 2,336,297 $ 1,819,941 $ 1,485,658 $ 1,448,268
199,457
$ 2,362,227 $ 1,536,581 $
383,541 $
907,820 $
$
$
403,337 $
335,567 $
232,478 $
203,176 $
167,715
53,573 $
42,067 $
29,341 $
26,620 $
18,677
FFO
Adjustments to FFO
FFO excluding certain items
$
225,653 $
192,128 $
134,549 $
117,583 $
92,409
40,478
18,431
13,807
3,928
4,296
$
266,131 $
210,559 $
148,356 $
121,511 $
96,705
FFO per share excluding certain items - fully diluted
$
3.79 $
3.63 $
3.37 $
3.22 $
3.19
(1) Financial information has been revised to reflect certain reclassifications in prior periods to conform to current period presentation.
35
SUN COMMUNITIES, INC.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction
with the Consolidated Financial Statements and accompanying footnotes thereto included in this Annual Report on Form 10-K.
In addition to the results presented in accordance with GAAP below, we have provided net operating income ("NOI") and funds
from operations ("FFO") as supplemental performance measures. Refer to Non-GAAP Financial Measures in this Item for additional
information.
OVER
We are a fully integrated, self-administered and self-managed REIT. As of December 31, 2016, we owned and operated or had an
interest in a portfolio of properties located throughout the United States and Ontario, Canada, including 226 MH communities, 87
RV communities, and 28 properties containing both MH and RV sites. We have been in the business of acquiring, operating,
developing, and expanding MH and RV communities since 1975. We lease individual sites with utility access for placement of
manufactured homes and RVs to our customers. We are also engaged through SHS in the marketing, selling, and leasing of new
and pre-owned homes to current and future residents in our communities. The operations of SHS support and enhance our occupancy
levels, property performance, and cash flows.
EXECUTIVE SUMMARY
2016 Accomplishments:
• Total revenues for 2016 increased 23.6% to $833.8 million.
•
In June 2016, we acquired all of the issued and outstanding shares of common stock of Carefree Communities Inc.
("Carefree") for $1.684 billion, our largest acquisition to date. The Carefree portfolio was comprised of 103 communities,
located in prime coastal markets with over 27,000 total sites.
In addition to Carefree, we acquired seven RV communities and one MH community during 2016 for total consideration
of $89.7 million.
•
• Achieved Same Community NOI growth of 7.1%.
•
FFO excluding certain items for the year ended December 31, 2016, was $3.79 per diluted share and OP unit as compared
to $3.63 in the prior year, an increase of 4.4%.
Sold 3,172 homes, a new single year record, and an increase of 27.8% over 2015.
•
• Gained 1,686 revenue producing sites.
• Achieved Same Community occupancy of 96.6%, an increase of 1.9%.
• Expanded 663 MH sites at eight communities.
• Closed two underwritten registered public offerings for proceeds net of offering related expenses totaling approximately
$670 million.
Property Operations:
Occupancy in our Properties as well as our ability to increase rental rates directly affects revenues. Our revenue streams are
predominantly derived from customers renting our sites on a long-term basis. Our Same Community properties continue to achieve
revenue and occupancy increases which drive continued NOI growth. Home sales are at their historical high, and we expect to
continue to increase the number of homes sold in our communities.
Portfolio Information:
Occupancy % - Total Portfolio - MH and annual RV(1)
Occupancy % - Same Community - MH and annual RV(1)(2)
FFO excluding certain items
NOI - Total Portfolio (in thousands)
NOI - Same Community (in thousands)
Homes Sold
$
$
$
Number of Occupied Rental Homes
(1) Occupancy % includes MH and annual RV sites, and excludes transient RV sites.
36
Year Ended December 31,
2016
2015
2014
96.2%
96.6%
3.79
403,337
332,919
3,172
10,733
$
$
$
95.0%
94.7%
3.63
335,567
310,890
2,483
10,685
$
$
$
92.6%
93.2%
3.37
232,478
202,069
1,966
10,973
SUN COMMUNITIES, INC.
(2) Occupancy % excludes recently completed but vacant expansion sites.
Acquisition Activity:
During the past three years, we have completed acquisitions of over 180 properties with over 55,000 sites located in high growth
areas and retirement and vacation destinations such as Florida, California, and Eastern coastal areas such as Old Orchard Beach,
Maine; Cape May, New Jersey; Chesapeake Bay, Virginia; and Cape Cod, Massachusetts. We have also expanded into Ontario,
Canada, with the Carefree acquisition.
The following table depicts our acquired sites during 2016 and 2015:
Major Market
Florida
Ontario, Canada
California
Texas
Michigan
New Jersey
New York
Massachusetts
Arizona
Colorado
North Carolina
Maryland
South Carolina
For the Year Ended
December 31, 2016
December 31, 2015
Total Sites
Total Sites
15,713
4,868
4,844
1,113
465
372
347
274
189
148
91
—
—
13,642
—
—
243
320
—
—
—
—
—
—
822
418
37
SUN COMMUNITIES, INC.
During 2016, we completed nine acquisitions, as detailed in the table below:
Property/Portfolio
Location
Various (1)
New Braunfels, TX
Cape Charles, VA
Type
MH & RV
RV
RV
Carefree
Hill Country
Sunset Beach (2)
Kimberly Estates
Frenchtown Township, MI MH
Jellystone Larkspur
Larkspur, CO
Pecan Park
Petoskey
Jacksonville, FL
Petoskey, MI
Lake Josephine
Adirondack Gateway (3) Gansevoort, NY
Sebring, FL
RV
RV
RV
RV
RV
Total
Consideration
(in thousands)
$
$
$
$
$
$
$
$
$
1,684,140
30,000
28,283
7,750
7,516
7,000
3,500
3,400
2,250
Number
of sites -
MH/
Annual/
Seasonal
20,595
Number of
sites -
Transient
Expansion
Sites
6,152
2,446
—
N/A
387
—
—
—
101
—
356
N/A
—
148
183
78
77
347
—
N/A
—
352
—
65
—
—
(1)
The Carefree acquisition was comprised of 103 MH and RV communities, concentrated in California, Florida and Ontario, Canada. We terminated the ground
lease arrangement for one community included in the Carefree Communities during the fourth quarter of 2016.
(2) We have engaged the sellers of Sunset Beach to continue to operate and maintain the property. Beginning January 1, 2022, we have the option to remove
the sellers as operators via a payment based on certain operating performance metrics. Accordingly, total consideration of $28.3 million includes a contingent
consideration liability of $9.8 million as of the acquisition date. The contingent liability was $10.0 million as of December 31, 2016.
(3) We recorded a $0.5 million bargain purchase gain within Other expense, net in the Consolidated Statements of Operations in the accompanying Consolidated
Financial Statements for the year ended December 31, 2016, in connection with the Adirondack Gateway acquisition.
Expansion Activity:
We have been focused on expansion opportunities adjacent to our existing communities, and we have developed nearly 1,200 sites
over the past three years. We expanded 663 MH sites at eight properties in 2016. The total cost to construct the sites was
approximately $13.5 million. We continue to expand our properties utilizing our inventory of owned and entitled land
(approximately 10,600 to be developed sites) and expect to construct over 2,200 additional sites in 2017.
Capital Activity:
During 2016, we closed two underwritten registered public offering totaling 9.8 million shares of common stock with proceeds
of approximately $670 million net of offering related expenses. The proceeds of these offerings were used to fund acquisitions
and pay down our revolving lines of credit. Additionally, in June 2016, we issued 3.3 million shares of common stock for $225.0
million to the seller in the Carefree acquisition.
During 2015, we closed an underwritten registered public offering totaling 3.7 million shares of common stock with proceeds of
$233.1 million net of offering related expenses. Proceeds from the capital were used to pay down our revolving lines of credit,
which provided liquidity for future acquisitions and allowed us to reduce our leverage.
Refer to Note 9, "Equity and Mezzanine Securities," of our accompanying Consolidated Financial Statements for further information
regarding capital activity.
38
SUN COMMUNITIES, INC.
Markets
The following table identifies the Company's largest markets by number of sites:
Major Market
Florida
Michigan
Texas
California
Ontario, Canada
Arizona
Indiana
New Jersey
Ohio
Colorado
New York
Illinois
Maine
Pennsylvania
Maryland
Georgia
Missouri
Delaware
Virginia
Massachusetts
North Carolina
Wisconsin
Oregon
Minnesota
South Carolina
Iowa
Nevada
Tennessee
Montana
Connecticut
December 31, 2016
December 31, 2015
Number of
Properties
Total Sites
% of Total
Sites
Number of
Properties
Total Sites
% of Total
Sites
121
67
21
22
15
11
11
7
9
8
6
4
6
3
3
3
2
2
4
2
3
2
2
1
1
1
1
1
1
1
42,823
24,716
36.5%
21.1%
7,593
5,375
4,868
4,614
3,402
3,002
2,913
2,483
1,717
1,652
1,521
1,277
1,215
1,049
976
916
698
680
672
548
473
426
418
413
324
237
226
149
6.5%
4.6%
4.2%
3.9%
2.9%
2.6%
2.5%
2.1%
1.5%
1.4%
1.3%
1.1%
1.0%
0.9%
0.8%
0.8%
0.6%
0.6%
0.6%
0.5%
0.4%
0.4%
0.4%
0.4%
0.3%
0.2%
0.2%
0.1%
61
65
16
3
—
10
11
4
9
7
5
4
6
3
3
3
2
2
3
1
2
2
2
1
1
1
1
1
1
1
27,039
24,126
6,379
494
—
4,388
3,401
2,630
2,913
2,335
1,370
1,652
1,521
1,277
1,187
1,150
976
916
685
406
581
549
473
404
419
413
324
237
226
141
30.5%
27.2%
7.2%
0.6%
—%
5.0%
3.8%
3.0%
3.3%
2.6%
1.6%
1.9%
1.7%
1.4%
1.3%
1.3%
1.1%
1.0%
0.8%
0.5%
0.7%
0.6%
0.5%
0.5%
0.5%
0.5%
0.4%
0.3%
0.3%
0.2%
341
117,376
231
88,612
A large geographic concentration of our properties are in Florida, Michigan, Texas and California. As a result of our recent
acquisitions, we have expanded into Ontario, Canada, and increased the concentration of our properties located in other areas of
the U.S., predominantly in high growth areas and retirement and vacation destinations. Several of our acquisitions in these areas
have been RV communities. Through our expansion into RV communities, we have experienced strong revenue growth. The age
demographic of RV communities is attractive, as the population of retirement age baby boomers in the U.S. is growing. RV
communities have become a trending vacation opportunity not only for the retiree population, but as an affordable vacation
alternative for families.
39
SUN COMMUNITIES, INC.
NON-GAAP FINANCIAL
In addition to the results reported in accordance with GAAP in our "Results of Operations" below, we have provided information
regarding net operating income NOI and FFO as supplemental performance measures. We believe NOI and FFO are appropriate
measures given their wide use by and relevance to investors and analysts following the real estate industry. NOI provides a measure
of rental operations and does not factor in depreciation, amortization and non-property specific expenses such as general and
administrative expenses. FFO, reflecting the assumption that real estate values rise or fall with market conditions, principally
adjusts for the effects of GAAP depreciation/amortization of real estate assets. In addition, NOI and FFO are commonly used in
various ratios, pricing multiples/yields and returns and valuation calculations used to measure financial position, performance,
and value.
NOI is derived from revenues minus property operating expenses and real estate taxes. NOI does not represent cash generated
from operating activities in accordance with GAAP and should not be considered to be an alternative to net income (loss) (determined
in accordance with GAAP) as an indication of the Company's financial performance or to be an alternative to cash flow from
operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity; nor is it indicative of funds
available for the Company's cash needs, including its ability to make cash distributions. The Company believes that net income
(loss) is the most directly comparable GAAP measurement to NOI. Because of the inclusion of items such as interest, depreciation,
and amortization, the use of net income (loss) as a performance measure is limited as these items may not accurately reflect the
actual change in market value of a property, in the case of depreciation and in the case of interest, may not necessarily be linked
to the operating performance of a real estate asset, as it is often incurred at a parent company level and not at a property level. The
Company believes that NOI is helpful to investors 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. The Company uses NOI as a key
management tool when evaluating performance and growth of particular 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. Therefore, NOI is a measure of the operating performance of the
properties of the Company rather than of the Company overall.
FFO is defined by the National Association of Real Estate Investment Trusts ("NAREIT") as net income (loss) computed in
accordance with GAAP, excluding gains or losses from sales of depreciable operating property, plus real estate-related depreciation
and amortization, and after adjustments for unconsolidated partnerships and joint ventures. The Company considers FFO to be a
useful measure for reviewing comparative operating and financial performance because, by excluding gains and losses related to
sales of previously depreciated operating real estate assets, impairment and excluding real estate asset depreciation and amortization
(which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates).
FFO provides a performance measure that, when compared period over period, reflects the impact to operations from trends in
occupancy rates, rental rates, and operating costs, providing perspective not readily apparent from net income (loss). Management
believes that the use of FFO has been beneficial in improving the understanding of operating results of REITs among the investing
public and making comparisons of REIT operating results more meaningful. FFO is computed in accordance with the Company's
interpretation of standards established by NAREIT, which may not be comparable to FFO reported by other REITs that to not
define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than
the Company. The Company also uses FFO excluding certain items, which excludes certain gain and loss items that management
considers unrelated to the operational and financial performance of our core business. We believe that this provides investors with
another financial measure of our operating performance that is more comparable when evaluating period over period results.
Because FFO excludes significant economic components of net income (loss) including depreciation and amortization, FFO should
be used as an adjunct to net income (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 defined by 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 operating activities as a measure of liquidity. In
addition, FFO is not intended as a measure of a REIT's ability to meet debt principal repayments and other cash requirements, nor
as a measure of working capital. FFO only provides investors with an additional performance measure that, when combined with
measures computed in accordance with GAAP such as net income (loss), cash flow from operating activities, investing activities,
and financing activities, provide investors with an indication of our ability to service debt and to fund acquisitions and other
expenditures. Other REITs may use difference methods for calculating FFO, accordingly, our FFO may not be comparable to other
REITs.
40
SUN COMMUNITIES, INC.
RESULTS OF OPERATIONS
We report operating results under two segments: Real Property Operations and Home Sales and Rentals. The Real Property
Operations segment owns, operates, or has an interest in a portfolio, and develops MH communities and RV communities throughout
the U.S. and is in the business of acquiring, operating, and expanding MH and RV communities. The Home Sales and Rentals
segment offers MH and RV park model sales and leasing services to tenants and prospective tenants of our communities. We
evaluate segment operating performance based on NOI and gross profit. Refer to Note 11, "Segment Reporting," in our
accompanying Consolidated Financial Statements for additional information.
SUMMARY STATEMENTS OF OPERATIONS
The following table summarizes our consolidated financial results and reconciles NOI to net income for the years ended
December 31, 2016, 2015, and 2014 (in thousands):
Real Property NOI
Rental Program NOI
Home Sales NOI/Gross profit
Ancillary NOI/Gross profit
Site rent from Rental Program (included in Real Property NOI) (1)
NOI/Gross profit
Adjustments to arrive at net income:
Other revenues
Home selling expenses
General and administrative
Transaction costs
Depreciation and amortization
Asset impairment charge
Extinguishment of debt
Interest expense
Other expenses, net
Gain on disposition of properties, net
Gain on settlement
Current tax expense
Deferred tax benefit (expense)
Income from affiliate transactions
Net income
Less: Preferred return to preferred OP units
Less: Amounts attributable to noncontrolling interests
Net income attributable to Sun Communities, Inc.
Less: Preferred stock distributions
Less: Preferred stock redemption costs
Year Ended
2016
2015
2014
$
403,337
$
335,567
$
232,478
85,086
30,087
9,999
(61,600)
466,909
21,150
(9,744)
(64,087)
(31,914)
(221,770)
—
(1,127)
(122,315)
(5,848)
—
—
(683)
400
500
31,471
5,006
150
26,315
8,946
—
83,232
20,787
7,013
(61,952)
384,647
18,157
(7,476)
(47,455)
(17,803)
(177,637)
—
(2,800)
(110,878)
—
125,376
—
(158)
(1,000)
7,500
170,473
4,973
10,054
155,446
13,793
4,328
70,232
13,398
5,217
(54,289)
267,036
15,498
(5,235)
(37,387)
(18,259)
(133,726)
(837)
—
(76,981)
—
17,654
4,452
(219)
—
1,200
33,196
2,935
1,752
28,509
6,133
—
Net income attributable to Sun Communities, Inc. common stockholders
$
17,369
$
137,325
$
22,376
(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. For purposes of management analysis, the site rent is included in the Rental Program revenue to evaluate the incremental revenue gains
associated with implementation of the Rental Program, and to assess the overall growth and performance of Rental Program and financial impact on our
operations.
41
SUN COMMUNITIES, INC.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 2016 AND 2015
REAL PROPERTY OPERATIONS – TOTAL PORTFOLIO
The following tables reflect certain financial and other information for our Total Portfolio as of and for the years ended
December 31, 2016 and 2015:
Financial Information (in thousands)
Income from Real Property
Property operating expenses:
Payroll and benefits
Legal, taxes, and insurance
Utilities
Supplies and repair
Other
Real estate taxes
Property operating expenses
Real Property NOI
Other Information
Number of properties
Overall occupancy (1)
Year Ended December 31,
2016
2015
Change
% Change
$ 620,917
$ 506,078
$ 114,839
22.7 %
56,744
5,941
67,495
20,732
22,362
44,306
40,207
7,263
53,112
19,075
16,140
34,714
16,537
(1,322)
14,383
1,657
6,222
9,592
217,580
170,511
47,069
$ 403,337
$ 335,567
$
67,770
41.1 %
(18.2)%
27.1 %
8.7 %
38.6 %
27.6 %
27.6 %
20.2 %
As of December 31,
2016
341
2015
Change
% Change
231
110
47.6 %
96.2%
95.0%
1.2%
Sites available for development
10,616
7,181
3,435
47.8 %
Monthly base rent per site - MH
Monthly base rent per site - RV (2)
$
Monthly base rent per site - Total
(1) Overall occupancy (%) includes MH and annual RV sites, and excludes transient RV sites.
(2) Monthly base rent pertains to annual RV sites and excludes transient RV sites.
$
$
515
416
495
$
$
$
484
423
477
$
$
$
31
(7)
18
6.4 %
(1.7)%
3.8 %
The 20.2% growth in Real Property NOI consists of $45.7 million from newly acquired properties and $22.0 million from our
Same Community properties as detailed below.
42
REAL PROPERTY OPERATIONS – SAME COMMUNITY
SUN COMMUNITIES, INC.
A key management tool used when evaluating performance and growth of our properties is a comparison of Same Communities.
Same Communities consist of properties owned and operated throughout 2016 and 2015. The Same Community data may change
from time-to-time depending on acquisitions, dispositions, management discretion, significant transactions, or unique situations.
The Same Community data in this Form 10-K includes all properties which we have owned and operated continuously since
January 1, 2015.
In order to evaluate the growth of the Same Communities, management has classified certain items differently than our GAAP
statements. The reclassification difference between our GAAP statements and our Same Community portfolio is the reclassification
of water and sewer revenues from income from real property to utilities. A significant portion of our utility charges are re-billed
to our residents. We reclassify these amounts to reflect the utility expenses associated with our Same Community portfolio net of
recovery.
The following tables reflect certain financial and other information for our Same Communities as of and for the years ended
December 31, 2016 and 2015:
Financial Information (in thousands)
Income from Real Property
Property operating expenses:
Payroll and benefits
Legal, taxes, and insurance
Utilities
Supplies and repair
Other
Real estate taxes
Property operating expenses
Real Property NOI
Other Information
Number of properties
Overall occupancy (2) (3)
Year Ended December 31,
2016
$ 466,967
2015
$ 440,202
Change
% Change
$
26,765
6.1 %
38,688
5,398
26,161
16,617
12,945
34,239
134,048
$ 332,919
36,465
6,633
25,674
17,154
11,823
31,563
129,312
$ 310,890
(1)
$
2,223
(1,235)
487
(537)
1,122
2,676
4,736
22,029
6.1 %
(18.6)%
1.9 %
(3.1)%
9.5 %
8.5 %
3.7 %
7.1 %
As of December 31,
2016
219
2015
219
Change
% Change
—
— %
96.6%
94.7%
1.9%
Sites available for development
6,542
5,906
636
10.8 %
Monthly base rent per site - MH
Monthly base rent per site - RV (4)
3.2 %
Monthly base rent per site - Total
(1) Year ended December 31, 2015 excludes $2.8 million of first year expenses for properties acquired in late 2014 and 2015 incurred to bring the properties up
3.3 %
3.1 %
498
436
482
423
16
13
489
474
$
$
$
$
$
$
15
$
$
$
to Sun's operating standards. These costs did not meet our capitalization policy.
(2) Overall occupancy (%) includes MH and annual/seasonal RV sites, and excludes recently completed but vacant expansion sites and transient RV sites.
(3) Overall occupancy (%) for 2015 has been adjusted to reflect incremental growth year over year from filled expansion sites and the conversion of transient
RV sites to annual / seasonal RV sites.
(4) Monthly base rent pertains to annual and seasonal RV sites and excludes transient RV sites.
The 7.1% growth in NOI is primarily due to increased revenues of $26.8 million partially offset by additional expenses of $4.7
million.
Income from real property revenue consists of MH and RV site rent, and miscellaneous other property revenues. The 6.1% growth
in income from real property was due to a combination of factors. Revenue from our MH and RV portfolio increased $24.9 million
due to monthly base rent per site increases of 3.2%, a 1.9% increase in occupancy, and the increased number of occupied vacation
rental sites. Additionally, other revenues increased $1.8 million primarily due to increases in property tax revenues, trash income,
cable television royalties, and month-to-month fees.
43
SUN COMMUNITIES, INC.
Property operating expenses increased approximately $4.7 million, or 3.7%, compared to 2015. The increase is primarily due to
increased real estate taxes of $2.7 million and increased payroll and benefits of $2.2 million, partially offset by reduced legal, tax,
and insurance expenses.
RENTALS AND HOME SALES
The following table reflects certain financial and other information for our Rental Program as of and for the years ended December
31, 2016 and 2015 (in thousands, except for statistical information):
Financial Information
Rental home revenue
Site rent from Rental Program (1)
Rental Program revenue
Expenses
Commissions
Repairs and refurbishment
Taxes and insurance
Marketing and other
Rental Program operating and maintenance
Rental Program NOI
Other Information
Number of occupied rentals, end of period
Investment in occupied rental homes, end of period
Number of sold rental homes
Weighted average monthly rental rate, end of period
Year Ended December 31,
2016
2015
Change
% Change
$
47,780
$
46,236
$
61,600
109,380
61,952
108,188
2,242
12,825
5,734
3,493
24,294
3,216
12,326
5,638
3,776
24,956
$
85,086
$
83,232
$
1,544
(352)
1,192
(974)
499
96
(283)
(662)
1,854
10,733
10,685
$ 457,691
$ 448,837
1,089
$
882
$
908
858
$
$
48
8,854
181
24
3.3 %
(0.6)%
1.1 %
(30.3)%
4.1 %
1.7 %
(7.5)%
(2.7)%
2.2 %
0.5 %
2.0 %
19.9 %
2.8 %
(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. For purposes of management analysis, the site rent is included in the Rental Program revenue to evaluate the incremental revenue gains
associated with implementation of the Rental Program, and assess the overall growth and performance of Rental Program and financial impact to our operations.
The 2.2% growth in Rental Program NOI is primarily due to a 2.8% increase in weighted average monthly rental rates. Additionally,
operating and maintenance expenses decreased by $0.7 million, primarily as a result of a decline in commissions of $1.0 million
that was partially offset by an increase in repairs and refurbishment.
44
SUN COMMUNITIES, INC.
We purchase new homes and acquire pre-owned and repossessed manufactured homes, generally located within our communities,
from lenders, dealers, and former residents to lease or sell to current and prospective residents.
The following table reflects certain financial and statistical information for our Home Sales Program for the years ended
December 31, 2016 and 2015 (in thousands, except for average selling prices and statistical information):
Financial Information
New home sales
Pre-owned home sales
Revenue from homes sales
New home cost of sales
Pre-owned home cost of sales
Cost of home sales
NOI / Gross profit
Gross profit – new homes
Gross margin % – new homes
Average selling price – new homes
Gross profit – pre-owned homes
Gross margin % – pre-owned homes
Average selling price – pre-owned homes
Statistical Information
Home sales volume:
New home sales
Pre-owned home sales
Total homes sold
Year Ended December 31,
2016
2015
Change
% Change
$ 30,977
$ 22,208
$ 8,769
79,530
110,507
26,802
53,618
80,420
57,520
79,728
18,620
40,321
58,941
22,010
30,779
8,182
13,297
21,479
$ 30,087
$ 20,787
$ 9,300
39.5%
38.3%
38.6%
43.9%
33.0%
36.4%
44.7%
$
4,175
$
3,588
$
587
16.4%
13.5%
16.2%
(2.7)%
$ 94,156
$ 81,346
$ 12,810
15.8%
$ 25,912
$ 17,199
$ 8,713
50.7%
32.6%
29.9%
2.7 %
$ 27,974
$ 26,027
$ 1,947
7.5%
329
2,843
3,172
273
2,210
2,483
56
633
689
20.5%
28.6%
27.8%
Gross profit for new home sales increased $0.6 million, or 16.4%, primarily in connection with an increase in new home sales
volumes of 20.5%, that was partially offset by higher cost of sales for new homes.
Total gross profit for pre-owned home sales increased $8.7 million, primarily due to increased sales volumes of 28.6% and a 17.1%
increase in average gross profit per home sale.
45
SUN COMMUNITIES, INC.
OTHER INCOME STATEMENT ITEMS
The following table summarizes other income and expenses for the years ended December 31, 2016 and 2015 (amounts in
thousands):
Year Ended December 31,
2016
2015
Change
% Change
Ancillary revenues, net
Interest income
Brokerage commissions and other revenues, net
Home selling expenses
General and administrative expenses
Transaction costs
Depreciation and amortization
Extinguishment of debt
Interest expense
Other expenses, net
Gain on disposition of properties, net
Deferred tax benefit (expense)
Income from affiliate transactions
Preferred stock redemption costs
$
$
$
$
$
$
$
$
$
$
$
$
$
$
9,999
18,113
3,037
9,744
64,087
31,914
221,770
1,127
$
$
$
$
$
$
$
$
122,315
$
(5,848) $
— $
400
500
$
$
— $
7,013
15,938
2,219
7,476
47,455
17,803
177,637
2,800
110,878
$
$
$
$
$
$
$
$
$
125,376
— $
$
(1,000) $
$
7,500
4,328
$
2,986
2,175
818
2,268
16,632
14,111
44,133
(1,673)
11,437
(5,848)
(125,376)
1,400
(7,000)
(4,328)
42.6 %
13.7 %
36.9 %
30.3 %
35.1 %
79.3 %
24.8 %
(59.8)%
10.3 %
N/A
(100.0)%
140.0 %
(93.3)%
(100.0)%
Ancillary revenues, net increased primarily due to an increase of $3.0 million in vacation rental income at RV resorts.
Interest income increased primarily due to an increase in interest income on notes and collateralized receivables totaling $2.1
million.
Brokerage commissions and other revenues, net increased primarily due to a higher number of brokered homes sold in 2016
as compared to 2015.
Home selling expenses increased $2.3 million primarily due to an increase in commissions consistent with an increase in the
number of homes sold in 2016 as compared to 2015.
General and administrative expenses increased $16.6 million primarily due to additional employee related costs as headcount
increased in connection with the Company's growth through significant acquisitions and increased consulting and implementation
costs for technology and efficiency related initiatives.
Transaction costs increased primarily due to due diligence and other transaction costs in relation to our acquisitions. Refer to
Note 2, "Real Estate Acquisitions and Dispositions," in our accompanying Consolidated Financial Statements for additional
information.
Depreciation and amortization expenses increased $44.1 million primarily as a result of additional depreciation and amortization
related to our newly acquired properties. Refer to Note 2, "Real Estate Acquisitions and Dispositions," in our accompanying
Consolidated Financial Statements for additional information.
Extinguishment of debt decreased $1.7 million as compared to 2015. During 2016, we repaid collateralized term loans that were
due to mature during 2017. Refer to Note 8, "Debt and Lines of Credit," in our accompanying Consolidated Financial Statements
for additional information.
Interest expense increased $11.4 million primarily due to our borrowing $338.0 million under a senior secured credit facility and
entering into three mortgage loans totaling $405.0 million, both in June 2016. Refer to Note 8, "Debt and Lines of Credit," in our
accompanying Consolidated Financial Statements for additional information.
46
SUN COMMUNITIES, INC.
Other expenses, net in 2016 includes the impact of foreign currency exchange losses of $5.0 million, hurricane related costs of
$1.2 million and contingent liability revaluation expense of $0.2 million, partially offset by a $0.5 million gain related to the
acquisition of Adirondack Gateway.
Gain on disposition of properties, net decreased $125.4 million as we recorded no gains or losses during 2016, whereas we
disposed of 20 communities in 2015.
Deferred tax benefit (expense) was favorable by $1.4 million in 2016 as compared to 2015. During 2016, we recognized a
deferred tax benefit in connection with the Carefree acquisition. In 2015, we increased the valuation allowance on SHS loss
carryforwards by $1.0 million.
Income from affiliate transactions was $7.5 million in 2015 due to a distribution to us from Origen Financial, Inc. ("Origen.")
In 2016, we sold our entire interest in Origen consisting of 5,000,000 shares for proceeds of $0.5 million. The carrying value of
our investment in Origen prior to the sale was zero.
Preferred stock redemption costs were $4.3 million in 2015 as a result of a repurchase agreement with certain holders of the
Company's Series A-4 Preferred Stock. There were no such redemptions in 2016.
47
SUN COMMUNITIES, INC.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 2015 AND 2014
REAL PROPERTY OPERATIONS – TOTAL PORTFOLIO
The following tables reflect certain financial and other information for our Total Portfolio as of and for the years ended
December 31, 2015 and 2014:
Financial Information (in thousands)
Income from Real Property
Property operating expenses:
Payroll and benefits
Legal, taxes, and insurance
Utilities
Supplies and repair
Other
Real estate taxes
Property operating expenses
Real Property NOI
Other Information
Number of properties
Overall occupancy (1)
Year Ended December 31,
2015
2014
Change
% Change
$ 506,078
$ 357,793
$ 148,285
41.4%
40,207
7,263
53,112
19,075
16,140
34,714
30,107
5,089
41,275
13,535
11,128
24,181
10,100
2,174
11,837
5,540
5,012
10,533
170,511
$ 335,567
125,315
$ 232,478
45,196
$ 103,089
33.5%
42.7%
28.7%
40.9%
45.0%
43.6%
36.1%
44.3%
As of December 31,
2015
231
2014
Change
% Change
217
14
6.5%
95.0%
92.6%
2.4%
Sites available for development
7,181
6,987
194
Monthly base rent per site - MH
Monthly base rent per site - RV (2)
$
Monthly base rent per site - Total
(1) Overall occupancy (%) includes MH and annual RV sites, and excludes transient RV sites.
(2) Monthly base rent pertains to annual and seasonal RV sites and excludes transient RV sites.
$
$
484
423
477
$
$
$
464
409
456
$
$
$
20
14
21
2.8%
4.3%
3.4%
4.6%
The 44.3% growth in Real Property NOI was primarily due to $87.8 million from newly acquired properties and $18.4 million
from Same Community properties as detailed below, which is offset by a $3.1 million reduction for disposed properties.
48
REAL PROPERTY OPERATIONS – SAME COMMUNITY
SUN COMMUNITIES, INC.
The following tables reflect certain financial and other information for our Same Communities, which includes all properties we
have owned and operated continuously since January 1, 2014 as of and for the years ended December 31, 2015 and 2014:
Financial Information (in thousands)
Income from Real Property
Property operating expenses:
Payroll and benefits
Legal, taxes, and insurance
Utilities
Supplies and repair (1)
Other
Real estate taxes
Property operating expenses
Real Property NOI
Other Information
Number of properties
Overall occupancy (2) (3)
Year Ended December 31,
2015
$ 312,117
2014
$ 290,012
Change
% Change
$
22,105
7.6 %
26,108
5,090
18,349
11,986
8,789
21,325
91,647
$ 220,470
24,609
4,461
17,513
11,433
8,951
20,976
87,943
$ 202,069
$
1,499
629
836
553
(162)
349
3,704
18,401
6.1 %
14.1 %
4.8 %
4.8 %
(1.8)%
1.7 %
4.2 %
9.1 %
As of December 31,
2015
157
2014
157
Change
—
% Change
— %
95.9%
93.2%
2.7%
Sites available for development
5,229
6,003
(774)
(12.9)%
Monthly base rent per site - MH
Monthly base rent per site - RV (4)
3.3 %
Monthly base rent per site - Total
(1) Year ended December 31, 2015 excludes $2.8 million of first year expenses for properties acquired in late 2014 and 2015 incurred to bring the properties
3.4 %
2.9 %
409
457
481
421
472
465
15
16
12
$
$
$
$
$
$
$
$
$
up to Sun's operating standards. These costs did not meet the Company's capitalization policy.
(2) Overall occupancy (%) includes MH and annual/seasonal RV sites, and excludes recently completed but vacant expansion sites and transient RV sites.
(3) Overall occupancy (%) for 2015 has been adjusted to reflect incremental growth year over year from filled expansion sites and the conversion of transient
RV sites to annual / seasonal RV sites.
(4) Monthly base rent pertains to annual and seasonal RV sites and excludes transient RV sites.
The 9.1% growth in NOI is primarily due to increased revenues of $22.1 million partially offset by a $3.7 million increase in
expenses.
Income from real property revenue consists of MH and RV site rent, and miscellaneous other property revenues. The 7.6% growth
in income from real property was due to a combination of factors. Revenue from our MH and RV portfolio increased $18.3 million
due to monthly base rent per site increases of 3.3%, a 2.7% increase in occupancy, and the increased number of occupied home
sites. Additionally, other revenues increased $1.8 million primarily due to increases in month to month fees, utilities income, trash
income, and cable television royalties.
Property operating expenses increased approximately $3.7 million, or 4.2%, compared to 2014. Of that increase, supplies and
repair expense increased $0.6 million primarily related to higher landscaping and tree trimming. Utilities increased $0.8 million
primarily as a result of increased electric and trash removal costs. Legal, taxes, and insurance expenses increased $0.6 million
primarily related to an increased property and casualty insurance.
49
SUN COMMUNITIES, INC.
RENTALS AND HOME SALES
The following table reflects certain financial and other information for our Rental Program as of and for the years ended
December 31, 2015 and 2014 (in thousands, except for statistical information):
Financial Information
Rental home revenue
Site rent from Rental Program (1)
Rental Program revenue
Expenses
Commissions
Repairs and refurbishment
Taxes and insurance
Marketing and other
Rental Program operating and maintenance
Rental Program NOI
Other Information
Number of occupied rentals, end of period
Investment in occupied rental homes, end of period
Number of sold rental homes
Weighted average monthly rental rate, end of period
Year Ended December 31,
2015
2014
Change
% Change
$
46,236
$
39,213
$
61,952
108,188
3,216
12,326
5,638
3,776
24,956
54,289
93,502
2,607
11,068
5,286
4,309
23,270
7,023
7,663
14,686
609
1,258
352
(533)
1,686
$
83,232
$
70,232
$
13,000
10,685
10,973
$ 448,837
$ 429,605
908
858
$
799
822
$
$
$
(288)
19,232
109
36
17.9 %
14.1 %
15.7 %
23.4 %
11.4 %
6.7 %
(12.4)%
7.2 %
18.5 %
(2.6)%
4.5 %
13.6 %
4.4 %
(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. For purposes of management analysis, the site rent is included in the Rental Program revenue to evaluate the incremental revenue gains associated
with implementation of the Rental Program, and assess the overall growth and performance of Rental Program and financial impact to our operations.
The 18.5% growth in NOI is primarily a result of increased rental income throughout the year. While the number of occupied
rentals as of December 31, 2015, reflects a decline due to disposition of 20 communities during 2015, the rental income associated
with the majority of those communities was earned through November. We renew approximately 60% of our rental home leases
primarily at current market rates or above existing rates.
The $1.7 million increase in operating and maintenance expenses was primarily a result of a $1.3 million increase in repair and
refurbishment expenses, of which $0.7 million was due to increased refurbishment costs related to occupant turnover and $0.5
million was due to increased repair costs on occupied home rentals. In addition, insurance and personal property and use taxes
increased by $0.4 million.
50
SUN COMMUNITIES, INC.
The following table reflects certain financial and statistical information for our Home Sales Program for the years ended
December 31, 2015 and 2014 (in thousands, except for average selling prices and statistical information):
Financial Information
New home sales
Pre-owned home sales
Revenue from homes sales
New home cost of sales
Pre-owned home cost of sales
Cost of home sales
NOI / Gross profit
Gross profit – new homes
Gross margin % – new homes
Average selling price – new homes
Year Ended December 31,
2015
2014
Change
% Change
$ 22,208
$
9,464
$ 12,744
134.7 %
57,520
79,728
18,620
40,321
58,941
44,490
53,954
7,977
32,579
40,556
$ 20,787
$ 13,398
$
3,588
$
1,487
16.2%
15.7%
$ 81,346
$ 83,750
13,030
25,774
10,643
7,742
18,385
7,389
29.3 %
47.8 %
133.4 %
23.8 %
45.3 %
55.2 %
2,101
141.3 %
$
$
0.5%
$ (2,404)
(2.9)%
44.4 %
8.4 %
Gross profit – pre-owned homes
Gross margin % – pre-owned homes
Average selling price – pre-owned homes
$ 17,199
$ 11,911
29.9%
26.8%
$ 26,027
$ 24,010
$
$
5,288
3.1%
2,017
Statistical Information
Home sales volume:
New home sales
Pre-owned home sales
Total homes sold
273
2,210
2,483
113
1,853
1,966
160
357
517
141.6 %
19.3 %
26.3 %
Home Sales gross profit increased $2.1 million on new home sales and increased $5.3 million on pre-owned home sales. The
increased profit on new and pre-owned home sales is primarily due to increases in volume of both new and pre-owned home sales
during the year.
51
SUN COMMUNITIES, INC.
OTHER INCOME STATEMENT ITEMS
The following table summarizes other income and expenses for the years ended December 31, 2015 and 2014 (amounts in
thousands):
Year Ended December 31,
2015
2014
Change
% Change
Ancillary revenues, net
Interest income
Brokerage commissions and other revenues, net
Home selling expenses
General and administrative expenses
Transaction costs
Depreciation and amortization
Asset impairment charge
Interest expense
Gain on disposition of properties, net
Gain on settlement
Deferred tax expense
Income from affiliate transactions
Preferred stock redemption costs
$
$
$
$
$
$
$
$
$
$
$
$
$
$
7,013
15,938
2,219
7,476
47,455
17,803
177,637
$
$
$
$
$
$
$
— $
110,878
$
125,376
$
— $
(1,000) $
$
7,500
4,328
$
5,217
14,462
1,036
5,235
37,387
18,259
133,726
837
76,981
17,654
4,452
$
$
$
$
$
$
$
$
$
$
$
— $
1,200
$
— $
1,796
1,476
1,183
2,241
10,068
(456)
43,911
(837)
33,897
107,722
(4,452)
(1,000)
6,300
4,328
34.4 %
10.2 %
114.2 %
42.8 %
26.9 %
(2.5)%
32.8 %
(100.0)%
44.0 %
610.2 %
(100.0)%
N/A
525.0 %
N/A
Ancillary revenues, net for 2015 increased $1.8 million as compared to the same period in 2014, primarily due to increased
vacation rental income of $1.7
Interest income for 2015 increased by $1.5 million as compared to 2014, primarily due to an increase in interest income from
collateralized receivables of $1.5 million related to an increase in our note portfolio.
Brokerage commissions and other revenues, net for 2015 increased by $1.2 million as compared to 2014, primarily due to an
increase in the number of brokered homes sold.
Home selling expenses for 2015 increased $2.2 million as compared to 2014. This change represents a 43% increase,
consistent with the increase in home sales revenues and the Company's new single year record for home sales volumes in 2015.
General and administrative expenses for 2015 increased by $10.1 million as compared to 2014, primarily due to increased
expenses related to salaries, wages and related taxes of $4.7 million as a result of our acquisitions and increased headcount year
over year, increased deferred compensation of $2.2 million, increased training, travel, and office expenses of $0.9 million,
increased expenses for software support and maintenance, director fees, and regulatory fees of $0.7 million, increased
consulting costs of $0.5 million, increased corporate insurance premiums of $0.4 million, and increased other miscellaneous
expenses of $0.7 million.
Depreciation and amortization expenses increased by $43.9 million in 2015 as compared to 2014, primarily a result of additional
depreciation and amortization of $33.3 million primarily related to our newly acquired properties (See Note 2 in our Consolidated
Financial Statements), an additional $4.6 million related to depreciation on investment property for use in our rental program, an
additional $1.6 million related to depreciation on investment property for our vacation rental property, and an additional $4.4
million related to the amortization of in-place leases and promotions.
Asset impairment charge of $0.8 million during 2014, was the result of an impairment loss recorded on a long-lived asset for
our MH and RV community in La Feria, Texas. We did not recognize any asset impairment charge during 2015.
Interest expense on debt, including interest on mandatorily redeemable preferred OP units, increased in 2015, by $33.9 million
as compared to 2014, primarily as a result of a $25.2 million increase in mortgage interest due to the acquisition of the
American Land Lease and Berger properties, increased interest on miscellaneous other long-term debt of $15.6 million,
increased interest expense associated with our secured borrowing arrangements of $1.5 million, and increased other interest
52
SUN COMMUNITIES, INC.
expenses of $0.5 million primarily related to deferred financing costs. The increases in interest expense were partially offset by
$8.9 million of mark-to-market adjustments on assumed
Gain on disposition of properties, net for 2015 increased by $107.7 million as compared to 2014, primarily as a result of the
sale of 20 properties during 2015, compared to the sale of 10 properties during the year ended December 31, 2014 (see Note 2,
"Real Estate Acquisitions and Dispositions," in our accompanying Consolidated Financial Statements for additional
Gain on settlement of $4.5 million for 2014, was the result of a settlement reached with the sellers of 10 RV communities that
we acquired in February 2013. The settlement was related to various warranties, representations, and indemnities included in
the agreements under which we acquired the RV communities, including a covenant made by the sellers related to the 2012
revenue of the acquired properties. No such gain was recorded during
Deferred tax expense of $1.0 million for 2015, was the result of a valuation allowance increase in relation to management's
assumptions regarding realization of operating loss carryforwards at SHS. We had no such adjustment during 2014. Refer to
Note 12, "Income Taxes," in our accompanying Consolidated Financial Statements for additional information.
Income from affiliate transactions for 2015 increased by $6.3 million as compared to 2014. During 2015, we received a $7.5
million distribution from Origen as part of its dissolution. In 2014, we received distributions of $1.2 million from Origen on our
common stock.
Preferred stock redemption costs for 2015 were $4.3 million, as a result of a repurchase agreement with certain holders of the
Company's Series A-4 Preferred Stock (see Note 9, "Equity and Mezzanine Securities" in our accompanying Consolidated
Financial Statements for additional information). We had no similar transactions during 2014.
53
SUN COMMUNITIES, INC.
The following table reconciles net income to FFO data for diluted purposes for the years ended December 31, 2016, 2015 and
2014 (in thousands, except per share amounts):
Net income attributable to Sun Communities, Inc. common stockholders
Adjustments:
Preferred return to preferred OP units
Amounts attributable to noncontrolling interests
Preferred distribution to Series A-4 Preferred Stock
Preferred return to Series A-4 preferred OP units
Depreciation and amortization
Asset impairment charge
Gain on disposition of properties, net
Gain on disposition of assets
FFO attributable to Sun Communities, Inc. common stockholders and dilutive
convertible securities (1)
Adjustments:
Transaction costs
Other acquisition related costs (2)
Income from affiliate transactions
Foreign currency exchange(3)
Contingent liability re-measurement(3)
Gain on acquisition of property(3)
Hurricane related costs(3)
Gain on settlement
Preferred stock redemption costs
Extinguishment of debt
Debt premium write-off
Deferred tax (benefit) expense
FFO attributable to Sun Communities, Inc. common stockholders and dilutive
convertible securities excluding certain items (1)
Weighted average common shares outstanding:
Add:
Common stock issuable upon conversion of stock options
Restricted stock
Series A-4 Preferred Stock
Common OP units
Common stock issuable upon conversion of Series A-4 preferred OP units
Common stock issuable upon conversion of Series A-3 preferred OP units
Common stock issuable upon conversion of Series A-1 preferred OP units
Weighted average common shares outstanding - fully diluted
Year Ended December 31,
2016
17,369
2015
$ 137,325
2014
22,376
$
$
2,612
2,462
(41)
9,644
—
—
—
—
178,048
221,576
—
—
— (125,376)
(10,125)
(15,713)
181
1,086
76
100
134,252
837
(17,654)
(6,705)
$ 225,653
$ 192,128
$ 134,549
31,914
3,328
(500)
5,005
181
(510)
1,172
—
—
1,127
(839)
(400)
17,803
—
(7,500)
—
—
—
—
—
4,328
2,800
—
1,000
18,259
—
—
—
—
—
—
(4,452)
—
—
—
—
$ 266,131
$ 210,559
$ 148,356
65,856
53,686
41,337
8
457
—
2,844
—
75
925
70,165
16
411
—
2,803
—
75
988
57,979
16
237
215
2,114
28
75
—
44,022
FFO attributable to Sun Communities, Inc. common stockholders and dilutive
convertible securities per Share - fully diluted
FFO attributable to Sun Communities, Inc. common stockholders and dilutive
convertible securities per Share excluding certain items - fully diluted
$
$
3.22
3.79
$
$
3.31
3.63
$
$
3.06
3.37
(1) The effect of certain anti-dilutive convertible securities is excluded from these items.
(2)
These costs represent first year expense incurred to bring acquired properties up to the Company's operating standards, including items such as tree trimming
and painting costs that did not meet the Company's capitalization policy. The Company incurred $2.8 million of these first year expenses for the year ended
December 31, 2015. These costs are expected to become more significant in connection with the size of our acquisitions, and are therefore included as an
FFO adjustment for the year ended December 31, 2016. Had a similar adjustment been made, FFO attributable to Sun Communities, Inc. common stockholders
and dilutive convertible securities per share excluding certain items would have been $3.68 for the years ended December 31, 2015. These costs were
insignificant for the year ended December 31, 2014.
(3) Line item is included within Other expenses, net on the Statements of Operations in our accompanying Consolidated Financial Statements.
54
SUN COMMUNITIES, INC.
LIQUIDITY AND CAPITAL RESOURCES
Our principal liquidity demands have historically been, and are expected to continue to be, distributions to our stockholders and
the unit holders of the Operating Partnership, capital improvement of properties, the purchase of new and pre-owned homes,
property acquisitions, development and expansion of properties, and debt repayment.
During the year ended December 31, 2016, we acquired 111 communities, 103 of which were part of the Carefree acquisition.
See Note 2, "Real Estate Acquisitions and Dispositions" and Note 8, "Debt and Lines of Credit" in our accompanying Consolidated
Financial Statements for additional information regarding our acquisitions and related debt transactions in 2016. Subject to market
conditions, we intend to continue to look for opportunities to expand our development pipeline and acquire existing communities.
We finance the acquisitions through available cash, secured financing, draws on our unsecured lines of credit, the assumption of
existing debt on properties, and the issuance of certain equity securities. We will continue to evaluate acquisition opportunities
that meet our criteria for acquisition.
We also intend to continue to strengthen our capital and liquidity positions by focusing on our core fundamentals, which are
generating positive cash flows from operations, maintaining appropriate debt levels and leverage ratios, and controlling overhead
costs. We intend to meet our liquidity requirements through available cash balances, cash flows generated from operations, draws
on our credit facility, and the use of debt and equity offerings under our shelf registration statement.
Our capital expenditures include expansion and development, lot modifications, recurring capital expenditures and rental home
purchases. For the years ended December 31, 2016 and 2015, expansion and development activities of $48.0 million and $28.7
million, respectively, related to costs consisting primarily of construction and other costs necessary to complete home site
improvements.
For the years ended December 31, 2016 and 2015, lot modification expenditures were $19.0 million and $14.0 million, respectively.
These expenditures improve asset quality in our communities and are incurred when an existing home is removed and the site is
prepared for a new home (more often than not, a multi-sectional home). These activities, which are mandated by strict manufacturer's
installation requirements and state building codes, include items such as new foundations, driveways, and utility upgrades.
For the years ended December 31, 2016 and 2015, recurring capital expenditures were $17.6 million and $20.3 million, respectively,
related to our continued commitment to upkeep of our properties. We do not expect a decline in our recurring capital expenditures
in future periods.
During the year ended December 31, 2016, we invested $13.8 million in the acquisition of homes intended for the Rental Program
net of proceeds from third-party financing from homes sales. Expenditures for 2017 will depend upon the condition of the markets
for repossessions and new home sales, as well as rental homes. We finance new home purchases with a $12.0 million manufactured
home floor plan facility. Our ability to purchase homes for sale or rent may be limited by cash received from third-party financing
of our home sales, available manufactured home floor plan financing and working capital available on our lines of credit.
Our cash flow activities are summarized as follows (in thousands):
Net Cash Provided by Operating Activities
Net Cash Used for Investing Activities
Net Cash Provided by Financing Activities
Effect of Exchange Rate
Year Ended December 31,
2016
2015
2014
$
$
$
$
238,693
$
(1,614,512) $
$
1,338,970
(73) $
182,263
$
(413,184) $
$
192,548
— $
133,320
(550,705)
496,091
—
Cash and cash equivalents decreased by $36.9 million from $45.1 million as of December 31, 2015, to $8.2 million as of December
31, 2016.
Operating Activities
Net cash provided by operating activities increased by $56.4 million from $182.3 million for the year ended December 31, 2015
to $238.7 million for the year ended December 31, 2016.
55
SUN COMMUNITIES, INC.
Our net cash flows provided by operating activities from continuing operations may be adversely impacted by, among other things:
(a) the market and economic conditions in our current markets generally, and specifically in metropolitan areas of our current
markets; (b) lower occupancy and rental rates of our properties; (c) increased operating costs, such as wage and benefit costs,
insurance premiums, real estate taxes and utilities, that cannot be passed on to our tenants; (d) decreased sales of manufactured
homes; and (e) current volatility in economic conditions and the financial markets. See Part I, Item 1A, “Risk Factors” in this
Annual Report on Form 10-K.
Investing Activities
Net cash used for investing activities was $1.6 billion for the year ended December 31, 2016, compared to $413.2 million for the
year ended December 31, 2015. The increase is primarily due to increased cash used for the acquisition of Carefree Communities.
Financing Activities
Net cash provided by financing activities was $1.3 billion for the year ended December 31, 2016, compared to $192.5 million for
the year ended December 31, 2015. The increase is primarily due to equity offerings and new debt issuances in 2016 to fund the
Carefree Communities acquisition and for other corporate purposes. Refer to Note 8, "Debt and Lines of Credit" and Note 9,
"Equity and Mezzanine Securities" in our accompanying Consolidated Financial Statements for additional information.
Financial Flexibility
In August 2015 we amended and restated our senior revolving credit facility with Citibank, N.A. and certain other lenders in the
amount of $450.0 million, comprised of a $392.0 million revolving loan and $58.0 million term loan (the "Facility"). The Facility
has a four year term ending August 19, 2019, which can be extended for two additional six-month periods at our option, subject
to the satisfaction of certain conditions as defined in the credit agreement. The credit agreement also provides for, subject to the
satisfaction of certain conditions, additional commitments in an amount not to exceed $300.0 million. If additional borrowings
are made pursuant to any such additional commitments, the aggregate borrowing limit under the Facility may be increased up to
$750.0 million. The Facility bears interest at a floating rate based on the Eurodollar rate plus a margin that is determined based
on our leverage ratio calculated in accordance with the credit agreement, which can range from 1.40% to 2.25% for the revolving
loan and 1.35% to 2.20% for the term loan. As of December 31, 2016, the margin on our leverage ratio was 1.45% and 1.40% on
the revolving and term loans, respectively. We had $42.3 million in borrowings on the revolving loan and $58.0 million on the
term loan totaling $100.3 million in borrowings as of December 31, 2016, with a weighted average interest rate of 2.14%. As of
December 31, 2015, there was $25.0 million outstanding under our previous credit facility.
The 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 line of credit, but it does reduce the borrowing amount available. At December 31, 2016 and December 31,
2015, $4.6 million and $3.4 million, respectively, of availability was used to back standby letters of credit.
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 most restrictive financial covenants for the Facility are as follows:
Covenant
Maximum Leverage Ratio
Minimum Fixed Charge Coverage Ratio
Minimum Tangible Net Worth (in thousands)
Maximum Dividend Payout Ratio
Requirement
As of 12/31/16
< 65.0%
> 1.40
40.5%
2.50
>$2,475,365
$3,454,032
< 95.0%
69.6%
56
SUN COMMUNITIES, INC.
Market and Economic Conditions
Changes in the Canadian dollar against the U.S. dollar, the U.S. interest rate environment, oil price fluctuations, a new U.S.
President, uncertain tax and economic plans in Congress, and turmoil in emerging markets have created uncertainty and volatility
in the U.S. and global economies. Continued economic uncertainty, both nationally and internationally, causes increased volatility
in investor confidence thereby creating similar volatility in the availability of both debt and equity capital in the financial markets.
The U.S. Federal Reserve has predicted that more interest rate hikes will occur in 2017 thus raising borrowing costs for consumers
and businesses. While the U.S. economy looks poised for self-sustaining growth, the global economy is seeing modest improvement
led by developed countries. Continued economic uncertainty, both domestically and internationally, causes increased volatility in
investor confidence thereby creating similar volatility in the availability of both debt and equity capital. If such volatility is
experienced in future periods, our industry, business and results of operations may be adversely impacted.
We anticipate meeting our long-term liquidity requirements, such as scheduled debt maturities, large property acquisitions,
expansion and development of communities, and Operating Partnership unit redemptions through the issuance of certain debt or
equity securities and/or the collateralization of our properties. At December 31, 2016, we had 152 unencumbered properties, of
which 56 of these unencumbered properties support the borrowing base for our $450.0 million line 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 sell selected
assets. Our ability to finance our long-term liquidity requirements in such a manner will be affected by numerous economic factors
affecting the MH and RV community industry at the time, including the availability and cost of mortgage debt, our financial
condition, the operating history of the properties, the state of the debt and equity markets, and the general national, regional, and
local economic conditions. When it becomes necessary for us to approach 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 in this
Annual Report on Form 10-K. If we are unable to obtain additional debt or equity financing on acceptable terms, our business,
results of operations and financial condition would be adversely impacted.
Contractual Cash Obligations
Our primary long-term liquidity needs are principal payments on outstanding indebtedness. As of December 31, 2016, our
outstanding contractual obligations, including interest expense, were as follows:
Contractual Cash Obligations (1)
Total Due
<1 year
1-3 years
3-5 years
After 5 years
Payments Due By Period
(In thousands)
Collateralized term loans - FNMA
Collateralized term loans - FMCC
Collateralized term loans - Life Company
Collateralized term loans - CMBS
Preferred OP units - mandatorily redeemable
Lines of credit
Secured borrowing
$1,026,907
$
18,862
$ 118,437
$ 226,624
$ 662,984
394,470
888,153
491,027
45,903
100,344
144,477
5,742
18,697
41,265
11,240
—
5,645
12,322
49,617
17,476
—
2,889
12,913
213,654
13,310
58,819
138,016
—
97,455
15,229
363,096
761,020
294,270
34,663
—
110,690
549,453
2,226,723
Total principal payments
3,091,281
101,451
Interest expense (2)
Operating leases
1,008,228
63,694
151,020
2,391
249,074
6,389
217,814
6,557
390,320
48,357
Total contractual obligations
$ 4,163,203 $
254,862 $
469,117 $
773,824 $ 2,665,400
(1) Our contractual cash obligations exclude debt premiums/discounts.
(2) Our contractual cash obligation related to interest expense is calculated based on the current debt levels, rates and maturities as of December 31, 2016 (excluding
secured borrowings), and actual payments required in future periods may be different than the amounts included above.
As of December 31, 2016, our net debt to enterprise value approximated 33.8% (assuming conversion of all common OP units,
Series A-1 preferred OP units, Series A-3 preferred OP units, Series A-4 preferred OP units, and Series C preferred OP units to
shares of common stock). Our debt has a weighted average maturity of approximately 8.5 years and a weighted average interest
rate of 4.5%.
57
SUN COMMUNITIES, INC.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles ("GAAP"),
which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses in
the periods presented. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable;
however, due to inherent uncertainties in making estimates, actual results could differ from the original estimates, requiring
adjustments to these balances in future periods.
The critical accounting estimates that affect the Consolidated Financial Statements and that use judgments and assumptions are
listed below. In addition, the likelihood that materially different amounts could be reported under varied conditions and assumptions
is discussed.
Investment Property
Investment property is recorded at cost, less accumulated depreciation. We review the carrying value of long-lived assets to be
held and used for impairment quarterly or whenever events or changes in circumstances indicate a possible impairment. Our
primary indicator for potential impairment is based on NOI trends period over period. Circumstances that may prompt a test of
recoverability may also include a 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 or other 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 is not recoverable and exceeds estimated
fair value. We estimate the fair value of our long-lived assets based on discounted future cash flows and any potential disposition
proceeds for a given asset. Forecasting cash flows requires management to make estimates and assumptions about such variables
as the estimated holding period, rental rates, occupancy, development, and operating expenses during the holding period, as well
as disposition proceeds. Management uses its best judgment when developing these estimates and assumptions, but the development
of the projected future cash flows is based on subjective variables. Future events could occur which would cause us to conclude
that impairment indicators exist, and significant adverse changes in national, regional, or local market conditions or trends may
cause us to change the estimates and assumptions used in our impairment analysis. The results of an impairment analysis could
be material to our financial 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 to sell the property, or from an unsolicited offer to purchase the property. The typical sale process
involves a significant negotiation and due diligence period between us and the potential purchaser. As the intent of this process is
to 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 potential offers 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 transaction will be completed within one year. This typically occurs when all
significant contingencies surrounding the closing have been resolved, which often corresponds 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 fair values for purposes of allocating purchase price, we utilize an independent third-party to value the net
tangible and identified intangible assets in connection with the acquisition of the respective property. We provide historical and
pro forma financial information obtained about each property, as well as any other information needed in order for the third-party
to ascertain the fair value of the tangible and intangible assets (including in-place leases) acquired.
Capitalized Costs
We capitalize certain costs incurred in connection with the development, redevelopment, capital enhancement and leasing of our
properties. Management is required to use professional judgment in determining whether such costs meet the criteria for immediate
expense or capitalization. The amounts are dependent on the volume and timing of such activities and the costs associated with
such activities. Maintenance, repairs and minor improvements to properties are expensed when incurred. Renovations and
improvements to properties are capitalized and depreciated over their estimated useful lives and construction costs related to the
development of new community or expansion sites are capitalized until the property is substantially complete. Costs incurred to
initially renovate pre-owned and repossessed homes that we acquire for our Rental Program are capitalized and costs incurred to
refurbish the homes at turnover and repair the homes while occupied are expensed. Certain expenditures to dealers and residents
related to obtaining lessees in our communities are capitalized and amortized over a seven year period based on the anticipated
term of occupancy of a resident. Costs associated with implementing our computer systems are capitalized and amortized over
the estimated useful lives of the related software and hardware. Costs incurred to obtain new financing are capitalized and amortized
over the terms of the related loan agreement using the straight-line method (which approximates the effective interest method).
58
SUN COMMUNITIES, INC.
Notes and Other Receivables
We make financing available to purchasers of manufactured homes generally located in our communities. The notes are
collateralized by the underlying manufactured home sold. Notes receivable include both installment loans purchased by the
Company as well as transferred loans that have not met the requirements for sale accounting which are presented herein as
collateralized receivables. For purposes of accounting policy, all notes receivable are considered one homogeneous segment, as
the notes are typically underwritten using the same requirements and terms. Notes receivable are reported at their outstanding
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 stop accruing interest on the note receivable. The interest on nonaccrual loans is accounted for on the cash
basis until qualifying for return to accrual. Loans are returned to accrual when all principal and interest amounts contractually due
are brought current and future payments are reasonably assured. Loans on a nonaccrual status were immaterial at December 31,
2016 and 2015. The ability to collect our notes receivable is measured based on current and historical information and events. We
consider numerous factors including: length of delinquency, estimated costs to lease or sell, and repossession history. Our experience
supports a high recovery rate for notes receivable; however there is some degree of uncertainty about the recoverability of our
investment in these notes receivable. We are generally able to recover our recorded investment in uncollectible notes receivable
by repossessing the homes on the notes retained by us and repurchasing the homes on the collateralized receivables, and subsequently
selling or leasing these homes to potential residents in our communities. We have established a loan loss reserve based on our
estimated unrecoverable costs associated with repossessed/repurchased homes. We estimate our unrecoverable costs 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 the home being repossessed. A historical average of this excess cost is calculated based on prior repossessions/repurchases
and is applied to our estimated annual future repossessions to create the allowance for both installment and collateralized notes
receivable.
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 contractual terms 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 is delinquent more than five to seven days, dependent on state law, we begin
the repossession and eviction process simultaneously. This process generally takes 30 to 45 days; due to the short time frame from
delinquent loan to repossession we do not evaluate the note receivables for impairments. No loans were considered impaired as
of December 31, 2016 and 2015.
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 quality of 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 end and various other miscellaneous receivables. Accounts receivable from residents are typically due within
30 days and stated at amounts due from residents net of an allowance for doubtful accounts. Accounts outstanding longer than the
contractual payment terms are considered past due. We evaluate the recoverability of 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 all amounts due
according to the contractual terms of the loan and lease agreements. Receivables related to community rents are reserved when
we believe that collection is less than probable, which is generally after a resident balance reaches 60 to 90 days past due.
Revenue Recognition
Rental 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 for one-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, as provided by state statute. Revenue from the sale of manufactured homes
is recognized upon transfer of title at the closing of the sales transaction. Interest income 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 taxing authorities in revenue.
Refer to Note 1, "Significant Accounting Policies" of our accompanying Consolidated Financial Statements for additional
information on critical accounting policies and estimates.
59
SUN COMMUNITIES, INC.
Impact of New Accounting Standards
Refer to Note 17, "Recent Accounting Pronouncements," of our accompanying Consolidated Financial Statements for information
regarding new accounting pronouncements.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements with any unconsolidated entities that it believes have or are
reasonably likely to have a material effect on its financial condition, results of operations, liquidity, or capital resources.
60
SUN COMMUNITIES, INC.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in market factors such as interest rates, foreign currency exchange rates,
commodity prices, and equity prices.
Interest Rate Risk
Our principal market risk exposure is interest rate risk. We mitigate this risk by maintaining prudent amounts of leverage, minimizing
capital costs, and interest 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 that interest rate changes could have on our future cash flows. From time to time,
we 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 two interest rate cap agreements with a total notional amount of $159.7 million as of December 31, 2016. The first interest
rate cap agreement has a cap rate of 9.00%, a notional amount of $150.1 million and a termination date of April 2018. The second
interest rate cap agreement has a cap rate of 11.02%, a notional amount of $9.6 million and a termination date of May 2023.
Our remaining variable rate debt totals $256.0 million and $183.3 million as of December 31, 2016 and 2015, respectively, and
bears interest at Prime or various LIBOR rates. If Prime or LIBOR increased or decreased by 1.0%, we believe our interest expense
would have increased or decreased by approximately $3.0 million and $2.2 million as of December 31, 2016 and 2015, respectively,
based on the $299.1 million and $223.2 million average balances outstanding under our variable rate debt facilities, respectively.
Foreign Currency Exchange Rate Risk
Foreign currency exchange rate risk is the risk that fluctuations in currencies against the U.S. dollar will negatively impact our
results of operations. We are exposed to foreign currency exchange rate risk as a result of remeasurement and translation of the
assets and liabilities of our Canadian properties into U.S. dollars. Fluctuations in foreign currency exchange rates can therefore
create volatility in our results of operations and may adversely affect our financial condition.
61
SUN COMMUNITIES, INC.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data are filed herewith under Item 15.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9.
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed
in reports filed under the Exchange Act is recorded, processed, summarized and reported within the specified time periods and
accumulated and communicated to our management, including our principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures
(pursuant to Rules 13a-15(e) or 15d-15(e) of the Exchange Act) at December 31, 2016. Based upon this evaluation, our CEO and
CFO concluded that our disclosure controls and procedures were effective as of December 31, 2016.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. This system is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with
U.S. GAAP. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion
or improper management override of controls, misstatements due to error or fraud may not be prevented or detected on a timely
basis.
Our management performed an assessment of the effectiveness of our internal control over financial reporting at December 31,
2016, utilizing the criteria discussed in the “Internal Control - Integrated Framework (2013)” issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The objective of this assessment was to determine whether our internal
control over financial reporting was effective at December 31, 2016. Based on management's assessment, we have concluded that
our internal control over financial reporting was effective at December 31, 2016.
The effectiveness of our internal control over financial reporting has been audited by Grant Thornton LLP, an independent registered
public accounting firm, as stated in its report which is included herein.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2016 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION
None.
62
SUN COMMUNITIES, INC.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Pursuant to instruction 3 to paragraph (b) of Item 401 of Regulation S-K, certain information regarding our executive officers is
contained in Part I of this Form 10-K. Unless provided in an amendment to this Annual Report on Form 10-K, the other information
required by this Item is incorporated herein by reference to the applicable information in the proxy statement for our 2017 annual
meeting (the "Proxy Statement,") including the information set forth under the captions "Board of Directors and Corporate
Governance - Incumbent Directors and Nominees," "Management and Executive Compensation - Executive Officers," "Section
16(a) Beneficial Ownership Reporting Compliance," "Board of Directors and Corporate Governance - Board of Directors and
Committees" and "Board of Directors and Corporate Governance - Consideration of Director Nominees."
ITEM 11. EXECUTIVE COMPENSATION
Unless provided in an amendment to this Annual Report on Form 10-K, the information required by this Item is incorporated by
reference to the applicable information in the Proxy Statement, including the information set forth under the captions "Management
and Executive Compensation," "Board of Directors and Corporate Governance - Director Compensation Table," "Compensation
Committee Interlocks and Insider Participation" and "Compensation Committee Report." The information in the section captioned
"Compensation Committee Report" in the Proxy Statement or an amendment to this Annual Report on Form 10-K is incorporated
by reference herein but shall be deemed furnished, not filed, and shall not be deemed to be incorporated by reference into any
filing we make under the Securities Act of 1933 or the Securities Exchange Act of 1934.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Unless provided in an amendment to this Annual Report on Form 10-K, the information required by this Item is incorporated by
reference to the applicable information in the Proxy Statement, including the information set forth under the captions "Security
Ownership of Certain Beneficial Owners and Management" and "Securities Authorized for Issuance Under Equity Compensation
Plans."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Unless provided in an amendment to this Annual Report on Form 10-K, the information required by this Item is incorporated by
reference to the Proxy Statement, including the information set forth under the captions "Certain Relationships and Related
Transactions and Director Independence," "Board of Directors and Corporate Governance - Board of Directors and Committees"
and "Board of Directors and Corporate Governance - Board Leadership Structure and Independence of Non-Employee Directors."
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Unless provided in an amendment to this Annual Report on Form 10-K, the information required by this Item is incorporated by
reference to the Proxy Statement, including the information set forth under the caption "Ratification of Selection of Grant Thornton
LLP."
63
SUN COMMUNITIES, INC.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The 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 Annual Report on Form
to the Consolidated Financial Statements and Financial Statement Schedules” filed herewith.
is shown in the “Index
2.
Financial Schedule
The financial statement schedule required to be filed as a part of this Annual Report on Form
to the Consolidated Financial Statements and Financial Statement Schedules” filed herewith.
is shown in the “Index
3.
Exhibits
A list of the exhibits required by Item 601 of Regulation
is shown on the “Exhibit Index” filed herewith.
to be filed as a part of this Annual Report on Form 10-K
64
SUN COMMUNITIES, INC.
ITEM 16. FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant 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 behalf by the undersigned, thereunto duly authorized.
February 23, 2017
By
/s/
Gary A. Shiffman
Gary A. Shiffman
Chief Executive Officer
SUN COMMUNITIES, INC.
(Registrant)
Pursuant 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 of the registrant and in the capacities and on the dates indicated.
/s/
/s/
/s/
/s/
/s/
/s/
/s/
/s/
Name
Gary A. Shiffman
Gary A. Shiffman
Karen J. Dearing
Karen J. Dearing
Stephanie W. Bergeron
Stephanie W. Bergeron
Brian M. Hermelin
Brian M. Hermelin
Ronald A. Klein
Ronald A. Klein
Clunet R. Lewis
Clunet R. Lewis
Ronald L. Piasecki
Ronald L. Piasecki
Arthur A. Weiss
Arthur A. Weiss
Capacity
Chief Executive Officer and Chairman of the Board of
Directors (Principal Executive Officer)
Date
February 23, 2017
Executive Vice President, Chief Financial Officer,
Treasurer, Secretary (Principal Financial Officer and
Principal Accounting Officer)
February 23, 2017
February 23, 2017
February 23, 2017
February 23, 2017
February 23, 2017
February 23, 2017
February 23, 2017
Director
Director
Director
Director
Director
Director
65
SUN COMMUNITIES, INC.
EXHIBIT INDEX
Exhibit
Number
Description
Method of Filing
2.1
Stock Purchase Agreement dated March 22, 2016, among Carefree Communities Intermediate
Holdings, L.L.C., Sun Communities, Inc., and Sun Communities Operating Limited Partnership*
3.1
Amended and Restated Articles of Incorporation of Sun Communities, Inc.
3.2
Articles Supplementary of Board of Directors of Sun Communities, Inc. Designating a Series of Preferred
Stock
3.3
Articles Supplementary, dated October 16, 2006
3.4
Articles Supplementary of Board of Directors Classifying and Designating a Series of Preferred Stock
as Junior Participating Preferred Stock and Fixing Distribution and Other Preferences and Rights of Such
Series
3.5
Articles of Amendment dated June 13, 1997
3.6
3.7
Articles Supplementary designating 7.125% Series A Cumulative Redeemable Preferred Stock dated
November 9, 2012
Articles Supplementary canceling and reclassifying 9.125% Series A Cumulative Redeemable Perpetual
Preferred Stock dated November 9, 2012
3.8
Articles of Amendment dated July 24, 2013
3.9
Articles Supplementary designating 6.50% Series A-4 Cumulative Convertible Preferred Stock dated
November 25, 2014
3.10
Articles of Amendment dated July 22, 2015
3.11
Second Amended and Restated Bylaws
4.1
4.2
4.3
Rights Agreement, dated as of June 2, 2008, between Sun Communities, Inc. and Computershare Trust
Company, N.A., as Rights Agent
Registration Rights Agreement dated February 8, 2013 among Sun Communities, Inc., and the holders
of Series A-3 Preferred Units that are parties thereto
Form of Registration Rights Agreement between Sun Communities, Inc. and Carefree Communities
Intermediate Holdings, L.L.C.
4.4
Form of certificate evidencing common stock
4.5
Form of certificate evidencing 7.125% Series A Cumulative Redeemable Preferred Stock
4.6
Form of certificate evidencing 6.50% Series A-4 Cumulative Convertible Preferred Stock
10.1
Amended and Restated Credit Agreement, dated August 19, 2015, among Sun Communities Operating
Limited Partnership, as Borrower, Citibank, N.A., as Administrative Agent, Swing Line Lender and L/
C Issuer, Citigroup Global markets, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, and
BMO Capital Markets, as Joint Lead Arrangers and Joint Book Running Managers, Bank of America,
N.A. and Bank of Montreal, as Co-Syndication Agent, Fifth Third Bank, an Ohio Banking Corporation
and Regions Bank, as Co-Documentation Agents
Incorporated by reference to Sun
Communities, Inc.’s Current Report on
Form 8-K filed March 22, 2016
Incorporated by reference to Sun
Communities, Inc.'s Registration
Statement No. 33 69340
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed October 15, 1999
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed October 19, 2006
Incorporated by reference to Sun
Communities, Inc.'s Registration
Statement on Form 8-A filed June 3,
2008
Incorporated by reference to Sun
Communities, Inc.’s Registration
Statement on Form 8-A filed November
19, 2012
Incorporated by reference to Sun
Communities, Inc.'s Registration
Statement on Form 8-A filed November
19, 2012
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed November 19, 2012
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed July 29, 2013
Incorporated by reference to Sun
Communities, Inc.’s Current Report on
Form 8-K filed December 2, 2014
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed July 22, 2015
Incorporated by reference to Sun
Communities, Inc.’s Annual Report on
Form 10-K for the year ended December
31, 2014
Incorporated by reference to Sun
Communities, Inc.'s Registration
Statement on Form 8-A filed June 3,
2008
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed February 12, 2013
Incorporated by reference to Sun
Communities, Inc.’s Current Report on
Form 8-K filed March 22, 2016
Incorporated by reference to Sun
Communities, Inc.'s Registration
Statement on Form 8-A filed November
9, 2012
Incorporated by reference to Sun
Communities, Inc.'s Registration
Statement on Form 8-A filed November
9, 2012
Incorporated by reference to Sun
Communities, Inc.’s Current Report on
Form 8-K filed December 2, 2014
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed August 24, 2015
66
SUN COMMUNITIES, INC.
Master Credit Facility Agreement, dated June 3, 2016, by and among Sun Apple Creek LLC; Sun Bell
Crossing LLC; Sun Boulder Ridge LLC; Aspen-Brentwood Project, LLC; Sun Cave Creek LLC; Sun
Countryside Lake Lanier LLC; Sun Cutler Estates LLC; Aspen-Grand Project, LLC; Sun Hamlin
LLC; Sun Hawaiian Holly LLC; Holiday West Village Mobile Home Park, LLC; Sun Meadowbrook
FL LLC; Sun Oakcrest LLC, Sun Pine Ridge LLC; Sun Scio Farms LLC; Sun Villa MHC LLC;
Waverly Shores Village Mobile Home Park, LLC, as Borrowers, and Regions Bank, as Lender
Master Loan Agreement dated June 9, 2016, by and among Carefree Communities CA LLC, NHC-CA101,
LLC and The Northwestern Mutual Life Insurance Company
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed June 9, 2016
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed June 9, 2016
Promissory Note dated June 9, 2016 in the original principal amount of $162.0 million executed by
Carefree Communities CA LLC and NHC-CA101, LLC in favor of The Northwestern Mutual Life
Insurance Company
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed June 9, 2016
Master Loan Agreement dated June 9, 2016, by and between Carefree Communities CA LLC and The
Northwestern Mutual Life Insurance Company
Promissory Note dated June 9, 2016 in the original principal amount of $163.0 million executed by
Carefree Communities CA LLC in favor of The Northwestern Mutual Life Insurance Company
Amended and Restated Mortgage and Security Agreement dated June 9, 2016, by and between SNF
Property LLC and The Northwestern Mutual Life Insurance Company
Amended and Restated Promissory Note dated June 9, 2016 in the original principal amount of $80.0
million executed by SNF Property LLC in favor of The Northwestern Mutual Life Insurance Company
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed June 9, 2016
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed June 9, 2016
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed June 9, 2016
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed June 9, 2016
At the Market Offering Sales Agreement, dated June 17, 2015, among Sun Communities, Inc., Sun
Communities Operating Limited Partnership, BMO Capital Markets Corp., Merrill Lynch, Pierce, Fenner
and Smith Incorporated and Citigroup Global Markets Inc.
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K file June 17, 2015
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
Lease, dated November 1, 2002, by and between the Operating Partnership as Tenant and American
Center LLC as Landlord
10.11
Third Lease Modification dated October 31, 2011 by and between the Operating Partnership as Tenant
and American Center LLC as Landlord
10.12
Third Amended and Restated Agreement of Limited Partnership of Sun Communities Operating
Limited Partnership, dated June 19, 2014.
10.13
Amendment No. 2 dated November 26, 2014, to the Third Amended and Restated Agreement of Limited
Partnership of Sun Communities Operating Limited Partnership
10.14
Amendment No. 7, dated April 1, 2015, to the Third Amended and Restated Agreement of Limited
Partnership of Sun Communities Operating Limited Partnership
10.15
Amendment No. 8, dated April 22, 2015, to the Third Amended and Restated Agreement of Limited
Partnership of Sun Communities Operating Limited Partnership
10.16
First Amended and Restated 2004 Non-Employee Director Option Plan#
10.17
Sun Communities, Inc. 2015 Equity Incentive Plan#
10.18
Form of Stock Option Agreement between Sun Communities, Inc. and certain directors, officers and other
individuals#
10.19
Form of Non-Employee Director Stock Option Agreement between Sun Communities, Inc. and certain
directors#
10.20
Form of Restricted Stock Award Agreement#
10.21
10.22
First Amendment to Restricted Stock Award Agreement between Sun Communities, Inc. and Gary A.
Shiffman dated July 15, 2014#
Employment Agreement dated June 20, 2013 among Sun Communities, Inc., Sun Communities Operating
Limited Partnership and Gary A. Shiffman#
10.23
First Amendment to Employment Agreement among Sun Communities, Inc., Sun Communities Operating
Limited Partnership and Gary A. Shiffman dated July 15, 2014#
Incorporated by reference to Sun
Communities, Inc.'s Annual Report on
Form 10-K for the year ended December
31, December 31, 2002, as amended
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 10-K for the year ended December
31, 2011
Incorporated by reference to Sun
Communities, Inc.’s Current Report on
Form 8-K filed June 23, 2014
Incorporated by reference to Sun
Communities, Inc.’s Current Report on
Form 8-K filed December 2, 2014
Incorporated by reference to Sun
Communities, Inc.’s Current Report on
Form 8-K filed April 2, 2015
Incorporated by reference to Sun
Communities, Inc.’s Quarterly Report on
Form 10-Q for the quarter ended March
31, 2015
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed July 25, 2012
Incorporated by reference to Sun
Communities, Inc.'s Proxy Statement
dated April 29, 2015 for the Annual
meeting of Stockholders held July 20,
2015
Incorporated by reference to Sun
Communities, Inc.'s Registration
Statement No. 33 69340
Incorporated by reference to Sun
Communities, Inc.'s Registration
Statement No. 33 80972
Incorporated by reference to Sun
Communities, Inc.'s Annual Report on
Form 10-K for the year ended December
31, 2004
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed July 15, 2014
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed June 24, 2013
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed July 15, 2014
67
21.1
23.1
31.1
31.2
32.1
101.1
*
#
SUN COMMUNITIES, INC.
10.24
Employment Agreement dated May 19, 2015 among Sun Communities, Inc., Sun Communities Operating
Limited Partnership and John B. McLaren#
10.25
Employment Agreement July 16, 2015 among Sun Communities, Inc., Sun Communities Operating
Limited Partnership and Karen J. Dearing#
10.26
Sun Communities, Inc. Executive Compensation "Clawback" Policy#
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed May 20, 2015
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed July 17, 2015
Incorporated by reference to Sun
Communities, Inc.'s Current Report on
Form 8-K filed July 15, 2014
Filed herewith
Filed herewith
List of Subsidiaries of Sun Communities, Inc.
Consent of Grant Thornton LLP
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Furnished herewith
The following Sun Communities, Inc. financial information, formatted in XBRL (eXtensible Business
Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2016 and 2015, (ii)
Consolidated Statements of Operations for the Years Ended December 31, 2016, 2015 and 2014, (iii)
Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Loss for the Years Ended
December 31, 2016, 2015 and 2014, (iv) Consolidated Statements of Cash Flows, for the Years Ended
December 31, 2016, 2015 and 2014; (v) Notes to Consolidated Financial Statements, and (vi) Schedule
III - Real Estate and Accumulated Depreciation
Filed herewith
Certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K because such schedules and exhibits do not contain
information which is material to an investment decision or which is not otherwise disclosed in the filed agreements. The Company will furnish the
omitted schedules and exhibits to the Securities and Exchange Commission upon request by the Commission.
Management contract or compensatory plan or arrangement.
68
SUN COMMUNITIES, INC.
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Reports of Independent Registered Public Accounting Firm
Financial Statements:
Consolidated Balance Sheets as of December 31, 2016 and 2015
Consolidated Statements of Operations for the Years Ended December 31, 2016, 2015, and 2014
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2016, 2015, and
2014
Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2016, 2015,
and 2014
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015, and 2014
Notes to Consolidated Financial Statements
Real Estate and Accumulated Depreciation, Schedule III
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-10
F-48
F - 1
SUN COMMUNITIES, INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Sun Communities, Inc.
We have audited the accompanying consolidated balance sheets of Sun Communities, Inc. (a Maryland corporation) and subsidiaries
(the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income,
stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016. Our audit of the basic
consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15. These
financial statements and financial statement schedule are the responsibility of the Company’s management. 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 that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide 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, 2016 and 2015, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information 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 control over financial reporting as of December 31, 2016, based on criteria established in the 2013 Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and
our report dated February 23, 2017 expressed an unqualified opinion.
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
Southfield, Michigan
February 23, 2017
F - 2
SUN COMMUNITIES, INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Sun Communities, Inc.
We have audited the internal control over financial reporting of Sun Communities, Inc. (a Maryland corporation) and subsidiaries
(the “Company”) as of December 31, 2016, based on criteria established in the 2013 Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial 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 that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary 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 and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely 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 of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with 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, 2016, based on criteria established in the 2013 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 financial statements of the Company as of and for the year ended December 31, 2016, and our report dated February
23, 2017 and expressed an unqualified opinion on those financial statements.
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
Southfield, Michigan
February 23, 2017
F - 3
SUN COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
ASSETS
Land
Land improvements and buildings
Rental homes and improvements
Furniture, fixtures and equipment
Land held for future development
Investment property
Accumulated depreciation
Investment property, net (including $88,987 and $92,009 for consolidated variable
interest entities at December 31, 2016 and December 31, 2015; see Note 7)
Cash and cash equivalents
Inventory of manufactured homes
Notes and other receivables, net
Collateralized receivables, net
Other assets, net (including $3,054 and $3,823 for consolidated variable interest
entities at December 31, 2016 and December 31, 2015; see Note 7)
TOTAL ASSETS
LIABILITIES
Mortgage loans payable (including $62,111 and $64,082 for consolidated variable
interest entities at December 31, 2016 and December 31, 2015; see Note 7)
Secured borrowings on collateralized receivables
Preferred OP units - mandatorily redeemable
Lines of credit
Distributions payable
Other liabilities (including $1,998 and $4,091 for consolidated variable interest
entities at December 31, 2016 and December 31, 2015; see Note 7)
TOTAL LIABILITIES
Commitments and contingencies
Series A-4 preferred stock, $0.01 par value. Issued and outstanding: 1,681 shares at
December 31, 2016 and 2,067 shares at December 31, 2015
Series A-4 preferred OP units
STOCKHOLDERS’ EQUITY
Series A preferred stock, $0.01 par value. Issued and outstanding: 3,400 shares at
December 31, 2016 and December 31, 2015
Common stock, $0.01 par value. Authorized: 180,000 shares;
Issued and outstanding: 73,206 shares at December 31, 2016 and 58,395 shares at
December 31, 2015
Additional paid-in capital
Accumulated other comprehensive loss
Distributions in excess of accumulated earnings
Total Sun Communities, Inc. stockholders' equity
Noncontrolling interests:
Common and preferred OP units
Consolidated variable interest entities
Total noncontrolling interests
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
As of December 31,
2016
2015
$
$
$
$
$
$
1,027,976
4,825,043
489,633
130,127
23,560
6,496,339
(1,026,858)
5,469,481
8,164
21,632
81,179
143,870
146,450
5,870,776
2,819,567
144,477
45,903
100,095
51,896
279,667
3,441,605
451,340
3,535,909
460,480
102,746
23,047
4,573,522
(852,407)
3,721,115
45,086
14,828
47,972
139,768
213,030
4,181,799
2,125,267
140,440
45,903
24,687
41,265
184,859
2,562,421
50,227
16,717
61,732
21,065
34
34
732
3,321,441
(3,181)
(1,023,415)
2,295,611
69,598
(2,982)
66,616
2,362,227
5,870,776
$
$
584
2,319,314
—
(864,122)
1,455,810
82,538
(1,767)
80,771
1,536,581
4,181,799
See accompanying Notes to Consolidated Financial Statements.
F - 4
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
REVENUES
Income from real property
Revenue from home sales
Rental home revenue
Ancillary revenues
Interest
Brokerage commissions and other revenues, net
Total revenues
COSTS AND EXPENSES
Property operating and maintenance
Real estate taxes
Cost of home sales
Rental home operating and maintenance
Ancillary expenses
Home selling expenses
General and administrative
Transaction costs
Depreciation and amortization
Asset impairment charge
Extinguishment of debt
Interest
Interest on mandatorily redeemable preferred OP units
Total expenses
Income before other items
Other expenses, net
Gain on disposition of properties, net
Gain on settlement
Current tax expense
Deferred tax benefit (expense)
Income from affiliate transactions
Net income
Less: Preferred return to preferred OP units
Less: Amounts attributable to noncontrolling interests
Net income attributable to Sun Communities, Inc.
Less: Preferred stock distributions
Less: Preferred stock redemption costs
Net income attributable to Sun Communities, Inc. common stockholders
Weighted average common shares outstanding:
Basic
Diluted
Earnings per share (See Note 13):
Basic
Diluted
Year Ended December 31,
2016
2015
2014
$
$
$
$
$
$
620,917
110,507
47,780
33,424
18,113
3,037
833,778
173,274
44,306
80,420
24,294
23,425
9,744
64,087
31,914
221,770
—
1,127
119,163
3,152
796,676
37,102
(5,848)
—
—
(683)
400
500
31,471
5,006
150
26,315
8,946
—
17,369
65,856
66,321
$
$
506,078
79,728
46,236
24,532
15,938
2,219
674,731
135,797
34,714
58,941
24,956
17,519
7,476
47,455
17,803
177,637
—
2,800
107,659
3,219
635,976
38,755
—
125,376
—
(158)
(1,000)
7,500
170,473
4,973
10,054
155,446
13,793
4,328
137,325
53,686
53,702
0.27
0.26
$
$
2.53
2.52
$
$
357,793
53,954
39,213
17,801
14,462
1,036
484,259
101,134
24,181
40,556
23,270
12,584
5,235
37,387
18,259
133,726
837
—
73,771
3,210
474,150
10,109
—
17,654
4,452
(219)
—
1,200
33,196
2,935
1,752
28,509
6,133
—
22,376
41,337
41,805
0.54
0.54
See accompanying Notes to Consolidated Financial Statements.
F - 5
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Foreign currency translation adjustment
Unrealized gain on interest rate swaps
Total comprehensive income
$
Less: Comprehensive (loss) / income attributable to
noncontrolling interests
Comprehensive income attributable to Sun Communities, Inc.
$
Year Ended December 31,
2016
31,471
(3,401)
—
28,070
(70)
28,140
2015
170,473
$
2014
$
33,196
—
—
—
97
170,473
33,293
10,054
$
160,419
$
1,483
31,810
See accompanying Notes to Consolidated Financial Statements.
F - 6
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
7.125%
Series A
Cumulative
Redeemable
Preferred
Stock
Common
Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Distributions
in Excess of
Accumulated
Earnings
Non-
Controlling
Interests
Total
Stockholders'
Equity
$
34
$
361
$
1,141,590
$
(366) $
(773,301) $
15,223
$
383,541
Balance as of December 31,
2013, revised
Issuance of common stock from
exercise of options, net
Issuance, conversion of OP units
and associated costs of common
stock, net
Issuance of preferred OP units
Issuance of common OP units
Share-based compensation -
amortization and forfeitures
Net income
Settlement of membership
interest
Unrealized gain on interest rate
swaps
Distributions
Balance as of December 31,
2014, revised
Issuance of common stock from
exercise of options, net
Issuance, conversion of OP units
and associated costs of common
stock, net
Conversion of Series A-4
preferred stock
Preferred stock redemption costs
Share-based compensation -
amortization and forfeitures
Net income
Distributions
Balance at December 31, 2015
Issuance of common stock from
exercise of options, net
Issuance, conversion of OP units
and associated costs of common
stock, net
Conversion of Series A-4
preferred stock
Share-based compensation -
amortization and forfeitures
Foreign currency exchange
Net income
Distributions
Balance at December 31, 2016
$
—
—
—
—
—
—
—
—
—
34
—
—
—
—
—
—
—
34
—
—
—
—
—
—
—
34
—
127
125
594,940
—
—
—
—
—
—
—
—
—
4,706
—
(209)
—
—
486
1,741,154
—
98
—
—
—
—
—
95
564,260
6,900
—
6,905
—
—
584
2,319,314
—
149
144
981,174
—
4
—
—
—
11,503
9,301
—
—
—
—
—
—
—
—
—
—
366
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(3,181)
—
—
—
—
—
—
173
31,444
—
—
(121,861)
—
127
(2,638)
592,427
100
100
24,064
24,064
—
1,782
(4)
(269)
(8,567)
4,879
33,226
(213)
97
(130,428)
(863,545)
29,691
907,820
—
—
—
(4,328)
203
160,418
(156,870)
—
95
52,921
617,279
—
—
—
9,185
(11,026)
6,900
(4,328)
7,108
169,603
(167,896)
(864,122)
80,771
1,536,581
—
—
—
252
—
31,321
—
149
(2,687)
978,631
—
—
(220)
60
11,503
9,557
(3,401)
31,381
(190,866)
(11,308)
(202,174)
$
732
$
3,321,441
$
(3,181) $ (1,023,415) $
66,616
$
2,362,227
See accompanying Notes to Consolidated Financial Statements.
F - 7
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on disposition of assets
Gain on disposition of properties, net
Gain on acquisition of property
Foreign currency exchange loss
Contingent liability remeasurement loss
Asset impairment charges
Share-based compensation
Depreciation and amortization
Deferred tax (benefit) expense
Amortization of below market lease
Amortization of debt premium
Amortization of deferred financing costs
Amortization of ground lease intangibles
Income from affiliate transactions
Change in notes receivable from financed sales of inventory homes, net of
repayments
Change in inventory, other assets and other receivables, net
Change in other liabilities
NET CASH PROVIDED BY OPERATING ACTIVITIES
INVESTING ACTIVITIES:
Investment in properties
Acquisitions of properties, net of cash acquired
Payments for deposits on acquisitions
Proceeds from affiliate transactions
Proceeds from disposition of land
Proceeds from disposition of assets and depreciated homes, net
Proceeds from disposition of properties
Issuance of notes and other receivables
Payment for membership interest
Repayments of notes and other receivables
NET CASH USED FOR INVESTING ACTIVITIES
FINANCING ACTIVITIES:
Issuance and associated costs of common stock, OP units, and preferred OP
units, net
Net proceeds from stock option exercise
Borrowings on lines of credit
Proceeds from issuance of other debt
Proceeds received from return of prepaid deferred financing costs
Redemption of Series A-4 Preferred Stock
Distributions to stockholders, OP unit holders, and preferred OP unit holders
Preferred stock redemption costs
Payments to retire preferred OP units
Payments on lines of credit
Payments on other debt
Payments for deferred financing costs
NET CASH PROVIDED BY FINANCING ACTIVITIES
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
F - 8
Year Ended December 31,
2015
2016
2014
$
31,471
$
170,473
$
33,196
(11,224)
—
(510)
5,005
181
—
9,557
218,669
(400)
(6,570)
(10,693)
2,160
600
(500)
(20,933)
28,118
(6,238)
238,693
(223,429)
(1,487,593)
—
500
—
4,709
88,696
(10,633)
—
13,238
(1,614,512)
750,385
149
580,754
964,252
—
—
(193,740)
—
—
(505,409)
(231,912)
(25,509)
1,338,970
(73)
(36,922)
45,086
8,164
$
$
(5,051)
(125,376)
—
—
—
—
7,108
174,589
1,000
(5,073)
(10,483)
1,936
—
(7,500)
(9,270)
(14,618)
4,528
182,263
(208,427)
(309,274)
(2,260)
7,500
—
6,848
94,522
(1,755)
(2,102)
1,764
(413,184)
310,301
95
421,184
377,041
6,852
(121,445)
(162,491)
(4,328)
—
(401,978)
(225,677)
(7,006)
192,548
—
(38,373)
83,459
45,086
(2,748)
(17,654)
—
—
—
837
4,879
131,003
—
—
—
1,056
—
(1,200)
(15,300)
(11,144)
10,395
133,320
(177,866)
(426,591)
(17,064)
1,200
221
3,312
59,706
297
—
6,080
(550,705)
572,171
127
526,546
323,241
2,384
—
(121,377)
—
(1,119)
(702,135)
(95,269)
(8,478)
496,091
—
78,706
4,753
83,459
$
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(In thousands)
Year Ended December 31,
2016
2015
2014
SUPPLEMENTAL INFORMATION:
Cash paid for interest (net of capitalized interest of $1,595, $608, and $464,
respectively)
$ 121,480
Cash paid for interest on mandatorily redeemable debt
Cash paid for income taxes (including $245, $0, and $0 for federal tax, respectively)
Noncash investing and financing activities:
Unrealized gain on interest rate swaps
Reduction in secured borrowing balance
Change in distributions declared and outstanding
Conversion of common and preferred OP units
Conversion of Series A-4 Preferred Stock
Proceeds related to the disposition of properties held in escrow
Settlement of membership interest
Noncash investing and financing activities at the date of acquisition:
Acquisitions - Series A-4 preferred OP units issued
Acquisitions - Series A-4 Preferred Stock issued
Acquisitions - Common stock and OP units issued
Acquisitions - Series C preferred OP units issued
Acquisitions - debt assumed
Acquisitions - other liabilities
Acquisitions - contingent consideration liability
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
99,989
3,222
310
$
$
$
60,289
3,225
314
3,152
452
— $
— $
97
19,734
9,626
5,933
11,503
$
$
$
$
26,293
6,744
5,491
6,900
— $ 126,339
— $
2,786
— $
1,000
— $ 175,613
$ 225,000
$ 278,955
— $
33,154
$
$
$
$
$
$
$
$
$
$
21,812
9,051
1,707
—
—
213
18,852
13,610
44,321
—
— $ 380,043
$ 209,658
— $
9,830
$
— $
— $
4,221
—
See accompanying Notes to Consolidated Financial Statements.
F - 9
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Business
Sun Communities, Inc., a Maryland corporation, and all wholly-owned or majority-owned and controlled subsidiaries, including
Sun Communities Operating Limited Partnership (the "Operating Partnership"), and Sun Home Services, Inc. ("SHS") are referred
to herein as the “Company,” “us,” “we,” and “our”. We are a self-administered and self-managed real estate investment trust
(“REIT”).
We own, operate, and develop manufactured housing ("MH") and recreational vehicle ("RV") communities throughout the United
States ("U.S."). As of December 31, 2016, we owned and operated a portfolio of 341 properties located in 29 states and Ontario,
Canada (collectively the “Properties”), including 226 MH communities, 87 RV communities, and 28 Properties containing both
MH and RV sites. As of December 31, 2016, the Properties contained an aggregate of 117,376 developed sites comprised of 80,166
developed MH sites, 20,916 annual RV sites (inclusive of both annual and seasonal usage rights), and 16,294 transient RV sites.
There are approximately 10,616 additional MH and RV sites suitable for development.
Principles of Consolidation
The accompanying Consolidated Financial Statements include our accounts and all majority-owned and controlled subsidiaries,
including entities in which we have a controlling interest or have been determined to be the primary beneficiary of a variable
interest entity ("VIE"). All inter-company transactions have been eliminated in consolidation. Any subsidiaries in which we have
an ownership percentage equal to or greater than 50%, but less than 100%, or considered a VIE, represent subsidiaries with a
noncontrolling interest. The noncontrolling interests in our subsidiaries are allocated their proportionate share of the subsidiaries’
financial results. This allocation is recorded as the noncontrolling interest in our Consolidated Financial Statements.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires
management to make estimates and assumptions related to the reported amounts included in our Consolidated Financial Statements
and accompanying footnotes thereto. Actual results could differ from those estimates.
Investment Property
Investment property is recorded at cost, less accumulated depreciation. We review the carrying value of long-lived assets to be
held and used for impairment quarterly or whenever events or changes in circumstances indicate a possible impairment. Our
primary indicator for potential impairment is based on NOI trends period over period. Circumstances that may prompt a test of
recoverability may include a 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 or other 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 is not recoverable and exceeds estimated
fair value. We estimate the fair value of our long-lived assets based on discounted future cash flows and any potential disposition
proceeds for a given asset. Forecasting cash flows requires management to make estimates and assumptions about such variables
as the estimated holding period, rental rates, occupancy, development, and operating expenses during the holding period, as well
as disposition proceeds. Management uses its best judgment when developing these estimates and assumptions, but the development
of the projected future cash flows is based on subjective variables. Future events could occur which would cause us to conclude
that impairment indicators exist, and significant adverse changes in national, regional, or local market conditions or trends may
cause us to change the estimates and assumptions used in our impairment analysis. The results of an impairment analysis could
be material to our financial 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 to sell the property, or from an unsolicited offer to purchase the property. The typical sale process
involves a significant negotiation and due diligence period between us and the potential purchaser. As the intent of this process is
to 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 potential offers 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 transaction will be completed within one year. This typically occurs when all
significant contingencies surrounding the closing have been resolved, which often corresponds with the closing date.
F - 10
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We allocate the purchase price of properties to net tangible and identified intangible assets acquired based on their fair values. In
making estimates of fair values for purposes of allocating purchase price, we utilize an independent third-party to value the net
tangible and identified intangible assets in connection with the acquisition of the respective property. We provide historical and
pro forma financial information obtained about each property, as well as any other information needed in order for the third-party
to ascertain the fair value of the tangible and intangible assets (including in-place leases) acquired.
Capitalized Costs
We capitalize certain costs incurred in connection with the development, redevelopment, capital enhancement and leasing of our
properties. Management is required to use professional judgment in determining whether such costs meet the criteria for immediate
expense or capitalization. The amounts are dependent on the volume and timing of such activities and the costs associated with
such activities. Maintenance, repairs and minor improvements to properties are expensed when incurred. Renovations and
improvements to properties are capitalized and depreciated over their estimated useful lives and construction costs related to the
development of new community or expansion sites are capitalized until the property is substantially complete. Costs incurred to
initially renovate pre-owned and repossessed homes that we acquire for our Rental Program are capitalized and costs incurred to
refurbish the homes at turnover and repair the homes while occupied are expensed. Certain expenditures to dealers and residents
related to obtaining lessees in our communities are capitalized and amortized over a seven-year period based on the anticipated
term of occupancy of a resident. Costs associated with implementing our computer systems are capitalized and amortized over
the estimated useful lives of the related software and hardware. Costs incurred to obtain new financing are capitalized and amortized
over the terms of the related loan agreement using the straight-line method (which approximates the effective interest method).
Cash and Cash Equivalents
We 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 maximum amount of credit risk arising from cash deposits in excess of federally insured amounts was
approximately $10.1 million and $41.4 million as of December 31, 2016 and 2015, respectively.
Inventory
Inventory of manufactured homes is stated at lower of specific cost or market based on the specific identification method.
Investments in Affiliates
Investments in affiliates in which we do not have a controlling direct or indirect voting interest, but can exercise significant influence
over the entity with respect to its operations and major decisions, are accounted for using the equity method of accounting. The
carrying value of our investment is adjusted for our proportionate share of the affiliate’s net income or loss and reduced by
distributions received. We review the carrying value of our investment in affiliates for other than temporary impairment whenever
events or changes in circumstances indicate a possible impairment. Financial condition, operational performance, and other
economic trends are some of the factors we consider when we evaluate the existence of impairment indicators. When we have a
carrying value 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 net losses not recognized during the time in which the equity method of accounting was suspended.
See Note 6, "Investment in Affiliates," for additional information.
Notes and Other Receivables
We provide financing to purchasers of manufactured homes generally located in our communities. The notes are collateralized by
the underlying manufactured home sold. Notes receivable include both installment loans purchased by the Company as well as
transferred loans that have not met the requirements for sale accounting which are presented herein as collateralized receivables.
For purposes of accounting policy, all notes receivable are considered one homogenous segment, as the notes are typically
underwritten using the same requirements and terms. Notes receivable are reported at their outstanding 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 stop accruing interest on the note receivable. The interest on nonaccrual loans is accounted for on the cash
basis until qualifying for return to accrual. Loans are returned to accrual when all principal and interest amounts contractually due
are brought current and future payments are reasonably assured. Loans on a nonaccrual status were immaterial at December 31,
2016 and 2015. The ability to collect our notes receivable is measured based on current and historical information and events. We
consider numerous factors including: length of delinquency, estimated costs to lease or sell, and repossession history. Our experience
F - 11
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
supports a high recovery rate for notes receivable; however, there is some degree of uncertainty about the recoverability of our
investment in these notes receivable. We are generally able to recover our recorded investment in uncollectible notes receivable
by repossessing the homes on the notes retained by us and repurchasing the homes on the collateralized receivables, and subsequently
selling or leasing these homes to potential residents in our communities. We have established a loan loss reserve based on our
estimated unrecoverable costs associated with repossessed/repurchased homes. We estimate our unrecoverable costs 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 the home being repossessed. A historical average of this excess cost is calculated based on prior repossessions/repurchases
and is applied to our estimated annual future repossessions to create the allowance for both installment and collateralized notes
receivable.
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 contractual terms 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 is delinquent more than five to seven days, dependent on state law, we begin
the repossession and eviction process simultaneously. A specific allowance is estimated on the past due loans based on historical
delinquency data and current delinquency levels.
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 quality of 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 end and various other miscellaneous receivables. Accounts receivable from residents are typically due within
30 days and stated at amounts due from residents net of an allowance for doubtful accounts. Accounts outstanding longer than the
contractual payment terms are considered past due. We evaluate the recoverability of 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 all amounts due
according to the contractual terms of the loan and lease agreements. Receivables related to community rents are reserved when
we believe that collection is less than probable, which is generally after a resident balance reaches 60 to 90 days past due.
Restricted Cash
Restricted cash consists of amounts held in deposit for tax, insurance and repair escrows held by lenders in accordance with certain
debt agreements. At December 31, 2016 and 2015, $17.1 million and $140.7 million of restricted cash, respectively, was included
as a component of Other assets, net on the Consolidated Balance Sheets.
Identified Intangible Assets
The Company amortizes identified intangible assets that are determined to have finite lives over the period the assets are expected
to contribute directly or indirectly to the future cash flows of the property or business. At December 31, 2016 and 2015, the carrying
amounts of the identified intangible assets are included in Other assets, net on the Consolidated Balance Sheets. See Note 5,
"Intangible Assets," for additional information.
Deferred Taxes
We are subject to certain state taxes that are considered to be income taxes and have certain subsidiaries that are taxed as regular
corporations for U.S. (i.e., federal, state, local, etc.) and non-U.S. income tax purposes. Deferred tax assets or liabilities are
recognized for temporary differences between the tax basis of assets and liabilities and their carrying amounts in the financial
statements and net operating loss carryforwards in certain subsidiaries, including those domiciled in foreign jurisdictions, which
may be realized in future periods if the respective subsidiary generates sufficient taxable income. 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 12, "Income Taxes,"
for additional information.
Deferred Financing Costs
Deferred 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 of mortgage debt, unamortized deferred financing costs are accounted for in
accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 470-50-40,
F - 12
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
"Modifications and Extinguishments." Refer to Note 17, "Recent Accounting Pronouncements," regarding our adoption of FASB
Accounting Standards Update ("ASU") 2015-03, and the presentation of deferred financing costs in our Consolidated Balance
Sheets as of December 31, 2016 and 2015.
Share-Based Compensation
Share-based compensation cost for service vesting restricted stock awards is measured based on the closing share price of our
common stock on the date of grant. Share-based compensation for restricted stock awards with performance conditions is measured
based on an estimate of shares expected to vest. If it is not probable that the performance conditions will be satisfied, we do not
recognize compensation expense. We measure the fair value of awards with performance conditions using the closing price of our
common stock as of the grant date to calculate compensation cost. We estimate the fair value of share-based compensation for
restricted stock with market conditions using a Monte Carlo simulation. We recognize compensation cost ratably over each tranche
of shares based on the fair value estimated by the model.
Share-based compensation cost for stock options is estimated at the grant date based on each option’s fair-value as calculated by
the Binomial (lattice) option-pricing model. The Binomial (lattice) option-pricing model incorporates various assumptions
including expected volatility, expected life, dividend yield, and interest rates. See Note 10, "Share-Based Compensation" for
additional information.
Fair Value of Financial Instruments
Our financial instruments consist of cash and cash equivalents, accounts and notes receivable, accounts payable, derivative
instruments, debt and a contingent consideration liability. We utilize fair 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 16, "Fair Value of Financial Instruments," for additional information regarding the estimates and
assumptions used to estimate the fair value of each financial instrument class.
Revenue Recognition
Rental 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 for one 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, as provided by state statute. Revenue from the sale of manufactured homes
is recognized upon transfer of title at the closing of the sales transaction. Interest income on notes receivable is recorded on a level
yield basis over the life of the notes. We report real estate taxes collected from residents and remitted to taxing authorities in
revenue.
Advertising Costs
Advertising costs are expensed as incurred. As of December 31, 2016, 2015 and 2014, we had advertising costs of $4.2 million,
$3.9 million and $3.2 million, respectively.
Depreciation and Amortization
Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets. Useful lives are
30 years for land improvements and buildings, 10 years for rental homes, seven to 15 years for furniture, fixtures and equipment,
four to seven years for computer hardware and software, and seven to 15 years for intangible assets.
Foreign Currency
The assets and liabilities of our Canadian operations, where the functional currency is the Canadian dollar, are translated into U.S.
dollars using the exchange rate in effect as of the balance sheet date. Income statement amounts are translated at the average
exchange rate prevailing during the period. The resulting translation adjustments are recorded as a component of accumulated
other comprehensive income (loss).
Foreign currency exchange gains and losses arising from fluctuations in currency exchange rates on transactions and the effects
of remeasurement of monetary balances denominated in currencies other than the functional currency are recorded in earnings.
For the year ended December 31, 2016, we recorded a foreign currency exchange loss of $5.0 million within Other expenses, net
F - 13
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
on our Consolidated Statements of Operations. We had no foreign currency exchange impacts for the years ended December 31,
2015 and 2014.
Derivative Instruments and Hedging Activities
We 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 of our derivatives. For those hedges that qualify for cash flow hedge accounting, we adjust our balance
sheet on a quarterly basis to reflect current fair market value of our derivatives. Changes in the fair value of derivatives are recorded
in earnings or comprehensive income, as appropriate. The ineffective portion of the 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 the instrument being hedged.
The effective portion of the hedge is recorded in accumulated other comprehensive income. We use standard market conventions
to determine 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. As of December 31, 2016 and 2015, the fair value of our derivatives was zero. See Note 15, "Derivative
Instruments and Hedging Activities" for additional information.
F - 14
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Real Estate Acquisitions and Dispositions
2016 Acquisitions
Carefree Acquisition
On June 9, 2016, pursuant to a Stock Purchase Agreement dated March 22, 2016, the Company through the Operating Partnership
acquired from Carefree Communities Intermediate Holdings, L.L.C. (the "Seller") all of the issued and outstanding shares of
common stock of Carefree Communities Inc. ("Carefree Communities") or ("Carefree"). Carefree owned 103 MH and RV
communities, comprising over 27,000 sites.
The aggregate purchase price for the acquisition was $1.68 billion. At the closing, the Company issued the Seller 3,329,880 shares
of its common stock (the "Acquisition Shares") at an issuance price of $67.57 per share (or $225.0 million in common stock), and
the Operating Partnership paid the balance of the purchase price, or $1.5 billion, in cash. Approximately $1.0 billion of the cash
payment was applied simultaneously to pay off debt on the properties owned by Carefree Communities. The Operating Partnership
funded the cash portion of the purchase price in part with the proceeds of the Fannie Mae financing and the Northwestern Mutual
Life Insurance Company financing described in Note 8, "Debt and Lines of Credit."
On March 30, 2016, we closed on an underwritten public offering of 6,037,500 shares of common stock at a price of $66.50 per
share. The net proceeds from the offering of $385.4 million were used to fund a portion of the purchase price for the acquisition
of Carefree Communities.
We have allocated the "Investment in property" balances for Carefree Communities to the respective balance sheet line items upon
preliminary completion of a purchase price allocation in accordance with the FASB ASC Topic 805 - Business Combinations.
At Acquisition Date
Investment in property
Ground leases
In-Place leases
Deferred tax liability
Other liabilities
Inventory of manufactured homes
Below market leases
Total identifiable assets acquired and liabilities assumed (1)
Consideration
Cash and equity
$
Carefree
1,670,981
33,270
35,010
(23,637)
(15,665)
13,521
(29,340)
1,684,140
$
1,684,140
(1) The purchase price allocation for Carefree is preliminary and will be adjusted as final costs and values are determined.
The amount of total revenues and net income included in our Consolidated Statements of Operations for the year ended December
31, 2016, related to the Carefree acquisition is set forth in the following table (in thousands):
Revenue
Net income
Year Ended December 31,
2016
(unaudited)
$
$
97,836
9,070
F - 15
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2016 Other Acquisitions:
In December 2016, we acquired Lake Josephine RV Resort ("Lake Josephine"), a RV resort with 178 sites located in Sebring,
Florida.
In October 2016, we acquired Adirondack Gateway Campground RV Resort ("Adirondack Gateway"), a RV resort
with 347 sites located in Gansevoort, New York. We recognized a gain on the acquisition of Adirondack Gateway of $0.5
million within Other expenses, net in our Consolidated Statements of Operations, as the fair value of the consideration
transferred by us was less than the fair value of the identifiable net assets acquired.
Also in October 2016, we acquired Jellystone Park Camp Resort ("Jellystone Larkspur"), a RV resort with 148 sites located in
Larkspur, Colorado.
In September 2016, we acquired Petoskey RV Resort ("Petoskey"), a RV resort with 78 sites located in Petoskey, Michigan.
In August 2016, we acquired Sunset Beach Resort ("Sunset Beach") in Cape Charles, Virginia. The sellers of Sunset Beach
were engaged by the Company to continue to operate and maintain the property. Beginning January 1, 2022, the Company has
the option to remove the sellers as operators via a payment based on certain operating performance metrics. Accordingly, total
consideration of $28.3 million as of the acquisition date includes a contingent consideration liability of $9.8 million.
The contingent consideration liability represents the present value of the contingent payment estimated at acquisition closing,
based on projected future operating performance metrics. The contingent payment is formula-driven, and not capped. The
contingent consideration liability will be re-measured at each reporting date, with changes in fair value adjusted through
earnings, until the contingency is resolved. The final contingent payment could be materially different from the initial
In June 2016, we acquired Pecan Park RV Resort ("Pecan Park"), a RV resort with 183 sites located in Jacksonville, Florida.
In March 2016, we acquired Hill Country Cottage and RV Resort ("Hill Country"), a RV resort with 356 sites located in New
Braunfels, Texas.
In March 2016, we acquired Kimberly Estates, a MH community with 387 sites located in Frenchtown Township, Michigan.
F - 16
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables summarize the fair value of the assets acquired and liabilities assumed (excluding Carefree) at the acquisition
dates and the consideration paid for other acquisitions completed in 2016 (in thousands):
At Acquisition
Date
Investment in
property
Inventory of
manufactured
homes
In-place leases
and other
intangible assets
Total
identifiable
assets
acquired and
liabilities
assumed
Consideration
Cash, proceeds
from
dispositions
held in escrow,
or contingent
liability
Lake
Josephine(1)
Adirondack
Gateway(1)(2)
Jellystone
Larkspur(1) Petoskey(1)
Sunset
Beach(1)(3)
Pecan
Park(1)
Hill
Country(1)
Kimberly
Estates(1)
Total
$
3,400
$
2,590
$
7,516
$
3,500
$ 28,283
$ 7,000
$
29,990
$
7,313
$ 89,592
—
—
—
170
—
—
—
—
—
—
—
—
—
10
97
97
340
520
$
3,400
$
2,760
$
7,516
$
3,500
$ 28,283
$ 7,000
$
30,000
$
7,750
$ 90,209
$
3,400
$
2,250
$
7,516
$
3,500
$ 28,283
$ 7,000
$
30,000
$
7,750
$ 89,699
(1) The purchase price allocations for Lake Josephine, Adirondack Gateway, Jellystone Larkspur, Petoskey, Sunset Beach, Pecan Park, Hill Country, and Kimberly
Estates are preliminary and may be adjusted as final costs and final valuations are determined.
(2) Includes the impact of a $0.5 million bargain purchase gain recorded within Other expense, net on the Consolidated Statements of Operations for the year ended
December 31, 2016.
(3) Sunset Beach consideration includes a contingent liability of $9.8 million as of the acquisition date. As of December 31, 2016, the contingent consideration
liability was $10.0 million.
The amount of revenue and net income included in the Consolidated Statements of Operations for the year ended December 31,
2016 related to the 2016 acquisitions other than Carefree is set forth in the following table (in thousands):
Revenue
Net income
Year Ended December 31, 2016
(unaudited)
$
$
8,540
1,847
F - 17
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma financial information presents the results of our operations for the years ended December 31,
2016 and 2015 as if the properties that we acquired during 2016 were acquired on January 1, 2015. The unaudited pro forma results
reflect certain adjustments for items that are not expected to have a continuing impact, such as adjustments for transaction costs
incurred, management fees and purchase accounting. The information presented below has been prepared for comparative purposes
only and does not purport to be indicative of either future results of operations or the results of operations that would have actually
occurred had the acquisitions been consummated on January 1, 2015 (in thousands, except per-share data).
Total revenues
Net income attributable to Sun Communities, Inc. common stockholders
Net income per share attributable to Sun Communities, Inc. common stockholders - basic
Net income per share attributable to Sun Communities, Inc. common stockholders - diluted
Year Ended December 31,
(unaudited)
2016
910,559
38,556
0.59
0.58
$
$
$
$
2015
848,669
195,760
3.65
3.65
$
$
$
$
2015 Acquisitions
American Land Lease
First Phase
During 2014, we completed the first phase of the acquisition of the American Land Lease ("ALL") properties. We acquired 32
MH communities with over 9,000 developed sites in 11 states. Included in the total consideration paid for the first phase was the
issuance of 361,797 shares of common stock, 501,130 common OP units, 483,317 shares of 6.50% Series A-4 Cumulative
Convertible Preferred Stock ("Series A-4 Preferred Stock) and 669,449 Series A-4 preferred OP units.
Second Phase
In 2015, we completed the final phase of the acquisition of the ALL properties. We acquired the remaining 26 communities
comprised of over 10,000 sites. Included in the total consideration paid for the second phase was the issuance of 4,377,073 shares
of common stock and 5,847,234 shares of Series A-4 Preferred Stock. In addition, one of the seller's funds purchased 150,000
shares of our common stock and 200,000 Series A-4 preferred OP units, for an aggregate purchase price of $12.5 million. In August
2015, the Company repurchased 4,066,586 shares of the Series A-4 Preferred Stock.
F - 18
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables summarize the fair value of the assets acquired and liabilities assumed at the acquisition dates and the
consideration paid (in thousands):
At Acquisition Date
Investment in property
Notes receivable
Other (liabilities) assets
In-place leases and other intangible assets
Below market leases
Assumed debt
Total identifiable assets and liabilities assumed
Consideration
Common OP units (1)
Series A-4 preferred OP units (2)
Common stock
Series A-4 preferred stock (2)
Consideration from new mortgages
Cash consideration transferred
Total consideration transferred
First Phase
Second Phase
Total
$
656,543
$
818,109
$
1,474,652
$
$
5,189
(1,705)
12,870
(10,820)
(199,300)
462,777
$
850
7,405
15,460
(54,580)
(201,466)
585,778
$
24,064
$
— $
18,852
20,427
13,697
100,700
285,037
1,000
259,133
175,527
90,794
59,324
6,039
5,700
28,330
(65,400)
(400,766)
1,048,555
24,064
19,852
279,560
189,224
191,494
344,361
$
462,777
$
585,778
$
1,048,555
(1) To estimate the fair value of the common OP units at the valuation date, we utilized the market approach, observing the public price of our common stock.
(2) To estimate the fair value of the Series A-4 preferred OP units and the Series A-4 preferred stock at the valuation date, we utilized the income approach. Under
this approach, we used the Binomial Lattice Method.
The amount of revenue and net income included in the Consolidated Statements of Operations related to the ALL properties for
the years ended December 31, 2015 and 2014 and is set forth in the following table (in thousands):
Revenue
Net income
2015 Other Acquisitions
Year Ended
December 31, 2015
Year Ended
December 31, 2014
(unaudited)
(unaudited)
$
$
137,035 $
14,374 $
6,515
(6,744)
In August 2015, we acquired Rock Crusher Canyon RV Resort ("Rock Crusher"), a RV resort with 391 sites located in Crystal
Lake, Florida.
In July 2015, we acquired Frontier Town RV Resort ("Frontier Town"), an RV resort with 584 developed sites and expansion
potential of 200 sites, located in Berlin, Maryland. We also acquired Fort Whaley RV Resort ("Fort Whaley"), an RV resort with
210 developed sites and expansion potential of nearly 90 sites, located in Whaleyville, Maryland.
In May 2015, we acquired La Hacienda RV Resort ("La Hacienda"), an RV resort with 241 sites located in Austin, Texas. We also
acquired Lakeside Crossing, an MH community with 419 sites and expansion potential of nearly 300 sites, located near Myrtle
Beach, South Carolina.
In April 2015, we acquired the Berger portfolio ("Berger"), which consisted of six MH communities with over 3,130 developed
sites and expansion potential of approximately 380 sites. Included in the total consideration paid was 371,808 common OP units
and 340,206 Series C preferred OP units.
F - 19
Investment in
property
Inventory of
manufactured homes
In-place leases and
other intangible
assets
Below market leases
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 2015, we acquired Meadowlands Gibraltar ("Meadowlands"), an MH community with 321 sites located in Gibraltar,
Michigan.
The following tables summarize the fair value of the assets acquired and liabilities assumed (excluding ALL) at the acquisition
dates and the consideration paid for other acquisitions completed in 2015 (in thousands):
At Acquisition Date
Meadowlands
Berger
Lakeside
Crossing
La
Hacienda
Frontier
Town
Fort
Whaley
Rock
Crusher
Total
$
8,313
$
268,026
$
35,438
$
25,895
$
62,126
$
5,704
$
5,962
$ 411,464
285
270
—
—
—
—
5,040
(7,840)
520
(3,440)
—
1,380
—
—
—
70
—
—
—
—
—
—
—
110
—
—
285
7,390
(11,280)
(176,200)
Assumed debt
(6,318)
(169,882)
Total identifiable
assets acquired and
liabilities assumed
Consideration
Common OP units
Series C preferred OP
units
Note payable
Cash consideration
transferred
Total consideration
transferred
$
$
2,550
$
95,344
$
32,518
$
27,275
$
62,196
$
5,704
$
6,072
$ 231,659
— $
19,650
$
— $
— $
— $
— $
— $
19,650
—
2,377
33,154
—
—
—
—
—
—
—
—
—
—
—
33,154
2,377
173
42,540
32,518
27,275
62,196
5,704
6,072
176,478
$
2,550
$
95,344
$
32,518
$
27,275
$
62,196
$
5,704
$
6,072
$ 231,659
The following unaudited pro forma financial information presents the results of our operations for the years ended December 31,
2015 and 2014 as if the properties that we acquired during 2015 were acquired on January 1, 2014. The unaudited pro forma results
reflect certain adjustments for items that are not expected to have a continuing impact, such as adjustments for transaction costs
incurred, management fees and purchase accounting. The information presented below has been prepared for comparative purposes
only and does not purport to be indicative of either future results of operations or the results of operations that would have actually
occurred had the acquisitions been consummated on January 1, 2014 (in thousands, except per-share data).
Total revenues
Net income attributable to Sun Communities, Inc. common stockholders
Net income per share attributable to Sun Communities, Inc. common stockholders - basic
Net income per share attributable to Sun Communities, Inc. common stockholders - diluted
Transaction Costs
Year Ended December 31,
(unaudited)
2015
688,620
158,859
2.96
2.94
$
$
$
$
2014
623,754
57,779
1.40
1.38
$
$
$
$
Transaction costs of approximately $31.9 million, $17.8 million, and $18.3 million have been incurred for the years ended December
31, 2016, 2015, and 2014, respectively, and are presented as “Transaction costs” in our Consolidated Statements of Operations.
F - 20
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dispositions
There were no property dispositions during 2016, however, during the fourth quarter we terminated a ground lease arrangement
in one of the communities acquired in the Carefree transaction. No gain or loss resulted from the ground lease termination.
During the year ended December 31, 2015, we disposed of 17 MH communities and 3 MH and RV combined communities. Pursuant
to Accounting Standards Update ("ASU") 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and
Equipment (Topic 360) - Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," the
disposals of the communities do not qualify for presentation as a discontinued operation, as the sales do not have a major impact
on our operations and financial results and do not represent a strategic shift. A gain of $125.4 million was recorded in Gain on
disposition of properties, net in our Consolidated Statements of Operations. At December 31, 2015, we held $126.3 million related
to certain of these dispositions in escrow as a result of an Internal Revenue Code Section 1031 transaction included in Other assets,
net. During 2016, $37.6 million of the balance held in escrow was used to fund acquisitions. The remaining $88.7 million of the
escrow balance reverted to us.
The table below shows our dispositions during the year ended December 31, 2015:
Community
State
Number of Sites
Silver Star
Holiday Village
Maplewood Mobile
Meadows
Valley Brook
West Glen Village
Woods Edge
Edwardsville
Candlewick Court
College Park Estates
Sherman Oaks
Village Trails
Creekside
Colonial Village
Valley View Estates
Catalina
Worthington Arms
Casa de Valle
Kenwood
Snow to Sun
FL
IN
IN
IN
IN
IN
IN
KS
MI
MI
MI
MI
NC
NY
NY
OH
OH
TX
TX
TX
406
326
207
330
798
552
598
634
211
230
366
100
45
153
197
462
224
381
280
475
3. Collateralized Receivables and Transfers of Financial Assets
We completed various transactions with an unrelated entity involving our notes receivable under which we received cash proceeds
in exchange for relinquishing our right, title, and interest in certain notes receivable. We have no further obligations or rights with
respect to the control, management, administration, servicing, or collection of the installment notes receivable. However, we are
subject to certain recourse provisions requiring us to purchase the underlying homes collateralizing such notes, in the event of a
note default and subsequent repossession of the home by the unrelated entity. The recourse provisions are considered to be a form
of continuing involvement, and therefore these transferred loans did not meet the requirements for sale accounting. We continue
to recognize these transferred loans on our balance sheet and refer to them as collateralized receivables. The proceeds from the
transfer have been recognized as a secured borrowing.
In the event of a note default and subsequent repossession of a manufactured home by the unrelated entity, the terms of the agreement
require us to repurchase the manufactured home. Default is defined as the failure to repay the installment note receivable according
F - 21
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to contractual terms. The repurchase price is calculated as a percentage of the outstanding principal balance of the collateralized
receivable, plus any outstanding late fees, accrued interest, legal fees, and escrow advances associated with the installment note
receivable. The percentage used to determine the repurchase price of the outstanding principal balance on the installment note
receivable is based on the number of payments made on the note. In general, the repurchase price is determined as follows:
Number of Payments
Less than or equal to 15
Greater than 15 but less than 64
Equal to or greater than 64 but less than 120
120 or more
Repurchase %
100%
90%
65%
50%
The transferred assets have been classified as Collateralized receivables, net and the cash proceeds received from these transactions
have been classified as "Secured borrowings on collateralized receivables" within the Consolidated Balance Sheets. The balance
of the collateralized receivables was $143.9 million (net of allowance of $0.6 million) and $139.8 million (net of allowance of
$0.7 million) as of December 31, 2016, and December 31, 2015, respectively. The receivables have a weighted average interest
rate and maturity of 10.0% and 15.7 years as of December 31, 2016, and 10.2% and 15.6 years as of December 31, 2015.
The outstanding balance on the secured borrowing was $144.5 million and $140.4 million as of December 31, 2016, and
December 31, 2015, respectively.
The collateralized receivables earn interest income, and the secured borrowings accrue interest expense at the same interest rates.
The amount of interest income and expense recognized was $14.0 million, $13.2 million, and $11.8 million for the years ended
December 31, 2016, 2015, and 2014, respectively.
The balances of the collateralized receivables and secured borrowings fluctuate. The balances increase as additional notes receivable
are transferred and exchanged for cash proceeds. The balances are reduced as the related collateralized receivables are collected
from the customers, or as the underlying collateral is repurchased. The change in the aggregate gross principal balance of the
collateralized receivables is as follows (in thousands):
Beginning balance
Financed sales of manufactured homes
Principal payments and payoffs from our customers
Notes sold with dispositions
Principal reduction from repurchased homes
Total activity
Ending balance
Year Ended
December 31, 2016
December 31, 2015
$
$
140,440
23,771
(11,937 )
—
(7,797 )
4,037
144,477
$
$
123,650
43,083
(10,271 )
(6,889 )
(9,133 )
16,790
140,440
The following table sets forth the allowance for the collateralized receivables (in thousands):
Year Ended
Beginning balance
Lower of cost or market write-downs
Increase to reserve balance
Total activity
Ending balance
December 31, 2016
$
December 31, 2015
(688)
447
(672) $
617
(552 )
65
$
(607 ) $
(431 )
16
(672 )
F - 22
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Notes and Other Receivables
The following table sets forth certain information regarding notes and other receivables (in thousands):
Installment notes receivable on manufactured homes, net
Other receivables, net
Total notes and other receivables, net
Installment Notes Receivable on Manufactured Homes
Year Ended
December 31, 2016
December 31, 2015
$
$
59,320 $
21,859
81,179
$
20,418
27,554
47,972
The installment notes of $59.3 million (net of allowance of $0.2 million) and $20.4 million (net of allowance of $0.2 million) as
of December 31, 2016 and December 31, 2015, respectively, are collateralized by manufactured homes. The notes represent
financing provided by us to purchasers of manufactured homes primarily located in our communities and require monthly principal
and interest payments. The notes have a net weighted average interest rate (net of servicing costs) and maturity of 8.3% and 16
years as of December 31, 2016, and 8.6% and 10.0 years as of December 31, 2015. The increase in weighted average maturity
from 10.0 years to 16.0 years is the result of a shift to longer maturities in our financed sales of manufactured homes in 2016, as
well as our acquired notes having longer maturities than our previous average.
The change in the aggregate gross principal balance of the installment notes receivable is as follows (in thousands):
Beginning balance
Financed sales of manufactured homes
Acquired notes
Principal payments and payoffs from our customers
Notes sold with dispositions
Principal reduction from repossessed homes
Total activity
Ending balance
Year Ended
December 31, 2016
December 31, 2015
$
$
20,610 $
41,322
3,521
(4,363 )
—
(1,566 )
38,914
59,524 $
26,024
838
850
(4,798 )
(383 )
(1,921)
(5,414 )
20,610
F - 23
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allowance for Losses for Installment Notes Receivable
The following table sets forth the allowance change for the installment notes receivable (in thousands):
Beginning balance
Lower of cost or market write-downs
Increase to reserve balance
Total activity
Ending balance
Other Receivables
Year Ended
December 31, 2016
December 31, 2015
$
$
(192 ) $
128
(141 )
(13 )
(205 ) $
(140 )
80
(132 )
(52 )
(192 )
As of December 31, 2016, other receivables were comprised of amounts due from residents for rent, and water and sewer usage
of $6.0 million (net of allowance of $1.5 million), home sale proceeds of $11.6 million, insurance receivables of $2.3 million,
rebates and other receivables of $2.0 million. As of December 31, 2015, other receivables were comprised of amounts due from
residents for rent, and water and sewer usage of $4.7 million (net of allowance of $0.9 million), home sale proceeds of $10.5
million, insurance receivables of $1.2 million, insurance settlement of $3.7 million, rebates and other receivables of $5.3 million
and a note receivable of $2.2 million.
5. Intangible Assets
Our intangible assets include ground leases and in-place leases from acquisitions, franchise fees, and other intangible assets. These
intangible assets are recorded in Other assets, net on the Consolidated Balance Sheets.
During 2016, as part of the Carefree acquisition purchase price allocation, we recorded $33.3 million of intangible assets associated
with ground leases. These ground leases relate to five communities where contractual base rents are below market rents and
therefore give rise to future economic benefits over the remaining lease terms.
The gross carrying amounts and accumulated amortization are as follows (in thousands):
Intangible Asset
Ground leases
In-place leases
Franchise fees and other intangible assets
Total
December 31, 2016
December 31, 2015
Useful Life
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
8-57 years
$
33,270
$
(600) $
— $
7 years
15 years
98,235
1,880
$
133,385
$
(31,796)
(1,155)
(33,551) $
62,981
1,864
64,845
$
—
(20,245)
(622)
(20,867)
Total amortization expenses related to our intangible assets are as follows (in thousands):
Intangible Asset
Ground leases
In-place leases
Franchise fees and other intangible assets
Total
Year Ended December 31,
2016
2015
2014
$
$
600
$
— $
11,559
535
8,299
516
12,694
$
8,815
$
—
3,867
77
3,944
F - 24
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We anticipate amortization expense for our intangible assets to be as follows for the next five years (in thousands):
Estimated expense
$
15,203
$
14,325
$
13,409
$
11,681
$
11,289
2017
2018
Year
2019
2020
2021
6. Investment in Affiliates
Origen Financial Services, LLC (“OFS LLC”)
At December 31, 2016 and 2015, we had a 22.9% ownership interest in OFS LLC, an entity formed to originate manufactured
housing installment contracts. 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 previously owned 5,000,000 shares of common stock of Origen, which
approximated an ownership interest of 19.3%. During the third quarter of 2016, we sold all 5,000,000 shares of common stock in
Origen to an unrelated party for aggregate proceeds of $0.5 million. The carrying value of our investment prior to the sale was
zero. During 2015, we received a distribution of $7.5 million from Origen.
7. Consolidated Variable Interest Entities
In 2016, we adopted Accounting Standards Update (“ASU”) 2015-02 "Consolidation (Topic 810): Amendments to the Consolidation
Analysis." We evaluated the application of ASU 2015-02 and concluded that no change was required to our accounting for interests
in less than wholly owned joint ventures. However, the Operating Partnership now meets the criteria as a variable interest entity
("VIE"). Our significant asset is our investment in the Operating Partnership, and consequently, substantially all of our assets and
liabilities represent those assets and liabilities of the Operating Partnership.
Other VIEs that are consolidated include: Rudgate Village SPE, LLC; Rudgate Clinton SPE, LLC; Rudgate Clinton Estates SPE,
LLC (collectively “Rudgate”); and Wildwood Village Mobile Home Park ("Wildwood"). We evaluated our arrangements with
these properties under the guidance set forth in FASB Accounting Standards Codification ("ASC") Topic 810 "Consolidation."
We concluded that Rudgate and Wildwood qualify as VIEs as we are the primary beneficiary and hold controlling financial interests
in these entities 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 the most significant losses and our rights to receive significant benefits from these entities. As
such, the transactions and accounts of these VIEs are included in our accompanying Consolidated Financial Statements.
F - 25
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the assets and liabilities included in our Consolidated Balance Sheets after appropriate eliminations
have been made (in thousands):
ASSETS
Investment property, net
Other assets
Total Assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt
Other liabilities
Noncontrolling interests
Total Liabilities and Stockholders' Equity
December 31, 2016
December 31, 2015
$
$
$
$
88,987
3,054
92,041
$
$
62,111
$
1,998
(2,982)
61,127
$
92,009
3,823
95,832
64,082
4,091
(1,767)
66,406
Investment property, net and other assets related to the consolidated VIEs comprised approximately 1.6% and 2.3% of our
consolidated total assets at December 31, 2016 and December 31, 2015, respectively. Debt and other liabilities comprised
approximately 1.9% and 2.7% of our consolidated total liabilities at December 31, 2016 and December 31, 2015, respectively.
Noncontrolling interests related to the consolidated VIEs comprised less than 1.0% of our consolidated total equity at December
31, 2016 and December 31, 2015.
8. Debt and Lines of Credit
The following table sets forth certain information regarding debt including premiums, discounts and deferred financing costs (in
thousands):
Principal
Outstanding
Weighted Average
Years to Maturity
Weighted Average
Interest Rates
Collateralized term loans - CMBS
December 31,
2016
492,294
$
December 31,
2015
639,321
$
Collateralized term loans - FNMA
1,046,803
789,612
Collateralized term loans - Life
Companies
Collateralized term loans - FMCC
Secured borrowing
Preferred OP units - mandatorily
redeemable
Lines of credit
Total debt
888,705
391,765
144,477
45,903
100,095
500,133
196,201
140,440
45,903
24,687
$ 3,110,042
$ 2,336,297
December 31,
2016
December 31,
2015
December 31,
2016
December 31,
2015
5.6
6.6
12.2
7.9
15.7
5.4
3.6
8.5
5.3
5.8
14.4
9.0
15.6
6.1
4.6
8.4
5.2%
4.3%
3.9%
3.9%
10.0%
6.9%
2.1%
4.5%
5.3%
4.6%
4.1%
4.0%
10.2%
6.9%
1.6%
5.0%
Collateralized Term Loans
During the fourth quarter of 2016, we repaid a total of $79.1 million aggregate principal amount of collateralized term loans that
were due to mature during 2017, releasing 10 communities. As a result of certain of these transactions, we recognized a loss on
extinguishment of debt of $1.1 million that is reflected in our Consolidated Statements of Operations.
In October 2016, one subsidiary entered into a new promissory note totaling $58.5 million with PNC Bank, as lender with Freddie
Mac. It bears an interest rate of 3.33% and has a seven-year term. The repayment of the loan is interest only for the entire term.
In September 2016, 15 subsidiaries of the Operating Partnership entered into 15 different promissory notes totaling $139.0 million
with PNC Bank, as lender (the "Freddie Mac Financing"). Five of the loans totaling $70.2 million bear interest at a rate of 3.93%
F - 26
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and have ten-year terms. The remaining ten loans totaling $68.8 million bear interest at a rate of 3.75% and have seven-year terms.
The Freddie Mac Financing provides for principal and interest payments to be amortized over 30 years.
In September 2016, proceeds from the Freddie Mac Financing described above and the underwritten registered public equity
offering described in Note 9, "Equity and Mezzanine Securities" were utilized to repay $62.1 million in mortgage loans and $300.0
million on our revolving loan under our senior revolving credit facility.
In June 2016, 17 subsidiaries of the Operating Partnership entered into a Master Credit Facility Agreement (the "Fannie Mae Credit
Agreement") with Regions Bank, as lender. Pursuant to the Fannie Mae Credit Agreement, Regions Bank loaned a total of $338.0
million under a senior secured credit facility, comprised of two ten-year term loans in the amount of $300.0 million and $38.0
million, respectively (collectively the "Fannie Mae Financing"). The $300.0 million term loan bears interest at 3.69% per year and
the $38.0 million term loan bears interest at 3.67% per year for a blended rate of 3.69% per year. The Fannie Mae Financing
provides for principal and interest payments to be amortized over 30 years.
The Fannie Mae Financing is secured by mortgages encumbering 17 MH communities comprised of real and personal property
owned by the borrowers. Additionally, the Company and the Operating Partnership have provided a guaranty of the non-recourse
carve-out obligations of the borrowers under the Fannie Mae Financing.
Additionally, in June 2016, three subsidiaries of the Operating Partnership entered into mortgage loan documents (the "NML Loan
Documents") with The Northwestern Mutual Life Insurance Company ("NML"). Pursuant to the NML Loan Documents, NML
made three portfolio loans to the subsidiary borrowers in the aggregate amount of $405.0 million. NML loaned $162.0 million
under a ten-year term loan to two of the subsidiary borrowers (the "Portfolio A Loan"). The Portfolio A Loan bears interest at
3.53% per year and is secured by deeds of trust encumbering seven MH communities and one RV community. NML also loaned
$163.0 million under a 12-year term loan (the "Portfolio B Loan") to one subsidiary which is also a borrower under the Portfolio
A Loan. The Portfolio B Loan bears interest at 3.71% per year and is secured by deeds of trust and a ground lease encumbering
eight MH communities. NML also loaned $80.0 million under a 12-year term loan (the "Portfolio C Loan" and, collectively, with
the Portfolio A Loan and the Portfolio B Loan, the "NML Financing") to one subsidiary borrower. The Portfolio C Loan bears
interest at 3.71% per year and is secured by a mortgage encumbering one RV community. All of the MH and RV communities that
secure the NML Financing were acquired as part of the Carefree Communities acquisition (See Note 2, "Real Estate Acquisitions
and Dispositions").
The NML Financing is generally non-recourse, however, the borrowers under the NML Financing and the Operating Partnership
are responsible for certain customary non-recourse carveouts. In addition, the NML Financing will be fully recourse to the subsidiary
borrowers and the Operating Partnership if: (a) the borrowers violate the prohibition on transfer covenants set forth in the loan
documents; or (b) a voluntary bankruptcy proceedings is commenced by the borrowers or an involuntary bankruptcy, liquidation,
receivership or similar proceeding has commenced against the borrowers and remains undismissed for a period of 90 days.
In December 2015, we paid off $85.6 million of CMBS debt secured by eight communities. The loans had a stated maturity of
July 2016 and an interest rate of 5.32%.
In August 2015, we entered into an agreement to borrow $87.0 million in mortgage debt that is secured by five communities at an
interest rate of 4.06% for a term of 25 years. This loan closed in two separate closings. We completed the first closing for $51.2
million secured by four communities in September 2015 and the second closing for $35.8 million secured by one community in
December 2015.
In May 2015, we defeased a total of $70.6 million aggregate principal amount of collateralized term loans with an interest rate of
5.32% that were due to mature on July 1, 2016, releasing 10 communities. As a result of the transaction we recognized a loss on
debt extinguishment of $2.8 million that is reflected in our Consolidated Statement of Operations.
In April 2015, in relation to the acquisition of the Berger properties (see Note 2, "Real Estate Acquisitions and Dispositions"), we
assumed debt with a fair market value of $169.9 million on the communities with a weighted average interest rate of 5.17% and
a weighted average remaining term of 6.3 years.
In March 2015, in relation to the acquisition of Meadowlands (see Note 2, "Real Estate Acquisitions and Dispositions"), we assumed
a $6.3 million mortgage with an interest rate of 6.5% and a remaining term of 6.5 years. Also, in relation to this acquisition, we
entered into a note payable with the seller for $2.4 million that bears no interest but is payable in three equal yearly installments
beginning in March 2016.
F - 27
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 2015, in relation to the acquisition of the ALL properties (see Note 2, "Real Estate Acquisitions and Dispositions"), we
refinanced approximately $90.8 million of mortgage debt on 10 of the communities (resulting in proceeds of $112.3 million) at a
weighted average interest rate of 3.87% per annum and a weighted average term of 14.1. We also assumed approximately $201.4
million of mortgage debt at a weighted average interest rate of 5.74% and a weighted average remaining term of 6.3.
The collateralized term loans totaling $2.8 billion as of December 31, 2016, are secured by 189 properties comprised of 75,118
sites representing approximately $3.4 billion of net book value.
Secured Borrowing
See Note 3, "Collateralized Receivables and Transfers of Financial Assets," for additional information regarding our collateralized
receivables and secured borrowing transactions.
Preferred OP units
Included in preferred OP units is $34.7 million of Aspen preferred OP units issued by the Operating Partnership which are convertible
into shares of the Company's 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 preferred OP unit into: (a) if the average closing price of our common
stock for the 10 preceding trading days is $68.00 per share of less, 0.397 common OP units, or (b) if the average closing price of
our common stock for the 10 preceding trading days is greater than $68.00 per share, the number of common OP units determined
by dividing (i) the sum of (A) $27.00 plus (B) 25% of the amount by which the average closing price of our common stock for
the 10 preceding trading days exceeds $68.00 per share, by (ii) the average closing price of our common stock for the 10 preceding
trading days. The current preferred rate is 6.5%. On January 2, 2024, we are required to redeem all Aspen preferred OP units that
have not been converted to common OP units.
Also included in preferred OP units is $11.2 million of Series B-3 preferred OP units, which are not convertible. Subject to certain
limitations, (a) during the 90-day period beginning on each of the tenth through fifteenth anniversaries of the issue date of the
applicable Series B-3 preferred OP units, (b) at any time after the fifteenth anniversary of the issue date of the applicable Series
B-3 preferred OP units, or (c) 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-3 preferred 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 time after 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 OP units of any holder thereof at the redemption
price of $100.00 per unit.
Lines of Credit
In August, 2015, we amended and restated our senior revolving credit facility with Citibank, N.A. and certain other lenders in the
amount of $450.0 million, comprised of a $392.0 million revolving loan and $58.0 million term loan (the "Facility"). The Facility
has a four year term ending August 19, 2019, which can be extended for two additional six-month periods at our option, subject
to the satisfaction of certain conditions as defined in the credit agreement. The credit agreement also provides for, subject to the
satisfaction of certain conditions, additional commitments in an amount not to exceed $300.0 million. If additional borrowings
are made pursuant to any such additional commitments, the aggregate borrowing limit under the Facility may be increased up to
$750.0 million. The Facility bears interest at a floating rate based on the Eurodollar rate plus a margin that is determined based
on our leverage ratio calculated in accordance with the credit agreement, which can range from 1.40% to 2.25% for the revolving
loan and 1.35% to 2.20% for the term loan. As of December 31, 2016, the margin on our leverage ratio was 1.45% and 1.40% on
the revolving and term loans, respectively. We had $42.3 million borrowings on the revolving loan and $58.0 million in borrowings
on the term loan totaling $100.3 million in borrowings as of December 31, 2016, with a weighted average interest rate of 2.14%.
As of December 31, 2015, there was $25.0 million outstanding under our previous credit facility.
The 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 line of credit, but does reduce the borrowing amount available. At December 31, 2016 and December 31,
2015, approximately $4.6 million and $3.4 million, respectively, of availability was used to back standby letters of credit.
We have a $12.0 million manufactured home floor plan facility renewable indefinitely until our lender provides us at least a twelve
month notice of its intent to terminate the agreement. The interest rate is 100 basis points over the greater of the prime rate as
quoted in The Wall Street Journal on the first business day of each month or 6.0%. At December 31, 2016, the effective interest
rate was 7.0%. The outstanding balance was $2.8 million and $0.0 million as of December 31, 2016 and December 31, 2015,
respectively.
F - 28
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-term Debt Maturities
As of December 31, 2016, the total of maturities and amortization of our debt (excluding premiums and discounts) and lines of
credit during the next five years are as follows (in thousands):
Maturities and Amortization By Year
Total Due
2017
2018
2019
2020
2021
Thereafter
$
100,344
$
— $
2,889
$
— $ 97,455
$
— $
—
2,246,200
554,358
45,903
144,477
32,688
51,878
11,240
5,645
26,186
53,318
—
6,186
64,314
54,035
—
6,727
58,078
54,575
—
7,341
270,680
1,794,254
53,436
—
7,888
287,116
34,663
110,690
$ 3,091,282
$ 101,451
$ 88,579
$ 125,076
$ 217,449
$ 332,004
$ 2,226,723
Lines of credit
Mortgage loans payable:
Maturities
Principal amortization
Preferred OP units
Secured borrowing
Total
Covenants
Pursuant to the terms of the Facility, we are subject to various financial and other covenants. The most restrictive of our debt
agreements place limitations on secured borrowings and contain minimum fixed charge coverage, leverage, distribution, and net
worth requirements. At December 31, 2016, we were in compliance with all covenants.
In addition, certain of our subsidiary borrowers own properties that secure loans. These subsidiaries are consolidated within our
accompanying Consolidated Financial Statements, however, each of these subsidiaries’ assets and credit are not available to satisfy
the debts and other obligations of the Company, any of its other subsidiaries or any other person or entity.
9. Equity and Mezzanine Securities
In September 2016, we closed an underwritten registered public offering of 3,737,500 shares of common stock at a net price of
$75.89 per share. Proceeds from the offering were approximately $283.6 million after deducting expenses related to the offering,
which were used to repay borrowings outstanding under the revolving loan under our senior revolving credit facility.
In June 2016, at the closing of the Carefree acquisition, we issued the Seller 3,329,880 shares of our common stock at an issuance
price of $67.57 per share or $225.0 million in common stock. Refer to Note 2, "Real Estate Acquisitions and Dispositions".
In March 2016, we closed an underwritten registered public offering of 6,037,500 shares of common stock at a price of $66.50
per share. Net proceeds from the offering were approximately $385.4 million after deducting discounts and expenses related to
the offering, which we used to fund a portion of the purchase price for the acquisition of Carefree Communities.
In November 2015, we closed an underwritten registered public offering of 3,737,500 shares of common stock at a price of $65.00
per share. Net proceeds from the offering were approximately $233.1 million after deducting discounts and expenses related to
the offering. We used a portion of the net proceeds of the offering to repay borrowings outstanding under our revolving loan under
the Facility, and intend to use the remaining net proceeds for acquisitions of properties, working capital, and general corporate
purposes.
At the Company's Annual Meeting of Stockholders on July 20, 2015, the stockholders approved Articles of Amendment to our
Amended and Restated Articles of Incorporation, as amended and supplemented, under which the number of authorized shares of
our common stock was increased from 90,000,000 to 180,000,000 and the number of authorized shares of our preferred stock was
increased from 10,000,000 to 20,000,000.
In July 2015, we entered into a repurchase agreement with certain holders of shares of Series A-4 Preferred Stock under which,
at the holders’ election, we were obligated to repurchase up to 5,926,322 shares of the Series A-4 Preferred Stock from the holders
of those shares. There were 6,364,770 shares of Series A-4 preferred shares issued and outstanding at the time of the repurchase
agreement, and 438,448 shares of Series A-4 Preferred Stock were not subject to the repurchase agreement. Each holder of shares
F - 29
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of Series A-4 Preferred Stock subject to the repurchase agreement could have elected to sell its shares of Series A-4 Preferred
Stock to us. The purchase price was $31.08 per share, which consists of a price per share of $30.90 plus $0.18 for accrued and
unpaid distributions from and including June 30, 2015 to, but not including, August 10, 2015. Each share of Series A-4 Preferred
Stock had a liquidation preference of $25.00 per share, and was convertible into approximately 0.4444 shares of our common
stock. Pursuant to the repurchase agreement, the Company repurchased 4,066,586 shares of the Series A-4 Preferred Stock. There
were 1,681,849 shares of Series A-4 Preferred Stock issued and outstanding as of December 31, 2016.
In June 2015, we issued to GCP Fund III Ancillary Holding, LLC (i) 25,664 shares of common stock at an issuance price of $50.00
per share, or $1,283,200 in the aggregate, and (ii) 34,219 shares of Series A-4 Preferred Stock at an issuance price of $25.00 per
share, or $855,475 in the aggregate. All of these common shares and preferred shares were issued for cash consideration pursuant
to the terms of a Subscription Agreement, dated July 30, 2014, as amended, among the Company, Green Court Real Estate Partners
III, LLC, and certain other parties.
Also in June 2015, we entered into an At the Market Offering Sales Agreement (the "Sales Agreement") with BMO Capital Markets
Corp., Merrill Lynch, Pierce, Fenner and Smith Incorporated and Citigroup Global Markets Inc. (collectively, the "Sales Agents").
Pursuant to the Sales Agreement, we may offer and sell shares of our common stock, having an aggregate offering price of up to
$250.0 million, from time to time through the Sales Agents. Each Sales Agent is entitled to compensation in an agreed amount not
to exceed 2.0% of the gross sales price per share for any shares sold through it from time to time under the Sales Agreement.
Concurrently, the At the Market Offering Sales Agreement dated May 10, 2012, as amended among the Company, the Partnership,
BMO Capital Markets Corp. and Liquidnet, Inc., was terminated.
Sales of common stock under our At the Market sales program activity during 2016 and 2015 are as follows:
Quarter Ended
December 31, 2016
September 30, 2016
June 30, 2016
September 30, 2015
June 30, 2015
March 31, 2015
Common Stock Issued
Weighted Average Sales Price
Net Proceeds (in Millions)
19,498
620,828
485,000
608,100
26,200
342,011
$
$
$
$
$
$
75.90
76.81
71.86
68.00
65.15
63.94
$
$
$
$
$
$
1.5
47.1
34.4
40.8
1.7
21.5
In April 2015, in connection with the Berger acquisition, we issued 371,808 common OP units at an issuance price of $61.00 per
share and 340,206 newly created Series C preferred OP units at an issuance price of $100.00 per share. The Series C preferred OP
unit holders receive a preferred return of 4.0% per year from the closing until the first anniversary of the date of issuance, 4.5%
per year during the following three years, and 5.0% per year thereafter. Subject to certain limitations, at the holder’s option, each
Series C preferred OP unit is exchangeable into 1.11 shares of the Company’s common stock and holders of Series C preferred
OP units do not have any voting or consent rights.
In January 2015, in connection with the ALL second closing, we issued 4,377,073 shares of common stock at an issuance price
of $50.00 per share (fair value of $58.85 per share) and 5,847,234 shares of Series A-4 Preferred Stock at an issuance price of
$25.00 per share (fair value of $30.00 per share). The Series A-4 Preferred Stock stockholders receive a preferred return of 6.5%
per year. In addition, one of the sellers purchased 150,000 shares of our common stock and 200,000 Series A-4 preferred OP units
for an aggregate purchase price of $12.5 million. As noted above, in August 2015, the Company repurchased 4,066,586 shares of
the Series A-4 Preferred Stock.
If certain change of control transactions occur or if our common stock ceases to be listed or quoted on an exchange or quotation
system, then at any time after November 26, 2019, we or the holders of shares of Series A-4 Preferred Stock and Series A-4
preferred OP units may cause all or any of those shares or units to be redeemed for cash at a redemption price equal to the sum of
(i) the greater of (x) the amount that the redeemed shares of Series A-4 Preferred Stock and Series A-4 preferred OP units would
have received in such transaction if they had been converted into shares of our common stock immediately prior to such transaction,
or (y) $25.00 per share, plus (ii) any accrued and unpaid distributions thereon to, but not including, the redemption date.
F - 30
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 shares remaining in the repurchase program. No common shares were repurchased during 2016 or 2015. There
is no expiration date specified for the repurchase program.
Subject to certain limitations, holders can convert certain series of stock and OP units to shares of our common stock at any time.
Below is the activity of conversions during 2016 and 2015:
Series
Common OP unit
Series A-1 preferred OP unit
Series A-4 preferred OP unit
Series A-4 preferred stock
Series C preferred OP unit
Year Ended December 31, 2016
Year Ended December 31, 2015
Conversion Rate
Units/Shares
Common Stock
Units/Shares
Common Stock
1
2.439
0.4444
0.4444
1.11
104,106
20,691
120,906
385,242
7,043
104,106
50,458
53,733
171,218
7,815
99,851
41,116
114,414
231,093
—
99,851
100,277
50,848
102,708
—
Cash distributions of $0.65 per share were declared for the quarter ended December 31, 2016. On January 20, 2017, cash payments
of approximately $49.4 million for aggregate distributions were made to common stockholders, common OP unit holders and
restricted stockholders of record as of December 31, 2016. Cash distributions of $0.45 per share were declared on the Company's
Series A Preferred Stock for the quarter ended December 31, 2016. On January 17, 2017, cash payments of approximately $1.5
million for aggregate distributions were made to the holders of Series A Preferred Stock of record as of December 31, 2016. In
addition, cash distributions of $0.41 per share were declared on the Company's Series A-4 Preferred Stock for the quarter ended
December 31, 2016. On January 3, 2017, cash payments of approximately $0.7 million were made to Series A-4 Preferred
stockholders of record as of December 16, 2016. During 2016, we made total cash payments of approximately $179.4 million to
common stockholders, common OP unitholders and restricted stockholders, $6.0 million to Series A Preferred stock holders and
$2.9 million to Series A-4 Preferred stockholders.
10. Share-Based Compensation
As of December 31, 2016, we have two share-based compensation plans approved by stockholders: the Sun Communities, Inc.
2015 Equity Incentive Plan (the "2015 Equity Plan") and the First Amended and Restated 2004 Non-Employee Director Option
Plan (“Director Plan”). In July 2015, the 2015 Equity Plan replaced the Sun Communities, Inc. 2009 Equity Incentive Plan (the
"2009 Equity Plan"). We believe granting equity awards will provide certain executives, key employees and directors additional
incentives to promote our financial success, and promote employee and director retention by providing an opportunity to acquire
or increase the direct proprietary interest of those individuals in our operations and future.
Restricted Stock
The majority of our share-based compensation is awarded as service vesting restricted stock grants to executives and 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 calculate compensation cost. Employee awards typically vest
over several years and are subject to continued employment by the employee. Award recipients receive distribution payments on
unvested shares of restricted stock.
Restricted Stock - 2015 Equity Plan
At the Annual Meeting of Stockholders held on July 20, 2015, the stockholders approved the 2015 Equity Plan. The 2015 Equity
Plan had been adopted by the Board and was effective upon approval by our stockholders. The maximum number of shares of
common stock that may be issued under the 2015 Equity Plan is 1,750,000 shares of our common stock, with 1,542,500 shares
remaining for future issuance.
During 2016, we granted 81,000 shares of restricted stock to key employees under the Sun Communities, Inc. 2015 Equity Incentive
Plan. The shares had a weighted average fair value of $69.70 per share and generally vest in the following manner: 35% on the
third anniversary; 35% on the fourth anniversary; 20% on the fifth anniversary; 5% on the six anniversary; and 5% on the seventh
anniversary. The fair values of the issued awards were determined by using the closing price of our common stock on the dates
the shares were issued.
F - 31
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the three months ended March 31, 2016, we granted 130,000 shares of restricted stock to our executive officers under the
Sun Communities, Inc. 2015 Equity Incentive Plan. The shares had a fair value of $69.25 per share. Half of the shares will vest
as follows: March 20, 2019: 20%; March 20, 2020, 30%; March 20, 2021, 35%; March 20, 2022, 10%; and March 20, 2023, 5%.
The remaining 65,000 shares are subject to market and performance conditions with multiple tranches that vest through March
2022. Share-based compensation for restricted stock awards with performance conditions is measured based on an estimate of
shares expected to vest. We estimate the fair value of share-based compensation for restricted stock with market conditions using
a Monte Carlo simulation.
During the year ended December 31, 2015, we granted 6,000 shares of restricted stock to key employees under our 2015 Equity
Plan. The shares had a weighted average fair value of $66.10 per share and will vest as follows: during the second half of 2018:
35%, during the second half of 2019: 35%, during the second half of 2020: 20%, during the second half of 2021: 5%, and during
the second half of 2020: 5%. The fair value of issued grants was determined by using the closing price of our common stock on
the date the shares were issued.
Restricted Stock - 2009 Equity Plan
During the year ended December 31, 2015, we granted 45,000 shares of restricted stock to executive officers under our 2009 Equity
Plan. The shares had a weighted average fair value of $65.00 per share and will vest as follows: during 2018: 35%; during 2019:
35%; during 2020: 20%; during 2021: 5%; and during 2022: 5%. The fair value was determined by using the closing share price
of our common stock on the date the shares were issued.
In April 2015, we granted 145,000 shares of restricted stock to our executive officers under our 2009 Equity Plan. The shares had
a fair value of $63.81 per share. Half of the shares will vest as follows: April 14, 2018: 20%; April 14, 2019: 30%; April 14, 2020:
35%; April 14, 2021: 10%; and April 14, 2022: 5%. The remaining 72,500 shares are subject to market and performance conditions
with multiple tranches that vest through April 2020. Share-based compensation for restricted stock awards with performance
conditions is measured based on an estimate of shares expected to vest. We estimate the fair value of share-based compensation
for restricted stock with market conditions using a Monte Carlo simulation.
The following table summarizes our restricted stock activity for the years ended December 31, 2016, 2015 and 2014:
Unvested restricted shares at January 1, 2014
Granted
Vested
Forfeited
Unvested restricted shares at December 31, 2014
Granted
Vested
Forfeited
Unvested restricted shares at December 31, 2015
Granted
Vested
Forfeited
Unvested restricted shares at December 31, 2016
Number of Shares
Weighted Average
Grant Date Fair
Value
631,956
$
117,250
$
(55,488) $
(4,975) $
$
688,743
$
216,800
(85,021) $
(7,262) $
$
813,260
227,800
$
(165,631) $
(33,795) $
$
841,634
41.14
49.97
25.57
38.45
43.87
64.32
31.89
45.94
50.59
69.43
45.90
56.49
56.38
Total compensation cost recognized for restricted stock was $9.6 million, $7.1 million, and $4.9 million for the years ended
December 31, 2016, 2015, and 2014, respectively. The total fair value of shares vested was $7.6 million, $2.7 million, and $1.4
million for the years ended December 31, 2016, 2015 and 2014, respectively. The remaining net compensation cost related to our
unvested restricted shares outstanding as of December 31, 2016 is approximately $32.0 million. That expense is expected to be
recognized $9.7 million in 2017, $8.2 million in 2018, $5.8 million in 2019 and $8.3 million thereafter.
Director Plan
F - 32
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Director Plan was approved by our stockholders at the Annual Meeting of Stockholders held on July 19, 2012. The Director
Plan amended and restated in its entirety our 2004 Non-Employee Director Stock Option Plan.
The types of awards that may be granted under the Director Plan are options, restricted stock and OP units. Only non-employee
directors are eligible to participate in the Director Plan. The maximum number of options, restricted stock and OP units that may
be issued under the Director Plan is 175,000 shares, with 43,474 shares remaining for future issuance.
In March 2016, we granted 16,800 shares of restricted stock to our non-employee directors under our First Amended and Restated
2004 Non-Employee Director Option Plan. The awards vest on March 11, 2018, and had a fair value of $69.45 per share. The fair
value was determined by using the closing share price of our common stock on the date the shares were issued.
In February 2015, we granted 19,800 shares of restricted stock to our non-employee directors under our First Amended and Restated
2004 Non-Employee Director Option Plan. The awards vest on February 11, 2018, and had a fair value of $65.87 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, 2016, 14,199 shares of common stock were issued in connection with the exercise of stock
options and the net proceeds received were $0.1 million.
Options
We have granted stock options to certain employees and non-employee directors. Option awards are generally granted with an
exercise price equal to the market price of our common stock as of the grant date. Stock options generally vest over a three year
period from the date of grant and have a maximum term of 10 years. No grants of options were made in 2016, 2015 or 2014. We
issue new shares of common stock at the time of share option exercise (or share unit conversion).
The weighted average fair value of the options issued is estimated on the date of the grant using the Binomial (lattice) option
pricing model. The options outstanding as of December 31, 2016, consist of 4,500 non-employee director options. There are no
employee options outstanding. There was no compensation expense associated with non-vested stock option awards for the years
ended December 31, 2016, and 2015. The compensation expense associated with non-vested stock option awards was not significant
for the year ended December 31, 2014.
The following table summarizes our option activity during the years ended December 31, 2016, 2015 and 2014:
Options outstanding at January 1, 2014
Granted
Exercised
Forfeited or expired
Options outstanding at December 31, 2014
Granted
Exercised
Forfeited or expired
Options outstanding at December 31, 2015
Granted
Exercised
Forfeited or expired
Options outstanding at December 31, 2016
Number of
Options
Weighted
Average
Exercise Price
(per common share)
46,250 $
—
(12,250 )
(1,500 )
32,500
—
(8,000 )
—
24,500
—
(20,000 )
—
4,500 $
30.77
—
33.4
35.44
29.56
—
30.96
—
29.11
—
28.39
—
32.27
The following table summarizes our options outstanding and options currently exercisable at December 31, 2016:
F - 33
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
Weighted
Average
Exercise Price
(per common
share)
Weighted
Average
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
(in thousands)
Number of
Options
Options vested and exercisable
4,500
$
32.27
2.9
$
200
Aggregate 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 of options outstanding or exercisable. The aggregate intrinsic value excludes the effect of stock options
that have a zero or negative intrinsic value. For the years ended December 31, 2016, 2015 and 2014, the intrinsic value of exercised
options was $1.0 million, $0.3 million and $0.3 million, respectively. For the years ended December 31, 2016, 2015 and 2014, the
intrinsic value of vested and exercisable options was $0.2 million, $1.0 million and $1.0 million, respectively.
F - 34
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Segment Reporting
We group our operating segments into reportable segments that provide similar products and services. Each operating segment
has discrete financial information evaluated regularly by our 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, has an interest in a portfolio, and develops MH communities and RV communities and is in
the business of acquiring, operating, and expanding MH and RV communities. The Home Sales and Rentals segment offers
manufactured 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 the Real Property
Operations segment revenues and is approximately $58.2 million for the year ended December 31, 2016. In 2016, transient RV
revenue we recognized 17.5% in the first quarter, 18.7% in the second quarter, 45.2% in the third quarter, and 18.6% in the fourth
quarter.
A presentation of segment financial information is summarized as follows (amounts in thousands):
Revenues
Operating expenses/Cost of sales
Net operating income/Gross profit
Adjustments to arrive at net income (loss):
Interest and other income, net
Home selling expense
General and administrative
Transaction costs
Depreciation and amortization
Extinguishment of debt
Interest
Interest on mandatorily redeemable preferred OP units
Other expenses, net
Current tax expense
Deferred tax benefit
Income from affiliate transactions
Net income (loss)
Less: Preferred return to preferred OP units
Less: Amounts attributable to noncontrolling interests
Net income (loss) attributable to Sun Communities, Inc.
Less: Preferred stock distributions
Net income (loss) attributable to Sun Communities, Inc.
common stockholders
Year Ended December 31, 2016
Real Property
Operations
Home Sales and
Home Rentals
Consolidated
$
654,341
$
158,287
$
241,005
413,336
21,150
—
(55,481)
(31,863)
(166,296)
(1,127)
(119,150)
(3,152)
(5,822)
(471)
400
500
52,024
5,006
1,478
45,540
8,946
104,714
53,573
—
(9,744)
(8,606)
(51)
(55,474)
—
(13)
—
(26)
(212)
—
—
(20,553)
—
(1,328)
(19,225)
—
812,628
345,719
466,909
21,150
(9,744)
(64,087)
(31,914)
(221,770)
(1,127)
(119,163)
(3,152)
(5,848)
(683)
400
500
31,471
5,006
150
26,315
8,946
$
36,594
$
(19,225) $
17,369
F - 35
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenues
Operating expenses/Cost of sales
Net operating income/Gross profit
Adjustments to arrive at net income (loss):
Interest and other income, net
Home selling expenses
General and administrative
Transaction costs
Depreciation and amortization
Extinguishment of debt
Interest
Interest on mandatorily redeemable preferred OP units
Gain on disposition of properties, net
Current tax expense
Deferred tax expense
Income from affiliate transactions
Net income (loss)
Less: Preferred return to preferred OP units
Less: Amounts attributable to noncontrolling interests
Net income (loss) attributable to Sun Communities, Inc.
Less: Preferred stock distributions
Less: Preferred stock redemption costs
Net income (loss) attributable to Sun Communities, Inc.
common stockholders
Year Ended December 31, 2015
Real Property
Operations
Home Sales and
Home Rentals
Consolidated
$
530,610
$
125,964
$
188,030
342,580
18,119
—
(40,235)
(17,802)
(125,297)
(2,800)
(107,647)
(3,219)
106,613
(56)
—
7,500
177,756
4,973
10,622
162,161
13,793
4,328
83,897
42,067
38
(7,476)
(7,220)
(1)
(52,340)
—
(12)
—
18,763
(102)
(1,000)
—
(7,283)
—
(568)
(6,715)
—
—
656,574
271,927
384,647
18,157
(7,476)
(47,455)
(17,803)
(177,637)
(2,800)
(107,659)
(3,219)
125,376
(158)
(1,000)
7,500
170,473
4,973
10,054
155,446
13,793
4,328
$
144,040
$
(6,715) $
137,325
F - 36
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 2014
Real Property
Operations
Home Sales and
Home Rentals
Consolidated
Revenues
Operating expenses/Cost of sales
Net operating income/Gross profit
Adjustments to arrive at net income (loss):
Interest and other income, net
Home selling expenses
General and administrative
Transaction costs
Depreciation and amortization
Asset impairment charge
Interest
Interest on mandatorily redeemable preferred OP units
Gain on disposition of properties
Gain on settlement
Current tax expense
Income from affiliate transactions
Net income (loss)
Less: Preferred return to preferred OP units
Less: Amounts attributable to noncontrolling interests
Net income (loss) attributable to Sun Communities, Inc.
Less: Preferred stock distributions
Net income (loss) attributable to Sun Communities, Inc.
common stockholders
$
375,594
$
93,167
$
137,899
237,695
15,498
—
(31,769)
(18,251)
(88,695)
(837)
(73,752)
(3,210)
17,447
4,452
(219)
1,200
59,559
2,935
3,698
52,926
6,133
63,826
29,341
—
(5,235)
(5,618)
(8)
(45,031)
—
(19)
—
207
—
—
—
(26,363)
—
(1,946)
(24,417)
—
$
46,793
$
(24,417) $
468,761
201,725
267,036
15,498
(5,235)
(37,387)
(18,259)
(133,726)
(837)
(73,771)
(3,210)
17,654
4,452
(219)
1,200
33,196
2,935
1,752
28,509
6,133
22,376
December 31, 2016
December 31, 2015
Real
Property
Operations
Home Sales
and Home
Rentals
Consolidated
Real
Property
Operations
Home Sales
and Home
Rentals
Consolidated
Identifiable assets:
Investment property, net
$ 5,019,165
$ 450,316
$ 5,469,481
$ 3,303,287
$ 417,828
$ 3,721,115
Cash and cash equivalents
Inventory of manufactured homes
Notes and other receivables, net
Collateralized receivables, net
Other assets, net
Total assets
3,705
—
68,901
143,870
143,650
4,459
21,632
12,278
—
2,800
8,164
21,632
81,179
143,870
146,450
44,150
—
34,258
139,768
209,957
936
14,828
13,714
—
3,073
45,086
14,828
47,972
139,768
213,030
$ 5,379,291
$ 491,485
$ 5,870,776
$ 3,731,420
$ 450,379
$ 4,181,799
F - 37
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Income Taxes
We have elected to be taxed as a "REIT" pursuant to Section 856(c) of the Internal Revenue Code of 1986 (“Code”), as amended.
In order for us to qualify as a REIT, at least 95% of our gross income in any year must be derived from qualifying sources. In
addition, a REIT must distribute annually at least 90% of its REIT taxable income (calculated without any deduction for dividends
paid and excluding capital gain) to its stockholders and meet other tests.
Qualification as a REIT involves the satisfaction of numerous requirements (on an annual and quarterly basis) established under
highly technical and complex Code provisions for which there are limited judicial or administrative interpretations, and involves
the determination of various factual matters and circumstances not entirely within our control. In addition, frequent changes occur
in the area of REIT taxation, which requires us to continually monitor our tax status. We analyzed the various REIT tests and
confirmed that we continued to qualify as a REIT for the year ended December 31, 2016.
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 stockholders as 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 as well as U.S. federal income and excise taxes on our undistributed
income. In addition, taxable income from non-REIT activities managed through taxable REIT subsidiaries is subject to federal,
state and local income taxes. The Company is also subject to local income taxes in Canada as a result of the acquisition of Carefree
in 2016. We do not provide for withholding taxes on our undistributed earnings from our Canadian subsidiaries as they are reinvested
and will continue to be reinvested indefinitely outside the United States.
For income tax purposes, distributions paid to common stockholders consist of ordinary income, capital gains, and return of capital.
For the years ended December 31, 2016, 2015, and 2014, distributions paid per share were taxable as follows (unaudited/rounded):
Years Ended December 31,
2016
2015
2014
Ordinary income
Capital gain
Return of capital
Total distributions declared
Amount
Percentage
Amount
Percentage
Amount
Percentage
$
$
0.81
0.51
1.28
2.60
31.2% $
19.6%
49.2%
100.0% $
1.08
0.78
0.74
2.60
41.7% $
30.1%
28.2%
100.0% $
0.82
0.64
1.14
2.60
31.7%
24.6%
43.7%
100.0%
Our taxable REIT subsidiaries are subject to U.S. federal income taxes as well as state and local income and franchise taxes. In
addition, our Canadian subsidiaries are subject to income tax in Canada.
The components of our provision for income taxes attributable to continuing operations for the year ended December 31, 2016
are as follows (amounts in thousands):
Federal
Current
State and Local
Current
Foreign
Current
Deferred
Total Provision
Year Ended
December 31, 2016
187
438
58
(400)
(342)
283
$
$
The above provision summary is presented only for the year 2016 due to the acquisition of Carefree which is taxable in Canada.
F - 38
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the provision for income taxes with the amount computed by applying the statutory federal income tax rate to
income before provision for income taxes for the year ended December 31, 2016 is as follows (amounts in thousands):
Pre-tax income (loss) attributable to taxable subsidiaries
$
(11,157)
Year Ended December 31, 2016
Federal provision (benefit) at statutory tax rate (34%)
State and local taxes, net of federal benefit
Alternative minimum tax
Rate differential
Change in valuation allowance
Others
Tax provision - taxable subsidiaries
Other state taxes - flow through subsidiaries
Total provision
(3,794)
(183)
93
104
4,021
(225)
16
267
283
$
34.0 %
1.6 %
(0.8)%
(0.9)%
(36.0)%
2.0 %
(0.1)%
The above reconciliation summary is presented only for the year 2016 due to the acquisition of Carefree which is taxable in Canada.
Our deferred tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and liabilities for
financial reporting purposes and the bases of such assets and liabilities as measured by tax laws. Deferred tax assets are reduced,
if necessary, by a valuation allowance to the amount where realization is more likely than not assured after considering all available
evidence. Our temporary differences primarily relate to net operating loss carryforwards, depreciation and basis differences between
tax and U.S. GAAP on our Canadian investments.
The deferred tax assets and liabilities included in the consolidated balance sheets are comprised of the following tax effects of
temporary differences (amounts in thousands):
As of December 31,
2016
2015
Deferred Tax Assets
Net operating loss carryforwards
Real estate assets
Other
Gross deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred Tax Liabilities
Basis differences - foreign investment
Gross deferred tax liabilities
$
30,821 $
33,167
1,746
65,734
(63,862 )
1,872
(23,816 )
(23,816 )
Net Deferred Tax Liability (1)
$
(21,944 ) $
(1) Net deferred tax liability is included within Other liabilities in our Consolidated Balance Sheets.
31,096
27,315
1,430
59,841
(59,841 )
—
—
—
—
SHS has U.S. operating loss carryforwards of approximately $85.1 million , or $28.9 million after tax, as of December 31, 2016.
The loss carryforwards will begin to expire in 2021 through 2035 if not offset by future taxable income. In addition, our Canadian
subsidiaries have operating loss carryforwards of approximately $8.7 million, or $2.3 million after tax, as of December 31, 2016.
F - 39
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The loss carryforwards will begin to expire in 2031 through 2036 if not offset by future taxable income.
We had no unrecognized tax benefits as of December 31, 2016 and 2015. We expect no significant increases or decreases in
unrecognized tax benefits due to changes in tax positions within one year of December 31, 2016.
We classify certain state taxes as income taxes for financial reporting purposes. We recorded a provision for state income taxes of
approximately $0.4 million for the year ended December 31, 2016 and $0.2 million for each of the years ended December 31,
2015 and 2014.
As previously noted, 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 the interpretation 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, 2010 and prior. In addition, our Canadian subsidiaries are subject to taxes in Canada and in the province
of Ontario. We are no longer subject to examination by the Canadian tax authorities for the tax years ended December 31, 2011
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 associated with any unrecognized income tax benefit or provision was accrued, nor was any income tax related
interest or penalty recognized during the years ended December 31, 2016, 2015 and 2014.
F - 40
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Earnings Per Share
We have outstanding stock options, unvested restricted shares, Series A Preferred Stock, and Series A-4 Preferred Stock, and our
Operating Partnership has outstanding common OP units, Series A-1 preferred OP units, Series A-3 preferred OP units, Series A-4
preferred OP units, Series C preferred OP units, and Aspen preferred OP Units, which if converted or exercised, may impact
dilution.
Computations of basic and diluted earnings per share were as follows (in thousands, except per share data):
Numerator
Net income attributable to common stockholders
Allocation of income to restricted stock awards
Net income attributable to common stockholders after allocation
Allocation of income to restricted stock awards
Amounts attributable to Series A-4 Preferred Stock
Diluted earnings: net income attributable to common stockholders after allocation
Denominator
Weighted average common shares outstanding
Add: dilutive stock options
Add: dilutive restricted stock
Add: dilutive Series A-4 Preferred Stock
Year Ended December 31,
2016
17,369
115
17,484
(115)
—
17,369
2015
$ 137,325
(1,757)
$ 135,568
—
—
$ 135,568
$
$
$
2014
22,376
(127)
22,249
127
76
22,452
$
$
$
65,856
53,686
41,337
8
457
—
16
—
—
16
237
215
Diluted weighted average common shares and securities
66,321
53,702
41,805
Earnings per share available to common stockholders after allocation:
Basic
Diluted
$
$
0.27
0.26
$
$
2.53
2.52
$
$
0.54
0.54
We exclude certain securities from the computation of diluted earnings per share because the inclusion of these securities would
have been anti-dilutive for the periods presented. The following table presents the outstanding securities that were excluded from
the computation of diluted earnings per share for the years ended December 31, 2016, 2015 and 2014 (amounts in thousands):
Restricted Stock
Common OP units
Series A-1 preferred OP units
Series A-3 preferred OP units
Series A-4 preferred OP units
Series A-4 Preferred Stock
Series C preferred OP units
Aspen preferred OP units
Total securities
Year Ended December 31,
2016
2015
2014
—
2,759
367
40
634
1,682
333
1,284
7,099
813
2,863
388
40
755
2,067
340
1,284
8,550
—
2,561
429
40
669
—
—
1,284
4,983
F - 41
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14.
Selected Quarterly Financial Information (Unaudited)
The following is a condensed summary of our unaudited quarterly results for years ended December 31, 2016 and 2015. Income
(loss) per share for the year may not equal the sum of the fiscal quarters' income (loss) per share due to changes in basic and diluted
shares outstanding.
2016
Total revenues
Total expenses
Income (loss) before other items
Quarters
1st
2nd
3rd
4th
(In thousands, except per share amounts)
$174,644 $190,799 $249,701 $ 218,634
162,638
195,781
226,688
211,569
$ 12,006 $ (4,982 ) $ 23,013 $
7,065
Net income (loss) attributable to Sun Communities, Inc. common
stockholders
$
7,875 $ (7,803 ) $ 18,897 $ (1,600 )
Earnings (loss) per share:
Basic
Diluted
2015
Total revenues
Total expenses
Income before other items
Income from affiliate transactions (1)
Gain (loss) on disposition of properties, net (2)
Net income attributable to Sun Communities, Inc. common stockholders
Earnings per share:
Basic
Diluted
(1) Refer to Note 6, "Investment in Affiliates," for additional information.
(2) Refer to Note 2, "Real Estate Acquisitions and Dispositions," for additional information.
$
$
0.14 $
(0.12 ) $
0.27 $
0.14 $
(0.12 ) $
0.27 $
(0.02 )
(0.02 )
$155,200 $165,938 $185,355 $ 168,238
151,646
154,862
163,771
165,697
$
$
$
$
$
$
3,554 $ 11,076 $ 21,584 $
2,541
— $
7,500 $
— $
—
8,769 $
(13 ) $ 18,190 $ 98,430
6,869 $ 12,294 $ 28,763 $ 89,399
0.13 $
0.23 $
0.53 $
0.13 $
0.23 $
0.53 $
1.57
1.56
F - 42
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Derivative Instruments and Hedging Activities
Our objective in using interest rate derivatives is to manage exposure to interest rate movements thereby minimizing the effect of
interest rate changes and the effect it could have on future cash flows. Interest rate caps are used to accomplish this objective. We
do not enter into derivative instruments for speculative purposes nor do we have any swaps in a hedging arrangement.
The following table provides the terms of our interest rate derivative contracts that were in effect as of December 31, 2016:
Type
Purpose
Effective
Date
Maturity
Date
Notional
(in millions)
Based on
Variable
Rate
Cap Rate
Spread
Effective
Fixed Rate
Cap
Cap
Cap Floating Rate
4/1/2015
4/1/2018
Cap Floating Rate
10/3/2016
5/1/2023
$
$
150.1
3 Month LIBOR
2.7240%
9.0000%
9.6
3 Month LIBOR
3.5240%
11.0200%
—%
—%
N/A
N/A
In accordance with ASC Topic 815, "Derivatives and Hedging" ("ASC 815"), derivative instruments are recorded at fair value in
"Other assets, net" or "Other liabilities" on the Consolidated Balance Sheets. As of December 31, 2016 and 2015, the fair value
of the derivatives was zero.
16. Fair Value of Financial Instruments
Our 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" ("ASC 820"), requires disclosure about how fair value is determined
for assets and liabilities and establishes a hierarchy under which these assets and liabilities must be grouped, based on significant
levels of observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect the Company's market assumption. This hierarchy requires the use of observable market data when
available. These two types of inputs have created the following fair value hierarchy:
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 significant inputs and significant value drivers are observable in
active markets; and
Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are
unobservable.
We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value
disclosures. The following methods and assumptions were used in order to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:
Derivative Instruments
The derivative instruments held by us are interest rate cap agreements for which quoted market prices are indirectly available. For
those derivatives, we use model-derived valuations in which all significant inputs and significant value drivers are observable in
active markets provided by brokers or dealers to determine the fair values of derivative instruments on a recurring basis (Level
2). See Note 15, "Derivative Instruments and Hedging Activities."
Installment Notes Receivable on Manufactured Homes
The net carrying value of the installment notes receivable on manufactured homes estimates the fair value as the interest rates in
the portfolio are comparable to current prevailing market rates (Level 2). Refer Note 4, "Notes and Other Receivables."
Long Term Debt and Lines of Credit
The fair value of long-term debt (excluding the secured borrowing) is based on the estimates of management and on rates currently
quoted, rates currently prevailing for comparable loans, and instruments of comparable maturities (Level 2). Refer to Note 8, "Debt
and Lines of Credit."
F - 43
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Collateralized Receivables and Secured Borrowing
The fair value of these financial instruments offset each other as our collateralized receivables represent a transfer of financial
assets and the cash proceeds received from these transactions have been classified as a secured borrowing on the Consolidated
Balance Sheets. The net carrying value of the collateralized receivables estimates the fair value as the interest rates in the portfolio
are comparable to current prevailing market rates (Level 2). Refer to Note 3, "Collateralized Receivables and Transfers of Financial
Assets."
Financial Liabilities
We estimate the fair value of our contingent consideration liability based on discounting of future cash flows using market interest
rates and adjusting for non-performance risk over the remaining term of the liability (Level 2).
Other Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximate their fair market values
due to the short-term nature of these instruments.
The table below sets forth our financial assets and liabilities that required disclosure of their fair values on a recurring basis as of
December 31, 2016. The table presents the carrying values and fair values of our financial instruments as of December 31, 2016
and December 31, 2015 that were measured using the valuation 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.
Financial assets
Installment notes receivable on manufactured homes, net
Collateralized receivables, net
Financial liabilities
Debt (excluding secured borrowing)
Secured borrowing
Lines of credit
Other liabilities (contingent consideration)
17. Recent Accounting Pronouncements
December 31, 2016
December 31, 2015
Carrying
Value
Fair Value
Carrying
Value
Fair Value
$
$
59,320
143,870
$
$
59,320
143,870
$
$
20,418
$
20,418
139,768
$ 139,768
$ 2,865,470
$ 2,820,680
$ 2,171,170
$ 2,070,100
$
$
$
144,477
100,095
10,011
$
$
$
144,477
98,640
10,011
$
$
$
140,440
$ 140,440
24,687
$
23,520
— $
—
In January 2017, the FASB issued ASU 2017-1 "Business Combinations (Topic 805): Clarifying the Definition of a Business."
This update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether
transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many
areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance will be effective for fiscal years
beginning after December 15, 2017, including interim periods within that year, with early application allowed for certain
transactions. We are currently evaluating the impact of the adoption of this ASU.
In November 2016, the FASB issued ASU 2016-18 "Statement of Cash Flows (Topic 230): Restricted Cash." This update requires
inclusion of restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-
period and end-of-period total amounts shown on the statement of cash flows. The guidance will be effective for fiscal years
beginning after December 15, 2017, including interim periods within that year. We are currently evaluating the impact of the
adoption of this ASU.
In October 2016, the FASB issued ASU 2016-16 "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory."
This update requires that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory
when the transfer occurs. The guidance will be effective for fiscal years beginning after December 15, 2017, including interim
periods within that year. We are currently evaluating the impact of the adoption of this ASU.
F - 44
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In August 2016, the FASB issued ASU 2016-15 "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments". This update addresses eight specific cash flow issues with the objective of reducing existing diversity in
practice. The guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within that
year. We are currently evaluating the impact of the adoption of this ASU.
In June 2016, the FASB issued ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments". This update replaces the incurred loss impairment methodology in current GAAP with a methodology
that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to
inform credit loss estimates. The amendments in this update are effective for fiscal years beginning after December 15, 2019,
including interim periods within those fiscal years. We are in the initial phases of evaluating how this guidance will impact our
accounting policies regarding assessment of, and allowance for, loan losses. Refer to "Notes and other receivables" in Note 1,
"Significant Accounting Policies" for additional information.
In March 2016, the FASB issued ASU 2016-09 "Compensation-Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting". The amendments in this update are intended to simplify several aspects of the accounting for
share-based payments. The amendments in this update are effective for fiscal years beginning after December 15, 2016, including
interim periods within that year. We are currently evaluating the impact of the adoption of this ASU.
In February 2016, the FASB issued ASU 2016-02 "Leases (Topic 842)." The core principle of this update is that a lessee should
recognize the assets and liabilities that arise from leases while the accounting by a lessor is largely unchanged from that applied
under previous GAAP. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years. Our income from real property and rental home revenue streams is derived from rental
agreements where we are the lessor. As noted above, the lessor accounting model is largely unchanged by this update. We are the
lessee in other arrangements, primarily for our executive offices, ground leases at five communities, and certain equipment. We
are currently evaluating our inventory of such leases to determine which will require recognition of right of use assets and
corresponding lease liabilities, and the related disclosure requirements thereto.
In April 2015, the FASB issued ASU 2015-03 "Interest - Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of
Debt Issuance Costs". This amendment requires that debt issuance costs related to a recognized debt liability be presented in the
balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015,
the FASB issued ASU 2015-15 "Interest - Imputation of Interest (Subtopic 835-30) Presentation and Subsequent Measurement of
Debt Issuance Costs Associated with Line-of-Credit Arrangements" ("ASU 2015-15"). ASU 2015-15 provides commentary that
the SEC staff would not object to an entity deferring and presenting costs associated with line of credit arrangements as an asset
and subsequently amortizing them ratably over the term of the revolving debt arrangement. We adopted these amendments
retrospectively for all periods presented as of January 1, 2016. The adoption resulted in reclassifications of deferred financing
costs of $8.4 million and $0.3 million from Other assets, net to Mortgage loans payable and Lines of credit, respectively, on the
Consolidated Balance Sheets as of December 31, 2015. The debt issuance costs of $0.3 million netted against Lines of credit
related to our $58.0 million term loan, whereas $3.3 million of debt issuance costs related to our revolving loan remained classified
within Other assets, net on the Consolidated Balance Sheets.
In February 2015, the FASB issued ASU No. 2015-02 "Consolidation (Topic 810) Amendments to the Consolidation
Analysis" ("ASU 2015-02") which modified the evaluation of whether limited partnerships and similar legal entities are variable
interest entities or voting interest entities. All entities are subject to reevaluation under the revised consolidation model. The
Company is the sole general partner in a limited partnership, and as such, the Company has complete control in conducting all
business activities associated with the Partnership. Limited partners do not have kick-out rights or participating rights. The Company
adopted ASU 2015-02 as of January 1, 2016 and fully consolidates the activities of the Operating Partnership within its Consolidated
Financial Statements under the variable interest entity model as it is the primary beneficiary. There was no impact to our Consolidated
Financial Statements as we previously consolidated under the voting interest entity model.
In May 2014, the FASB issued ASU 2014-09 "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09"). The
objective of this amendment is to establish a single comprehensive model for entities to use in accounting for revenue arising from
contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific
guidance. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. In applying this amendment, companies will perform a five-step analysis of transactions to determine when and how
revenue is recognized. This amendment applies to all contracts with customers except those that are within the scope of other
topics in the FASB ASC. An entity should apply the amendments using either the full retrospective approach or retrospectively
F - 45
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
with a cumulative effect of initially applying the amendments recognized at the date of initial application. In July 2015, the FASB
issued ASU 2015-14 which deferred the effective date of ASU 2014-09 by one year to annual reporting periods beginning after
December 15, 2017, including interim periods within that reporting period.
We anticipate adopting ASU 2014-09 and the related updates subsequently issued by the FASB in January 2018, via the modified
retrospective approach. Applicability of the standard updates to our revenue streams and other considerations are summarized
below.
Income from real property - is derived from rental agreements whereby we lease land to residents in our communities.
We account for these revenues pursuant to ASC 840 "Leases."
Revenue from home sales - is recognized pursuant to ASC 605 "Revenue Recognition," as the manufactured homes are
tangible personal property that can be located on any parcel of land. The manufactured homes are not permanent fixtures
or improvements to the underlying real estate, and are therefore not considered by us to be subject to the guidance in ASC
360-20 "Real Estate Sales."
Rental home revenue - is comprised of rental agreements whereby we lease homes to residents in our communities. We
account for these revenues pursuant to ASC 840 "Leases."
Ancillary revenues - are primarily comprised of restaurant, golf, merchandise and other activities at our RV communities.
These revenues are recognized pursuant to ASC 605 "Revenue Recognition," at point of sale to customers as our
performance obligations are then satisfied.
Interest income - on our notes receivable will continue to be recognized as revenue, but presented separately from revenue
from contracts with customers, as interest income is not in the scope of ASU 2014-09 and the related updates subsequently
issued by the FASB.
Broker commissions and other revenues, net - is primarily comprised of (i) brokerage commissions that we account for
on a net basis pursuant to ASC 605 "Revenue Recognition," as our performance obligation is to arrange for a third party
to transfer a home to a customer; and (ii) notes receivable loss reserves.
As detailed above, our revenues from home sales, ancillary revenues, and broker commissions will be in the scope of the new
guidance. While our evaluations are ongoing, we do not expect material changes to our accounting policies for these revenue
streams. Upon adoption, we will present contract assets and liabilities, as applicable, when one party to a transaction has performed
and the other has not. Further, we will expand our disclosures regarding these revenue streams, as applicable, to discuss our contract
balances, performance obligations, significant judgments made, and contract costs.
18. Commitments and Contingencies
We are involved in various legal proceedings arising in the ordinary course of business. All such proceedings, taken together, are
not expected to have a material adverse impact on our results of operations or financial condition.
19. Related Party Transactions
Lease of Executive Offices. Gary A. Shiffman, together with certain of his family members, indirectly owns a 16.75% equity
interest in American Center LLC, the entity from which we lease office space for our principal executive offices. Each of Brian
M. Hermelin, Ronald A. Klein and Arthur A. Weiss indirectly owns a less than one percent interest in American Center LLC. Mr.
Shiffman is our Chief Executive Officer and Chairman of the Board. Each of Mr. Hermelin, Mr. Klein and Mr. Weiss is a director
of the Company. Under this agreement, we lease approximately 71,513 rentable square feet of permanent space, and 9,140 rentable
square feet of temporary space. The initial term of the lease is until October 31, 2026, and the base rent is $17.45 per square foot
(gross) until October 31, 2017, for both permanent and temporary space, with graduated rental increases thereafter. Each of Mr.
Shiffman, Mr. Hermelin, Mr. Klein and Mr. Weiss may have a conflict of interest with respect to his obligations as our officer and/
or director and his ownership interest in American Center LLC.
Legal Counsel. During 2014-2016, 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 $8.0 million, $4.6 million and $7.5 million
F - 46
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in the years ended December 31, 2016, 2015 and 2013, respectively.
Tax Consequences Upon Sale of Properties. Gary A. Shiffman holds limited partnership interests in the Operating Partnership
which were received in connection with the contribution of properties from partnerships previously affiliated with him. Prior to
any redemption of these limited partnership interests 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 these partnerships. Therefore, we and Mr. Shiffman may have
different objectives regarding the appropriate pricing and timing of any sale of those properties.
ALL Acquisition
During the fourth quarter of 2014 and the first quarter of 2015, we purchased a portfolio of 59 MH communities from the Green
Courte parties for aggregate consideration of $1.3 billion. In January 2015, we sold 150,000 shares of our common stock and
200,000 Series A-4 preferred OP units for an aggregate purchase price of $12.5 million to one of the Green Courte parties. Randall
K. Rowe and James R. Goldman are beneficial owners and directors and officers of certain of the Green Courte parties. Messrs.
Rowe and Goldman served on our board of directors from January 2015 through March 2016.
In June 2015, we issued 25,664 shares of common stock and 34,219 shares of Series A-4 Preferred Stock to one of the Green
Courte parties in connection with the ALL acquisition. In August 2015, we repurchased from certain of the Green Courte entities
and their affiliates an aggregate of 4,066,586 shares of Series A-4 Preferred Stock at a purchase price of $31.08 per share. As part
of the aforementioned repurchase, 156,625 shares of Series A-4 Preferred Stock held by Mr. Rowe and his affiliates and 22,577
shares of Series A-4 Preferred Stock held by Mr. Goldman were repurchased. See Note 2, "Real Estate Acquisitions and Dispositions"
and Note 9, "Equity and Mezzanine Securities," for additional information regarding these transactions.
20. Subsequent Events
In January 2017, we issued 280,502 shares of common stock under our Sales Agreement at the prevailing market price of our
common stock at the time of each sale with a weighted average sales price of $76.47 per share. We received net proceeds totaling
$21.2 million. Refer to Note 9, "Equity and Mezzanine Securities," for additional information regarding our Sales Agreement.
In January 2017, we defeased a $18.9 million collateralized term loan with an interest rate of 6.49% that was due to mature on
August 1, 2017, releasing one community. As a result of the transaction, we recognized a loss on debt extinguishment of $0.5
million.
Additionally, in February 2017, we repaid a $10.0 million collateralized term loan with an interest rate of 5.57% that was due to
mature on May 1, 2017, releasing an additional community. There were no debt extinguishment costs recognized for this transaction.
F - 47
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