7.0%
2012-2017
AVERAGE
7.0%
2012-2017
AVERAGE
7.7%
7.7%
9.1%
9.1%
7.1%
7.1%
6.9%
6.9%
5.5%
5.5%
5.9%
5.9%
YE 2012
YE 2012
YE 2013
YE 2013
YE 2014
YE 2014
YE 2015
YE 2015
YE 2016
YE 2016
YE 2017
YE 2017
900.0%
900.0%
800.0%
800.0%
700.0%
700.0%
600.0%
600.0%
500.0%
500.0%
400.0%
400.0%
300.0%
300.0%
200.0%
200.0%
100.0%
100.0%
0.0%
0.0%
(100.0%)
(100.0%)
10 - year Total Return
10 - year Total Return
846.3%
846.3%
126.0%
126.0%
105.0%
105.0%
Sun Communities, Inc. (SUI)
Sun Communities, Inc. (SUI)
MSCI US REIT (RMS)
MSCI US REIT (RMS)
S&P 500
S&P 500
230 MH Communities
230 MH Communities
89 RV Communities
89 RV Communities
31 MH and RV Communities
31 MH and RV Communities
66%
66%
25%
25%
9%
9%
25%
25%
9%
9%
Gary A. Shiffman
Gary A. Shiffman
chairman and chief
chairman and chief
executive officer
executive officer
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, 2017
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
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 ]
Smaller reporting company [ ]
Accelerated filer [ ]
Non-accelerated filer [ ]
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to section to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of June 30, 2017, the aggregate market value of the Registrant’s stock held by non-affiliates was $6,722,799,273 (computed by reference to
the closing sales price of the Registrant’s common stock as of June 30, 2017). 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 15, 2018: 79,739,141
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 2018 annual meeting of stockholders.
SUN COMMUNITIES, INC.
Table of Contents
Item
Description
Page
Part I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II.
Item 5.
Item 6.
Item 7.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
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.
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
1
8
19
20
31
31
33
36
37
59
60
60
60
60
64
64
64
64
64
65
65
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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., a Michigan corporation (“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, 2017, we owned, operated
or had an interest in a portfolio of 350 properties in 29 states and Ontario, Canada (collectively, the “Properties”), including 230
MH communities, 89 RV communities, and 31 Properties containing both MH and RV sites. As of December 31, 2017, the Properties
contained an aggregate of 121,892 developed sites comprised of 83,294 developed MH sites, 22,742 annual RV sites (inclusive
of both annual and seasonal usage rights), and 15,856 transient RV sites. There are approximately 9,600 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 2,727 full and
part time employees as of December 31, 2017.
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 conduct substantially all of 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.
1
SUN COMMUNITIES, INC.
We do not own all of the OP units. As of December 31, 2017, the Operating Partnership had issued and outstanding:
•
•
•
•
•
•
•
82,425,282 common OP units;
1,283,819 preferred OP units (“Aspen preferred OP units”);
345,371 Series A-1 preferred OP units;
40,268 Series A-3 preferred OP units;
1,509,494 Series A-4 preferred OP units;
67,801 Series B-3 preferred OP units; and
316,357 Series C preferred OP units.
As of December 31, 2017, we held:
•
•
•
79,679,163 common OP units, or approximately 97 percent of the issued and outstanding common OP units;
1,085,365 Series A-4 preferred OP units, or approximately 72 percent of the issued and outstanding Series A-4
preferred 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:
•
•
•
•
•
first, 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 percent 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 percent nor more than 9 percent. 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 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.
2
SUN COMMUNITIES, INC.
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 percent. 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 percent. 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 6.5% 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 a portfolio of MH communities from Green Courte
Real Estate Partners, LLC and certain of their affiliated entities (collectively, the “Green Courte parties” or the “Green Courte
entities”).
In July 2015 and June 2017, we repurchased 4,066,586 and 438,448 Series A-4 preferred OP units, respectively. At December 31,
2017, we held 1,085,365 Series A-4 preferred OP units. The rights of the 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.
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 percent.
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.
3
SUN COMMUNITIES, INC.
During the three months ended December 31, 2017, we redeemed a total of 44,599 B-3 preferred OP units. At December 31, 2017,
there were outstanding 10,800 Series B-3 preferred OP units which were issued on December 1, 2002, 24,751 Series B-3 preferred
OP units which were issued on January 1, 2003, and 32,250 Series B-3 preferred OP units which were issued on January 5, 2004.
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) 4.5 percent until April 1, 2020, and (ii) 5.0 percent 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 that consist of both MH communities
and RV communities.
An 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, single family homes which are produced off site by
manufacturers and installed on sites within the community. Manufactured homes are available in a wide array of designs, providing
owners with a level of customization generally unavailable in other forms of multi-family housing developments.
Modern manufactured housing communities contain improvements similar to other garden style residential developments,
including centralized entrances, paved streets, curbs, 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.
An RV community is a resort or park designed and improved with sites for the placement of RVs for varied lengths of time.
Properties may also 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 typically 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 350 communities, we do not own all of the underlying land
and 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 on-site 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 multi-family rental apartment complexes.
4
SUN COMMUNITIES, INC.
PROPERTY MANAGEMENT
Our property management strategy emphasizes intensive, hands-on management by dedicated, on-site district and community
managers. We believe that this on-site focus enables us to continually monitor and address resident concerns, the performance of
competitive properties, and local market conditions. As of December 31, 2017, we employed 2,727 full and part time employees,
of which 2,348 were located on-site 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 35 Regional Vice Presidents. Each Regional Vice President is 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 over 300 trainings including books, online courses, webinars and live sessions 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.
Because 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, 2017, SHS had 11,074 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 49,000 applications
during 2017 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.
5
SUN COMMUNITIES, INC.
SITE LEASES OR USAGE RIGHTS
Typical tenant leases for MH sites are month-to-month or year-to-year, renewable upon the consent of both parties, or, in some
instances, as provided by statute. Certain of our leases, mainly at our Florida and California properties, are tied to the consumer
price index or other indices as they relate to rent increases. Generally, market rate adjustments are made on an annual basis. These
leases are cancelable for non-payment of rent, violation of community rules and regulations or other specified defaults.
During the five calendar years ended December 31, 2017, on average 2.2 percent of the homes in our communities have been
removed by their owners and 5.6 percent 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 15 years, while the average home, which gives rise to the rental stream, remains
in our communities for over 40 years.
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.
6
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 such as hurricanes, earthquakes, floods and wildfires;
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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ITEM 1A. RISK FACTORS
Our prospects are subject to certain uncertainties and risks. Our future results could differ materially from current results, and
our actual results could differ materially from those projected in forward-looking statements as a result of certain risk factors.
These risk factors include, but are not limited to, those set forth below, other one-time events, and important factors disclosed
previously and from time to time in 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, 2017, 123 properties, representing approximately 35.5 percent of developed sites, are located in Florida; 68
properties, representing approximately 21.4 percent of developed sites, are located in Michigan; 21 properties, representing
approximately 6.5 percent of developed sites, are located in Texas; and 27 properties, representing approximately 5.3 percent 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:
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•
•
•
•
•
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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 site-built single-family 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 multi family
residential properties, such as private and federally funded or assisted multi-family housing projects and single family housing,
provide housing alternatives to potential tenants of MH and RV communities.
Our ability to sell or lease manufactured homes may be affected by various factors, which may in turn adversely affect our
profitability.
SHS operates in the manufactured home market offering manufactured home sales and leasing services to tenants and prospective
tenants of our communities. The market for the sale and lease of manufactured homes may be adversely affected by the following
factors:
•
•
•
•
downturns in economic conditions which adversely impact the housing market;
an oversupply of, or a reduced demand for, manufactured homes;
the difficulty facing potential purchasers in obtaining affordable financing as a result of heightened lending criteria; and
an increase or decrease in the rate of manufactured home repossessions which provide aggressively priced competition
to new manufactured 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 lease up of a community on schedule resulting in increased debt service
expense and construction costs;
• we may incur construction and development costs for a community which exceed our original estimates due to increased
materials, labor or other costs, which could make completion of the community uneconomical and we may not be able
to increase rents to compensate for the increase in development costs which may impact our profitability;
• we may be unable to secure long term financing on completion of development resulting in increased debt service and
lower profitability; and
•
occupancy rates and rents at a newly developed community may fluctuate depending on several factors, including market
and economic conditions, which may result in the community not being profitable.
If any of the above risks occurred, our business and results of operations could be adversely affected.
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Rent control legislation may harm our ability to increase rents.
State and local rent control laws in certain jurisdictions may limit our ability to increase rents and to recover increases in operating
expenses and the costs of capital improvements. Enactment of such laws has been considered from time to time in other jurisdictions.
Certain Properties are located, and we may purchase additional properties, in markets that are either subject to rent control or in
which rent-limiting legislation exists or may be enacted.
Legislative requirements can limit accessibility of affordable financing for potential manufactured home buyers.
Recent legislation impacting third party loan originators, consumer protection laws and lender requirements to investigate a
borrower's creditworthiness may restrict access of affordable chattel financing to potential manufactured home buyers.
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 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 the
property, to borrow using the property as collateral or to develop the property. Persons who arrange for the disposal or treatment
of hazardous substances also may be liable for the costs of removal or remediation of such substances at a disposal or treatment
facility owned or operated by another person. In addition, certain environmental laws impose liability for the management and
disposal of asbestos containing materials and for the release of such materials into the air. These laws may provide for third parties
to seek recovery from owners or operators of real properties for personal injury associated with asbestos containing materials. In
connection with the ownership, operation, management, and development of real properties, we may be considered an owner or
operator of such properties and, therefore, are potentially liable for removal or remediation costs, and also may be liable for
governmental fines and injuries to persons and property. When we arrange for the treatment or disposal of hazardous substances
at landfills or other facilities owned by other persons, we may be liable for the removal or remediation costs at such facilities.
All of the Properties have been subject to a Phase I or similar environmental audit (which involves general inspections without
soil sampling or ground water analysis) completed by independent environmental consultants. These environmental audits have
not revealed any significant environmental liability that would have a material adverse effect on our business. These audits cannot
reflect conditions arising after the studies were completed, and no assurances can be given that existing environmental studies
reveal all environmental liabilities, that any prior owner or operator of a property or neighboring owner or operator did not create
any material environmental condition not known to us, or that a material environmental condition does not otherwise exist as to
any one or more Properties.
Losses in excess of our insurance coverage or uninsured losses could adversely affect our operating results and cash flow.
We have a significant concentration of properties in Florida and California, where natural disasters or other catastrophic events
such as hurricanes or earthquakes could negatively impact our operating results and cash flows. 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, 2017, we had approximately $3.1 billion of total debt outstanding,
consisting of approximately $2.9 billion in debt that is collateralized by mortgage liens on 190 of the Properties, $129.2 million
that is secured by collateralized receivables, $41.3 million on our lines of credit, and $41.4 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.
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SUN COMMUNITIES, INC.
We are subject to the risks normally associated with debt financing, including the following risks:
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•
•
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;
• 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.
In particular, new U.S. federal tax legislation enacted into law on December 22, 2017 informally titled the Tax Cut and Jobs Act
(the “Tax Act”) has made many major changes to the taxation of individuals and businesses. There are a significant number of
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SUN COMMUNITIES, INC.
technical issues and uncertainties with respect to the interpretation and application of the Tax Act, which may or may not be clarified
by future guidance. It is not possible to predict whether such clarifications will result in adverse consequences to the Company
or its stockholders. Stockholders are urged to consult their tax advisors with respect to the effects of the Tax Act and to monitor
future guidance issued with respect to the Tax Act and any other potential amendments to relevant tax laws.
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 percent 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 percent
test are similar in most respects. Qualifying income for the 90 percent 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 percent 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.
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 percent 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 percent 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 percent 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 percent. 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.
Under the Tax Cuts and Jobs Act, REIT dividends (other than capital gain dividends and qualified dividends) received by non-
corporate taxpayers may be eligible for a 20 percent deduction. Prospective investors should consult their own tax advisors
regarding the effect of this change on their effective tax rate with respect to REIT dividends.
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.
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SUN COMMUNITIES, INC.
Under Section 382 of the Code, if a corporation undergoes an “ownership change” (generally defined as a greater than 50 percent
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 an equity interest of
approximately 28.0 percent 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 the lease agreement, we lease approximately 71,500 rentable square feet of
permanent space, and approximately 21,000 rentable square feet of temporary space. The initial term of the lease is until October
31, 2026, and the base rent is $17.95 per square foot (gross) until October 31, 2018, 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, as applicable, and their ownership interests in American Center LLC.
Legal Counsel. During 2017, 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 $5.0 million, $8.0 million and
$4.6 million in the years ended December 31, 2017, 2016 and 2015, 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 percent Ownership Limit. In order to qualify and maintain our qualification as a REIT, not more than 50 percent 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
percent, 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 percent 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 percent 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 6,364,770 shares of preferred stock as 6.50% Series A-4 Cumulative Convertible Preferred Stock (“Series
A-4 preferred stock”), $0.01 par value per share of which 1,085,365 shares were issued and outstanding as of December 31, 2017.
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SUN COMMUNITIES, INC.
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.
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 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 percent 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-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.
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 percent 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 percent 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.
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SUN COMMUNITIES, INC.
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
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.
Our Board of Directors has power to adopt, alter or repeal any provision of our bylaws or make new bylaws, provided, however,
that our stockholders may alter or repeal any provision of our bylaws and adopt new bylaws if any such alteration, repeal or
adoption is approved by the affirmative vote of a majority of all votes entitled to be cast on the matter.
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 15, 2018, in the future we may issue to the limited partners
of the Operating Partnership, up to approximately 2.7 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 15, 2018, options to purchase 3,000 shares of our common stock were outstanding under our equity incentive plans,
and we currently have the authority to issue restricted stock awards or options to purchase up to an additional 1,351,843 shares of
our common stock pursuant to our equity incentive plans. In addition, we entered into an At-the-Market Offering Sales Agreement
in July 2017 to issue and sell shares of common stock. As of February 15, 2018, our Board of Directors had authorized us to sell
an additional $420.0 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.
16
SUN COMMUNITIES, INC.
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, uncertain tax and economic plans in the U.S. executive and legislative
branches, 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 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, 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:
17
SUN COMMUNITIES, INC.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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;
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 and preferred 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;
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-4 preferred stock has not been rated.
We have not sought to obtain a rating for our 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-4 preferred stock. In addition, we may elect in the future to obtain a rating of the 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-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, clients and vendors, as well as personally identifiable information of our employees, in our facilities and on our
18
SUN COMMUNITIES, INC.
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 legal claims or proceedings, disrupt our operations, damage our reputation, and cause a loss of confidence, which
could adversely affect our business.
A significant interruption in our information technology systems could adversely affect our operations.
We rely intensively on information technology to account for tenant transactions, manage the privacy of tenant data, communicate
internally and externally, and analyze our financial and operating results. We are dependent on continuous access to the Internet
to use our cloud-based applications. Damage or failure to our information technology systems could adversely affect our results
of operations as we may incur significant costs or data loss. We continually assess new and enhanced information technology
solutions to manage risk of system failure or interruption.
Expanding social media platforms present new challenges.
Social media outlets continue to grow and expand, which presents us with new risks. Adverse content about the Company and our
Properties on social media platforms could result in damage to our reputation or brand. Improper posts by employees or others
could result in disclosure of confidential or proprietary information regarding our operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
19
SUN COMMUNITIES, INC.
ITEM 2. PROPERTIES
As of December 31, 2017, the Properties were located throughout the US and in Ontario, Canada and consisted of 230 MH
communities, 89 RV communities, and 31 properties containing both MH and RV sites. As of December 31, 2017, the Properties
contained an aggregate of 121,892 developed sites comprised of 83,294 developed manufactured home sites, 22,742 annual RV
sites (inclusive of both annual and seasonal usage rights), and 15,856 transient RV sites. There are approximately 9,600 additional
MH and RV sites suitable for development. Most of the Properties include amenities oriented toward family and retirement living.
Of the 350 Properties, 174 have more than 300 developed sites, with the largest having 2,340 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, 2017, the Properties had an occupancy rate of 95.8 percent excluding transient RV sites. Since January 1,
2017, the Properties have averaged an aggregate annual turnover of homes (where the home is moved out of the community) of
approximately 1.9 percent 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 6.6 percent. The average renewal rate for residents
in our Rental Program was 64.8 percent for the year ended December 31, 2017.
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 courts, 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, 2017. The occupancy percentage
includes MH sites and annual RV sites, and excludes transient RV sites.
Property
MH/
RV
City
State
MH and
Annual
RV Sites
as of
12/31/17
Transient
RV Sites
as of
12/31/17
Occupancy as
of 12/31/17
Occupancy as
of 12/31/16
UNITED STATES
Midwest
Michigan
Academy/West Pointe
Allendale Meadows Mobile Village
Alpine Meadows Mobile Village
Apple Carr Village
Arbor Woods
Brentwood Mobile Village
Brookside Village
Byron Center Mobile Village
Camelot Villa
Cider Mill Crossings
Cider Mill Village
Continental North
Country Acres Mobile Village
Country Hills Village
Country Meadows Mobile Village
MH Canton
MH Allendale
MH Grand Rapids
MH Muskegon
MI
MI
MI
MI
MH Superior Township MI
MI
MH Kentwood
MI
MH Kentwood
MI
MH Byron Center
MI
MH Macomb
MI
MH Fenton
MH Middleville
MH Davison
MH Cadillac
MH Hudsonville
MH Flat Rock
MI
MI
MI
MI
MI
20
441
352
403
595
458
195
196
143
712
434
258
474
182
239
577
— 97.5%
98.9%
— 96.9%
— 97.5%
— 84.4% (1)
— 75.3%
— 97.4%
— 99.0%
— 100.0%
— 99.3%
— 74.0% (1)
— 98.1%
— 73.4%
— 98.4%
— 100.0%
— 95.5%
98.0%
96.8%
94.0%
N/A
100.0%
100.0%
100.0%
99.3%
91.1% (1)
96.9%
65.6%
95.6%
99.2%
95.7%
SUN COMMUNITIES, INC.
MH and
Annual
RV Sites
as of
12/31/17
395
State
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
Property
Country Meadows Village
Creekwood Meadows
Cutler Estates Mobile Village
Dutton Mill Village
East Village Estates
Egelcraft
Fisherman’s Cove
Frenchtown Villa/Elizabeth Woods
Grand Mobile Estates
Hamlin
Hickory Hills Village
Hidden Ridge RV Resort (2)
Holiday West Village
Holly Village / Hawaiian Gardens
Hunters Crossing
Hunters Glen
Kensington Meadows
Kimberly Estates
MH/
RV
MH Caledonia
City
MH Burton
MH Grand Rapids
MH Caledonia
Washington
MH
Township
MH Muskegon
MH Flint
MH Newport
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 (2)
Pinebrook Village
Presidential Estates Mobile Village
Richmond Place
River Haven Village
Rudgate Clinton
Rudgate Manor
Scio Farms Estates
Sheffield Estates
Silver Springs
Southwood Village
St. Clair Place
MH Allendale
MH Warren
MH Ypsilanti
MH Belmont
MH Holland
MH White Lake
MH Monroe
MH Rockwood
MH Northville
MH East Lansing
RV Petoskey
MI
MH Grand Rapids
MI
MH Hudsonville
MI
MH Richmond
MI
MI
MH Grand Haven
MH Clinton Township MI
MI
MH Sterling Heights
MI
MH Ann Arbor
MH Auburn Hills
MI
MH Clinton Township MI
MI
MH Grand Rapids
MI
MH St. Clair
21
Transient
RV Sites
as of
12/31/17
Occupancy as
of 12/31/17
— 91.4% (1)
— 98.5%
— 98.5%
— 97.4%
— 99.4%
— 97.6%
— 91.4%
— 84.7% (1)
— 96.8%
— 95.7% (1)
— 98.6%
Occupancy as
of 12/31/16
99.7%
95.8%
98.8%
99.0%
98.3%
97.2%
93.8%
84.9%
96.8%
89.1% (1)
98.6%
168
100.0%
100.0%
— 99.7%
— 94.6%
— 99.1%
— 76.5% (1)
— 96.6%
— 94.8%
— 78.8% (1)
— 92.6%
— 94.9%
— 98.2%
— 100.0%
— 99.5%
— 97.9%
— 96.3%
— 96.9%
— 99.5%
— 97.6%
78
N/A
— 98.9%
— 98.9%
— 94.9%
— 78.8%
— 97.3%
— 97.3%
— 98.4%
— 99.6%
— 99.5%
— 98.7%
— 96.0%
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%
N/A
98.4%
98.4%
88.9%
72.3%
95.7%
98.3%
97.9%
96.9%
98.2%
98.7%
93.0%
336
259
307
708
458
162
1,123
219
230
283
167
341
425
114
396
290
387
802
161
254
392
238
191
425
453
320
756
250
—
185
364
117
721
667
931
913
228
547
394
100
SUN COMMUNITIES, INC.
Property
Sunset Ridge
Sycamore Village
Tamarac Village
Tamarac Village RV Resort (2)
Timberline Estates
Town & Country Mobile Village
Warren Dunes Village
Waverly Shores Village
West Village Estates
White Lake Mobile Home Village
Windham Hills Estates
Windsor Woods Village
Woodhaven Place
Michigan Total
MH/
RV
MH Portland
City
MH Mason
MH Ludington
RV Ludington
MH Coopersville
MH Traverse City
MH Bridgman
MH Holland
MH Romulus
MH White Lake
MH Jackson
MH Wayland
MH Woodhaven
Indiana
Brookside Mobile Home Village
MH Goshen
Carrington Pointe
Clear Water Mobile Village
Cobus Green Mobile Home Park
Deerfield Run
Four Seasons
Lake Rudolph Campground & RV
Resort(2)
Liberty Farms
Pebble Creek
Pine Hills
Roxbury Park
Indiana Total
Ohio
Apple Creek
East Fork
Indian Creek RV & Camping Resort (2)
Oakwood Village
Orchard Lake
Westbrook Senior Village
Westbrook Village
Willowbrook Place
Woodside Terrace
Ohio Total
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
Geneva on the
RV
Lake
MH Miamisburg
MH Milford
MH Toledo
MH Toledo
MH Toledo
MH Holland
22
MH and
Annual
RV Sites
as of
12/31/17
249
State
MI
Transient
RV Sites
as of
12/31/17
Occupancy as
of 12/31/17
— 92.0% (1)
— 98.5%
— 98.7%
10
100.0%
— 98.7%
— 99.5%
— 72.3% (1)
— 78.8% (1)
— 99.4%
— 96.8%
— 85.5% (1)
— 98.4%
— 96.4%
Occupancy as
of 12/31/16
76.7% (1)
99.2%
99.3%
100.0%
99.3%
97.4%
98.4%
100.0%
98.1%
98.1%
91.2% (1)
96.5%
97.7%
94.8%
25,881
256
93.3%
— 89.1%
— 98.4%
— 96.5%
— 96.4%
— 91.4%
— 95.4%
520
N/A
— 96.8%
— 95.3%
— 98.5%
— 97.7%
95.0%
520
83.0%
98.1%
94.7%
96.4%
90.3%
95.0%
N/A
99.1%
96.9%
96.1%
99.0%
93.9%
— 97.7%
— 98.9% (1)
97.7%
88.9% (1)
145
100.0%
— 98.8%
— 98.0%
— 99.1%
— 94.2%
— 94.0%
— 93.4%
100.0%
99.2%
95.2%
98.2%
96.2%
96.2%
90.7%
95.6%
2,759
145
97.0%
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
301
104
296
192
314
415
628
315
469
314
220
570
320
227
386
175
218
—
220
257
129
398
2,900
176
350
414
511
147
112
344
266
439
SUN COMMUNITIES, INC.
MH/
RV
City
State
MH and
Annual
RV Sites
as of
12/31/17
Transient
RV Sites
as of
12/31/17
Occupancy as
of 12/31/17
Occupancy as
of 12/31/16
RV Austin
RV San Antonio
MH Pflugerville
MH Austin
MH Pflugerville
MH New Braunfels
RV New Braunfels
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
MH San Antonio
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
23
TX
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
13
119
629
392
417
367
15
—
433
229
680
848
515
562
54
12
335
446
171
7
27
14
316
141
100.0%
143
100.0%
— 95.4% (1)
— 100.0%
— 98.8%
— 97.0% (1)
100.0%
349
N/A
244
— 96.8%
— 37.6% (1)
— 98.4% (1)
— 97.3% (1)
— 98.5%
— 83.8% (1)
— 100.0%
208
100.0%
— 97.9%
— 97.1%
— 98.8%
— 100.0%
100.0%
129
159
100.0%
— 70.9% (1)
6,601
1,373
93.2%
187
207
251
281
337
408
206
36
266
191
407
365
128
174
100.0%
— 96.1%
— 98.8%
71
100.0%
74
100.0%
— 96.1% (1)
— 99.5%
100.0%
19
139
100.0%
— 96.9%
— 99.8%
167
100.0%
— 90.6%
100.0%
100.0%
97.0%
99.5%
100.0%
99.7%
N/A
N/A
97.7%
91.3%
94.4% (1)
96.2% (1)
98.8%
68.5% (1)
100.0%
N/A
96.1%
98.2%
99.4%
100.0%
100.0%
100.0%
93.8%
94.8%
100.0%
96.6%
100.0%
100.0%
100.0%
98.2%
98.5%
100.0%
100.0%
92.6%
99.8%
100.0%
90.6%
Property
SOUTH
Texas
Austin Lone Star RV Resort (2)
Blazing Star (2)
Boulder Ridge
Branch Creek Estates
Chisholm Point Estates
Comal Farms
Hill Country Cottage and RV Resort (2)
La Hacienda RV Resort (2)
Oak Crest
Pecan Branch
Pine Trace
River Ranch
River Ridge
Saddlebrook
Sandy Lake
Sandy Lake RV Resort (2)
Stonebridge
Summit Ridge
Sunset Ridge
Traveler’s World
Traveler’s World RV Resort (2)
Treetops RV Resort (2)
Woodlake Trails
Texas Total
SOUTHEAST
Florida
Arbor Terrace RV Park (2)
Ariana Village
Bahia Vista Estates
Baker Acres RV Resort (2)
Big Tree RV Resort (2)
Blue Heron Pines
Blue Jay
Blue Jay RV Resort (2)
Blueberry Hill (2)
Brentwood Estates
Buttonwood Bay
Buttonwood Bay RV Resort (2)
Candlelight Manor
SUN COMMUNITIES, INC.
MH and
Annual
RV Sites
as of
12/31/17
467
State
FL
MH/
RV
MH Sanford
City
MH Haines City
RV Haines City
RV Dade City
RV Naples
MH Hudson
MH Port Orange
MH Paisley
RV Paisley
MH Lake Alfred
RV Port Orange
MH Orlando
RV Dunedin
RV Ellenton
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
MH Panama City Beach FL
RV Panama City Beach FL
FL
MH Ocala
FL
MH Homosassa
FL
MH Zephyrhills
RV Zephyrhills
MH Homestead
RV Homestead
MH Dunedin
RV Citra
RV Dade City
RV Ft. Myers
MH Orlando
MH Auburndale
RV Riverview
MH Key West
MH Apopka
MH Holly Hill
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
RV Homosassa Springs FL
FL
RV Bradenton
FL
MH Ft. Myers Beach
RV Ft. Myers Beach
MH Merritt Island
MH DeBary
MH Lakeland
MH Lake Alfred
MH Kissimmee
MH Davenport
24
FL
FL
FL
FL
FL
FL
FL
Transient
RV Sites
as of
12/31/17
Occupancy as
of 12/31/17
— 98.5% (1)
— 90.9%
171
100.0%
40
100.0%
97
100.0%
— 98.7%
— 95.0%
— 90.7%
100.0%
11
— 95.4%
100.0%
127
— 98.1%
68
49
100.0%
100.0%
— 100.0%
— 100.0%
— 97.6%
— 96.7%
— 100.0%
63
100.0%
— 98.2%
100.0%
39
— 96.3%
119
100.0%
93
56
100.0%
100.0%
— 95.3%
103
— 98.8%
100.0%
— 84.6%
— 95.0%
— 99.8%
131
143
100.0%
100.0%
— 99.7%
101
100.0%
— 100.0%
— 100.0%
— 82.9%
— 100.0%
— 99.2%
— 90.9%
Occupancy as
of 12/31/16
99.4%
90.9%
100.0%
100.0%
100.0%
99.0%
N/A
78.1%
100.0%
95.8%
100.0%
94.6%
100.0%
100.0%
N/A
N/A
97.6%
94.3%
100.0%
100.0%
100.0%
100.0%
94.2%
100.0%
100.0%
100.0%
91.9%
99.2%
100.0%
100.0%
94.0%
99.5%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
74.9%
98.2%
95.4%
90.9%
110
196
142
207
478
383
97
14
259
105
569
171
145
42
158
293
300
52
155
502
4
135
285
152
213
974
829
210
13
100
402
92
333
353
976
301
245
239
226
239
142
Property
Carriage Cove
Central Park
Central Park RV Resort (2)
Citrus Hill RV Resort (2)
Club Naples (2)
Club Wildwood
Colony in the Wood
Country Squire
Country Squire RV Resort (2)
Cypress Greens
Daytona Beach RV Resort (2)
Deerwood
Dunedin RV Resort (2)
Ellenton Gardens RV Resort (2)
Emerald Coast
Emerald Coast RV Resort (2)
Fairfield Village
Forest View
Glen Haven
Glen Haven RV Resort (2)
Gold Coaster
Gold Coaster RV Resort (2)
Grand Bay
Grand Lakes (2)
Grove Ridge RV Resort (2)
Groves RV Resort (2)
Gulfstream Harbor
The Hamptons
Hidden River RV Resort (2)
The Hideaway
The Hills
Holly Forest Estates
Homosassa River RV Resort (2)
Horseshoe Cove RV Resort (2)
Indian Creek Park
Indian Creek RV Park (2)
Island Lakes
Kings Lake
Kings Manor
King’s Pointe
Kissimmee Gardens
Kissimmee South
SUN COMMUNITIES, INC.
Property
Kissimmee South RV Resort (2)
La Costa Village
Lake Josephine (2)
Lake Juliana Landings
Lake Pointe Village
Lake San Marino RV Park (2)
Lakeland RV Resort (2)
Lakeshore Landings
Lakeshore Villas
Lamplighter
Majestic Oaks RV Resort (2)
Marco Naples RV Resort (2)
Meadowbrook Village
Mill Creek
Mill Creek RV Resort (2)
Naples RV Resort (2)
New Ranch
North Lake (2)
Oakview Estates
Ocean Breeze
MH/
RV
RV Davenport
City
MH Port Orange
RV Sebring
MH Auburndale
MH Mulberry
RV Naples
RV Lakeland
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
MH Jensen Beach
Ocean Breeze Jensen Beach
Ocean Breeze Jensen Beach RV Resort (2) RV Jensen Beach
Orange City
MH Orange City
Orange City RV Resort (2)
Orange Tree Village
RV Orange City
MH Orange City
Paddock Park South
Palm Key Village
Palm Village
Park Place
Park Royale
Pecan Park RV Resort (2)
Pelican Bay
Pelican RV Resort & Marina (2)
Plantation Landings
Pleasant Lake RV Resort (2)
Rainbow
Rainbow RV Resort (2)
Rainbow Village of Largo (2)
Rainbow Village of Zephyrhills (2)
Red Oaks
Red Oaks RV Resort (2)
Regency Heights
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
RV Zephyrhills
MH Bushnell
RV Bushnell
MH Clearwater
25
MH and
Annual
RV Sites
as of
12/31/17
79
Transient
RV Sites
as of
12/31/17
121
State
FL
Occupancy as
of 12/31/17
100.0%
Occupancy as
of 12/31/16
100.0%
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
658
110
274
362
227
173
306
280
260
199
214
257
31
88
100
94
202
119
—
195
21
4
295
246
188
204
146
474
309
—
216
76
394
250
37
379
238
333
103
459
391
— 99.7%
100.0%
68
— 97.5%
— 99.2%
100.0%
180
58
100.0%
— 100.0%
— 97.5%
— 97.3%
100.0%
54
78
100.0%
— 99.2%
— 100.0%
69
100.0%
67
100.0%
— 97.9%
70
100.0%
— 99.2%
—% (5)
—
— 63.1% (1)
100.0%
87
— 100.0%
226
100.0%
— 100.0%
— 76.1%
— 100.0%
— 98.0%
— 93.3%
— 99.7%
183
N/A
— 92.6%
10
100.0%
— 99.2%
91
100.0%
— 100.0%
83
71
49
100.0%
100.0%
100.0%
— 92.2%
458
100.0%
— 95.4%
99.5%
100.0%
97.4%
99.2%
100.0%
100.0%
98.4%
97.1%
96.9%
100.0%
100.0%
99.6%
100.0%
100.0%
100.0%
97.9%
100.0%
95.8%
82.6%
76.2%
100.0%
100.0%
100.0%
100.0%
72.9%
99.0%
98.6%
89.0%
97.7%
N/A
88.9%
100.0%
99.5%
100.0%
100.0%
100.0%
100.0%
100.0%
92.2%
100.0%
93.8%
SUN COMMUNITIES, INC.
MH and
Annual
RV Sites
as of
12/31/17
481
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
11
728
127
864
395
376
—
—
202
1,069
—
—
338
302
157
130
54
142
730
399
107
547
56
178
215
904
173
332
407
77
212
273
31
232
214
148
136
25
113
213
213
MH/
RV
MH Davenport
City
RV Key Largo
MH Ruskin
RV Crystal River
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
RV Sarasota
MH Port Richey
MH Zephyrhills
MH Grand Island
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
26
Property
The Ridge
Riptide RV Resort & Marina (2)
Riverside Club
Rock Crusher Canyon RV Park (2)
Royal Country
Royal Palm Village
Saddle Oak Club
San Pedro
San Pedro RV Resort & Marina (2)
Saralake Estates
Savanna Club
Sea Breeze Resort
Sea Breeze RV Resort (2)
Serendipity
Settler’s Rest RV Resort (2)
Shadow Wood Village
Shady Road Villas
Shell Creek
Shell Creek RV Resort & Marina (2)
Siesta Bay RV Park (2)
Southern Charm RV Resort (2)
Southern Pines
Southport Springs
Spanish Main
Spanish Main RV Resort (2)
Stonebrook
Sun-N-Fun RV Resort (2)
Suncoast Gateway
Sundance
Sunlake Estates
Sunset Harbor at Cow Key Marina
Sweetwater RV Resort (2)
Tallowwood Isle
Tampa East
Tampa East RV Resort (2)
Three Lakes (2)
The Valley
Vista del Lago
Vista del Lago RV Resort (2)
Vizcaya Lakes
Walden Woods I
Walden Woods II
Transient
RV Sites
as of
12/31/17
Occupancy as
of 12/31/17
— 98.3%
29
100.0%
— 78.7%
267
100.0%
— 99.9%
— 82.3%
— 99.5%
—% (5)
—% (5)
—
—
— 100.0%
— 97.6% (1)
—% (5)
—
—% (5)
—
— 98.5%
76
100.0%
— 99.4%
— 62.3%
— 100.0%
100.0%
42
67
100.0%
100.0%
98
— 95.3%
— 98.4% (1)
— 91.1%
98
100.0%
— 90.7%
615
100.0%
— 98.3%
— 100.0%
— 93.4%
— 97.4%
100.0%
79
— 95.6%
— 100.0%
437
100.0%
93
100.0%
— 99.3%
— 95.6%
100.0%
14
— 79.7%
— 100.0%
— 98.6%
Occupancy as
of 12/31/16
94.2%
100.0%
76.4%
100.0%
99.9%
77.7%
99.7%
94.4%
100.0%
100.0%
97.2%
93.5%
100.0%
99.1%
100.0%
98.7%
58.5%
100.0%
100.0%
100.0%
100.0%
91.6%
98.5%
92.9%
100.0%
89.3%
100.0%
83.8%
100.0%
93.1%
98.7%
100.0%
96.3%
100.0%
100.0%
100.0%
96.6%
94.9%
100.0%
78.8%
100.0%
98.1%
SUN COMMUNITIES, INC.
Property
Water Oak Country Club Estates
Waters Edge RV Resort (2)
Westside Ridge
Windmill Village
Woodlands at Church Lake
Florida Total
SOUTHWEST
California
49’er Village RV Resort (2)
Alta Laguna
Caliente Sands
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 (2)
Lakefront
Lazy J Ranch
Lemon Wood
Napa Valley
Oak Creek
Ocean West
Palos Verdes Shores MH & Golf
Community
Pembroke Downs
Pismo Dunes RV Resort (2)
Rancho Alipaz
Rancho Cabellero
Royal Palms
Royal Palms RV Resort (2)
Vallecito
Victor Villa
Vines RV Resort (2)
Vista del Lago
Wine Country RV Resort (2)
California Total
Arizona
MH/
RV
City
MH Lady Lake
RV Zephyrhills
MH Auburndale
MH Davenport
MH Groveland
RV Plymouth
Rancho
Cucamonga
MH
MH Cathedral City
MH Oxnard
MH La Habra
MH Modesto
MH Simi Valley
MH West Covina
MH Temecula
RV Indio
MH Lakeside
MH Arcata
MH Ventura
MH Napa
MH Coarsegold
MH McKinleyville
MH San Pedro
MH Chino
RV Pismo Beach
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
MH and
Annual
RV Sites
as of
12/31/17
1,219
136
219
509
291
37,254
State
FL
FL
FL
FL
FL
Transient
RV Sites
as of
12/31/17
Occupancy as
of 12/31/17
— 95.3% (1)
81
100.0%
— 99.1%
— 99.2%
— 70.5%
97.1%
6,074
Occupancy as
of 12/31/16
94.5% (1)
100.0%
98.6%
98.0%
67.4%
96.4%
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
31
294
100.0%
N/A
295
118
150
329
289
222
157
196
138
295
219
231
257
198
128
242
163
331
132
303
439
37
303
287
—
202
—
5,692
— 100.0%
— 97.5%
— 100.0%
— 100.0%
— 94.5%
— 100.0%
— 99.4%
— 100.0%
100.0%
— 100.0%
— 100.0%
— 100.0%
— 100.0%
— 95.0%
— 100.0%
178
— 100.0%
— 100.0%
— 100.0%
— 100.0%
— 99.7%
— 96.8%
1
100.0%
— 100.0%
— 97.2%
N/A
— 100.0%
N/A
99.1%
130
203
806
99.7%
N/A
100.0%
99.4%
90.7%
100.0%
100.0%
99.5%
100.0%
100.0%
N/A
100.0%
100.0%
96.0%
N/A
99.6%
100.0%
N/A
100.0%
99.7%
96.8%
100.0%
99.7%
95.5%
N/A
100.0%
N/A
98.6%
Blue Star/Lost Dutchman
Blue Star/Lost Dutchman RV Resort (2)
MH Apache Junction
RV Apache Junction
AZ
AZ
169
75
— 93.5%
131
100.0%
94.1%
100.0%
27
SUN COMMUNITIES, INC.
MH and
Annual
RV Sites
as of
12/31/17
Transient
RV Sites
as of
12/31/17
City
State
Occupancy as
of 12/31/17
Occupancy as
of 12/31/16
Property
Brentwood West
Desert Harbor
Fiesta Village
Fiesta Village RV Resort (2)
La Casa Blanca
Mountain View
Palm Creek Golf
Palm Creek Golf & RV Resort (2)
Rancho Mirage
Reserve at Fox Creek
Sun Valley
Verde Plaza
Arizona Total
Colorado
Cave Creek
Eagle Crest
The Grove at Alta Ridge
Jellystone Park(TM) at Larkspur (2)
North Point Estates
Skyline
Swan Meadow Village
Timber Ridge
Colorado Total
OTHER
Seaport RV Resort (2)
High Pointe
Sea Air Village
Sea Air Village RV Resort (2)
Countryside Atlanta
Countryside Gwinnett
Countryside Lake Lanier
Autumn Ridge
Candlelight Village
Maple Brook
Oak Ridge
Sunset Lakes RV Resort (2)
Wildwood Community
Campers Haven RV Resort (2)
Peter’s Pond RV Resort (2)
Castaways RV Resort & Campground (2)
MH/
RV
MH Mesa
MH Apache Junction
MH Mesa
RV Mesa
MH Apache Junction
MH Mesa
MH Casa Grande
RV Casa Grande
MH Apache Junction
MH Bullhead City
MH Apache Junction
MH Tucson
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
RV Hillsdale
MH Sandwich
RV Dennisport
RV Sandwich
RV Berlin
28
AZ
AZ
AZ
AZ
AZ
AZ
AZ
AZ
AZ
AZ
AZ
AZ
CO
CO
CO
CO
CO
CO
CO
CO
CT
DE
DE
DE
GA
GA
GA
IA
IL
IL
IL
IL
IL
MA
MA
MD
— 99.1%
— 99.0%
— 79.9%
7
100.0%
— 100.0%
97.7%
100.0%
81.2%
100.0%
100.0%
— 99.4%
— 52.1% (1)
100.0%
958
— 100.0%
100.0%
70.0% (1)
100.0%
100.0%
350
205
154
3
198
170
493
889
312
311
268
— 95.2%
— 91.8%
189
3,786
— 90.0%
91.0%
1,096
447
441
409
—
108
170
175
585
— 99.1%
— 100.0%
— 99.8%
146
N/A
— 99.1%
— 99.4%
— 100.0%
— 99.5%
2,335
146
99.6%
93.2%
91.0%
81.5%
93.6%
99.1%
100.0%
99.8%
N/A
97.2%
100.0%
100.0%
99.7%
99.6%
42
409
373
123
260
331
548
413
309
441
426
229
476
234
325
4
107
100.0%
100.0%
— 96.6%
— 98.4%
11
100.0%
— 65.0% (1)
— 99.1%
— 98.7%
— 97.1%
— 97.1%
— 99.6%
— 93.0%
269
100.0%
— 99.4%
40
81
100.0%
100.0%
389
100.0%
97.1%
98.4%
100.0%
100.0% (3)
99.7%
98.7%
98.8%
95.5%
99.3%
90.1%
N/A
99.8%
100.0%
100.0%
100.0%
SUN COMMUNITIES, INC.
Property
Fort Whaley (2)
Frontier Town (2)
Maplewood Manor
MH/
City
RV
RV Whaleyville
RV Ocean City
MH Brunswick
State
MD
MD
ME
MH Brunswick
Merrymeeting
Saco/Old Orchard Beach KOA (2)
Town & Country Village
Wagon Wheel RV Resort &
Campground (2)
RV Old Orchard Beach ME
Wild Acres RV Resort & Campground (2) RV Old Orchard Beach ME
MN
Southern Hills/Northridge Place
RV Saco
MH Lisbon
MH Stewartville
ME
ME
ME
Pin Oak Parc
Southfork
MH O’Fallon
MH Belton
Countryside Village
Fort Tatham RV Resort & Campground (2) RV Sylva
Glen Laurel
MH Concord
MH Great Falls
MH Charlotte
RV Cape May
Meadowbrook
Big Timber Lake RV Resort (2)
Cape May Crossing
Cape May KOA (2)
Driftwood Camping Resort (2)
RV Clermont
Long Beach RV Resort & Campground (2) RV Barnegat
Seashore Campsites RV Park and
Campground (2)
RV Cape May
RV Cape May
MH Cape May
Shady Pines
Galloway
Township
MH
Galloway
Township
RV
MH Reno
RV Gansevoort
Shady Pines RV Resort (2)
Sun Villa Estates
Adirondack Gateway RV Resort &
Campground (2)
Jellystone Park(TM) at Birchwood Acres
MH Greenfield Park
Jellystone Park(TM) at Birchwood Acres (2) RV Greenfield Park
Jellystone Park(TM) of Western New York(2) RV North Java
Parkside Village
Sky Harbor
The Villas at Calla Pointe
Forest Meadows
Woodland Park Estates
Countryside Estates
Lake In Wood (2)
Pheasant Ridge
MH Cheektowaga
MH Cheektowaga
MH Cheektowaga
MH Philomath
MH Eugene
MH Mckean
RV Narvon
MH Lancaster
Lakeside Crossing
Bell Crossing
MH Conway
MH Clarksville
29
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
MH and
Annual
RV Sites
as of
12/31/17
—
Transient
RV Sites
as of
12/31/17
179
Occupancy as
of 12/31/17
N/A
Occupancy as
of 12/31/16
N/A
—
296
43
—
144
225
291
475
502
474
226
52
260
321
309
28
354
612
165
434
40
58
324
251
1
91
6
156
522
116
75
398
304
279
553
588
237
584
N/A
— 99.3%
— 100.0%
196
N/A
— 99.3%
N/A
99.7%
97.7%
N/A
99.3%
61
100.0%
100.0%
339
100.0%
— 92.8% (1)
— 96.6%
100.0%
94.1% (1)
93.6%
— 65.0%
— 98.7%
100.0%
39
— 98.5%
— 100.0%
100.0%
219
— 100.0%
275
100.0%
95
49
100.0%
100.0%
66.2%
99.1%
100.0%
99.2%
99.7%
100.0%
100.0%
100.0%
100.0%
100.0%
242
100.0%
100.0%
— 97.5%
97.5%
37
100.0%
— 99.7%
78
100.0%
— 100.0%
183
100.0%
353
100.0%
— 100.0%
— 94.8%
— 100.0%
— 100.0%
— 100.0%
— 98.7%
141
100.0%
— 99.8%
— 76.0% (1)
— 99.2%
100.0%
100.0%
N/A
100.0%
100.0%
100.0%
100.0%
92.7%
100.0%
100.0%
100.0%
99.0%
100.0%
99.5%
96.2%
98.3%
SUN COMMUNITIES, INC.
MH/
RV
City
State
MH and
Annual
RV Sites
as of
12/31/17
Transient
RV Sites
as of
12/31/17
Occupancy as
of 12/31/17
Occupancy as
of 12/31/16
Property
Gwynn’s Island RV Resort &
Campground (2)
New Point RV Resort (2)
Sunset Beach RV Resort (4)
Pine Ridge
Thunderhill Estates
Westward Ho RV Resort &
Campground (2)
Other Total
US TOTAL / AVERAGE
RV Gwynn
RV New Point
RV Cape Charles
MH Prince George
MH Sturgeon Bay
RV Glenbeulah
RV Millgrove
CANADA
Arran Lake RV Resort & Campground (2) RV Allenford
Craigleith RV Resort & Campground (2)
RV Clarksburg
Deer Lake RV Resort & Campground (2)
RV Huntsville
Grand Oaks RV Resort & Campground (2) RV Cayuga
Gulliver’s Lake RV Resort &
Campground (2)
Hidden Valley RV Resort &
Campground (2)
Lafontaine RV Resort & Campground (2)
Lake Avenue RV Resort & Campground(2) RV Cherry Valley
Pickerel Park RV Resort & Campground(2) RV Napanee
Sherkston Shores Beach Resort &
Campground (2)
Silver Birches RV Resort &
Campground (2)
Trailside RV Resort & Campground (2)
Willow Lake RV Resort & Campground(2) RV Scotland
Willowood RV Resort & Campground (2) RV Amherstburg
Woodland Lake RV Resort &
Campground (2)
RV Bornholm
RV Sherkston
RV Lambton Shores
RV Seguin
RV Normandale
RV Penetanguishene
CANADA TOTAL / AVERAGE
VA
VA
VA
VA
WI
WI
ON
ON
ON
ON
ON
ON
ON
ON
ON
98
228
—
265
226
31
100.0%
100.0%
N/A
96
—
— 90.9% (1)
— 99.1%
224
15,194
98
4,192
100.0%
96.0%
100.0%
100.0%
N/A
95.9%
98.7%
100.0%
97.3%
102,402
14,608
95.6%
96.0%
139
62
156
227
198
195
181
115
132
50
49
83
38
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
1
100.0%
100.0%
50
82
12
77
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
ON
1,364
350
100.0%
100.0%
ON
ON
ON
ON
ON
125
179
310
100
37
58
61
100.0%
100.0%
100.0%
227
100.0%
151
3,634
73
1,248
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
COMPANY TOTAL / AVERAGE
106,036
15,856
95.8%
96.2%
(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) At December 31, 2016, the number of developed sites and occupancy percentage at this property included sites that had 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.
(5) Occupancy in these Properties for 12/31/2017 reflects redevelopment following asset impairments resulting from Hurricane Irma in September 2017.
30
SUN COMMUNITIES, INC.
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.
31
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
63
47
53
62
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 our Executive Committee. He has been actively involved in the management, acquisition, construction
and development of manufactured housing 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 recreational vehicle 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 7.5 years of experience as the Financial Controller of a privately-
owned automotive supplier and 4.5 years of experience as a certified public accountant with Deloitte.
Jonathan M. Colman has served as an Executive Vice President since March 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-five years of
experience in the manufactured housing community industry. Prior to joining Sun, he has been involved in the acquisition, financing
and management of over 75 manufactured housing communities for two of the 10 largest manufactured housing 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.
32
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, 2017
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Year Ended December 31, 2016
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
High
Low
83.76 $
91.37 $
91.87 $
96.08 $
75.76 $
79.41 $
84.00 $
85.27 $
Distributions
0.67
0.67
0.67
0.67
(1)
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
(2)
$
$
$
$
$
$
$
$
(1) Paid on January 16, 2018, to stockholders of record on December 29, 2017.
(2) Paid on January 20, 2017, to stockholders of record on December 31, 2016.
On February 15, 2018, the closing share price of our common stock was $86.52 per share on the NYSE, and there were 203 holders
of record for the 79,739,141 million outstanding shares of common stock. On February 15, 2018, the Operating Partnership had
(i) 2,740,342 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 471,498 shares
of our common stock, (iii) 343,237 Series A-1 preferred OP units issued and outstanding which were exchangeable for 837,163
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) 421,756 Series A-4 preferred OP units issued and outstanding, not held by us, which were
exchangeable for 187,447 shares of our common stock, and (vi) 316,357 Series C preferred OP units issued and outstanding which
were exchangeable for 351,156 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-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.
33
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, 2017:
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
3,000
—
3,000
$
$
33.45
—
33.45
1,371,343
—
1,371,343
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
2017 or 2016. 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.
Year Ended
December 31, 2017
Year Ended
December 31, 2016
Year Ended
December 31, 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
Conversion
Rate
Units /
Shares
1
2.439
0.4444
0.4444
1.11
36,055
21,919
10,000
158,036
16,806
Common
Stock
36,055
53,456
4,440
70,238
18,651
Units/
Shares
104,106
20,691
120,906
385,242
7,043
Common
Stock
104,106
50,458
53,733
171,218
7,815
Units/
Shares
99,851
41,116
114,414
231,093
—
Common
Stock
99,851
100,277
50,848
102,708
—
In addition to the shares of common stock issued pursuant to OP unit conversions above, we issued 298,900 shares of common
stock totaling $26.4 million on July 27, 2017 in connection with an acquisition.
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.
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,
2017. This line graph assumes a $100 investment on December 31, 2012, 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.
34
SUN COMMUNITIES, INC.
Peer Group
We utilize peer group data for quantitative benchmarking against external market participants. We select our peer group based on
a number of quantitative and qualitative factors including, but not limited to, revenues, total assets, market capitalization, industry,
sub-industry, location, total shareholder return history, executive compensation components, and peer decisions made by other
companies. From time to time, we update our peer group based on analysis of the aforementioned factors and application of
judgment. During 2017, we updated our peer group, as shown in the “SUI New Peer Group” caption in the table below.
Index
Sun Communities, Inc.
SNL US REIT Residential
NYSE Market Index
SUI Old Peer Group (1)
SUI New Peer Group (2)
Period Ending
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
$
$
$
$
$
100.00 $
100.00 $
100.00 $
100.00 $
100.00 $
112.95 $
97.19 $
126.28 $
92.11 $
94.60 $
168.48 $
133.00 $
134.81 $
127.26 $
130.10 $
198.55 $
154.74 $
129.29 $
144.68 $
149.94 $
229.76 $
162.46 $
144.73 $
151.89 $
158.12 $
287.03
176.71
171.83
161.80
165.48
(1) SUI old peer group included: 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., Mid-America Apartment Communities, Inc., Senior Housing Properties Trust and UDR, Inc.
(2) SUI new peer group includes: American Campus Communities, Inc., Apartment Investment and Management Company, AvalonBay Communities, Inc.,
Brandywine Realty Trust, Camden Property Trust, CubeSmart, Equity Lifestyles Properties, Inc., Essex Property Trust, Inc., Mid-America Apartment Communities,
Inc., Tanger Factory Outlet Centers, Inc., Taubman Centers, Inc., UDR, Inc., and Weingarten Realty Investors.
35
SUN COMMUNITIES, INC.
The information included under the heading “Performance Graph” is not to be treated as “soliciting material” or as “filed” with
the SEC, and is 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.
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 INFORMATION
Total 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,
2017
2016 (1)
2015 (1)
2014 (1)
2013 (1)
(In thousands, except for share related data)
982,570 $
833,778 $
674,731 $
484,259 $
422,713
65,021 $
0.85 $
17,369 $
0.27 $
0.85
$
0.26
$
137,325 $
2.53 $
$
2.52
22,376 $
0.54 $
$
0.54
10,610
0.31
0.31
2.68 $
2.60 $
2.60 $
2.60 $
2.52
FFO attributable to Sun Communities, Inc. common
stockholders and dilutive convertible securities
Core FFO attributable to Sun Communities, Inc.
common stockholders and dilutive convertible
securities
FFO attributable to Sun Communities, Inc. common
stockholders and dilutive convertible securities per
share - fully diluted
Core FFO attributable to Sun Communities, Inc.
common stockholders and dilutive convertible
securities per share - fully diluted
$
320,119 $
225,653 $
192,128 $
134,549 $
117,583
$
337,384 $
266,131 $
210,559 $
148,356 $
121,511
$
$
3.95 $
3.22 $
3.31 $
3.06 $
3.12
4.17 $
3.79 $
3.63 $
3.37 $
3.22
BALANCE SHEETS
Total assets
Total debt
Total liabilities
$ 6,111,957 $ 5,870,776 $ 4,181,799 $ 2,925,546 $ 1,987,742
$ 3,079,238 $ 3,110,042 $ 2,336,297 $ 1,819,941 $ 1,485,658
$ 3,405,204 $ 3,441,605 $ 2,562,421 $ 1,997,540 $ 1,611,363
(1) Financial information has been revised to reflect certain reclassifications in prior periods to conform to current period presentation.
36
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.
OVERVIEW
We are a fully integrated, self-administered and self-managed REIT. As of December 31, 2017, we owned and operated, or had
an interest in, a portfolio of 350 properties located throughout the United States and Ontario, Canada, including 230 MH
communities, 89 RV communities, and 31 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
2017 Accomplishments:
• Total revenues for 2017 increased 17.9 percent to $982.6 million.
• Core FFO for 2017 was $4.17 per diluted share and OP unit, an increase of 10.0 percent over 2016.
• Achieved Same Community NOI growth of 6.9 percent.
• Gained 2,406 revenue producing sites.
• Reached Same Community occupancy of 97.3 percent, excluding approximately 1,800 recently completed but vacant
expansion sites.
Sold 3,282 homes, an increase of 3.5 percent over 2016.
•
• Brokered homes sales increased by 21.2 percent to 2,006 in 2017 as compared to 1,655 in 2016.
• Reduced net debt leverage ratio to 6.3 at December 31, 2017 compared to 7.5 at December 31, 2016.
• Achieved 1-year, 3-year and 5-year total shareholder return of 24.9 percent, 70.4 percent and 187.0 percent, respectively.
• Delivered over 2,100 expansion sites in 26 communities.
• Closed an underwritten registered public offering for net proceeds over $400.0 million.
• Acquired nine communities for total consideration of approximately $145.0 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. We continue to sell homes at a high level in our communities
and expect this trend to continue.
Portfolio Information:
Occupancy % - Total Portfolio - MH and RV blended (1)
Occupancy % - Same Community - MH and RV blended (1)(2)
Core FFO
NOI - Total Portfolio (in thousands)
NOI - Same Community (in thousands)
$
$
$
Homes Sold
Number of Occupied Rental Homes
(1) Occupancy percent includes annual RV sites, and excludes transient RV sites.
(2) Occupancy percent excludes recently completed but vacant expansion sites.
37
Year Ended December 31,
2017
2016
2015
95.8%
97.3%
4.17
479,662
382,210
3,282
11,074
$
$
$
96.2%
95.4%
3.79
403,337
357,618
3,172
10,733
$
$
$
95.0%
94.7%
3.63
335,567
310,890
2,483
10,685
SUN COMMUNITIES, INC.
Acquisition Activity:
During the past three years, we have completed acquisitions of over 150 properties with over 46,000 sites located in high growth
areas and retirement and vacation destinations such as California, Florida, and Eastern coastal areas such as the Jersey Shore and
Cape Cod, Massachusetts. We have also expanded into Ontario, Canada, with the Carefree acquisition in 2016.
During 2017, we acquired nine communities, as detailed in the table below:
Property/Portfolio
Location
Type
Total
Consideration (in
thousands)
Number of
sites - MH/
Annual
49’er Village
Sunset Lakes
Arbor Woods
Pismo Dunes
Lazy J Ranch
Ocean West
Caliente Sands
Emerald Coast
Colony in the Wood
Total
$
Plymouth, CA
Hillsdale, IL
Superior Township, MI
Pismo Beach, CA
Arcata, CA
McKinleyville, CA
Cathedral City, CA
Panama City Beach, FL
Port Orange, FL
RV
RV
MH
RV
MH
MH
MH
MH & RV
MH
13,000
8,045
16,943
21,920
14,300
9,673
8,871
19,500
32,478
—
—
458
—
220
130
118
37
383
Number of
sites -
Transient
328
498
—
331
—
—
—
164
—
Expansion
Sites
—
—
—
—
—
4
—
14
—
18
$
144,730
1,346
1,321
During 2017, we acquired Carolina Pines RV Resort, an undeveloped parcel of land near Myrtle Beach, South Carolina, for
$5.9 million. This land parcel has been entitled and zoned to build an 841 site RV resort. Additionally, in December 2017, we
acquired 25.0 percent of the land previously under a ground lease at one of our California communities for $4.0 million.
Expansion Activity:
We have been focused on expansion opportunities adjacent to our existing communities, and we have developed nearly 3,000 sites
over the past three years. We have expanded over 2,100 sites at 26 communities in 2017. The total cost to construct the sites was
over $66.0 million. We continue to expand our Properties utilizing our inventory of owned and entitled land (approximately 9,600
sites available for development) and expect to construct over 1,700 additional sites in 2018.
Capital Activity:
In 2017, we closed an underwritten registered public offering of 4,830,000 shares of common stock at a price of $86.00 per share.
Proceeds from the offering were $408.9 million after deducting expenses related to the offering, and were used to repay borrowings
outstanding on the revolving loan under our senior revolving credit facility, to fund possible future acquisitions and for working
capital and general corporate purposes. 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:
Our Properties are largely concentrated in Florida, Michigan, Texas and California. We have expanded our market share in California
through recent acquisitions and increased our property holdings in other high growth areas of the U.S. including retirement and
vacation destinations.
We have also experienced strong revenue growth through recent acquisitions of RV communities. 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.
The following table identifies our largest markets by total sites:
December 31, 2017
December 31, 2016
Major Market
Florida
Michigan
Texas
California
Ontario, Canada
Arizona
Indiana
New Jersey
Ohio
Colorado
Illinois
New York
Maine
Pennsylvania
Maryland
Georgia
Missouri
Delaware
Virginia
Massachusetts
North Carolina
South Carolina
Wisconsin
Minnesota
Oregon
Iowa
Nevada
Tennessee
Montana
Connecticut
Number of
Properties
123
68
21
27
15
11
11
7
9
8
5
6
6
3
3
3
2
2
4
2
3
1
2
1
2
1
1
1
1
1
Total Sites
43,328
26,137
7,974
6,498
4,882
4,882
3,420
2,917
2,904
2,481
2,150
1,757
1,595
1,277
1,156
1,139
976
916
718
680
672
588
548
475
473
413
324
237
226
149
% of Total
Sites
Number of
Properties
Total Sites
% of Total
Sites
35.5%
21.4%
6.5%
5.3%
4.0%
4.0%
2.8%
2.4%
2.4%
2.0%
1.8%
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%
0.3%
0.3%
0.2%
0.2%
0.1%
121
67
21
22
15
11
11
7
9
8
4
6
6
3
3
3
2
2
4
2
3
1
2
1
2
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
1,652
1,717
1,521
1,277
1,215
1,049
976
916
698
680
672
418
548
426
473
413
324
237
226
149
6.5%
4.6%
4.2%
3.9%
2.9%
2.6%
2.5%
2.1%
1.4%
1.5%
1.3%
1.1%
1.0%
0.9%
0.8%
0.8%
0.6%
0.6%
0.6%
0.4%
0.5%
0.4%
0.4%
0.4%
0.3%
0.2%
0.2%
0.1%
350
121,892
341
117,376
39
SUN COMMUNITIES, INC.
NON-GAAP FINANCIAL MEASURES
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 funds from operations (“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 do 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 gain and loss items that management considers unrelated to the
operational and financial performance of our core business (“Core FFO”). 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 different 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, develops, or has an interest in, a portfolio of MH and RV communities throughout the U.S.
and in Canada, 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 Net income attributable to Sun Communities,
Inc. common stockholders to NOI for the years ended December 31, 2017, 2016, and 2015 (in thousands):
Net income attributable to Sun Communities, Inc. common stockholders
$
Other revenues
Home selling expenses
General and administrative
Transaction costs
Catastrophic weather related charges, net
Depreciation and amortization
Loss on extinguishment of debt
Interest expense
Other income / (expense), net
Gain on disposition of properties, net
Current tax expense
Deferred tax benefit / (expense)
Income from affiliate transactions
Preferred return to preferred OP units
Amounts attributable to noncontrolling interests
Preferred stock distributions
Preferred stock redemption costs
NOI/Gross Profit
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
$
$
$
Years Ended
2017
2016
65,021
(24,874)
12,457
74,711
9,801
8,352
261,536
6,019
130,242
(8,982)
—
446
(582)
—
4,581
5,055
7,162
$
$
17,369
(21,150)
9,744
64,087
31,914
1,172
221,770
1,127
122,315
4,676
—
683
(400)
(500)
5,006
150
8,946
—
550,945
$
—
466,909
$
2015
137,325
(18,157)
7,476
47,455
17,803
—
177,637
2,800
110,878
—
(125,376)
158
1,000
(7,500)
4,973
10,054
13,793
4,328
384,647
Years Ended
2017
479,662
92,382
32,294
10,440
(63,833)
550,945
$
$
2016
403,337
85,086
30,087
9,999
(61,600)
466,909
$
$
2015
335,567
83,232
20,787
7,013
(61,952)
384,647
(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, 2017 AND 2016
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,
2017 and 2016:
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
Year Ended December 31,
2017
$ 742,228
2016
$ 620,917
Change
$ 121,311
% Change
19.5%
67,075
7,264
83,550
25,871
26,518
52,288
56,744
5,941
67,495
20,732
22,362
44,306
10,331
1,323
16,055
5,139
4,156
7,982
44,986
18.2%
22.3%
23.8%
24.8%
18.6%
18.0%
20.7%
18.9%
Property operating expenses
262,566
217,580
Real Property NOI
$ 479,662
$ 403,337
$
76,325
Other Information
Number of properties
MH occupancy
RV occupancy
MH & RV blended occupancy (1)
As of December 31,
2017
350
2016
341
Change
9
94.6%
100.0%
95.8%
96.2%
(0.4)%
Sites available for development
9,617
10,337
(720)
Monthly base rent per site - MH
Monthly base rent per site - RV (2)
Monthly base rent per site - Total
(1) Overall occupancy percent 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.
$
$
$
533
439
512
$
$
$
515
420
495
$
$
$
18
19
17
The $76.3 million increase in Real Property NOI consists of $51.7 million from recently acquired properties and $24.6 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 2017 and 2016. 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, 2016. All communities from the American Land Lease portfolio acquisition are included within Same Communities.
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 have reclassifed $26.9 million and $25.8 million for the year ended December 31, 2017 and 2016, respectively,
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, 2017 and 2016:
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
MH occupancy (2)
RV occupancy (2)
MH & RV blended occupancy (2)
Year Ended December 31,
2017
$ 533,942
2016
$ 503,770
45,240
5,562
29,726
19,109
13,696
38,399
151,732
$ 382,210
43,078
5,174
28,475
18,729
13,988
36,708
146,152
$ 357,618
Change
$ 30,172
% Change
6.0 %
2,162
388
1,251
380
(292)
1,691
5,580
$ 24,592
5.0 %
7.5 %
4.4 %
2.0 %
(2.1)%
4.6 %
3.8 %
6.9 %
As of December 31,
2017
231
2016
231
Change
—
% Change
— %
96.9%
100.0%
97.3%
95.4% (3)
1.9%
Sites available for development
5,087
6,263
(1,176)
(18.8)%
Monthly base rent per site - MH
Monthly base rent per site - RV (4)
Monthly base rent per site - Total
$
$
$
518
459
510
$
$
$
500
441
492
$
$
$
18
18
18
3.6 % (5)
4.2 % (5)
3.6 % (5)
(1) Year ended December 31, 2016 excludes $0.1 million of expenses incurred for recently acquired properties to bring the properties up to Sun’s operating
standards. These costs did not meet the Company’s capitalization policy.
(2) The Same Community occupancy percentage for 2017 is derived from 80,407 developed sites, of which 78,257 were occupied. The number of developed
(3)
sites excludes RV transient sites and approximately 1,800 recently completed but vacant MH expansion sites.
The Same Community occupancy percentage for 2016 has been adjusted to reflect incremental growth period-over-period from filled expansion sites and
the conversion of transient RV sites to annual RV sites.
(4) Monthly base rent pertains to annual RV sites and excludes transient RV sites.
(5) Calculated using actual results without rounding.
The 6.9 percent growth in NOI is primarily due to a 6.0 percent increase in Income from real property. The 6.0 percent increase
in Income from real property is primarily due to a 1.9 percent increase in MH & RV blended occupancy, a 3.6 percent increase in
total monthly base rent per site and a 0.5 percent increase in transient and other revenue. The increase in Income from real property
was partially offset by a 3.8 percent increase in Property operating expenses compared to 2016, which was primarily due to higher
payroll and benefits, real estate taxes and utilities in 2017.
43
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, 2017 and 2016 (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,
$
2017
50,549
63,833
114,382
$
2016
47,780
61,600
109,380
2,620
9,864
6,102
3,414
22,000
92,382
$
$
2,242
12,825
5,734
3,493
24,294
85,086
11,074
$ 494,945
10,733
$ 457,691
1,168
$
917
$
1,089
882
Change
% Change
$
$
$
$
2,769
2,233
5,002
378
(2,961)
368
(79)
(2,294)
7,296
341
37,254
79
35
5.8 %
3.6 %
4.6 %
16.9 %
(23.1)%
6.4 %
(2.3)%
(9.4)%
8.6 %
3.2 %
8.1 %
7.3 %
4.0 %
(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.
Rental Program NOI increased by 8.6 percent compared to 2016. The increase is due to a 4.6 percent increase in Rental Program
revenue attributable to a 4.0 percent increase in weighted average monthly rental rates and a 3.2 percent increase in the number
of occupied rentals, combined with an overall decrease in Rental Program operating and maintenance expenses.
The 9.4 percent decrease in Rental Program operating and maintenance expenses is primarily due to lower Repairs and refurbishment
expenses in 2017 as compared to 2016. The reduction in Repairs and refurbishment expenses is primarily due to our continuing
investment in occupied rentals and replacement of older homes in the Rental Program with newer ones that do not require the
same level of repairs and refurbishments.
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, 2017 and 2016 (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,
2017
$ 36,915
2016
$ 30,977
Change
$ 5,938
90,493
127,408
31,578
63,536
95,114
$ 32,294
79,530
110,507
26,802
53,618
80,420
$ 30,087
10,963
16,901
4,776
9,918
14,694
$ 2,207
% Change
19.2%
13.8%
15.3%
17.8%
18.5%
18.3%
7.3%
$
5,337
$
4,175
$ 1,162
27.8%
14.5%
13.5%
1.0 %
$ 101,975
$ 94,156
$ 7,819
$ 26,957
$ 25,912
$ 1,045
29.8%
32.6%
(2.8)%
8.3%
4.0%
$ 30,991
$ 27,974
$ 3,017
10.8%
362
2,920
3,282
329
2,843
3,172
33
77
110
10.0%
2.7%
3.5%
Gross profit for new and pre-owned home sales increased $1.2 million and $1.0 million, respectively, in 2017 as compared to
2016. The increases for both new and pre-owned home sales are primarily the result of higher home sales volumes combined with
higher average selling prices in 2017 as compared to 2016.
45
SUN COMMUNITIES, INC.
OTHER INCOME STATEMENT ITEMS
The following table summarizes other income and expenses for the years ended December 31, 2017 and 2016 (amounts in
thousands):
Year Ended December 31,
2017
2016
Change
% Change
Ancillary revenues, net
Interest income
Brokerage commissions and other revenues, net
Home selling expenses
General and administrative expenses
Transaction costs
Catastrophic weather related charges, net
Depreciation and amortization
Loss on extinguishment of debt
Interest expense
Other income / (expense), net
Current tax expense
Deferred tax benefit
Income from affiliate transactions
$
$
$
$
$
$
$
$
$
$
$
$
$
$
10,440
21,180
3,694
12,457
74,711
9,801
8,352
261,536
6,019
130,242
$
$
$
$
$
$
$
$
$
$
8,982
$
(446) $
$
582
— $
9,999
18,113
3,037
9,744
64,087
31,914
1,172
221,770
1,127
$
$
$
$
$
$
$
$
$
122,315
$
(4,676) $
(683) $
$
400
500
$
441
3,067
657
2,713
10,624
(22,113)
7,180
39,766
4,892
7,927
13,658
237
182
(500)
4.4 %
16.9 %
21.6 %
27.8 %
16.6 %
(69.3)%
612.6 %
17.9 %
434.1 %
6.5 %
292.1 %
(34.7)%
45.5 %
(100.0)%
Interest income - increased primarily due to an increase in our installment notes receivable, partially offset by a decrease in our
collateralized receivables, as compared to December 31, 2016.
Brokerage commissions and other revenues, net - increased due to the sale of 2,006 brokered homes in 2017 as compared to
1,655 in 2016, a 21.2 percent increase.
Home selling expenses - increased primarily due to higher volumes and higher weighted average selling prices for both new and
used homes in 2017, which resulted in higher commissions.
General and administrative expenses - increased primarily due to additional employee related costs as headcount increased in
connection with our growth through acquisitions.
Transaction costs - relate to diligence and other expenses incurred in connection with our acquisitions. These costs were
significantly lower in 2017 as compared to 2016, due to the acquisition of Carefree in 2016. Refer to Note 2, “Real Estate
Acquisitions and Dispositions,” in our accompanying Consolidated Financial Statements for additional information.
Catastrophic weather related charges, net - In September 2017, Hurricane Irma impacted 121 of our communities in Florida
and three in Georgia. We recognized charges totaling $31.7 million comprised of $21.3 million for debris and tree removal, common
area repairs and minor flooding damage, as well as $10.4 million for impaired assets at the three Florida Keys communities. These
charges were partially offset by estimated insurance recoveries of $23.7 million.
In 2016, Catastrophic weather related charges, net were primarily attributable to debris and tree removal, common area repairs
and minor flooding damage from hurricanes Hermine and Matthew.
Depreciation and amortization - increased as a result of our acquisition of Carefree in 2016, as well as other properties in the
second half of 2016 and during 2017. Refer to Note 2, “Real Estate Acquisitions and Dispositions,” of our accompanying
Consolidated Financial Statements for additional information.
Loss on extinguishment of debt - in 2017 of $6.0 million was recognized in connection with defeasement or repayment of
collateralized term loans totaling $61.4 million. In 2016, the loss on extinguishment of debt of $1.1 million was in connection
with repayment of a total of $79.1 million of collateralized term loans. Refer to Note 8, “Debt and Lines of Credit,” in our
accompanying Consolidated Financial Statements for additional information.
46
SUN COMMUNITIES, INC.
Interest expense - increased primarily due to 2017 including a full year of interest expense from incremental borrowings of $338.0
million, $405.0 million and $139.0 million in connection with our Fannie Mae Financing, NML Financing and Freddie Mac
Financing arrangements, respectively. The $338.0 million and $405.0 million borrowings were entered into in June 2016, and the
$139.0 million was entered into in September 2016. Refer to Note 8, “Debt and Lines of Credit,” in our accompanying Consolidated
Financial Statements for additional information.
Other income / (expense), net - in 2017 consisted of foreign currency translation gains of $5.9 million and a contingent liability
remeasurement gain of $3.0 million, compared to 2016 which consisted of foreign currency translation losses of $5.0 million and
a contingent liability remeasurement loss of $0.2 million, partially offset by a $0.5 million gain related to the acquisition of a
community.
Income from affiliate transactions - of $0.5 million in 2016 was due to the sale of our entire interest in Origen Financial, Inc.
Prior to the sale, the carrying value of our investment was zero.
47
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
Year Ended December 31,
2016
$ 620,917
2015
$ 506,078
Change
$ 114,839
% Change
22.7 %
56,744
5,941
67,495
20,732
22,362
44,306
217,580
40,207
7,263
53,112
19,075
16,140
34,714
170,511
16,537
(1,322)
14,383
1,657
6,222
9,592
47,069
41.1 %
(18.2)%
27.1 %
8.7 %
38.6 %
27.6 %
27.6 %
20.2 %
Real Property NOI
$ 403,337
$ 335,567
$
67,770
Other Information
Number of properties
MH occupancy
RV occupancy
MH & RV blended occupancy (1)
As of December 31,
2016
341
2015
231
Change
110
95.1%
100.0%
96.2%
95.0%
1.2%
Sites available for development
10,337
7,181
3,156
Monthly base rent per site - MH
Monthly base rent per site - RV (2)
Monthly base rent per site - Total
(1) Overall occupancy (percent) 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
The 20.2 percent growth in Real Property NOI consists of $45.7 million from newly acquired properties and $22.0 million from
Same Community properties as detailed below.
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, 2015 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 (1)
Other
Real estate taxes
Property operating expenses
Real Property NOI
Other Information
Number of properties
MH occupancy (2)
RV occupancy (2)
MH & RV blended 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
$
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,
2015
2016
219
219
Change
—
% Change
— %
96.0%
100.0%
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 expenses incurred for recently acquired properties to bring the properties up to Sun’s operating
3.3 %
3.1 %
489
474
482
498
423
436
16
13
15
$
$
$
$
$
$
$
$
$
standards. These costs did not meet the Company’s capitalization policy.
(2) Overall occupancy (percent) includes MH and annual RV sites, and excludes recently completed but vacant expansion sites and transient RV sites.
(3) Overall occupancy (percent) 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 RV sites.
(4) Monthly base rent pertains to annual RV sites and excludes transient RV sites.
The 7.1 percent 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 percent
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 percent, a 1.9 percent 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.
Property operating expenses increased approximately $4.7 million, or 3.7 percent, 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.
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, 2016 and 2015 (in thousands, except for statistical information):
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 %
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
Year Ended December 31,
$
2016
47,780
61,600
109,380
$
2015
46,236
61,952
108,188
$
2,242
12,825
5,734
3,493
24,294
3,216
12,326
5,638
3,776
24,956
Rental Program NOI
$
85,086
$
83,232
$
1,544
(352)
1,192
(974)
499
96
(283)
(662)
1,854
Change
% Change
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
10,733
$ 457,691
10,685
$ 448,837
1,089
$
882
$
908
858
$
$
48
8,854
181
24
(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 percent growth in Rental Program NOI is primarily due to a 2.8 percent 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.
50
SUN COMMUNITIES, INC.
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
$ 30,977
79,530
110,507
26,802
53,618
80,420
2015
$ 22,208
57,520
Change
$ 8,769
22,010
79,728
18,620
40,321
58,941
30,779
8,182
13,297
21,479
$ 30,087
$ 20,787
$ 9,300
$
4,175
$
3,588
$
13.5%
16.2%
587
(2.7)%
% Change
39.5%
38.3%
38.6%
43.9%
33.0%
36.4%
44.7%
16.4%
$ 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 percent, primarily in connection with an increase in new home
sales volumes of 20.5 percent, 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 percent and
a 17.1 percent increase in average gross profit per home sale.
51
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
Catastrophic weather related charges, net
Depreciation and amortization
Loss on extinguishment of debt
Interest expense
Other income / (expense), net
Gain on disposition of properties, net
Current tax expense
Deferred tax benefit / (expense)
Income from affiliate transactions
Preferred stock redemption costs
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
9,999
18,113
3,037
9,744
64,087
31,914
1,172
221,770
$
$
$
$
$
$
$
$
1,127
122,315
$
$
(4,676) $
— $
(683) $
$
400
$
500
— $
7,013
15,938
2,219
7,476
47,455
17,803
$
$
$
$
$
$
— $
$
177,637
2,800
110,878
$
$
— $
125,376
$
(158) $
(1,000) $
$
7,500
$
4,328
2,986
2,175
818
2,268
16,632
14,111
1,172
44,133
(1,673)
11,437
(4,676)
(125,376)
(525)
1,400
(7,000)
(4,328)
42.6 %
13.7 %
36.9 %
30.3 %
35.1 %
79.3 %
N/A
24.8 %
(59.8)%
10.3 %
N/A
(100.0)%
332.3 %
(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.
Catastrophic weather related charges, net - in 2016 included costs of $1.2 million related to hurricanes Hermine and Matthew.
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.
Loss on 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.
52
SUN COMMUNITIES, INC.
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.
Other income / (expense), net - in 2016 includes the impact of foreign currency translation losses of $5.0 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 twenty 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.
53
SUN COMMUNITIES, INC.
The following table reconciles Net income attributable to Sun Communities, Inc. common stockholders to FFO for the years ended
December 31, 2017, 2016, and 2015 (in thousands, except per share amounts):
Net income attributable to Sun Communities, Inc. common stockholders
Adjustments:
Depreciation and amortization
Amounts attributable to noncontrolling interests
Preferred return to preferred OP units
Preferred distribution to Series A-4 Preferred Stock
Gain / (loss) on disposition of properties, net
Gain / (loss) on disposition of assets, net
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
Loss on extinguishment of debt
Catastrophic weather related costs, net
Loss of earnings - catastrophic weather related (3)
Other income, net
Debt premium write-off
Deferred tax benefit / (expense)
Ground lease intangible write-off
Preferred stock redemption costs
Year Ended December 31,
2017
65,021
2016
17,369
2015
$ 137,325
$
$
262,211
4,535
2,320
2,107
—
(16,075)
178,048
221,576
(41)
9,644
2,612
2,462
—
—
— (125,376)
(10,125)
(15,713)
$ 320,119
$ 225,653
$ 192,128
9,801
2,810
—
6,019
8,352
292
(8,982)
(1,343)
(582)
898
—
31,914
3,328
(500)
1,127
1,172
—
4,676
(839)
(400)
—
—
17,803
—
(7,500)
2,800
—
—
—
—
1,000
—
4,328
Core FFO attributable to Sun Communities, Inc. common stockholders and dilutive
convertible securities (1)
$ 337,384
$ 266,131
$ 210,559
Weighted average common shares outstanding - basic:
76,084
65,856
53,686
Add:
Common stock issuable upon conversion of stock options
Restricted stock
Common OP units
Common stock issuable upon conversion of Series A-1 preferred OP units
Common stock issuable upon conversion of Series A-3 preferred OP units
Common stock issuable upon conversion of Series A-4 preferred OP units
Weighted average common shares outstanding - fully diluted
2
625
2,756
869
75
585
80,996
8
457
2,844
925
75
—
70,165
16
411
2,803
988
75
—
57,979
FFO attributable to Sun Communities, Inc. common stockholders and dilutive
convertible securities per share - fully diluted
Core FFO attributable to Sun Communities, Inc. common stockholders and dilutive
convertible securities per share - fully diluted
$
$
3.95
4.17
$
$
3.22
3.79
$
$
3.31
3.63
(1) The effect of certain anti-dilutive convertible securities is excluded from these items.
(2)
These costs represent the 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. These costs were included as an FFO adjustment for the year ended
December 31, 2016 and 2017. Had a similar adjustment been made in 2015, FFO attributable to Sun Communities, Inc. common stockholders and dilutive
convertible securities per share excluding certain items would have been $3.68 for the year ended December 31, 2015.
(3) Adjustment represents estimated loss of earnings in excess of the applicable business interruption deductible at our three Florida Keys communities that
were impaired by Hurricane Irma. The Company is actively working with its insurer on the related claims, but has not yet received any advance for the
expected recovery of lost earnings.
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, 2017, we acquired nine communities. Refer to Note 2, “Real Estate Acquisitions and
Dispositions” in our accompanying Consolidated Financial Statements for additional information regarding our acquisitions in
2017. Subject to market conditions, we intend to continue to look for opportunities to expand our development pipeline and acquire
existing communities. We finance acquisitions through available cash, secured financing, draws on our lines of credit, the assumption
of existing debt on properties, and the issuance of equity securities. We will continue to evaluate acquisition opportunities that
meet our criteria.
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 lines of credit, and the use of debt and equity offerings under our shelf registration statement. 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.
Our capital expenditures include expansion and development, lot modifications, recurring capital expenditures and rental home
purchases. For the years ended December 31, 2017 and 2016, expansion and development activities of $88.3 million and $48.0
million, respectively, related to costs consisting primarily of construction of sites and other costs necessary to complete home site
improvements.
For the years ended December 31, 2017 and 2016, lot modification expenditures were $18.1 million and $19.0 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, 2017 and 2016, recurring capital expenditures were $14.2 million and $17.6 million, respectively,
related to our continued commitment to upkeep of our properties.
We invested $17.0 million in the acquisition of homes intended for the Rental Program. Expenditures for 2018 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 on Cash and Cash Equivalents
Year Ended December 31,
2017
2016
2015
$
$
$
$
261,750
$
(401,642) $
$
141,557
$
298
238,693
$
(1,614,512) $
$
1,338,970
(73) $
182,263
(413,184)
192,548
—
Cash and cash equivalents increased by $1.9 million from $8.2 million as of December 31, 2016, to $10.1 million as of December 31,
2017.
Operating Activities
Net cash provided by operating activities increased by $23.1 million from $238.7 million for the year ended December 31, 2016
to $261.8 million for the year ended December 31, 2017.
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 “Risk Factors” in Part I, Item 1A in this
Annual Report on Form 10-K.
Investing Activities
Net cash used for investing activities was $401.6 million for the year ended December 31, 2017, compared to $1.6 billion for the
year ended December 31, 2016.
Financing Activities
Net cash provided by financing activities was $141.6 million for the year ended December 31, 2017, compared to $1.3 billion for
the year ended December 31, 2016. 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 July 2017, we entered into a new at the market sales agreement (the “Sales Agreement”) with BMO Capital Markets Corp.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Robert W. Baird & Co. Incorporated, Fifth
Third Securities, Inc., RBC Capital Markets, LLC, BTIG, LLC, Jefferies LLC, Credit Suisse Securities (USA) LLC and Samuel
A. Ramirez & Company, Inc. (each, a “Sales Agent;” collectively, the “Sales Agents”), whereby we may offer and sell shares of
our common stock, having an aggregate offering price of up to $450.0 million, from time to time through the Sales Agents. The
Sales Agents are entitled to compensation in an agreed amount not to exceed 2.0 percent of the gross price per share for any shares
sold from time to time under the Sales Agreement. Concurrent with the entry in the Sales Agreement, we terminated our previous
sales agreement which had an aggregate offering price of up to $250.0 million (the “Prior Agreement”).
In April 2017, we amended and restated our credit agreement (the “A&R Credit Agreement”) with Citibank, N.A. (“Citibank”)
and certain other lenders. Under the A&R Credit Agreement, we have a senior revolving credit facility with Citibank and certain
other lenders in the amount of $650.0 million, comprised of a $550.0 million revolving loan and a $100.0 million term loan (the
“A&R Facility”). The A&R Credit Agreement has a four-year term ending April 25, 2021, 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 A&R Credit
Agreement also provides for, subject to the satisfaction of certain conditions, additional commitments in an amount not to exceed
$350.0 million. If additional borrowings are made pursuant to any such additional commitments, the aggregate borrowing limit
under the A&R Facility may be increased up to $1.0 billion.
The A&R 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 A&R Credit Agreement, which margin can range from 1.35 percent to 2.20 percent
for the revolving loan and 1.30 percent to 2.15 percent for the term loan. As of December 31, 2017, the margin on our leverage
ratio was 1.35 percent and 1.30 percent on the revolving and term loans, respectively. We had $37.8 million in borrowings on the
revolving loan and no borrowings on the term loan totaling $37.8 million as of December 31, 2017, with a weighted average
interest rate of 2.79 percent.
The A&R Facility replaced our $450.0 million credit facility (the “Previous Facility”), which was scheduled to mature on August
19, 2019. At the time of closing of the A&R Facility, there were $220.8 million in borrowings under the Previous Facility. At
December 31, 2016, under the Previous Facility, we had $42.3 million in borrowings on the revolving loan and $58.0 million in
borrowings on the term loan totaling $100.3 million with a weighted average interest rate of 2.14 percent.
At December 31, 2017 and December 31, 2016, approximately $1.3 million and $4.6 million of availability was used to back
standby letters of credit.
Pursuant to the terms of the A&R 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 A&R Facility are as follows:
56
SUN COMMUNITIES, INC.
Covenant
Maximum Leverage Ratio
Minimum Fixed Charge Coverage Ratio
Minimum Tangible Net Worth (in thousands)
Maximum Dividend Payout Ratio
Requirement
< 65.0%
> 1.40
>$2,513,492
< 95.0%
As of 12/31/17
34.7%
2.62
$3,949,597
63.0%
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, 2017, we had 160 unencumbered properties, of
which 61 support the borrowing base for our $650.0 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, 2017, our
outstanding contractual obligations, including interest expense, were as follows:
Contractual Cash Obligations (1)
Collateralized term loans - FNMA
Collateralized term loans - Life Company
Total Due
$ 1,012,316
1,045,529
$
<1 year
44,754
22,948
Collateralized term loans - CMBS
Collateralized term loans - FMCC
Secured borrowings
Lines of credit
411,087
388,790
129,182
41,809
8,013
6,035
5,541
—
Payments Due By Period
(In thousands)
1-3 years
$ 149,854
3-5 years
$ 193,005
After 5 years
624,703
$
58,363
15,888
12,783
12,620
4,009
67,983
188,966
13,883
14,370
37,800
896,235
198,220
356,089
96,651
—
Preferred OP units - mandatorily redeemable
Total principal payments
41,443
$ 3,070,156
6,780
94,071
$
—
$ 253,517
—
$ 516,007
34,663
$ 2,206,561
Interest expense (2)
Operating leases
Capital lease obligation
Total contractual cash obligations
$
888,979
68,824
4,114
$ 4,032,073
$ 129,074
2,800
16
$ 225,961
$ 238,148
5,726
34
$ 497,425
$ 199,640
5,894
36
$ 721,577
$
322,117
54,404
4,028
$ 2,587,110
(1) Contractual cash obligations in the table above exclude debt premiums, discounts and deferred financing costs, as applicable.
(2) Our contractual cash obligations related to interest expense are calculated based on the current debt levels, rates and maturities as of December 31, 2017
(including capital leases and excluding secured borrowings), and actual payments required in future periods may be different than the amounts included above.
Perpetual securities include one year of interest expense in the “After 5 years” category.
As of December 31, 2017, our net debt to enterprise value approximated 28.2 percent (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 had a weighted average maturity of approximately 8.9 years and a weighted average interest
rate of 4.50 percent.
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.
Refer to Note 1, “Significant Accounting Policies,” of our accompanying Consolidated Financial Statements for information
regarding our critical accounting estimates.
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
We do not have any off-balance sheet arrangements with any unconsolidated entities that we believe have or are reasonably likely
to have a material effect on its financial condition, results of operations, liquidity, or capital resources.
58
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, 2017. The first interest
rate cap agreement has a cap rate of 9.00 percent, 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 percent, a notional amount of $9.6 million and a termination date of May
2023.
Our remaining variable rate debt totaled $194.7 million and $256.0 million as of December 31, 2017 and 2016, respectively, and
bears interest at Prime or various LIBOR rates. If Prime or LIBOR increased or decreased by 1.0 percent, our interest expense
would have increased or decreased by approximately $2.3 million and $3.0 million for the years ended December 31, 2017 and
2016, respectively, based on the $229.6 million and $299.1 million average balance 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.
At December 31, 2017 and 2016, our stockholder’s equity included $91.5 million and $79.9 million from our Canadian subsidiaries,
respectively, which represented 3.4 percent of total equity in both periods. Based on our sensitivity analysis, a 10.0 percent
strengthening of the U.S. dollar against the Canadian dollar would have caused a reduction of $9.2 million and $8.0 million to our
total stockholder’s equity at December 31, 2017 and 2016, respectively.
59
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, 2017. Based upon this evaluation, our CEO and
CFO concluded that our disclosure controls and procedures were effective as of December 31, 2017.
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,
2017, 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, 2017. Based on management’s assessment, we have concluded that
our internal control over financial reporting was effective at December 31, 2017.
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 not been any changes in our internal control over financial reporting during the quarter ended December 31, 2017 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION
The following is a summary of additional material United States federal income tax considerations with respect to Sun Communities,
Inc. This discussion is being included in this Annual Report on Form 10-K for incorporation by reference into the Company’s
Registration Statements on Forms S-3 (File No. 333-204911, effective June 12, 2015; File No. 333-203502, effective April 17,
2015 and File No. 333-203498, effective April 17, 2015) and on Forms S-8 (File No. 333162216, effective as of September 30,
2009 and File No. 333-205857, effective July 24, 2015), the prospectuses filed as part of such Registration Statements on Form
S-3, and any applicable prospectus supplements thereto. This discussion supplements and updates the discussions contained in,
or incorporated by reference into, the prospectuses filed as part of such Registration Statements on Form S-3, and any applicable
prospectus supplements thereto, under the heading “Material U.S. Federal Income Tax Considerations,” and supersedes such
discussions to the extent inconsistent with such discussions.
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SUN COMMUNITIES, INC.
ADDITIONAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The Tax Cuts and Jobs Act
On December 22, 2017, H.R. 1, informally titled the Tax Cuts and Jobs Act (the “Tax Act” or the “Act”) was signed into law. The
Tax Act makes major changes to the Code, including a number of provisions of the Code that may directly or indirectly affect the
taxation of REITs and their security holders. The most significant of these provisions are described below. The individual and
collective impact of these changes on REITs and their security holders is uncertain, and may not become evident for some period
of time. While the changes in the Tax Act generally appear to be favorable with respect to REITs, the extensive changes to non-
REIT provisions in the Code may have unanticipated effects on us or our stockholders. Moreover, Congressional leaders have
recognized that the process of adopting extensive tax legislation in a short amount of time without hearings and substantial time
for review is likely to have led to drafting errors, issues needing clarification and unintended consequences that may or may not
be revised in subsequent tax legislation. At this point, it is not clear when Congress will address these issues or when the Internal
Revenue Service will be able to issue administrative guidance on the changes made in the Tax Act. Prospective investors should
consult their tax advisors regarding the implications of the Tax Act on their investment.
Refer to Note 12, “Income Taxes,” of our accompanying Consolidated Financial Statements for resulting impacts of the Tax Act
on the Company.
Revised Individual Tax Rates and Deductions
The Tax Act creates seven income tax brackets for individuals ranging from 10 percent to 37 percent that generally apply at higher
thresholds than current law. For example, the highest 37 percent rate applies to joint return filer incomes above $600,000, instead
of the highest 39.6 percent rate that applies to incomes above $470,700 under pre-Tax Act law. The maximum 20 percent rate that
applies to long-term capital gains and qualified dividend income is unchanged, as is the 3.8 percent tax on net investment income.
The Act also eliminates personal exemptions, but nearly doubles the standard deduction for most individuals (e.g. the standard
deduction for joint return filers rises from $12,700 in 2017 to $24,000 upon the Act’s effectiveness). The Act also eliminates many
itemized deductions, limits individual deductions for state and local income, property and sales taxes (other than those paid in a
trade or business) to $10,000 collectively for joint return filers (with a special provision to prevent 2017 deductions for prepayment
of 2018 state or local income taxes), and limits the amount of new acquisition indebtedness on principal or second residences for
which mortgage interest deductions are available to $750,000. Interest deductions on home equity debt are eliminated. Charitable
deductions are generally preserved. The phaseout of itemized deductions based on income is eliminated.
The Tax Act does not eliminate the individual alternative minimum tax, but it raises the exemption and exemption phaseout
threshold for application of the tax.
These individual income tax changes are generally effective beginning in 2018, but without further legislation, they will expire,
or sunset, after 2025.
Pass-Through Business Income Tax Rate Lowered through Deduction
Under the Tax Act, individuals, trusts, and estates generally may deduct 20 percent of “qualified business income” (generally,
domestic trade or business income other than certain investment items) of a partnership, S corporation, or sole proprietorship. In
addition, “qualified REIT dividends” (i.e., REIT dividends other than capital gain dividends and portions of REIT dividends
designated as qualified dividend income eligible for capital gain tax rates) and certain other income items are eligible for the
deduction by the taxpayer. The overall deduction is limited to 20 percent of the sum of the taxpayer’s taxable income (less net
capital gain) and certain cooperative dividends, subject to further limitations based on taxable income. In addition, for taxpayers
with taxable income above a certain threshold (e.g., $315,000 for joint return filers), the deduction for each trade or business is
generally limited to no more than the greater of: (i) 50 percent of the taxpayer’s proportionate share of total wages from a partnership,
S corporation or sole proprietorship, or (ii) 25 percent of the taxpayer’s proportionate share of such total wages plus 2.5 percent
of the unadjusted basis of acquired tangible depreciable property that is used to produce qualified business income and satisfies
certain other requirements. The deduction for qualified REIT dividends is not subject to these wage and basis limitations. The
deduction, if allowed in full, equates to a maximum 29.6 percent tax rate on domestic qualified business income of partnerships,
S corporations, or sole proprietorships, and a maximum 29.6 percent tax rate on REIT dividends. As with the other individual
income tax changes, the deduction provisions are effective beginning in 2018. Without further legislation, the deduction sunsets
after 2025.
61
SUN COMMUNITIES, INC.
Net Operating Loss Modifications
Net operating loss (“NOL”) provisions are modified by the Tax Act. The Act limits the NOL deduction to 80 percent of taxable
income (before the deduction). It also generally eliminates NOL carrybacks for individuals and non-REIT corporations (NOL
carrybacks did not apply to REITs under prior law), but allows indefinite NOL carryforwards. The new NOL rules apply beginning
in 2018.
Maximum Corporate Tax Rate Lowered to 21 percent; Elimination of Corporate Alternative Minimum Tax
The Tax Act reduces the 35 percent maximum corporate income tax rate to a maximum 21 percent corporate rate, and reduces the
dividends-received deduction for certain corporate subsidiaries. The Act also permanently eliminates the corporate alternative
minimum tax. These provisions are effective beginning in 2018.
Limitations on Interest Deductibility; Real Property Trades or Businesses Can Elect Out Subject to Longer Asset Cost Recovery
Periods
The Tax Act limits a taxpayer’s net interest expense deduction to 30 percent of the sum of adjusted taxable income, business
interest, and certain other amounts. Adjusted taxable income does not include items of income or expense not allocable to a trade
or business, business interest or expense, the new deduction for qualified business income, NOLs, and for years prior to 2022,
deductions for depreciation, amortization, or depletion. For partnerships, the interest deduction limit is applied at the partnership
level, subject to certain adjustments to the partners for unused deduction limitation at the partnership level. The Act allows a real
property trade or business to elect out of this interest limit so long as it uses a 40-year recovery period for nonresidential real
property, a 30-year recovery period for residential rental property, and a 20-year recovery period for related improvements described
below. Disallowed interest expense is carried forward indefinitely (subject to special rules for partnerships). The interest deduction
limit applies beginning in 2018.
Maintains Cost Recovery Period for Buildings; Reduced Cost Recovery Periods for Tenant Improvements; Increased Expensing
for Equipment
For taxpayers that do not use the Act’s real property trade or business exception to the business interest deduction limits, the Act
maintains the current 39-year and 27.5-year straight line recovery periods for nonresidential real property and residential rental
property, respectively, and provides that tenant improvements for such taxpayers are subject to a general 15-year recovery period.
Also, the Act temporarily allows 100 percent expensing of certain new or used tangible property through 2022, phasing out at 20
percent for each following year (with an election available for 50 percent expensing of such property if placed in service during
the first taxable year ending after September 27, 2017). The changes apply, generally, to property acquired after September 27,
2017 and placed in service after September 27, 2017.
Like Kind Exchanges Retained for Real Property, but Eliminated for Most Personal Property
The Tax Act continues the deferral of gain from the like kind exchange of real property, but provides that foreign real property is
no longer “like kind” to domestic real property. Furthermore, the Act eliminates like kind exchanges for most personal property.
These changes are effective generally for exchanges completed after December 31, 2017, with a transition rule allowing such
exchanges where one part of the exchange is completed prior to December 31, 2017.
Technical Terminations of Partnerships
For tax years beginning January 1, 2018, the Tax Act permanently repeals the technical termination rule for partnerships. The
technical termination rule provided that a partnership (or limited liability company (“LLC”) taxed as a partnership) terminated for
tax purposes (and a new partnership is deemed to be created) if there was a sale or exchange of 50 percent or more of the total
interest in the partnership (or LLC) capital and profits in a 12-month period.
International Provisions: Modified Territorial Tax Regime
The Act moves the United States from a worldwide to a modified territorial tax system, with provisions included to prevent corporate
base erosion.
62
SUN COMMUNITIES, INC.
Accrual of Income
Under the Tax Act, the Company generally will be required to take certain amounts in income no later than the time such amounts
are reflected on certain financial statements. The application of this rule may require the accrual of income earlier than would be
the case under the general tax rules, although the precise application of this rule is unclear at this time. This rule generally will be
effective for tax years beginning after December 31, 2017. To the extent that this rule requires the accrual of income earlier than
under the general tax rules, it could increase our “phantom income,” which may make it more likely that we could be required to
borrow funds or take other action to satisfy the REIT distribution requirements for the taxable year in which this “phantom income”
is recognized.
Other Provisions
The Tax Act makes other significant changes to the Code. These changes include provisions limiting the ability to offset dividend
and interest income with partnership or S corporation net active business losses. These provisions are effective beginning in 2018,
but without further legislation, sunset after 2025.
ARTICLES OF RESTATEMENT
On February 20, 2018, the Company filed articles of restatement (the “Articles of Restatement”) with the Maryland Department
of Assessments and Taxation consolidating its charter. The Articles of Restatement are filed herewith as Exhibit 3.1.
63
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 2018 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.”
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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 10 K is shown in the “Index
to the Consolidated Financial Statements and Financial Statement Schedules” filed herewith.
2.
Financial Schedule
The financial statement schedule required to be filed as a part of this Annual Report on Form 10 K is shown in the “Index
to the Consolidated Financial Statements and Financial Statement Schedules” filed herewith.
3.
Exhibits
A list of the exhibits required by Item 601 of Regulation S K to be filed as a part of this Annual Report on Form 10-K
is shown on the “Exhibit Index” filed herewith.
ITEM 16. FORM 10-K SUMMARY
None.
65
SUN COMMUNITIES, INC.
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.
Dated: February 22, 2018
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
Meghan G. Baivier
Meghan G. Baivier
Stephanie W. Bergeron
Stephanie W. Bergeron
Brian M. Hermelin
Brian M. Hermelin
Ronald A. Klein
Ronald A. Klein
Clunet R. Lewis
Clunet R. Lewis
Arthur A. Weiss
Arthur A. Weiss
Capacity
Chief Executive Officer and Chairman of the Board of
Directors (Principal Executive Officer)
Date
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
Executive Vice President, Chief Financial Officer,
Treasurer, Secretary (Principal Financial Officer and
Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
66
SUN COMMUNITIES, INC.
EXHIBIT INDEX
Exhibit
Number
Description
Method of Filing
3.1
Sun Communities, Inc. Articles of Restatement
Filed herewith
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
3.2
Third 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 6.50% Series A-4 Cumulative Convertible Preferred Stock
4.6
Second Amendment to Rights Agreement, dated October 4, 2017, between Sun Communities, Inc. and
Computershare Trust Company, N.A., as Rights Agent
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
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
Lease, dated November 1, 2002, by and between the Operating Partnership as Tenant and American
Center LLC as Landlord
10.9
Third Lease Modification dated October 31, 2011 by and between the Operating Partnership as Tenant
and American Center LLC as Landlord
10.10
Third Amended and Restated Agreement of Limited Partnership of Sun Communities Operating Limited
Partnership, dated June 19, 2014.
10.11
10.12
Amendment No. 2 dated November 26, 2014, to the Third Amended and Restated Agreement of Limited
Partnership of Sun Communities Operating Limited Partnership
Amendment No. 7, dated April 1, 2015, to the Third Amended and Restated Agreement of Limited
Partnership of Sun Communities Operating Limited Partnership
67
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Incorporated by reference to Sun
Communities, Inc.’s Current Report on
Form 8-K filed on May 12, 2017
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 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 on October 4, 2017
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
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 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
SUN COMMUNITIES, INC.
10.13
Amendment No. 8, dated April 22, 2015, to the Third Amended and Restated Agreement of Limited
Partnership of Sun Communities Operating Limited Partnership
10.14
First Amended and Restated 2004 Non-Employee Director Option Plan#
10.15
Sun Communities, Inc. 2015 Equity Incentive Plan#
10.16
Form of Stock Option Agreement between Sun Communities, Inc. and certain directors, officers and other
individuals#
10.17
Form of Non-Employee Director Stock Option Agreement between Sun Communities, Inc. and certain
directors#
10.18
Form of Restricted Stock Award Agreement#
10.19
First Amendment to Restricted Stock Award Agreement between Sun Communities, Inc. and Gary A.
Shiffman dated July 15, 2014#
10.20
Employment Agreement dated June 20, 2013 among Sun Communities, Inc., Sun Communities Operating
Limited Partnership and Gary A. Shiffman#
10.21
First Amendment to Employment Agreement among Sun Communities, Inc., Sun Communities Operating
Limited Partnership and Gary A. Shiffman dated July 15, 2014#
10.22
Second Amendment to Employment Agreement among Sun Communities, Inc., Sun Communities
Operating Limited Partnership and Gary A. Shiffman dated March 8, 2017#
10.23
Employment Agreement dated May 19, 2015 among Sun Communities, Inc., Sun Communities Operating
Limited Partnership and John B. McLaren#
10.24
First Amendment to Employment Agreement among Sun Communities, Inc. Sun Communities Operating
Limited Partnership, and John B. McLaren dated March 8, 2017#
10.25
Employment Agreement July 16, 2015 among Sun Communities, Inc., Sun Communities Operating
Limited Partnership and Karen J. Dearing#
10.26
First Amendment Employment Agreement among Sun Communities, Inc., Sun Communities Operating
Partnership, and Karen J. Dearing dated March 8, 2017#
10.27
Sun Communities, Inc. Executive Compensation “Clawback” Policy#
At the Market Offering Sales Agreement, dated July 28, 2017, among Sun Communities, Inc., Sun
Communities Operating Limited Partnership, BMO Capital Markets Corp., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Citigroup Global Markets Inc., Robert W. Baird & Co. Incorporated, Fifth
Third Securities, Inc., RBC Capital Markets, LLC, BTIG, LLC, Jefferies LLC, Credit Suisse Securities
(USA) LLC and Samuel A. Ramirez & Company, Inc.
Second Amended and Restated Credit Agreement, dated April 25, 2017 with Citibank, N.A., as
Administrative Agent, Swing Line Lender and L/C Issuer, Citigroup Global Markets Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and BMO Capital Markets, as Joint Lead Arrangers, and Citigroup
Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated as Joint Bookrunners, and
Bank of America, N.A. and Bank of Montreal, as Co-Syndication Agents and Fifth Third Bank, an Ohio
Banking Corporation, Regions Bank and RBC Capital Markets as Co-Documentation Agents and the
other lenders, PNC Bank, National Association, U.S. Bank National Association, Credit Suisse,
Associated Bank, N.A. and Flagstar Bank, FSB.
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
Incorporated by reference to Sun
Communities, Inc.’s Current Report on
Form 8-K filed on March 8, 2017
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 on March 8, 2017
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 on March 8, 2017
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 on July 28, 2017.
Incorporated by reference to Sun
Communities, Inc.’s Current Report on
Form 8-K filed on April 27, 2017
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
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
The following Sun Communities, Inc. financial information, formatted in XBRL (eXtensible Business
Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2017 and 2016, (ii)
Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016 and 2015, (iii)
Consolidated Statements of Stockholders’ Equity and Comprehensive Loss for the Years Ended December
31, 2017, 2016 and 2015, (iv) Consolidated Statements of Cash Flows, for the Years Ended December
31, 2017, 2016 and 2015; (v) Notes to Consolidated Financial Statements, and (vi) Schedule III - Real
Estate and Accumulated Depreciation
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Furnished herewith
Filed herewith
68
10.28
10.29
21.1
23.1
31.1
31.2
32.1
101.1
SUN COMMUNITIES, INC.
*
#
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.
69
[This page intentionally left blank]
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, 2017 and 2016
Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016, and 2015
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016, and
2015
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2017, 2016, and
2015
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016, and 2015
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-43
F - 1
SUN COMMUNITIES, INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Sun Communities, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Sun Communities, Inc. (a Maryland corporation) and subsidiaries
(the “Company”) as of December 31, 2017 and 2016, 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, 2017, and the related notes and
schedule (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally
accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, 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 22, 2018 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
We have served as the Company’s auditor since 2003.
Southfield, Michigan
February 22, 2018
F - 2
SUN COMMUNITIES, INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Sun Communities, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Sun Communities, Inc. (a Maryland corporation) and subsidiaries
(the “Company”) as of December 31, 2017, based on criteria established in the 2013 Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2017, 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)
(“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2017, and our report
dated February 22, 2018 expressed an unqualified opinion on those financial statements.
Basis for opinion
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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and limitations of internal control over financial reporting
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.
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
Southfield, Michigan
February 22, 2018
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
Investment property
Accumulated depreciation
Investment property, net (including $50,193 and $88,987 for consolidated variable
interest entities at December 31, 2017 and December 31, 2016; see Note 7)
Cash and cash equivalents
Inventory of manufactured homes
Notes and other receivables, net
Collateralized receivables, net
Other assets, net (including $1,659 and $3,054 for consolidated variable interest
entities at December 31, 2017 and December 31, 2016; see Note 7)
TOTAL ASSETS
LIABILITIES
Mortgage loans payable (including $41,970 and $62,111 for consolidated variable
interest entities at December 31, 2017 and December 31, 2016; see Note 7)
Secured borrowings on collateralized receivables
Preferred OP units - mandatorily redeemable
Lines of credit
Distributions payable
Other liabilities (including $1,468 and $1,998 for consolidated variable interest
entities at December 31, 2017 and December 31, 2016; see Note 7)
TOTAL LIABILITIES
Commitments and contingencies
Series A-4 preferred stock, $0.01 par value. Issued and outstanding: 1,085 shares at
December 31, 2017 and 1,681 shares at December 31, 2016
Series A-4 preferred OP units
STOCKHOLDERS’ EQUITY
Series A preferred stock, $0.01 par value. Issued and outstanding: none at December
31, 2017 and 3,400 shares at December 31, 2016
Common stock, $0.01 par value. Authorized: 180,000 shares; Issued and
outstanding: 79,679 shares at December 31, 2017 and 73,206 shares at December
31, 2016
Additional paid-in capital
Accumulated other comprehensive income (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 interest
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
$
$
As of December 31,
2017
2016
$
1,107,838
5,102,014
528,074
144,953
6,882,879
(1,237,525)
1,051,536
4,825,043
489,633
130,127
6,496,339
(1,026,858)
5,645,354
10,127
30,430
163,496
128,246
134,304
6,111,957
2,867,356
129,182
41,443
41,257
55,225
270,741
3,405,204
$
$
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
32,414
10,652
50,227
16,717
—
34
797
3,758,533
1,102
(1,162,001)
2,598,431
60,971
4,285
65,256
2,663,687
6,111,957
$
$
732
3,321,441
(3,181)
(1,023,415)
2,295,611
69,598
(2,982)
66,616
2,362,227
5,870,776
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
Catastrophic weather related charges, net
Depreciation and amortization
Loss on extinguishment of debt
Interest
Interest on mandatorily redeemable preferred OP units
Total expenses
Income before other items
Other income / (expense), net
Gain on disposition of properties, net
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 (Refer to Note 13):
Basic
Diluted
Year Ended December 31,
2017
2016
2015
$
$
$
$
742,228
127,408
50,549
37,511
21,180
3,694
982,570
210,278
52,288
95,114
22,000
27,071
12,457
74,711
9,801
8,352
261,536
6,019
127,128
3,114
909,869
72,701
8,982
—
(446)
582
—
81,819
(4,581)
(5,055)
72,183
(7,162)
—
65,021
$
$
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
1,172
221,770
1,127
119,163
3,152
797,848
35,930
(4,676)
—
(683)
400
500
31,471
(5,006)
(150)
26,315
(8,946)
—
17,369
$
$
76,084
76,711
65,856
66,321
0.85
0.85
$
$
0.27
0.26
$
$
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
2.53
2.52
See accompanying Notes to Consolidated Financial Statements.
F - 5
$
2015
170,473
—
170,473
10,054
$
160,419
SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Year Ended December 31,
2017
2016
Net income
Foreign currency translation gain / (loss)
Total comprehensive income
Less: Comprehensive income / (loss) attributable to noncontrolling interests
$
$
81,819
4,527
86,346
5,299
Comprehensive income attributable to Sun Communities, Inc.
$
81,047
$
31,471
(3,401)
28,070
(70)
28,140
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
Distributions in
Excess of
Accumulated
Earnings
Accumulated
Other
Comprehensive
Income / (Loss)
Non-
controlling
Interests
Total
Stockholders’
Equity
Balance as of December 31, 2014, revised
$
34
$
486
$
1,741,154
$
(863,545) $
— $
29,691
$
907,820
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
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 translation loss
Net income
Distributions
Balance at December 31, 2016
Issuance of common stock and common OP
units, net
Conversion of OP units
Redemption of Series A-4 preferred stock
Conversion of Series A-4 preferred stock
Redemption of Series A-4 OP units
Redemption of Series A Cumulative
Convertible Preferred Stock
Share-based compensation - amortization and
forfeitures
Acquisition of noncontrolling interests
Foreign currency translation gain
Net income
Distributions
—
—
—
—
—
—
—
34
—
—
—
—
—
—
—
34
—
—
—
—
—
(34)
—
—
—
—
—
—
98
—
—
—
—
—
95
564,260
6,900
—
6,905
—
—
584
2,319,314
—
144
—
4
—
—
—
149
981,174
11,503
9,301
—
—
—
—
—
—
(4,328)
203
160,418
(156,870)
(864,122)
—
—
—
252
—
31,321
(190,866)
—
—
—
—
—
—
—
—
—
—
—
—
(3,181)
—
—
—
95
52,921
617,279
—
—
—
9,185
(11,026)
6,900
(4,328)
7,108
169,603
(167,896)
80,771
1,536,581
—
149
(2,687)
—
—
(220)
60
978,631
11,503
9,557
(3,401)
31,381
(11,308)
(202,174)
732
3,321,441
(1,023,415)
(3,181)
66,616
2,362,227
63
1
—
1
—
—
—
—
—
—
—
514,024
3,556
(3,867)
4,719
(2,571)
(84,966)
12,398
(6,201)
—
—
—
—
—
—
—
—
—
297
—
—
76,765
(215,648)
—
—
—
—
—
—
—
—
4,283
—
—
2,001
(3,298)
—
—
—
—
—
6,101
244
4,849
516,088
259
(3,867)
4,720
(2,571)
(85,000)
12,695
(100)
4,527
81,614
(11,257)
(226,905)
Balance at December 31, 2017
$
— $
797
$
3,758,533
$
(1,162,001) $
1,102
$
65,256
$
2,663,687
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:
Year Ended December 31,
2016
2017
2015
$
81,819
$
31,471
$ 170,473
Gain on disposition of assets
Gain on disposition of properties, net
Gain on acquisition of property
Unrealized foreign currency translation (gain) / loss
Contingent liability remeasurement (gain) / 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
Loss on extinguishment of debt
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 dispositions 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 costs of common stock, OP units, and preferred OP units, net
Borrowings on lines of credit
Payments on lines of credit
Proceeds from issuance of other debt
Payments on other debt
Prepayment penalty on debt
Proceeds received from return of prepaid deferred financing costs
Redemption of Series A-4 preferred stock and OP units
Redemption of Series A cumulative convertible preferred stock
Redemption of Series B-3 preferred OP units
Distributions to stockholders, OP unit holders, and preferred OP unit holders
Preferred stock redemption costs
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
(9,338)
—
—
(6,146)
(3,035)
742
12,695
256,193
(582)
(7,402)
(9,548)
2,910
1,914
6,019
—
(26,193)
(29,264)
(9,034)
261,750
(288,537)
(120,377)
—
—
8,575
—
(3,918)
—
2,615
(401,642)
487,677
661,000
(719,536)
185,153
(124,427)
(6,019)
—
(24,698)
(85,000)
(4,460)
(224,483)
—
(3,650)
141,557
298
1,963
8,164
10,127
$
(11,224)
(5,051)
— (125,376)
—
—
—
—
7,108
174,589
1,000
(5,073)
(10,483)
1,936
—
2,800
(7,500)
(9,270)
(14,618)
1,728
182,263
(510)
5,005
181
—
9,557
218,669
(400)
(6,570)
(10,693)
2,160
600
1,127
(500)
(20,933)
28,118
(7,365)
238,693
(223,429)
(1,487,593)
—
500
4,709
88,696
(10,633)
—
13,238
(1,614,512)
(208,427)
(309,274)
(2,260)
7,500
6,848
94,522
(1,755)
(2,102)
1,764
(413,184)
310,396
750,534
421,184
580,754
(401,978)
(505,409)
377,041
964,252
(222,877)
(230,785)
(2,800)
(1,127)
—
6,852
— (121,445)
—
—
—
—
(162,491)
(193,740)
(4,328)
—
(7,006)
(25,509)
192,548
1,338,970
—
(73)
(38,373)
(36,922)
83,459
45,086
45,086
8,164
$
$
SUPPLEMENTAL INFORMATION:
Cash paid for interest (net of capitalized interest of $2,755, $1,595 and $608
respectively)
Cash paid for interest on mandatorily redeemable debt
Cash (refunds) paid for income taxes
Noncash investing and financing activities:
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
Capital lease
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 - contingent consideration liability
Year Ended December 31,
2017
2016
2015
$ 124,046
$ 121,480
3,114
$
(194) $
3,152
452
23,449
3,267
3,556
$
$
$
19,734
9,626
5,933
$
$
$
$
$
$
99,989
3,222
310
26,293
6,744
5,491
4,720
$
— $
— $
$
4,114
11,503
$
6,900
— $ 126,339
— $
— $
2,786
—
— $
— $
— $
1,000
— $ 175,613
28,410
$ 225,000
$ 278,955
— $
— $
33,154
4,592
$
— $ 380,043
— $
9,830
$
—
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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, a Michigan limited partnership (the “Operating Partnership”), and Sun Home
Services, Inc., a Michigan corporation (“SHS”) are referred to herein as the “Company,” “us,” “we,” and “our”. We are a fully
integrated, self-administered and self-managed real estate investment trust (“REIT”).
We own, operate, or have an interest in a portfolio, and develop manufactured housing (“MH”) and recreational vehicle (“RV”)
communities throughout the United States (“U.S.”). As of December 31, 2017, we owned, operated or had an interest in a portfolio
of 350 developed properties located in 29 states and Ontario, Canada (collectively the “Properties”), including 230 MH communities,
89 RV communities, and 31 communities containing both MH and RV sites. As of December 31, 2017, the Properties contained
an aggregate of 121,892 developed sites comprised of 83,294 developed MH sites, 22,742 annual RV sites, and 15,856 transient
RV sites. There are approximately 9,600 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.
On January 1, 2018, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2017-01,
“Business Combinations (Topic 805): Clarifying the Definition of a Business.” Upon adoption of this standard, we expect that
substantially all of our future property acquisitions will be accounted for as asset acquisitions. Refer to Note 17, “Recent Accounting
Pronouncements,” for additional information regarding adoption of this ASU.
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 the majority of
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 debt 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 $17.7 million and $10.1 million as of December 31, 2017 and 2016, 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.
Refer to Note 6, “Investment in Affiliates,” for additional information.
Notes and Other Receivables
Notes receivable includes both installment loans for manufactured homes 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. The notes are
collateralized by the underlying manufactured home sold. 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.
F - 11
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. 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 beyond the grace period required by law or by the loan agreement,
notice is given to start the collection process. A specific allowance is estimated on the past due loans based on historical delinquency
data and current delinquency levels.
Credit quality is evaluated at the inception of the receivable. Factors that are considered in order to determine the credit quality
of the applicant include, but are not limited to: 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, 2017 and 2016, $13.4 million and $17.1 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. The carrying amounts of the identified
intangible assets are included in Other assets, net on our Consolidated Balance Sheets. Refer to 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. Refer to Note 12, “Income
Taxes,” for additional information.
F - 12
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 FASB Accounting Standards Codification (“ASC”) 470-50-40, “Modifications and Extinguishments.”
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. Refer to 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.” Refer to 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. Refer to Note 17, “Recent Accounting Pronouncements,” for information regarding our adoption of ASU 2014-09
“Revenue from Contracts with Customers (Topic 606)” and the related updates subsequently issued by the FASB on January 1,
2018.
Advertising Costs
Advertising costs are expensed as incurred. As of December 31, 2017, 2016 and 2015, we had advertising costs of $5.9 million,
$4.2 million and $3.9 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).
F - 13
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2017, we recorded a foreign currency translation gain of $5.9 million within Other income /
(expense), net on our Consolidated Statements of Operations, as compared to a foreign currency translation loss of $5.0 million,
for the year ended December 31, 2016. We had no foreign currency translation impact for the year ended December 31, 2015.
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. 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. Changes in the
fair value of derivatives are recorded in earnings. As of December 31, 2017 and 2016, the fair value of our derivatives was zero.
Refer to 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
2017 Acquisitions
In December 2017, we acquired Colony in the Wood (“Colony in the Wood”), an age-restricted MH community with 383 sites
located in Port Orange, Florida.
In November 2017, we acquired Emerald Coast RV Beach Resort (“Emerald Coast”), an MH and RV community with 201 sites
located in Panama City Beach, Florida.
In September 2017, we acquired three age-restricted MH communities: Lazy J Ranch (“Lazy J Ranch”), with 220 sites in Arcata,
California; Ocean West (“Ocean West”), with 130 sites in McKinleyville, California; and Caliente Sands (“Caliente Sands”), with
118 sites in Cathedral City, California.
In July 2017, we acquired Pismo Dunes RV Resort (“Pismo Dunes”), an age-restricted RV community with 331 sites located in
Pismo Beach, California.
In June 2017, we acquired Arbor Woods (“Arbor Woods”), a MH community with 458 sites located in Superior Township, Michigan.
In May 2017, we acquired Sunset Lakes RV Resort (“Sunset Lakes”), a RV resort with 498 sites located in Hillsdale, Illinois.
In March 2017, we acquired Far Horizons 49er Village RV Resort Inc. (“49er Village”), a RV resort with 328 sites located in
Plymouth, California.
The following table summarizes the amounts of assets acquired net of liabilities assumed at the acquisition date and the consideration
paid for the acquisitions completed in 2017 (in thousands):
At Acquisition Date (1)
Investment in property
Notes receivable
Inventory of
manufactured homes
In-place leases and
other intangible assets
Total identifiable
assets acquired net of
liabilities assumed
Consideration
Cash
Equity
Liabilities assumed
Cash proceeds from
seller
Total consideration
Lazy J
Ranch
Emerald
Coast
Colony in
the Wood
$ 32,478 $ 19,400 $13,938 $ 9,453 $ 8,640 $ 21,260 $ 15,725 $ 7,835 $ 12,890 $141,619
23
Caliente
Sands
Sunset
Lakes
Arbor
Woods
Ocean
West
49er
Village
Pismo
Dunes
Total
23
—
—
—
—
—
—
—
—
—
—
—
2
—
21
—
100
360
220
210
660
465
730
—
—
488
210
110
2,600
$ 32,478 $ 19,500 $14,300 $ 9,673 $ 8,871 $ 21,920 $ 16,943 $ 8,045 $ 13,000 $144,730
$ 32,478 $ 19,500 $14,300 $ 5,081 $ 8,871 $ — $ 14,943 $ 8,045 $ 13,000 $116,218
— 28,410
5,102
—
— 26,410
510
—
—
—
— 4,592
2,000
—
—
—
—
—
—
—
—
— (5,000)
$ 32,478 $ 19,500 $14,300 $ 9,673 $ 8,871 $ 21,920 $ 16,943 $ 8,045 $ 13,000 $144,730
— (5,000)
—
—
—
—
—
(1) The purchase price allocations in the table above are preliminary and may be adjusted as final costs and valuations are determined.
F - 15
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amount of total revenues and net income included in the Consolidated Statements of Operations for the year ended December
31, 2017 related to the acquisitions completed in 2017 are set forth in the following table (in thousands):
Total revenues
Net income
Year Ended December 31, 2017
(unaudited)
$
$
8,857
2,248
The following unaudited pro forma financial information presents the results of our operations for the year ended December 31,
2017 and 2016, as if the properties acquired in 2017 had been acquired on January 1, 2016. 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, 2016 (in thousands, except per-share data):
Year Ended December 31,
(unaudited)
2017
2016
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
$
$
$
$
992,770
68,404
0.90
0.89
$
$
$
$
850,376
22,720
0.34
0.34
Also in 2017, we acquired Carolina Pines RV Resort, an undeveloped parcel of land (“Carolina Pines” formerly known as Bear
Lake), near Myrtle Beach, South Carolina, for $5.9 million. This land parcel has been entitled and zoned to build an 841 site RV
resort.
Transaction costs of $9.8 million, $31.9 million, and $17.8 million have been incurred for the years ended December 31, 2017,
2016, and 2015, respectively. These costs are presented as Transaction costs in our Consolidated Statements of Operations.
2016 Acquisitions
In June 2016, we acquired all of the issued and outstanding shares of common stock of Carefree Communities Inc. (“Carefree”)
through the Operating Partnership for an aggregate purchase price of $1.68 billion. Carefree owned 103 MH and RV communities,
comprising over 27,000 sites.
At the closing, we issued 3,329,880 shares of common stock at $67.57 per share (or $225.0 million in common stock) to the seller
and the Operating Partnership paid the balance of the purchase price in cash. Approximately $1.0 billion of the cash payment was
applied simultaneously to repay debt on the properties owned by Carefree. The Operating Partnership funded the cash portion of
the purchase price in part with proceeds from debt financings as described in Note 8, “Debt and Lines of Credit” and net proceeds
of $385.4 million from an underwritten public offering of 6,037,500 shares of common stock at a price of $66.50 per share in
March 2016.
F - 16
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We have allocated the “investment in property” balances for Carefree to the respective balance sheet line items upon completion
of a purchase price allocation in accordance with the FASB ASC Topic 805 “Business Combinations,” as set forth in the table
below (in thousands):
At Acquisition Date
Investment in property
Ground leases
In-place leases
Deferred tax liability
Other liabilities
Inventory of manufactured homes
Below market lease
Total identifiable assets acquired and liabilities assumed
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
Additionally, during 2016, we acquired seven RV resorts and one MH community for total consideration of $89.7 million. We
added 1,677 sites in six states as a result of these acquisitions.
The amount of revenue and net income included in the 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):
Carefree Acquisition
Revenue
Net income
Dispositions
Year Ended
December 31, 2016
(unaudited)
$
$
97,836
9,070
There were no property dispositions during 2017. During the fourth quarter of 2016, 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.
3. Collateralized Receivables and Transfers of Financial Assets
We previously 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
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:
F - 17
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Number of Payments
Fewer than or equal to 15
Greater than 15 but fewer than 64
Equal to or greater than 64 but fewer than 120
120 or more
Repurchase Percentage
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 $128.2 million (net of allowance of $0.9 million) and $143.9 million (net of allowance of $0.6
million) as of December 31, 2017, and December 31, 2016, respectively. The receivables have a weighted average interest rate
and maturity of 10.0 percent and 15.3 years as of December 31, 2017, and 10.0 percent and 15.7 years as of December 31, 2016.
The outstanding balance on the secured borrowing was $129.2 million and $144.5 million as of December 31, 2017, and
December 31, 2016, 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 $13.2 million, $14.0 million, and $13.2 million for the years ended
December 31, 2017, 2016, and 2015, 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
Principal reduction from repurchased homes
Total activity
Ending balance
Year Ended
December 31, 2017
December 31, 2016
$
$
144,477
8,153
(12,186 )
(11,262 )
(15,295 )
129,182
$
$
140,440
23,771
(11,937)
(7,797)
4,037
144,477
The following table sets forth the allowance for the collateralized receivables (in thousands):
Beginning balance
Lower of cost or market write-downs
Increase to reserve balance
Total activity
Ending balance
Year Ended
December 31, 2017
December 31, 2016
$
$
(607) $
1,024
(1,353)
(329)
(936) $
(672)
617
(552)
65
(607)
F - 18
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, 2017
December 31, 2016
$
$
115,797 $
47,699
163,496
$
59,320
21,859
81,179
The installment notes of $115.8 million (net of allowance of $0.4 million) and $59.3 million (net of allowance of $0.2 million) as
of December 31, 2017 and December 31, 2016, respectively, are collateralized by manufactured homes. The notes represent
financing provided to purchasers of manufactured homes primarily located in our communities and require monthly principal and
interest payments. The notes have a weighted average interest rate (net of servicing costs) and maturity of 8.2 percent and 17.2
years as of December 31, 2017, and 8.3 percent and 16.0 years as of December 31, 2016.
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
Principal reduction from repossessed homes
Total activity
Ending balance
Allowance for Losses for Installment Notes Receivable
Year Ended
December 31, 2017
December 31, 2016
$
$
59,524 $
66,104
23
(6,128 )
(3,349 )
56,650
116,174 $
20,610
41,322
3,521
(4,363)
(1,566)
38,914
59,524
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, 2017
December 31, 2016
$
$
(205) $
170
(342)
(172 )
(377) $
(192)
128
(141)
(13)
(205)
As of December 31, 2017, other receivables were comprised of amounts due from residents for rent, and water and sewer usage
of $7.0 million (net of allowance of $1.5 million), home sale proceeds of $13.8 million, insurance receivables of $24.2 million,
and rebates and other receivables of $2.7 million. 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.
F - 19
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Intangible Assets
Our intangible assets include ground leases, in-place leases, franchise fees, and other intangible assets. These intangible assets are
recorded in Other assets, net on the Consolidated Balance Sheets.
In December 2017, we acquired 25.0 percent of the land that was previously under a ground lease at one of our California
communities for $4.0 million, and amended the ground lease agreement to include an option to purchase an additional 25.0 percent
of the land. As a result of these transactions, we wrote off $1.1 million of the gross carrying amount of the ground lease intangible
and $0.2 million of accumulated amortization. The $0.9 million net write off is included within Property operating and maintenance
expense in our Consolidated Statements of Operations for the year ended December 31, 2017.
The gross carrying amounts and accumulated amortization are as follows (in thousands):
December 31, 2017
December 31, 2016
Intangible Asset
Ground leases
In-place leases
Franchise fees and other intangible assets
Total
Useful Life
8-57 years
7 years
15 years
Gross Carrying
Amount
$
32,165
100,843
1,880
Accumulated
Amortization
$
(1,409) $
(45,576)
(1,451)
(48,436) $
Gross Carrying
Amount
33,270
98,235
1,880
Accumulated
Amortization
$
(600)
(31,796)
(1,155)
(33,551)
$
134,888
$
133,385
$
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,
2017
2016
2015
$
$
809
$
600
$
13,812
301
11,559
535
14,922
$
12,694
$
—
8,299
516
8,815
We anticipate amortization expense for our intangible assets to be as follows for the next five years (in thousands):
Estimated expense
$
14,507
$
13,591
$
11,863
$
11,471
$
6,870
2018
2019
Year
2020
2021
2022
6. Investment in Affiliates
Origen Services
At December 31, 2017 and 2016, we had a 22.9 percent ownership interest in Origen Services, an entity that specializes in resident
screening services. We have suspended equity method 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 percent. During 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.
F - 20
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Consolidated Variable Interest Entities
We consolidate Rudgate Village SPE, LLC; Rudgate Clinton SPE, LLC; and Rudgate Clinton Estates SPE, LLC (collectively,
“Rudgate”) as a variable interest entity (“VIE”). We evaluated our arrangement with this property under the guidance set forth in
FASB ASC Topic 810 “Consolidation.” We concluded that Rudgate qualified as a VIE where we are the primary beneficiary, as
we have power to direct the significant activities, absorb the significant losses and receive the significant benefits from the entity.
During 2017, we acquired the noncontrolling equity interests in Wildwood Mobile Home Park (“Wildwood”) held by third parties
for total consideration of $0.1 million. Prior to this acquisition, we consolidated Wildwood as a VIE. The acquisition resulted in
the Company owning a 100.0 percent controlling interest in Wildwood, and was deemed a VIE reconsideration event. We concluded
that Wildwood was no longer a VIE.
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, 2017
December 31, 2016
$
$
$
$
50,193
1,659
51,852
$
$
41,970
$
1,468
4,285
47,723
$
88,987
3,054
92,041
62,111
1,998
(2,982)
61,127
Investment property, net and other assets related to the consolidated VIEs comprised approximately 0.8 percent and 1.6 percent
of our consolidated total assets at December 31, 2017 and December 31, 2016, respectively. Debt and other liabilities comprised
approximately 1.2 percent and 1.9 percent of our consolidated total liabilities at December 31, 2017 and December 31, 2016,
respectively. Noncontrolling interests related to the consolidated VIEs, on an absolute basis, comprised less than 1.0 percent of
our consolidated total equity at December 31, 2017 and December 31, 2016.
8. Debt and Lines of Credit
The following table sets forth certain information regarding debt (in thousands):
Carrying Amount
Weighted Average
Years to Maturity
Weighted Average
Interest Rates
December 31,
2017
December 31,
2016
December 31,
2017
December 31,
2016
December 31,
2017
December 31,
2016
Collateralized term loans - Life
Companies
Collateralized term loans - FNMA
Collateralized term loans - CMBS
Collateralized term loans - FMCC
Secured borrowings
Lines of credit
Preferred OP units - mandatorily
redeemable
Total debt
1,044,246
$ 1,026,014
410,747
386,349
888,705
$ 1,046,803
492,294
391,765
129,182
41,257
144,477
100,095
41,443
45,903
$ 3,079,238
$ 3,110,042
13.9
5.6
5.0
6.9
15.3
3.1
5.0
8.9
12.2
6.6
5.6
7.9
15.7
3.6
5.4
8.5
3.9%
4.4%
5.1%
3.9%
10.0%
2.8%
6.7%
4.5%
3.9%
4.3%
5.2%
3.9%
10.0%
2.1%
6.9%
4.5%
F - 21
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Collateralized Term Loans
In December 2017, we defeased a $38.6 million collateralized term loan with a 5.25 percent fixed interest rate that was due to
mature on June 1, 2022. As a result of the transaction we recognized a loss on extinguishment of debt of $5.2 million in our
Consolidated Statements of Operations. Concurrent with the defeasance, we entered into a new $100.0 million collateralized term
loan, encumbered by the same property, with a 4.25 percent fixed rate of interest and 30-year term. Refer to Note 20, “Subsequent
Events,” for additional information regarding collateralized term loan repayments after December 31, 2017.
In September 2017, in connection with the Ocean West acquisition, we assumed a $4.6 million collateralized term loan with
Fannie Mae, with an interest rate of 4.34 percent and a remaining term of 9.8 years.
In June 2017, we entered into a $77.0 million collateralized term loan which bears interest at a rate of 4.16 percent amortizing
over a 25-year term. We also repaid a $3.9 million collateralized term loan with an interest rate of 6.54 percent that was due to
mature on August 31, 2017. As a result of the repayment transaction, we recognized a loss on extinguishment of debt of $0.3
million in our Consolidated Statements of Operations.
During the first quarter of 2017, we defeased an $18.9 million collateralized term loan with an interest rate of 6.49 percent that
was due to mature on August 1, 2017, releasing one encumbered community. As a result of the transaction, we recognized a loss
on extinguishment of debt of $0.5 million in our Consolidated Statements of Operations. In addition, we repaid a $10.0 million
collateralized term loan with an interest rate of 5.57 percent that was due to mature on May 1, 2017, releasing an additional
encumbered community.
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. Also in the fourth quarter of 2016, we entered into a promissory note
$58.5 million that bears interest at a rate of 3.33 percent and has a seven-year term. The repayment of the note is interest only for
the entire term.
In September 2016, 15 subsidiaries of the Operating Partnership entered into a promissory note for total borrowings of $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 percent and have ten-year terms. The remaining ten loans totaling $68.8 million bear interest at a rate of 3.75 percent and
have seven-year terms. The Freddie Mac Financing provides for principal and interest payments to be amortized over 30 years.
Proceeds from the Freddie Mac Financing described above and the underwritten registered public equity offering in September
2016 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 (refer to Lines of Credit below for additional information
regarding the A&R 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 percent and
the $38.0 million term loan bears interest at 3.67 percent for a blended rate of 3.69 percent. 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
percent 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 percent 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
F - 22
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
percent and is secured by a mortgage encumbering one RV community. The MH and RV communities noted above that secure the
NML Financing were acquired as part of the Carefree transaction (Refer to 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.
Proceeds from the Fannie Mae Financing and NML Financing were primarily used to fund the cash portion of the Carefree
acquisition (Refer to Note 2, “Real Estate Acquisitions and Dispositions”).
The collateralized term loans totaling $2.9 billion as of December 31, 2017, are secured by 190 properties comprised of 75,198
sites representing approximately $3.4 billion of net book value.
Secured Borrowings
Refer to Note 3, “Collateralized Receivables and Transfers of Financial Assets,” for additional information regarding our
collateralized receivables and secured borrowings transactions.
Preferred OP units
Preferred OP units at December 31, 2017 and 2016 include $34.7 million of Aspen preferred OP units issued by the Operating
Partnership. As of December 31, 2017, these units are convertible indirectly into 459,499 shares of our common stock. Subject
to certain limitations, at any time prior to January 1, 2024, the holder of each Aspen preferred OP unit at its option may convert
such Aspen preferred OP unit into: (a) if the market price of our common stock is $68.00 per share or less, 0.397 common OP
units; or (b) if the market price of our common stock is greater than $68.00 per share, the number of common OP units is determined
by dividing (i) the sum of (A) $27.00 plus (B) 25 percent of the amount by which the market price of our common stock exceeds
$68.00 per share, by (ii) the per-share market price of our common stock. The current preferred distribution rate is 6.5 percent.
On January 2, 2024, we are required to redeem all Aspen preferred OP units that have not been converted to common OP units.
Preferred OP units also include $6.7 million and $11.2 million at December 31, 2017 and 2016, respectively, of Series B-3 preferred
OP units, which are not convertible. During the three months ended December 31, 2017, we redeemed 44,599 of the Series B-3
preferred OP units at an average redemption price per unit, which included accrued and unpaid distributions, of $101.143755. In
the aggregate, we paid $4.5 million to redeem these units. Refer to Note 20, “Subsequent Events” for additional information
regarding Series B-3 preferred OP unit redemptions after December 31, 2017.
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 April 2017, we amended and restated our credit agreement (the “A&R Credit Agreement”) with Citibank, N.A. (“Citibank”)
and certain other lenders. Pursuant to the A&R Credit Agreement, we have a senior revolving credit facility with Citibank and
certain other lenders in the amount of $650.0 million, comprised of a $550.0 million revolving loan and a $100.0 million term
loan (the “A&R Facility”). The A&R Credit Agreement has a four-year term ending April 25, 2021, 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 A&R Credit Agreement also provides for, subject to the satisfaction of certain conditions, additional commitments in an
amount not to exceed $350.0 million. If additional borrowings are made pursuant to any such additional commitments, the aggregate
borrowing limit under the A&R Facility may be increased up to $1.0 billion.
The A&R 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 A&R Credit Agreement, which margin can range from 1.35 percent to 2.20 percent
F - 23
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the revolving loan and 1.30 percent to 2.15 percent for the term loan. As of December 31, 2017, the margin on our leverage
ratio was 1.35 percent and 1.30 percent on the revolving and term loans, respectively. We had $37.8 million in borrowings on the
revolving loan and no borrowings on the term loan totaling $37.8 million as of December 31, 2017, with a weighted average
interest rate of 2.79 percent.
The A&R Facility replaced our $450.0 million credit facility (the “Previous Facility”), which was scheduled to mature on August 19,
2019. At the time of the closing of the A&R Facility, there were $220.8 million in borrowings under the Previous Facility. At
December 31, 2016, under the Previous Facility, we had $42.3 million in borrowings on the revolving loan and $58.0 million in
borrowings on the term loan totaling $100.3 million with a weighted average interest rate of 2.14 percent.
The A&R Facility provides, and the Previous Facility provided, 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, 2017 and December 31, 2016, $1.3 million and $4.6 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 their 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 percent. At December 31, 2017, the effective
interest rate was 7.0 percent. The outstanding balance was $4.0 million and $2.8 million as of December 31, 2017 and December 31,
2016, respectively.
Covenants
Pursuant to the terms of the A&R 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, 2017, 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.
Long-term Debt Maturities
As of December 31, 2017, the total of maturities and amortization of our debt (excluding premiums and discounts) and lines of
credit during the next five years were as follows (in thousands):
Maturities and Amortization By Year
Mortgage loans payable:
Maturities
Principal amortization
Secured borrowings
Lines of credit
Preferred OP units - mandatorily
redeemable
Total
Total Due
2018
2019
2020
2021
2022
Thereafter
$ 2,183,609
674,113
129,182
41,809
$ 26,186
55,564
5,541
—
$ 64,314
56,904
6,036
4,009
$ 58,078
57,593
6,583
—
$ 270,680
56,612
7,069
37,800
$ 82,544
54,001
7,302
—
$ 1,681,807
393,439
96,651
—
41,443
$ 3,070,156
6,780
$ 94,071
—
$ 131,263
—
$ 122,254
—
$ 372,161
—
$ 143,847
34,663
$ 2,206,560
9. Equity and Mezzanine Securities
Public Equity Offerings
In May 2017, we closed an underwritten registered public offering of 4,830,000 shares of common stock at a price of $86.00 per
share. Proceeds from the offering were $408.9 million after deducting expenses related to the offering, which were used to repay
F - 24
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
borrowings outstanding under the revolving loan under our A&R Facility, to fund acquisitions and for working capital and general
corporate purposes.
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 Previous 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.
At the Market Offering Sales Agreement
In July 2017, we entered into a new at the market offering sales agreement (the “Sales Agreement”) with BMO Capital Markets
Corp., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Robert W. Baird & Co. Incorporated,
Fifth Third Securities, Inc., RBC Capital Markets, LLC, BTIG, LLC, Jefferies LLC, Credit Suisse Securities (USA) LLC and
Samuel A. Ramirez & Company, Inc. (each, a “Sales Agent;” collectively, the “Sales Agents”), whereby we may offer and sell
shares of our common stock, having an aggregate offering price of up to $450.0 million, from time to time through the Sales
Agents. The Sales Agents are entitled to compensation in an agreed amount not to exceed 2.0 percent of the gross price per share
for any shares sold from time to time under the Sales Agreement.
Concurrent with the entry into the Sales Agreement, we terminated our previous sales agreement dated June 17, 2015, with BMO
Capital Markets Corp., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citigroup Global Markets Inc., (the “Prior
Agreement”). The Prior Agreement had an aggregate offering price of up to $250.0 million. We did not incur any penalties in
connection with termination of the Prior Agreement.
Issuances of common stock under the Sales Agreement during 2017 were as follows:
Quarter Ended
December 31, 2017
Common Stock Issued
321,800
Weighted Average Sales Price
93.33
$
$
Net Proceeds (in Millions)
29.7
Issuances of common stock under the Prior Agreement during 2017 and 2016 were as follows:
Quarter Ended
June 30, 2017
March 31, 2017
December 31, 2016
September 30, 2016
June 30, 2016
Common Stock Issued
400,000
280,502
19,498
620,828
485,000
Weighted Average Sales Price
85.01
$
$
$
$
$
76.47
75.90
76.81
71.86
$
$
$
$
$
Net Proceeds (in Millions)
33.6
21.2
1.5
47.1
34.4
Issuances of Common Stock and Common OP Units
In July 2017, we issued 298,900 shares of common stock totaling $26.4 million in connection with the acquisition of Pismo Dunes.
In June 2017, we issued a total of 23,311 common OP units for total consideration of $2.0 million in connection with acquisition
activity during the three months ended June 30, 2017.
Conversions
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 2017 and 2016:
F - 25
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Conversion Rate
1
2.439
0.4444
0.4444
1.11
Year Ended December 31, 2017
Year Ended December 31, 2016
Units/Shares
36,055
21,919
10,000
158,036
16,806
Common Stock
36,055
53,456
4,440
70,238
18,651
Units/Shares
104,106
20,691
120,906
385,242
7,043
Common Stock
104,106
50,458
53,733
171,218
7,815
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
Dividends
Dividend distributions declared for the quarter ended December 31, 2017 are as follows:
Dividend
Common Stock, Common OP units and Restricted Stock
Series A-4 Cumulative Convertible Preferred Stock
Record
Date
12/29/2017
12/21/2017
Payment
Date
1/16/2018 $
1/2/2018 $
Distribution per
Share
Total
Distribution
0.67 $
0.40625 $
55,225
441
Redemptions
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.
In November 2017, we redeemed all of the outstanding shares of our 7.125% Series A Cumulative Redeemable Preferred Stock.
Holders received a cash payment of $25.14349 per share which included accrued and unpaid dividends. In the aggregate, the
Company paid $85.5 million to redeem all of the 3,400,000 outstanding shares.
In June 2017, we redeemed 438,448 shares of Series A-4 preferred stock and 200,000 shares of Series A-4 preferred OP units from
certain of the Green Courte entities for total consideration of $24.7 million. Accrued dividends totaling $0.2 million were also
paid in connection with the redemptions. The Green Courte entities were the sellers of the American Land Lease portfolio which
we acquired in 2014 and 2015.
Repurchase Program
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 2017 or 2016. There
is no expiration date specified for the repurchase program.
10. Share-Based Compensation
As of December 31, 2017, we have two share-based compensation plans; the Sun Communities, Inc. 2015 Equity Incentive Plan
(“2015 Equity Incentive Plan”) and the First Amended and Restated 2004 Non-Employee Director Option Plan (“2004 Non-
Employee Director Option 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
F - 26
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
over several years and are subject to continued employment by the employee. Award recipients receive distribution payments on
unvested shares of restricted stock.
2015 Equity Incentive 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 1,344,769 shares
remaining for future issuance.
2004 Non-Employee Director Option Plan
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 26,754 shares remaining for future issuance.
During the year ended December 31, 2017, shares were granted as follows:
Award
Type
Plan
2017
Key
Employees
2015 Equity
Incentive Plan
Shares
Granted
Grant Date
Fair Value
Per Share
Vesting Type
Vesting
Anniversary
Percentage
2,500
$
84.18
(1)
Time Based
2nd
2017
Executive
Officers
2015 Equity
Incentive Plan
100,000
$
79.30
(2)
Time Based
3rd
4th
5th
6th
3rd
4th
5th
6th
7th
2017
Executive
Officers
2015 Equity
Incentive Plan
100,000
$
79.30
2017
Directors
2004 Non-Employee
Director Option Plan
16,900
$
79.64
(2)
(1)
Market &
Performance
Conditions
Multiple tranches through
March 2022
Time Based
3rd
100.0%
(1) Grant date fair value is measured based on the closing price of our common stock on the date(s) shares are issued.
(2) 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.
F - 27
35.0%
35.0%
20.0%
5.0%
5.0%
20.0%
30.0%
35.0%
10.0%
5.0%
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended December 31, 2016, shares were granted as follows:
Award
Type
Plan
2016
Executive
Officers
2015 Equity
Incentive Plan
Shares
Granted
Grant Date
Fair Value
Per Share
Vesting Type
Vesting
Anniversary
Percentage
65,000
$
69.25
(2)
Time Based
3rd
4th
5th
6th
7th
20.0%
30.0%
35.0%
10.0%
5.0%
Multiple tranches through
March 2022
3rd
3rd
4th
5th
6th
7th
100.0%
35.0%
35.0%
20.0%
5.0%
5.0%
2016
Executive
Officers
2015 Equity
Incentive Plan
65,000
$
69.25
2016
Directors
2004 Non-Employee
Director Option Plan
16,800
$
69.45
2016
Key
Employees
2015 Equity
Incentive Plan
81,000
$
69.70
(2)
(1)
(1)
Market &
Performance
Conditions
Time Based
Time Based
(1) Grant date fair value is measured based on the closing price of our common stock on the date(s) shares are issued.
(2) 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, 2017, 2016, and 2015:
Unvested restricted shares at January 1, 2015
Granted
Vested
Forfeited
Unvested restricted shares at December 31, 2015
Granted
Vested
Forfeited
Unvested restricted shares at December 31, 2016
Granted
Vested
Forfeited
Unvested restricted shares at December 31, 2017
Number of Shares
Weighted Average
Grant Date Fair
Value
688,743
$
$
216,800
(85,021) $
(7,262) $
813,260
$
$
227,800
(165,631) $
(33,795) $
$
841,634
219,400
$
(196,412) $
(4,769) $
$
859,853
43.87
64.32
31.89
45.94
50.59
69.43
45.90
56.49
56.38
79.38
47.60
56.43
64.25
Total compensation cost recognized for restricted stock was $12.7 million, $9.6 million, and $7.1 million for the years ended
December 31, 2017, 2016, and 2015, respectively. The total fair value of shares vested was $9.3 million, $7.6 million, and $2.7
million for the years ended December 31, 2017, 2016 and 2015, respectively. The remaining net compensation cost related to our
unvested restricted shares outstanding as of December 31, 2017 is approximately $35.4 million. That expense is expected to be
recognized $11.1 million in 2018, $8.8 million in 2019, $7.7 million in 2020 and $7.8 million thereafter.
F - 28
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options
During 2017, 1,500 non-employee director options with an intrinsic value of $0.1 million were exercised at a weighted average
price of $29.91. At December 31, 2017, 3,000 fully vested non-employee director options remained outstanding with an intrinsic
value of $0.2 million. These options had a weighted average exercise price of $33.45 and a weighted average contractual term of
3.1 years. No options have been granted, and there has been no compensation expense associated with non-vested stock option
awards for the years ended December 31, 2017, 2016, or 2015.
F - 29
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 $78.0 million for the year ended December 31, 2017. In 2017, transient RV
revenue was recognized 27.2 percent in the first quarter, 20.1 percent in the second quarter, 36.9 percent in the third quarter,
and 15.8 percent in the fourth quarter.
A presentation of our 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 revenues, net
Home selling expense
General and administrative
Transaction costs
Catastrophic weather related charges, net
Depreciation and amortization
Loss on extinguishment of debt
Interest
Interest on mandatorily redeemable preferred OP units
Other income / (expense), net
Current tax expense
Deferred tax benefit
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, 2017
Real Property
Operations
Home Sales and
Home Rentals
Consolidated
$
779,739
$
177,957
$
289,637
490,102
24,875
—
(64,735)
(9,812)
(7,856)
(199,960)
(6,019)
(127,113)
(3,114)
8,983
(62)
582
105,871
4,581
6,339
94,951
7,162
117,114
60,843
(1)
(12,457)
(9,976)
11
(496)
(61,576)
—
(15)
—
(1)
(384)
—
(24,052)
—
(1,284)
(22,768)
—
957,696
406,751
550,945
24,874
(12,457)
(74,711)
(9,801)
(8,352)
(261,536)
(6,019)
(127,128)
(3,114)
8,982
(446)
582
81,819
4,581
5,055
72,183
7,162
$
87,789
$
(22,768) $
65,021
F - 30
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 2016
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 revenues, net
Home selling expenses
General and administrative
Transaction costs
Catastrophic weather related charges, net
Depreciation and amortization
Loss on 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
$
$
654,341
241,005
413,336
$
158,287
104,714
53,573
21,150
—
(55,481)
(31,863)
(1,147)
(166,296)
(1,127)
(119,150)
(3,152)
(4,675)
(471)
400
500
52,024
5,006
1,478
45,540
8,946
—
(9,744)
(8,606)
(51)
(25)
(55,474)
—
(13)
—
(1)
(212)
—
—
(20,553)
—
(1,328)
(19,225)
—
$
36,594
$
(19,225) $
812,628
345,719
466,909
21,150
(9,744)
(64,087)
(31,914)
(1,172)
(221,770)
(1,127)
(119,163)
(3,152)
(4,676)
(683)
400
500
31,471
5,006
150
26,315
8,946
17,369
F - 31
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 2015
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 revenues, net
Home selling expenses
General and administrative
Transaction costs
Depreciation and amortization
Loss on extinguishment of debt
Interest
Interest on mandatorily redeemable preferred OP units
Gain on disposition of properties
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
$
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
Net income / (loss) attributable to Sun Communities, Inc.
common stockholders
$
144,040
$
(6,715) $
137,325
December 31, 2017
December 31, 2016
Real
Property
Operations
Home Sales
and Home
Rentals
Identifiable assets:
Investment property, net
Cash and cash equivalents
Inventory of manufactured homes
Notes and other receivables, net
Collateralized receivables, net
Other assets, net
Total assets
$ 5,172,521
(7,649)
—
149,798
128,246
130,455
$ 5,573,371
$ 472,833
17,776
30,430
13,698
—
3,849
$ 538,586
Consolidated
$ 5,645,354
10,127
30,430
163,496
128,246
134,304
$ 6,111,957
Real
Property
Operations
Home Sales
and Home
Rentals
$ 5,019,165
3,705
—
68,901
143,870
143,650
$ 5,379,291
$ 450,316
4,459
21,632
12,278
—
2,800
$ 491,485
Consolidated
$ 5,469,481
8,164
21,632
81,179
143,870
146,450
$ 5,870,776
F - 32
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, as amended (“Code”).
In order for us to qualify as a REIT, at least 95.0 percent of our gross income in any year must be derived from qualifying sources.
In addition, a REIT must distribute annually at least 90.0 percent 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 continually to 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, 2017.
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 (“TRSs”) is subject to
federal, state and local income taxes. The Company is also subject to 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, 2017, 2016, and 2015, distributions paid per share were taxable as follows (unaudited / rounded):
Years Ended December 31,
2017
2016
2015
Ordinary income
Capital gain
Return of capital
Total distributions declared
Amount
Percentage
Amount
Percentage
Amount
Percentage
$
$
0.83
—
1.83
2.66
31.2% $
—%
68.8%
100.0% $
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%
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law. Under the Tax Act, the corporate
income tax rate is reduced from a maximum marginal rate of 35.0 percent to a flat 21.0 percent. In accordance with ASC 740,
“Accounting for Income Taxes,” entities are required to recognize the effect of tax law changes in the period of enactment even
though the effective date of most provisions of the Tax Act was January 1, 2018. Although the Staff Accounting Bulletin (“SAB”)
No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act,” allows entities to record provisional amounts during
a measurement period, it is our view that we have obtained the necessary information available to prepare and analyze (including
computations) in reasonable detail the accounting for the change in tax law as noted below.
The components of our (benefit) / provision for income taxes attributable to continuing operations for the year ended December
31, 2017 and 2016 are as follows (amounts in thousands):
F - 33
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Federal
Current
State and Local
Current
Deferred
Foreign
Current
Deferred
Year Ended
December 31, 2017
Year Ended
December 31, 2016
$
(181) $
675
(11)
(48)
(571)
187
438
—
58
(400)
Total (Benefit) / Provision
$
(136) $
283
A reconciliation of the (benefit) / 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, 2017 and 2016 is as follows (amounts in
thousands):
Pre-tax loss attributable to taxable subsidiaries
$ (17,404)
$ (11,157)
Year Ended December 31,
2017
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
Change in deferred tax asset
Others
Tax (benefit) / provision - taxable subsidiaries
Other state taxes - flow through subsidiaries
Total (benefit) / provision
(5,918)
(3)
—
318
(21,322)
25,885
360
(680)
544
(136)
$
34.0 %
— %
— %
(1.8)%
122.5 %
(148.7)%
(2.1)%
3.9 %
(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)%
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, and with respect to our Canadian
investments, depreciation and basis differences between tax and U.S. GAAP.
At December 31, 2017, we re-measured the deferred tax assets and liabilities of our U.S. TRSs to reflect the effect of the enacted
change in the tax rate under the Tax Act. We have also considered the new tax rate in assessing the need for and change to our
existing valuation allowance and adjusted accordingly. Since we have recorded a full valuation allowance against substantially
all of our deferred tax assets related to the U.S. TRSs, no material impact on the net deferred tax asset and the provision for income
taxes was noted.
F - 34
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The deferred tax assets and liabilities included in the consolidated balance sheets are comprised of the following tax effects of
temporary differences and based on the Tax Act (amounts in thousands):
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
Net Deferred Tax Liability (1)
As of December 31,
2017
2016
$
19,739 $
23,523
1,272
44,534
(41,932 )
2,602
30,821
33,167
1,746
65,734
(63,862)
1,872
(25,114 )
(25,114 )
(23,816)
(23,816)
$
(22,512 ) $
(21,944)
(1) Net deferred tax liability is included within Other liabilities in our Consolidated Balance Sheets.
SHS had U.S. operating loss carryforwards of $81.0 million, or $17.1 million after tax, as of December 31, 2017. 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 $10.2 million, or $2.7 million after tax, as of December 31, 2017. The loss carryforwards
will begin to expire in 2033 through 2038 if not offset by future taxable income.
We had no unrecognized tax benefits as of December 31, 2017 and 2016. We expect no significant increases or decreases in
unrecognized tax benefits due to changes in tax positions within one year of December 31, 2017.
We classify certain state taxes as income taxes for financial reporting purposes. We recorded a provision for state income taxes of
$0.7 million for the year ended December 31, 2017, $0.4 million for the year ended December 31, 2016, and $0.2 million for the
year ended December 31, 2015.
As previously noted, certain of 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 application of significant
judgment. 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, 2011 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, 2012 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, 2017, 2016 and 2015.
SHS is currently under audit by the Internal Revenue Service for the tax year 2015.
F - 35
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Earnings Per Share
We have outstanding stock options, unvested restricted common shares, 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 to restricted stock awards
Basic earnings: net income attributable to common stockholders after allocation
Allocation of income to restricted stock awards
Diluted earnings: net income attributable to common stockholders after allocation
Denominator
Weighted average common shares outstanding
Add: dilutive stock options
Add: dilutive restricted stock
Diluted weighted average common shares and securities
Earnings per share available to common stockholders after allocation:
Basic
Diluted
Year Ended December 31,
2017
65,021
455
65,476
(455)
65,021
$
$
$
2016
17,369
115
17,484
(115)
17,369
$
$
$
2015
137,325
(1,757)
135,568
—
135,568
76,084
65,856
53,686
2
625
8
457
16
—
76,711
66,321
53,702
0.85
0.85
$
$
0.27
0.26
$
$
2.53
2.52
$
$
$
$
$
We have excluded 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, 2017, 2016 and 2015 (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,
2017
2016
2015
—
2,746
345
40
424
1,085
316
1,284
6,240
—
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
F - 36
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, 2017 and 2016. 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.
2017
Total revenues
Total expenses
Income before other items
Quarters
1st
2nd
3rd
4th
(In thousands, except per share amounts)
$234,400 $237,899 $268,245 $ 242,026
209,729
222,171
$ 24,671 $ 15,728 $ 33,250 $
234,995
234,850
7,176
Net income attributable to Sun Communities, Inc. common stockholders
$ 21,104 $ 12,364 $ 24,115 $
7,438
Earnings per share:
Basic
Diluted
Total revenues
Total expenses
2016
$
$
0.29 $
0.29 $
0.16 $
0.16 $
0.31 $
0.31 $
0.09
0.09
$174,644 $190,799 $249,701 $ 218,634
211,569
226,688
195,781
162,638
Income / (loss) before other items
$ 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
$
$
0.14 $
0.14 $
(0.12) $
(0.12) $
0.27 $
0.27 $
(0.02)
(0.02)
F - 37
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 cap derivative contracts that were in effect as of December 31, 2017:
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
3.2040%
9.000%
9.6
3 Month LIBOR
4.0040%
11.020%
—%
—%
N/A
N/A
In accordance with ASC Topic 815, “Derivatives and Hedging,” derivative instruments are recorded at fair value in Other assets,
net or Other liabilities on the Consolidated Balance Sheets. As of December 31, 2017 and 2016, 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,” 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). Refer to 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 - 38
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, 2017. The table presents the carrying values and fair values of our financial instruments as of December 31, 2017
and December 31, 2016 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 as 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 borrowings)
Secured borrowings
Lines of credit
Other liabilities (contingent consideration)
17. Recent Accounting Pronouncements
December 31, 2017
December 31, 2016
Carrying
Value
115,797
128,246
$
$
Fair Value
Carrying
Value
Fair Value
$
$
115,797
128,246
$
$
59,320
$
59,320
143,870
$ 143,870
$ 2,908,799
129,182
$
$ 2,726,770
129,182
$
$
$
41,257
6,976
$
$
41,257
6,976
$ 2,865,470
144,477
$
$
$
100,095
10,011
$ 2,820,680
$ 144,477
$
$
98,640
10,011
In May 2017, the FASB issued ASU 2017-09 “Compensation - Stock Compensation (Topic 718): Scope of Modification
Accounting.” This update is to provide clarity and reduce both diversity in practice and cost and complexity when applying the
guidance in Topic 718, Compensation - Stock Compensation, regarding a change to the terms or conditions of a share-based
payment award. The guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods
within that year. Early adoption is permitted, including adoption in interim periods, for reporting periods for which financial
statements have not yet been issued. Once effective, we will apply the standard prospectively should a modification occur.
In January 2017, the FASB issued ASU 2017-01 “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.
Under current guidance, substantially all of our property acquisitions are accounted for as business combinations with identifiable
assets and liabilities measured at fair value, and acquisition related costs expensed as incurred and reported as Transaction costs
in our Consolidations Statements of Operations. Upon adoption of ASU 2017-01, we expect that substantially all of our future
F - 39
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
property acquisitions will be accounted for as assets acquisitions. We will allocate the purchase price of the properties on a relative
fair value basis and capitalize direct acquisition related costs as part of the purchase price.
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.
Once effective, we will include restricted cash and cash equivalents as prescribed by ASU 2016-18 in our Consolidated Statements
of Cash Flows. Our 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, 2017 and 2016, $13.4 million and $17.1 million of restricted cash,
respectively, was included as a component of Other assets, net on our Consolidated Balance Sheets.
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. Upon adoption of this standard, there will be no material impact to our 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. Upon adoption of this standard, there will be no material impact to our Consolidated Financial Statements.
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 ASU 2016-13 will impact our
accounting policies regarding assessment of, and allowance for, loan losses.
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. We adopted these amendments as of January 1, 2017. The main provisions of this update regarding excess
tax benefits did not have an impact on our Consolidated Financial Statements due to our status as a REIT for taxation purposes.
We have elected to continue estimating the number of shares expected to vest in order to determine compensation cost, and were
previously classifying, as financing activity, cash paid by us for employee taxes when shares were withheld to cover minimum
statutory requirements.
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 for recognition of right of use assets and corresponding lease liabilities on
our Consolidated Balance Sheets, and the related disclosure requirements thereto.
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
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.
F - 40
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We will adopt ASU 2014-09 and the related updates subsequently issued by the FASB on January 1, 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 the lease components of these rental agreements pursuant to ASC 840 “Leases” and the non-lease
components under ASC 605 “Revenue Recognition.”
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 income from real property, home sales, ancillary revenues, and broker commissions will be
in the scope of the new guidance. Upon adoption, we will present contract assets and liabilities, as applicable, when one party to
a transaction has performed and the other has not. Our disclosures will be expanded, as applicable, to discuss our performance
obligations, contract balances, timing and nature of our revenue streams. There will not be any other resulting changes to our
accounting policies for revenue recognition or Consolidated Financial Statements from adoption of this guidance.
18. Commitments and Contingencies
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.
Catastrophic Weather Related Charges
In September 2017, Hurricane Irma impacted 121 of our communities in Florida and three in Georgia. We recognized charges
totaling $31.7 million comprised of $21.3 million for debris and tree removal, common area repairs and minor flooding damage,
as well as $10.4 million for impaired assets at three Florida Keys communities.
These charges were partially offset by estimated insurance recoveries of $23.7 million. We maintain property, casualty, flood and
business interruption insurance for our community portfolio, subject to customary deductibles and limits. As of December 31,
2017, we had not received any insurance recoveries. Refer to Note 20, “Subsequent Events” for information regarding insurance
recoveries received subsequent to year end.
The net charges of $8.0 million related to Hurricane Irma were recognized as Catastrophic weather related charges, net in our
Consolidated Statements of Operations for the year ended December 31, 2017. Actual charges and insurance recoveries could
vary significantly from these estimates. Any changes to these estimates will be recognized in the period(s) in which they are
determined.
F - 41
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Expected insurance recoveries for lost earnings and redevelopment costs greater than the asset impairment charge for the Florida
Keys were excluded from our Consolidated Statements of Operations for the year ended December 31, 2017. We are actively
working with our insurer on the related claims, but have not yet received any advance for the expected recovery of lost earnings.
The three Florida Keys communities will require redevelopment followed by a tenant lease-up period. As such, we currently
cannot estimate a date when operating results will be restored to pre-hurricane levels. Our business interruption insurance policy
provides for up to 60 months of coverage from the date of restoration.
19. Related Party Transactions
Lease of Executive Offices. Gary A. Shiffman, together with certain of his family members, indirectly owns an equity interest of
approximately 28.0 percent 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 71,500 rentable square feet of permanent
space, and approximately 21,000 rentable square feet of temporary space. The initial term of the lease is until October 31, 2026,
and the base rent is $17.95 per square foot (gross) until October 31, 2018, 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 2015-2017, 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 $5.0 million, $8.0 million and $4.6 million
in the years ended December 31, 2017, 2016 and 2015, 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.
20. Subsequent Events
In January 2018, we redeemed 41,051 units of our 8.00% Series B-3 preferred OP units (“B-3 Units”). The weighted average
redemption price per unit, which included accrued and unpaid distributions, was $100.065753. In the aggregate, we paid $4.1
million to redeem the B-3 Units.
In January 2018, we repaid three collateralized term loans totaling $7.6 million with a weighted average interest rate of 6.25
percent, releasing two encumbered communities. The loans were due to mature on March 1, 2019. We recognized a loss on
extinguishment of debt of $0.2 million as a result of the repayment transactions.
In February 2018, we received $5.0 million of insurance recoveries in connection with property damage at our Florida and Georgia
communities resulting from Hurricane Irma in September 2017. Refer to Note 18, “Commitments and Contingencies” for additional
information regarding impacts to our consolidated financial statements from Hurricane Irma.
We have evaluated our Consolidated Financial Statements for subsequent events through the date that this Form 10-K was issued.
F - 42
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7.0%
7.0%
2012-2017
2012-2017
AVERAGE
AVERAGE
7.7%
7.7%
9.1%
9.1%
7.1%
7.1%
6.9%
6.9%
5.5%
5.5%
5.9%
5.9%
YE 2012
YE 2012
YE 2013
YE 2013
YE 2014
YE 2014
YE 2015
YE 2015
YE 2016
YE 2016
YE 2017
YE 2017
900.0%
900.0%
800.0%
800.0%
700.0%
700.0%
600.0%
600.0%
500.0%
500.0%
400.0%
400.0%
300.0%
300.0%
200.0%
200.0%
100.0%
100.0%
0.0%
0.0%
(100.0%)
(100.0%)
10 - year Total Return
10 - year Total Return
846.3%
846.3%
126.0%
126.0%
105.0%
105.0%
Sun Communities, Inc. (SUI)
Sun Communities, Inc. (SUI)
MSCI US REIT (RMS)
MSCI US REIT (RMS)
S&P 500
S&P 500
230 MH Communities
230 MH Communities
89 RV Communities
89 RV Communities
31 MH and RV Communities
31 MH and RV Communities
66%
66%
25%
25%
9%
9%
25%
25%
9%
9%
Gary A. Shiffman
Gary A. Shiffman
chairman and chief
chairman and chief
executive officer
executive officer